Delhi High Court: Ground of Liquidity Crunch is not sufficient To Stay the Decree under Order XXI Rule 26 (1) of CPC, 1908

Delhi High Court: Ground of Liquidity Crunch is not sufficient To Stay the Decree under Order XXI Rule 26 (1) of CPC, 1908

The Delhi High Court has observed that a conscious order cannot be modified for reasons of liquidity crunch. The single judge Justice Yogesh Khanna clarified that scope of Order XXI Rule 26 (1) under the Code of Civil Procedure, 1908 (CPC, 1908) is only to enable a judgment debtor to apply to the Appellate Court and till such time the Court may stay the decree, unconditionally or with conditions.

Observing that the application for stay was pending with the Appellate Court under Section 34 of the Arbitration and Conciliation Act, 1996 (A&C Act), the High Court said it would not be desirable on facts for this Court to interfere in its realm.

In the instant matter, execution proceedings were initiated by the award holder/ petitioner, B L Kashyap and Sons Ltd against Emaar India Ltd Judgment debtor/ respondent. The Delhi High Court in its order dated 30 May, 2023 directed the judgment debtor/ respondent, Emaar India Ltd, to deposit the entire award amount of Rs. 165 crores.

Emaar India filed an application before the High Court seeking modification of the order dated 30.05.2023. It sought a stay of the enforcement proceedings for a reasonable period so as to enable it to obtain a stay on the execution of the award by way of the Section 34 petition, which was pending before the Appellate Court.

In the alternative, Emaar India requested to secure the arbitral amount by way of an unconditional and irrevocable bank guarantee or any solvent non cash security. It was alleged that the Court had every power to pass such an order per Order XXI Rule 26 (1) of CPC.

The said amount was about Rs. 165 crores and it was alleged if the judgment debtor was directed to deposit such huge sum it shall lead to a liquidity crunch in its company and its business would come to a standstill.

The upon examining the facts of the facts, admittedly noted that there was a money decree in favor of petitioner, B L Kashyap and Sons, not only for the dues of work done but also for compensation of machinery and material which the petitioner/ award holder was not allowed to lift from the concerned site.

The Court remarked, “Its running bills were allegedly to the tune of Rs. 150 crores, which allegedly were never prayed. Now after years the petitioner has been awarded its dues then deferring such payments to him would rather be harsh. Bank guarantee cannot be utilized by the decree holder to compensate its loss.”

The arguments of judgment debtor qua liquidity crunch equally applies to decree holder. Thus, alleged liquidity crunch cannot be a sufficient cause as ensued in Order XXI Rule 26(1) CPC to grant stay, opined the judge.

The Court while placing reliance in the case of Assistant Collector of Central Excise, Chandan Nagar, West Bengal vs. Dunlop India Ltd. and Others (1985) wherein, the Court held mere furnishing the bank guarantee would not meet the ends of justice and no governmental business or for that matter no business of any kind can be run on mere bank guarantees and liquid cash is necessary for the running of a government as indeed any other enterprises.

Therefore, the Court affirmed that the order dated 30 May, 2023 directing the respondents to deposit the entire decretal amount as noted above was a conscious order and now it cannot be modified for reasons of liquidity crunch.

The Court observed, “Scope of Order XXI Rule 26 (1) is only to enable a judgment debtor to apply to the Appellate Court and till such time the Court may stay the decree, unconditionally or with conditions. Since now the application for stay is pending with the Appellate Court, it would not be desirable on facts, that this Court should interfere in its realm.”

In such circumstances, the request of Judgment Debtor to accept the bank guarantee as security could not be acceded to, stated the Court. Thus, the Judgment Debtor was directed to comply with the order dated 30 May, 2023 qua deposit.