CAN AN ARBITRAL AWARD BE STAYED UPON SURETY AND PERSONAL UNDERTAKING

The law laid down by the Hon'ble Court will also deprecate the practice of Courts to accept personal surety or undertaking, which are completely alien to civil laws

Since, the overhauling of the Arbitration and Conciliation Act, 1996 by way of amendments carried out by Parliament in 2015, stay against arbitral award became a debatable issue. It has in fact been tested many times before many High Courts as well as by the Hon'ble Supreme Court. Still, the analogy behind granting the stay has not been followed by the Courts below. Recently, in one such case, a District Court at Betul, Madhya Pradesh, has granted the stay against the arbitral award upon the respondent furnishing the personal surety and undertaking, which not only diminishes the very object of amendments but also frustrated the scope of recovery of the arbitral award. The said matter was challenged by the Award Holder before the Hon'ble High Court of Madhya Pradesh at Jabalpur in Angel Broking Limited vs. Vijay Khandelwal¹.

While passing the above judgment, the Hon'ble Court also discussed the law laid down by the Hon'ble Supreme Court in the matter of Atma Ram Properties (P) Ltd. Vs. M/s Federal Motors (P) Limited², wherein the Supreme Court held that "a decree for payment of money is not ordinarily stayed by the appellate Court, yet, if it exercises its jurisdiction to grant a stay in an exceptional case, it may direct the appellant to make payment of the decretal amount with interest as a condition precedent to the grant of stay."

The Hon'ble High Court also discussed the judgment of the Hon'ble Supreme Court in Pam Development Private Limited vs. The State of West Bengal³, wherein, the Hon'ble Supreme court held that "Section 36 of the Arbitration Act also does not provide for any special treatment to the government while dealing with the grant of stay in an application under the proceedings of Section 34 of the Act".

The Hon'ble High Court, after discussing various judgments held that "As per Section 36 of the Arbitration and Conciliation Act, 1996 and considering Order 41 Rule 5 of the Code of Civil Procedure, conditional stay can be granted subject to furnishing of security to the satisfaction of decree. The District Judge has passed an order to furnish surety and not security therefore he has acted contrary to provision of Section 36 (3) of the Arbitration and Conciliation Act, 1996."

The above judgment has added another milestone in encouraging the parties to seek an alternative resolution process for resolving their inter-se disputes, inasmuch as it ensures the effective satisfaction of arbitral award. Further, the law laid down by the Hon'ble Court would also deprecate the practice of Courts to accept personal surety or undertaking, which are completely alien to civil laws. Thus, this judgment is a welcome step in recognizing and reposing faith in the Arbitral process mechanism.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.