Arbitration law treats government and private entities equally, SC modifies conditional stay requiring 75% deposit

International Seaport Dredging Pvt Ltd Versus Kamarajar Port Limited

International Seaport Dredging Pvt Ltd Versus Kamarajar Port Limited - 2024 INSC 827 Issues Involved:
1. Validity of the High Court's decision to grant a stay on the execution of an arbitral award by requiring only a bank guarantee.
2. Applicability of the Code of Civil Procedure (CPC) in arbitration proceedings concerning the stay of money decrees.
3. Treatment of governmental versus private entities in arbitration proceedings.

Issue-wise Detailed Analysis:

1. Validity of the High Court's Decision on Stay of Execution:
The primary issue in this case was whether the High Court was justified in granting a stay on the execution of the arbitral award by requiring the respondent to furnish only a bank guarantee. The appellant argued that the High Court should have directed the respondent to deposit the awarded amount as a condition for the stay, in line with the sanctity of arbitration and established precedents. The Supreme Court found that the High Court erred in not considering the entire arbitral award, which included multiple claims beyond the issue of cess. The Court emphasized that the status of the respondent as a statutory authority should not influence the conditions for granting a stay. The Supreme Court modified the High Court's order, directing the respondent to deposit 75% of the decretal amount, inclusive of interest, to stay the enforcement of the arbitral award.

2. Applicability of the CPC in Arbitration Proceedings:
The judgment analyzed the applicability of the CPC in arbitration proceedings, specifically concerning the stay of money decrees. Section 36(3) of the Arbitration and Conciliation Act requires courts to have due regard to the CPC provisions when granting a stay on an arbitral award for payment of money. However, the Supreme Court clarified that the reference to the CPC is guiding and not mandatory, emphasizing that the Arbitration Act is a self-contained code. The Court reiterated that the provisions of the CPC should be applied only insofar as they are consistent with the Arbitration Act, as established in Pam Developments Private Limited v. State of West Bengal.

3. Treatment of Governmental Versus Private Entities:
The Court addressed the issue of whether governmental entities should be treated differently from private parties in arbitration proceedings. It held that the Arbitration Act does not distinguish between governmental and private entities, and the conditions for granting a stay should not be influenced by the status of the party as a statutory body. The Court rejected the argument that the respondent's status justified the furnishing of a bank guarantee instead of a deposit, emphasizing that commercial transactions entail equal treatment under the law, regardless of the parties' nature. This principle was reinforced by the Court's reference to Toyo Engineering Corpn. v. Indian Oil Corpn. Ltd., which highlighted that considerations such as the size of the amount or the nature of the party (governmental or private) are irrelevant in determining the conditions for stay under Order XLI Rule 5 of the CPC.

In conclusion, the Supreme Court allowed the appeal, modifying the High Court's order to require a deposit of 75% of the decretal amount for the stay of the arbitral award, thereby reinforcing the principles of equal treatment and the integrity of the arbitration process.