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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5432  OF 2019 [ARISING OUT OF SPECIAL LEAVE PETITION [C] NO. 7383 OF 2019]

PAM DEVELOPMENTS PRIVATE LTD.           …..APPELLANT

VERSUS

STATE OF WEST BENGAL                      ……RESPONDENT

WITH

CIVIL APPEAL NO.  5433  OF 2019 [ARISING OUT OF SPECIAL LEAVE PETITION [C] NO. 7790 OF 2019]

PAM DEVELOPMENTS PRIVATE LTD.           …..APPELLANT

VERSUS

STATE OF WEST BENGAL                      ……RESPONDENT

J U D G M E N T

VINEET SARAN, J.

Leave granted.

2. In response to a notice inviting tender issued by the

respondent relating to the work of “Special Repair Programme 2000­

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2001 for different  stretches  of  National High Way­II from 622 Kmp

to 625 Kmp, 627 Kmp to 628 Kmp and 630 Kmp to 631 Kmp (vide

Job No.CRF/W.B./70/2000) under the Hooghly High Way Division

No.II in the District of Hooghly (Package No. II)”, the appellant,

alongwith others,   had applied.   The bid of the appellant  was

accepted on 26th  March 2001, for which an agreement was

registered on 2nd April, 2001.  After several extensions were granted

by the respondent for the delay which, according to the appellant,

was  entirely  attributable to the respondent, the  work  under the

agreement was completed by the appellant on 28.02.2002.   Then,

on 26th May 2003, the appellant raised its claims and dues before

the Executive Engineer of Public Works (Roads) Department,

Government of West Bengal.  The claims of the appellant having not

been paid, an application under Section 11(6) of the Arbitration and

Conciliation Act, 1996 (for short ‘the Arbitration Act’) was filed by

the appellant.   By an order dated 14th  August 2003, the Calcutta

High  Court  was  pleased to  appoint  Retired  Justice  Sujit  Kumar

Sinha as the Arbitrator to decide the disputes.  By his award dated

21st January, 2010, the Arbitrator allowed some claims of the

appellant and held the appellant to be entitled to a sum of

Rs.2,87,11,553/­ plus interest at the rate of 18% per annum on a

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sum of Rs.1,34,06,965/­ from the date of the award till the date of

the payment.  Challenging the award passed by the Arbitrator, the

respondent State of West Bengal filed an application under Section

34  of the  Arbitration  Act  before the  Calcutta  High  Court.   The

appellant filed its affidavit in opposition of the aforesaid, to which

reply had also been filed by the respondent.  The matter  is  still

pending consideration before the Calcutta High Court.

3. Section 36 of the Arbitration Act has been amended by Act

number 3 of  2016 with retrospective effect  from 23.10.2015.  In

view of the pre­amended provision of Section 36 of the Arbitration

Act, the respondent had not filed injunction application in the

proceedings under Section 34 of the Arbitration Act.   However, in

view of the pronouncement of the judgment by this Court in the

case of Board of Control for Cricket in India vs Kochi Cricket Private

Limited (2018) 6 SCC 287,  wherein it was held that the amended

provisions of Section 36 of the Arbitration Act would also apply to

the pending proceedings under Section 34 of the Arbitration Act,

the appellant filed an execution application before the  Calcutta

High Court (registered as E. C. No.297 of 2018).   The respondent

then sought time to file an application for staying the award.  

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4. In the executing proceedings, on 18.09.2018, the Executing

Court adjourned the matter after recording that  “in the event the

operation  of the  award  is  not  stayed by  the  adjourned date, the

petitioner shall be entitled to pray for attachment of the said amount

in execution of the said award”.   In the meantime, the respondent

filed stay application under the amended Section 36(2) of the

Arbitration Act in the pending proceedings under Section 34 of the

Arbitration Act before the Calcutta High Court.  On 27.09.2018, the

stay application of the respondent was dismissed in default.

Consequently, on 03.10.2018, which was the adjourned date fixed

by the Executing Court in E.C. No.297 of 2018, the Executing Court

passed an order attaching the sum of Rs. 2.75 Crores lying to the

credit of the respondent­State of  West  Bengal  with the  Reserve

Bank of India.   It was further clarified that in the event there was

no stay of operation of the award by the adjourned date

(04.12.2018), it would be open to the appellant (award holder) to

pray  for release of the said amount.  Relying on an order dated

05.09.2018 of  a coordinate bench of the High Court  wherein an

unconditional stay of award had been granted to the State

Government and the SLP against such order had been dismissed in

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limine, the Executing Court dismissed the execution petition filed

by the appellant.  

5. Without filing the  application  for recall  of the  order  dated

27.09.2018,  whereby the  stay application of the respondent  had

been dismissed in default, the respondent filed a fresh application

for stay of the award, in which the impugned order dated

13.12.2018 of unconditional stay was passed after relying on the

provisions  of  Order  XXVII  Rule  8A,  Code  of  Civil  Procedure (for

short  ‘CPC’).   Challenging the said order, the present Appeal has

been filed.

6.  The submission of Shri Saurav Agarwal, learned counsel for

the appellant is two­fold.  Firstly, that the provision of Order XXVII

Rule 8A CPC would not be applicable to the present case, and as

such the Court ought not to have considered the same while

deciding the application for stay of the award under Section 36 of

the Arbitration Act.   Secondly, it has been submitted that even if

the provision of Order XXVII Rule 8A are to be taken into account,

then too the Courts should not pass an order of unconditional stay

of award and could still direct deposit of the awarded amount.   

7.  The contention of the learned counsel for the appellant is that

as per the amended Section 36 of the Arbitration Act, filing of an

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application under  Section 34 of the  Arbitration Act  shall  not  by

itself render the award unenforceable unless the stay of the

operation of the award is granted by the Court in accordance of the

provisions  of sub­Section  (3) of  Section 36. It is submitted that

under sub­Section (3) of Section 36, it is provided that  “the court

may subject to such conditions as it may deem fit, grant stay of the

operation of such award for reasons to be recorded in  writing.”

According to the learned counsel for the appellant, the proviso to

the said Section merely provides that the application for grant of

stay is to be considered after  “having due regard to the provisions

for grant of stay of money decree under the provisions of CPC”. It is

thus been submitted by the learned counsel for the appellant that

under sub­Section (3) of Section 36, the CPC would be applicable

“subject to”  the provisions of sub­Section (2) of Section 36.

According to the learned counsel, the phrase  “subject to”  the

conditions, would mean that it is obligatory for the Court to impose

such conditions at it may deem fit, if it decides to grant a stay of the

award, meaning thereby the grant of stay is to be conditional. It is

further contended that the proviso to the said Section merely states

that the Court shall  “have due regard”  to the provisions of CPC,

which would mean that the Court will take the said provisions of

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the  CPC into consideration as a guiding principle  and the same

would not be mandatory.   Learned counsel for the appellant has

contended that the Arbitration Act is a complete code in itself and

the stay application has to be considered as per the provisions of

Section 36 of the Arbitration Act, having due regard to the

provisions  of  CPC,  which  would  not  be  same as  “in  accordance

with”  the provisions of CPC. It is vehemently urged that the

provisions of Order XXVII Rule 8A CPC, which is an exception in

the CPC, should not be brought into the Arbitration Act as it would

then result in limiting the effect of Section 36 of the Arbitration Act

itself.  According to the learned counsel, the provisions of Order XLI

Rule 5 CPC alone have to be considered by the Court as general

guidelines while deciding the application for stay filed under Section

36 of the Arbitration Act.  

8. Learned counsel for the appellant submitted that the

Arbitration Act does not provide for any special treatment to the

Government while considering the application for stay under

Section 36, and the provision of Order XXVII Rule 8A CPC would

not be attracted while deciding an application for stay filed under

Section 36 of the Arbitration Act.  According to the learned counsel,

under CPC the Government is treated differently, which is not the

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case in the Arbitration Act. As an illustration, it has been stated

that two months notice under Section 80 CPC is provided for before

any suit is filed against the Government, which is not so in the case

of arbitration proceedings.  He has also contended that Section 18

of the Arbitration Act expressly provides for equal treatment of all

parties involved, which would include the Government as a party.

9. In the alternative, learned counsel for the appellant has

submitted that even if the provisions of Order XXVII Rule 8A are to

be taken into account, then also the Courts ought not to pass an

order of  unconditional stay of the award, and could still direct

deposit of the awarded amount or part thereof, as the said Rule 8A

only exempts the Government from furnishing security, which

would not mean that the Courts are mandated to pass an

unconditional stay of the award. In support of his submissions, the

learned counsel for the appellant has relied upon various decisions

of this Court as well as 246th report of the Law Commission, which

shall be considered at the time of dealing with the arguments.  

10.   Per contra,  Shri  Anand  Grover, learned  Senior  Counsel

appearing for the respondent State of West Bengal has contended

that  the proceedings contemplated under  the Arbitration Act are

two­fold.  Chapters  V and  VI  deal  with the conduct of arbitral

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proceedings, whereas Chapters VII, VIII and IX of the Arbitration

Act deal with proceedings after the award.   According to him,

Section 36 of the Arbitration Act (falling in Chapter VIII) which deals

with the enforcement of the award, is the relevant provision.  Sub­

Section (1) specifies that the award shall be enforced in accordance

with the provisions of the CPC in the same manner as if it was a

decree of the Court, which would be subject to the provisions of

sub­Section (2).   According to the learned Senior Counsel, the

phrase  used in sub­Section (3) that  “subject to  such conditions”

would make it clear that the Court has complete discretion, though

judicially guided, to grant a stay subject to such conditions that it

may deem fit and for the reasons to be recorded in writing.   It is

contended that the phrase used “have due regard to” in the proviso

to sub­Section (3) would apply to all provisions of the CPC including

a money decree.  It is thus been contended that by virtue of Section

36(3) of the Arbitration Act, all the relevant provisions of the CPC

namely Order XLI Rule 5 and Order XXVII Rule 8A would come into

play.  

11.   Shri Grover has further submitted that while considering the

stay of  money decree, Order XXVII Rule 8A would directly be

applicable, read with Order XLI Rule 5.  He has emphasised on the

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use of word “shall” in the proviso to Section 36(3) of the Arbitration

Act, which according to him makes a provision of CPC mandatorily

to be applied while considering the application for stay under

Section 36.  The phrase “subject to such conditions” used in Section

36(3) of the Arbitration Act is only with regard to discretion

exercised by the High Court in deciding the stay application and

reasons to be recorded and no conditions as specified in the

Statute.  He has thus contended that the phrase “having due regard

to”  in the  proviso to  Section  36(3)  would  mean  the same  to  be

mandatory because of the use of word shall in the opening part of

the proviso.  

12.  It has also been urged that Order XXVII Rule 8A deals with

operation of stay in respect of suits against Government, which is

distinct from  private parties.   Since, the  Government is always

considered to be solvent and expected to honour the decree against

it, unlike private parties, the Government cannot avoid the

enforcement of final decree against it and thus the award

necessarily requires to be stayed in the case of a Government being

the judgment debtor.   He has further submitted that under Order

XLI Rule 5(3), substantial loss has to be shown by the party

applying for stay unless such order is made and in the case of the

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Government, since a  large number of arbitration proceedings are

made against it, cumulatively they would result in substantial loss.

The submission thus is that Order XLI Rule 5(5) requires the

applicant to make a deposit or furnish security, failing which, stay

would not be granted, but in view of the provisions of Order XXVII

Rule 8A the Government would be exempted from furnishing any

security or making any deposit.  According to the learned counsel,

the furnishing of security is the genus and making of deposit is a

species and when the security itself is not required to be deposited

by the Government under Order XXVII Rule 8A, there would be no

requirement of the Government being made to deposit the money,

when the genus (security) itself is not to be furnished by the

Government.  

13.  We have heard learned counsel for the parties at length and

perused the material on record.  For proper appreciation of the facts

of this case, the relevant provisions of the Arbitration and

Conciliation Act, 1996 and Code of Civil Procedure, 1908 are

reproduced hereunder:

The Arbitration and  Conciliation Act, 1996.

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“Section 18. Equal treatment of parties.  – The parties shall be treated with equality and each party shall be given a full opportunity to present his case.”

1“Section 36. Enforcement. –  (1)  Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub­section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court.  (2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub­section (3), on a separate application made for that purpose.  (3) Upon filing of an application under sub­ section (2) for stay of the operation of the arbitral award,  the Court may, subject to such conditions as it may deem fit,  grant stay of the  operation  of  such award  for reasons to be recorded in writing: Provided that  the Court shall,  while considering the application for grant of stay in the case of an arbitral award for

1 Subs. by Act 3 of 2016, sec. 19, for section 36, for section 36 (w.r.e.f. 23­10­2015). Section 36, before substitution, stood as under:

“36. Enforcement.—Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.”

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payment of money, have due regard to the provisions for grant of stay  of  a  money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).”

CODE OF CIVIL PROCEDURE, 1908.

“Order XXVII, Rule 8A  8A.  No security to be required from Government or a public officer in certain cases.—No such security  as is mentioned in rules 5 and 6 of Order XLI shall be required from the Government or, where the Government has undertaken the  defence  of the  suit, from any public officer sued in respect of an act alleged to be done by him in his official capacity.”

“Order XLI, Rule 1 Form of appeal – What to accompany memorandum. –  (1)  Every appeal  shall be preferred in the form of a memorandum signed by the appellant or his pleader and presented to the Court or to such officer as it appoints in this behalf.   The memorandum shall be accompanied by a copy of the judgment: Provided that  where two or  more suits have  been  tried together  and a common judgment has been delivered therefore and two or more appeals are filed against any decree covered by that judgment, whether by the same appellant or by different appellants, the  Appellate  Court may dispense with the filing of more than one copy of the judgments. (2)  Contents of memorandum. — The memorandum shall set forth, concisely and under distinct heads, the grounds of

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objection to the decree appealed from without  any  argument or narrative;  and such grounds shall be numbered consecutively.  (3) Where the  appeal is against a decree for payment of money, the appellant shall, within  such  time as the  Appellate  Court may allow, deposit, the amount disputed in the appeal or furnish such security in respect thereof as the Court  may think fit.   ”

“Order XLI, Rule 5 Stay by Appellate Court.—  (1) An appeal shall not operate as a stay of proceedings under a decree or order appealed from except so far as the Appellate Court may order, nor shall execution of a decree be stayed by reason only of  an appeal  having been preferred from the decree;  but the Appellate Court may for sufficient cause order stay of execution of such decree.  Explanation.—An order by the  Appellate Court for the stay of execution of the decree shall be effective from the date of the communication of such order to the Court of first instance, but an affidavit sworn by the appellant, based on his personal knowledge, stating that an order for the stay of execution of the decree has been made by the Appellate Court shall, pending the receipt from the Appellate Court of the order for the stay of execution or any order to the contrary, be acted upon by the Court of first instance. (2)  Stay by Court which passed the decree.—Where an application is made for stay of execution of an appealable decree

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before the expiration of  the time allowed for appealing therefrom, the Court  which passed the decree may on sufficient cause being shown order the execution to be stayed. (3) No order for stay of execution shall be made under sub­rule (1) or sub­rule (2) unless the Court making it is satisfied— (a)  that substantial loss  may result to the party applying for   stay of execution unless the order is made; (b)  that the application has been made without unreasonable delay; and (c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him. (4) Subject to the provisions of sub­rule (3), the Court may make an ex parte order for stay of  execution pending the hearing of the application. (5) Notwithstanding anything contained in the foregoing sub­rules, where the appellant fails to make the deposit  or furnish the security  specified  in  sub­rule (3) of rule 1, the Court shall not make an order staying the execution of the decrees.”

        (emphasis supplied)

14. Section 36 of the Arbitration Act was amended/substituted

vide Act 3 of 2016 with retrospective effect from 23.10.2015. Sub­

Section (3) of Section 36 of the Arbitration Act was introduced on

the recommendation of 246th Law Commission Report which reads

as under:­

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AUTOMATIC STAY OF ENFORCEMENT OF THE AWARD UPON ADMISSION OF CHALLENGE

43.      Section 36 of the Act makes it clear that an arbitral award becomes enforceable as a decree only after the time for filing a petition under section 34 has expired or after the section 34 petition has been dismissed.   In other words, the pendency of a section 34 petition renders an arbitral award unenforceable.   The Supreme Court, in National Aluminum Co. Ltd. V. Pressteel & Fabrications, (2004) 1 SCC 540 held that by virtue of section 36, it was impermissible to pass an Order directing  the losing party  to  deposit  any part of the award into Court.   While this decision was in relation to the powers of the Supreme Court to pass such an order under section 42, the Bombay High Court in Afcons Infrastructure Limited v. The Board of  Trustees,  Port  of  Mumbai 2014 (1)  Arb  LR  512 (Bom)  applied the  same principle to the powers of a Court  under section 9 of the Act as well.  Admission of a  section  34  petition, therefore, virtually paralyzes the process for the winning party/award creditor.  

44.   The Supreme Court, in National Aluminium, has criticized the present situation in the following words:  “However, we do notice that this automatic suspension of  the execution of the award, the moment an application challenging the said award is filed under section 34 of the Act leaving no discretion in the court to put the parties on terms, in our opinion, defeats the very objective of the alternate dispute resolution system to

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which arbitration belongs.  We do find that there is a recommendation made by the concerned Ministry  to the Parliament to  amend section  34 with  a  proposal to empower the  civil court to  pass  suitable interim orders in such cases.   In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law.”

45.     In order to rectify this  mischief, certain amendments have been suggested by the  Commission to section  36  of the Act, which provide that the award will not become unenforceable merely upon the making of an application under section 34.

In essence, the Law Commission has categorically

recommended that there should be no automatic stay of the arbitral

award.  While so recommending, the Law Commission report makes

no exception for the Government. On the basis of the said report of

the Law Commission, the old Section 36 was substituted in 2016,

with retrospective effect from 23.10.2015.   

15.  The amended Section 36 of the Arbitration Act provides for:

 (a) after expiry of making an application to set aside the arbitral

award (i.e. 90 days from the award) the award shall be enforced as

if it  was a decree of the Court;  (b) filing of an application under

Section 34 shall not by itself render the award unenforceable; (c)

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upon an application for grant of stay of the award, the Court has

the discretion to grant stay, which may be subject to such

conditions as it may deem fit; (d) while passing any stay order the

Court is to “have due regard” to the provisions of CPC for grant of

stay of money decree.   

16. The backbone of the submissions on behalf of the

respondent­State  of  West  Bengal is that  under the  provisions of

Order XXVII Rule 8A of the CPC, 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. If

such submission of the respondent is accepted then the same

would mean that mere filing of an objection under Section 34 of the

Arbitration Act by a Government shall render the award

unenforceable as the stay order would be passed in a mechanical

manner and as a matter of course, without imposing any condition

against the  Government ­ judgment  debtor. If the contention is

accepted, the  effect  would be  that insofar  as the  Government is

concerned, the unamended provision of Section 36 of the

Arbitration Act would automatically come into force.

17.   In this  backdrop,  we  have  now to consider the effect of

Section 36 of the Arbitration Act, vis­a­vis the provisions of Order

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XXVII Rule 8A of CPC.   Sub­Section (3) of Section 36 of the

Arbitration Act mandates that while considering an application for

stay filed along with or after filing of objection under Section 34 of

the Arbitration Act, if stay is to be granted then it shall be subject

to such conditions  as  may  be  deemed fit. The said sub­section

clearly mandates that the grant of stay of the operation of the award

is to be for reasons to be recorded in  writing  “subject to such

conditions as it may deem fit”. The proviso makes it clear that the

Court has to “have due regard to the provisions for grant of stay of a

money decree under the provisions of   the Code of Civil Procedure”.

The phrase  “have due regard to”  would only mean that the

provisions of CPC are to be taken into consideration, and not that

they are mandatory.   While considering the phrase “having regard

to”,  this Court in the case of Shri Sitaram Sugar Company Limited.

v. Union of India (1990) 3 SCC 223 has held that “the words ‘having

regard to’ in sub­section are the legislative instruction for the general

guidance of the Government in determining the price of sugar. They

are not strictly mandatory, but in essence directory.”.   

18.   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

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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.  

19.  A Full Bench of the Calcutta High Court, while considering

the question as to whether in an appeal preferred by the

Government, the Government is entitled to get stay of execution of

decree impugned by taking aid of Order XXVII Rule 8A of the CPC,

even if the conditions mentioned in Clauses (a) and (b) of sub­rule

(3) of Rule 5 of Order XLI are not complied with, held as follows:

“36. In order to resolve the aforesaid controversy, one must examine the legislative intent for incorporating Order 27, Rule 8A in the Code.   The aforesaid provision was engrafted to exempt the Government to furnish security as a

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guarantee for due performance of a decree as mentioned in Rules 5 and 6 of Order XLI.   Notwithstanding such exemption, discretionary power of the Court to grant stay of execution of a decree can be exercised in favour of the Appellant Government only if it satisfies the Court as to the existence of clauses (a)  and (b)  of Rule  5(3) of  Order  XLI.  As “substantial loss” to the appellant is a condition precedent to grant stay, execution of a money decree is ordinarily not stayed since satisfaction of a money decree does not amount to irreparable injury to the appellant  as  the remedy of  restitution  is available to him in the event the appeal is allowed. [See, Sihor Nagar Palika Bureau v. Bhabhlubhai Virabhai, 2005 (4) SCC 1, para 6].  Under such circumstances, when the court chooses to exercise its discretion in  favour of the appellant  State  to grant stay of execution of a  money decree it must be balance the equities between the parties and ensure that no undue hardship is caused to a decree holder due to stay of execution of such decree. Hence, in appropriate cases, the Court in its discretion may direct deposit of a part of the decretal sum so that the decree holder may with draw the same without prejudice and subject to the result of the appeal.   Such direction for deposit of the decretal sum is not for the purpose of furnishing security for due performance of the decree but an equitable measure ensuring part satisfaction of the decree without prejudice to the parties and subject to the result of the  appeal  as  a condition for stay of execution of the decree.

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37. To hold that the Court is denuded of such equitable discretion  while granting stay of execution of a  money  decree in favour of the  Government,  would cause grave hardship to deserving decree holders who in the facts of a given case may be entitled to enjoy part satisfaction of the decree without prejudice and subject to the result of the  appeal  as  a condition for stay of execution of the entire decree.  38. Hence, it is opined although Order 27, Rule 8A may exempt the appellant Government from the mandatory obligation of furnishing security  in  terms of Rule 1(3) for seeking stay of execution of a money decree as under Rule 5(5) of Order  XLI, the said  provision cannot  be said to operate as an absolute clog on the discretion of the court to direct the deposit of the decretal amount as a condition for grant of stay of execution of the decree in appropriate cases more particularly when such direction is coupled with the liberty to the decree holder to withdraw a portion thereof in  part  satisfaction of the  decree without prejudice and subject to the result of the appeal.”  

We find no reason to disagree with such view taken by the Full

Bench of the Calcutta High Court and are thus in agreement with

the same.   

20.  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

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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.  

21.  It is also noteworthy that when Order XXVII Rule 8A of CPC

was incorporated in the year 1937, at that time Rule 5 of Order XLI

CPC had only four sub­Rules. Sub Rule (5) in Rule 5 of Order XLI

was inserted by Act 104 of 1976 w.e.f. 01.02.1977.  Prior to that, it

was sub­Rule  (3) (c)  of  Rule  5 aforesaid which provided  that  no

order for stay of execution was to be made unless the Court was

satisfied that security had been given by the applicant for

performance of the decree.   It  was in such context  when only

security had to be been given at the time of grant of stay that Rule

8A of Order XVII CPC was incorporated to give certain protection to

the Government by providing for no requirement of security from

the Government. It was probably for the reason that the

Government is always considered to be solvent, thus was exempted

from  providing security under  Rule 8A of  Order  XXVII of  CPC.

However,  in 1976 Sub Rule  (5)  to Rule 5 of Order XLI CPC was

inserted, which reads as follows:

(5) Notwithstanding anything contained in the foregoing sub­rules, where the

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appellant fails to make the deposit  or furnish the security  specified  in  sub­rule (3) of rule 1, the Court shall not make an order staying the execution of the decrees.”

The same provides for making of deposit or furnishing security

by the decree holder seeking stay.   It would thus mean that after

1977, the Appellate Court had the power to direct for deposit of the

decretal  amount,  which was earlier limited only to furnishing  of

security  under sub­Rule (3) of  Rule  5  of  Order  XLI  CPC.   It is

noteworthy that after insertion of sub­Rule (5), there was no

amendment to  Order XXVII Rule 8A  CPC to exempt the State

Government for making such deposit, which would mean that 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.  

22.    Further, it is to be noticed that Order XXVII Rule 8A of CPC

was inserted in 1937  when the British Crown  was ruling our

country.  The same was brought in during the period of British Raj

to protect the interest of the then  Government (Crown).  While

considering a case where the State of West Bengal was carrying on

trade as owner and occupier of a market in Calcutta (now Kolkata)

without obtaining a  license as required   under   Section   218 of

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Calcutta  Municipal  Act, 1951, a Constitution Bench of this Court

in the case of Superintendent & Legal Remembrancer, State of West

Bengal v. Corporation of Calcutta  (1967) 2 SCC 170 considered the

question as to whether this Court should adopt the rule of

construction accepted by the Privy Council in interpreting Statute

vis­a­vis the Crown and held that “There are many reasons why the

said rule of construction is inconsistent with and incongruous in the

present  set­up we have no Crown, the  archaic rule  based on  the

prerogative and perfection of the Crown has no relevance to a

democratic republic; it is inconsistent with the rule of law based on

the doctrine of equality.”  

23.   In our considered view, the provision which 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.

24.  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

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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.  

25.  It  may be true that the  CPC provides for a differential

treatment to the Government in certain cases, but the same may

not be so applicable while considering a case against the

Government under the Arbitration Act. For instance, Section 80 of

CPC provides for a notice of two months to be given before any suit

is instituted against the Government. Further,  it  is also provides

that no ex­parte injunction order can be passed against the

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Government.  Whereas on the other hand, under the Arbitration Act

no such special provision has been made with regard to arbitration

by or against the Government.  There is no requirement under the

Arbitration Act for a notice of two  months to be given to the

Government before invoking arbitration proceeding against the

Government.  Further, Sections 9 and 17 of the Arbitration Act also

provide for grant of ex­parte interim orders against the Government.

26.  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.  Keeping the aforesaid in consideration and also the

provisions of Section 18 providing for equal treatment of parties, it

would, in our view,  make it clear that 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 Act.  

27.  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,

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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.    

28.  For the  foregoing reasons,  we are of the opinion that  the

impugned order passed by the Calcutta High Court granting

unconditional stay of the arbitration award dated 21.01.2010,

cannot be sustained in the eye of law.  Accordingly, we allow these

appeals and quash the order dated 13.12.2018 passed by the

Calcutta High Court and restore the order dated 03.10.2018 of the

Executing Court passed in E.C No. 297 of 2018 (Pam Development

Pvt. Ltd. vs. State of West Bengal).   As already directed by order

dated 03.10.2018, it shall be open for the petitioner­award holder to

pray for release of the attached amount.  

29.    No order as to costs.

………………………..J.          [R. F. Nariman]

………………….…….J.               [Vineet Saran]

New Delhi  July 12, 2019

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