Order Passed By Court Under Section 36 Of A&C Act Is An Interim Order, Can Be Modified On Grounds Of Financial Hardship: Calcutta High Court

The Calcutta High Court has ruled that financial hardship and financial indebtedness are sufficient grounds for modifying an order passed under Section 36 of the Arbitration and Conciliation Act, 1996 (A&C Act) to direct the award debtor to deposit the awarded amount by way of cash security. The Single Bench of Justice Ravi Krishan Kapur held that the security directed to be deposited by a Court under Section 36 of the A&C Act should be real and realisable, and it ought not to be illusory. The Court added that once a Court exercises its jurisdiction under Section 36 of the A&C Act and directs furnishing of security in a particular mode and manner, it always retains jurisdiction in respect of such security. The Court ruled that an order passed by the Court under Section 36 is an interim order and is subject to alteration and modification. The award debtor/petitioner Damodar Valley Corporation filed an application under Section 34 of the A&C Act to set aside an arbitral award. The award debtor/petitioner also filed an application under Section 36(2) of the A&C Act before the Calcutta High Court, seeking stay of the arbitral award. The High Court allowed the application for stay and directed the award debtor/petitioner to deposit 50% of the awarded amount by way of cash security and secure the remaining 50% of the awarded amount by way of bank guarantee. Against this order, the award debtor/petitioner Damodar Valley Corporation and the award holder/respondent Reliance Infrastructure Ltd filed separate Special Leave Petitions (SLP) before the Supreme Court. The SLP filed by the petitioner was dismissed by the Supreme Court with the liberty to approach the High Court for alteration of the order passed by the Calcutta High Court. Thereafter, the petitioner/award debtor and the respondent/award holder filed applications before the Calcutta High Court seeking a modification of the order passed by the High Court. The petitioner/award debtor Damodar Valley Corporation filed an application before the Calcutta High Court seeking modification of the order to the extent that, the award debtor be permitted to deposit only 50% of the entire awarded amount. Whereas, the respondent/award holder Reliance Infrastructure Ltd filed an application seeking modification of the order to the extent that, the award holder be allowed to withdraw a portion of the awarded amount on the basis of an undertaking and the balance upon furnishing of bank guarantee. The award holder also sought a direction to the award debtor to deposit the entirety of the awarded amount by way of cash security. The petitioner/award debtor Damodar Valley Corporation submitted before the High Court that it sought modification of the order passed by the High Court on ground of financial stringency. The petitioner averred that it had limited access to cash and a very high debt ratio, compelling him to borrow more money from the market. The petitioner contended that its credit rating had fallen, and since it was performing a socio-economic statutory obligation, discretion ought to be exercised in its favour. The High Court observed that under Section 36 of the A&C Act, the award debtor is obliged to furnish security in order to obtain stay of the arbitral award. The Court added that the purpose of furnishing security was to ensure and facilitate the fulfilment and enjoyment of a right or a potential right vested in the award holder. The Court ruled that each case is to be decided on its merits and the Court is not bound to order security in each and every case. The Court added that there may be cases where an award debtor is entitled to an unconditional stay of the award, for instance where an award is so perverse, irrational and patently illegal that it ought to be stayed unconditionally. The Court ruled that once a Court exercises its jurisdiction under Section 36 of the A&C Act and directs furnishing of security in a particular mode and manner, it always retains jurisdiction in respect of such security. The Court thus held that an order passed by the Court under Section 36 is an interim order and is subject to alteration, variation and modification. The Court added that such orders are not unalterable and cannot be cast in stone, thus the Court has the power to vary, modify and alter the order if the facts warrant. The Court held that though the award debtor is a statutory corporation and has an element of public interest involved in its activities, it is not a charitable organisation but a profit-making enterprise, and thus it cannot be granted any special treatment on the ground of performing socio-economic obligations. The High Court observed that the Supreme Court in the case of Pam Development Pvt. Ltd. versus State of West Bengal (2019) had held that though in certain cases a few provisions under the Code of Civil Procedure, 1908 provide for differential...

Order Passed By Court Under Section 36 Of A&C Act Is An Interim Order, Can Be Modified On Grounds Of Financial Hardship: Calcutta High Court

Parina Katyal

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