No Exceptional Treatment To Be Given To The Government While Considering The Application For Stay Of Arbitral Award: SC [Read Judgment]

No Exceptional Treatment To Be Given To The Government While Considering The Application For Stay Of Arbitral Award: SC [Read Judgment]

"Order XXVII Rule 8A was incorporated in the year 1937 during the British Raj, giving certain safeguards to the Government (which was then the British Crown) would not be applicable in today's time, when we have a democratic Government."

The Supreme Court has observed there is no exceptional treatment to be given to the Government while considering the application for stay under Section 36 filed by the Government in proceedings under Section 34 of the Arbitration and Conciliation Act.

The bench comprising of Justice RF Nariman and Justice Vineet Saran set aside a Calcutta High Court order which granted unconditional stay of the award passed against the Government after relying on the provisions of Order XXVII Rule 8A, Code of Civil Procedure.

Section 36 of the Arbitration and Conciliation Act states that upon an application for grant of stay of the Arbitration award, the Court has the discretion to grant stay, which may be subject to such conditions as it may deem fit. The provision further states that, while passing any stay order the Court is to "have due regard" to the provisions of CPC for grant of stay of money decree. The provisions of Order XXVII Rule 8A of the CPC, on the other hand, says that, no security shall be required from the Government in case of there being a money decree passed against the Government, and the execution of which is prayed for.

So the issue in this case (Pam Developments Private Ltd. vs. State of West Bengal) was whether the provision of Order XXVII Rule 8A CPC would be applicable and should the Court consider the same while deciding the application for stay of the award under Section 36 of the Arbitration Act, Another issue is whether, even if the provision of Order XXVII Rule 8A are to be taken into account, then too, can the Courts pass an order of unconditional stay of award.

The provisions of CPC are to be followed as a guidance, not mandatory

The bench observed that the phrase "have due regard to" in Section 36 of the Act would only mean that the provisions of CPC are to be taken into consideration, and not that they are mandatory.

"In our view, in the present context, the phrase used is 'having regard to' the provisions of CPC and not 'in accordance with" the provisions of CPC. In the latter case, it would have been 20 mandatory, but in the form as mentioned in Rule 36(3) of the Arbitration Act, it would only be directory or as a guiding factor. Mere reference to CPC in the said Section 36 cannot be construed in such a manner that it takes away the power conferred in the main statute (i.e. Arbitration Act) itself. It is to be taken as a general guideline, which will not make the main provision of the Arbitration Act inapplicable. The provisions of CPC are to be followed as a guidance, whereas the provisions of the Arbitration Act are essentially to be first applied. Since, the Arbitration Act is a self-contained Act, the provisions of the CPC will apply only insofar as the same are not inconsistent with the spirit and provisions of the Arbitration Act. "

No Special Treatment for Government While Dealing With Grant of Stay of Arbitration Award

The bench also observed that the Section 36 of the Arbitration Act also does not provide for any special treatment to the Government while dealing with grant of stay in an application under proceedings of Section 34 of the Arbitration Act. It said:

"Arbitration proceedings are essentially alternate dispute redressal system meant for early/quick resolution of disputes and in case a money decree - award as passed by the Arbitrator against the Government is allowed to be automatically stayed, the very purpose of quick resolution of dispute through arbitration would be defeated as the decree holder would be fully deprived of the fruits of the award on mere filing of objection under Section 34 of the Arbitration Act. The Arbitration Act is a special Act which provides for quick resolution of disputes between the parties and Section 18 of the Act makes it clear that the parties shall be treated with equality. Once the Act mandates so, there cannot be any special treatment given to the Government as a party. As such, under the scheme of the Arbitration Act, no distinction is made nor any differential treatment is to be given to the Government, while considering an application for grant of stay of a money decree in proceedings under Section 34 of the Arbitration Act. As we have already mentioned above, the reference to CPC in Section 36 of the Arbitration Act is only to guide the Court as to what conditions can be imposed, and the same have to be consistent with the provisions of the Arbitration Act."

Order XXVII Rule 8A does not exempt the Government from making deposit

Interpreting Order XXVII Rule 8A, in the context of CPC Amendment of 1977 which introduced Sub Rule (5) in Rule 5 of Order XLI, the court said that that Order XXVII Rule 8A does not exempt the Government from making deposit, which the Court has the power to now direct under Order XLI Rule 5(5) CPC. The court further observed:

"Even otherwise a plain reading of Order XXVII Rule 8A of CPC would make it clear that the same is only regarding security as mentioned in Rule 5 and 6 of Order XLI CPC, which is not to be 23 demanded from the Government while considering the stay application filed by the Government. It, however, does not provide that the decretal amount cannot be required to be deposited in the appeal against a money decree. "

Archaic Rule 8A of Order XXVII CPC has no application or reference in the present time

The court further added that Order XXVII Rule 8A was incorporated in the year 1937 during the British Raj, giving certain safeguards to the Government (which was then the British Crown) would not be applicable in today's time, when we have a democratic Government. It said:

Although we are of the firm view that the archaic Rule 8A of Order XXVII CPC has no application or reference in the present times, we may only add that, even if it is assumed that the provisions of Order XXVII Rule 8A of CPC are to be applied, the same would only exempt the Government from furnishing security, 28 whereas under Order XLI Rule 5 of CPC, the Court has the power to direct for full or part deposit and/or to furnish security of the decretal amount. Rule 8A only provides exemption from furnishing security, which would not restrict the Court from directing deposit of the awarded amount and part thereof.

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