Calcutta High Court: Immoveable Property Can be used as Security for Stay of Decree under CPC & Arbitration Act

Calcutta High Court: Immoveable Property Can be used as Security for Stay of Decree under CPC & Arbitration Act

The Calcutta High Court (HC) on 19 March 2021, held in the case titled Nitu Shaw (Petitioner) v. Bharat Hitech (Cement) Pvt. Ltd. (Respondent) that there is no bar in the Code of Civil Procedure (CPC) or under the Arbitration & Conciliation Act, 1996 (Arbitration Act) in accepting immovable proper as security for a stay of the decree.

The single judge of the Calcutta HC Justice Moushumi Bhattacharya held that cash security is not sine qua non under the statutes. The Court made the said observations while emphasizing the intention behind seeking security is simply to furnish an effective cushion for the decree.

The factual matrix of the case is that the dispute between the parties relates to the supply of cement by the respondent to the petitioner where the petitioner was appointed as the clearing and forwarding agent by an understanding arrived at between the parties.

The respondent alleged that it supplied the material to the petitioner for which the respondent was to get a certain sum of money. The petitioner disputed it and that any amount was outstanding from the petitioner to the respondent.

The petitioner had moved an application under Section 36 of the Arbitration Act for the stay of an arbitral award. He contended that it did not have sufficient liquidity or financial means to offer as cash security or by way of bank guarantee and therefore, the title deed of a specified land be deposited with the Registrar.

The petitioner had offered land that has a market value of Rs. 65,00,000 against an award worth Rs.67,04,681/-. It was mentioned in the affidavit that the said land is free from all encumbrances. The petitioner stated in the affidavit that the land has not been let out and is in exclusive possession.

Taking a sympathetic view, the Court said, "This Court must respond to such submission by taking into account the afflicted state of the economy which has affected millions in the country in the aftermath of the pandemic. This Court would have taken a different view had the petitioner requested for a total go-by of the security requirement and asked for a stay of the award without offering security in any form."

The HC observed that Section 36(3) of the Arbitration Act provides for the procedure for the stay of an Award. It stated that the said provision does not mention the term 'security and only provides that the Court may impose suitable terms for the stay of the award.

It further clarified that the provision states that on the filing of an application for stay of the Court may, "subject to such conditions as it may deem fit" grant stay of operation of such award for reasons to be recorded in writing.

The Court stated that Section 36(3) of the Arbitration Act imparts discretion to the Court for deciding the conditions which may be imposed and the only stated requirement is that the Court must indicate its reasons in writing for granting an order of stay of the award in question.

It stated that the intent of the provision regarding the stay of a money decree is that the applicant who seeks stay of a decree must furnish an effective remedy for the decree-holder to rely on in case the decree fails.

In other words, the purpose is to secure the decree-holder in a manner that would be conducive to the decree-holder enjoying the fruits of the decree in the long run.

The HC noted that the provisions of the CPC regarding the stay of a money decree do not prescribe that such stay would only be in monetary terms. It stated that-

- CPC Order XLI Rule1(3) deals with the cases of appeal against a decree for payment of money, the Appellate Court may allow the appellant to deposit the amount disputed in the appeal or furnish such security in respect thereof as the Court may think fit;

- CPC Order XXI Rule 26(3) puts a mandate before making an order of stay of execution or for restitution of property or the discharge of the judgment-debtor. The Court shall require such security from, or impose such conditions upon, the judgment-debtor as it thinks fit;

- Order XXI Rule 26(3) of the CPC mandates that before making an order of stay of execution or for restitution of property or the discharge of the judgment-debtor, the Court shall require such security from, or impose such conditions upon, the judgment-debtor as it thinks fit;

- Order XXI Rule 29 of CPC provides that the Court may on such terms, as it thinks fit, stay execution of a decree until the pending suit has been decided.

Justice Bhattacharya put reliance on the case titled Sihor Nagar Palika Bureau v. Bhabhlubhai Virabhai & Co., (2005) 4 SCC 1, wherein the Court held that security in the form of the immovable property could be accepted to the satisfaction of the Trial Court.

Based on the above observations the HC ruled that "On a conjoint reading of the above provisions it is clear that the intention of the framers of the law, which is relevant for consideration in the present case, was to refrain from a strict requirement that security to be furnished for a stay of a decree would only be in monetary terms."

The Court directed that "There shall be an order of stay of the arbitral award dated 4th March 2019 on the petitioner depositing the title deed of the land in question as fully described in the supplementary affidavit within 22 March 2021 with the Registrar, Original Side of this Court."

It added, "This order shall automatically stand vacated in the event of default on the part of the petitioner in respect of the aforesaid direction."