Calcutta High Court: While allowing an application to withdraw the secured amount during the pendency of setting aside of arbitral award proceedings, a Single bench of Moushumi Bhattacharya*, J., held that the respondent-award-holder is permitted to withdraw the amount of Rs. 9 crores upon furnishing a bank guarantee of an equivalent amount with the Registrar, Original Side.
In the instant matter, the award-debtor-petitioner (State of West Bengal) preferred an application for stay of the arbitral award dated 2-07-2022. The award-debtor had also filed an application for setting aside the arbitral award, and vide order dated 17-01-2023, the Court recorded the award-debtor’s submission to deposit Rs. 9 crores within 6 weeks from the date of the order to secure the award, and the award would be stayed accordingly. The award-debtor made the deposit on 16-03-2023.
The award-holder-respondent (M/s. BBM Enterprise) preferred the present application seeking permission to withdraw an amount of Rs. 9 crores, which was earlier directed to be secured by the petitioner during the pendency of their application for stay of the arbitral award dated 02-07-2022.
The award-debtor opposes the prayer of the award-holder for withdrawing the amount of Rs. 9 crores on two grounds and contended that there is no provision under the Arbitration and Conciliation Act, 1996 (the Act), for allowing such a prayer, moreover, the Court must come to a prima facie view of the award before passing such an order. The award-debtor further contended that the present application cannot be entertained since the application for stay of the award was disposed of by the order dated 17-01-2023.
- Whether permitting an award-holder to withdraw the secured amount requires statutory sanction?
- Can the award-holder’s application for withdrawal of the money not be made by way of a separate application
The Court observed that Section 36 of the Act which makes an arbitral award final and binding on the parties and persons claiming under them is subject to the provisions of Part I of the Act and Section 36(2) of the Act gives the Court discretion to grant an order of stay of the operation of the arbitral award in accordance with the guidelines provided under Section 36(3) of the Act subject to a separate application made by the award-debtor for stay.
The Court observed that the amendment to the Act in 2015 decoupled enforcement and setting aside of an award, and the discretion was given to the Court to permit an award-holder to withdraw the secured amount. The Court clarified that the award-holder must be given the fruits of the victory unless the Court finds that the enjoyment may be deferred subject to the award-debtor securing the award pending a shot at having the award set aside.
“…the march of the award towards enforcement continues un-deterred unless brakes are put in that movement by the award-debtor who applies for stay and the Court grants that stay upon on suitable conditions.”
The Court observed that Sections 35 and 36 of the Act provide for such an order to be passed in appropriate cases, and there is no specific statutory provision required to allow an award-holder to withdraw the secured amount.
The Court observed that Section 36(2) does not require a prima facie case to be made out by the award-debtor for a stay of the award. The Court looks at the bona fides of the award-debtor in securing the award.
“The discretionary space of the Court would be apparent from section 36 (2) which sets the tone of the departure from the pre-amendment position in the clarification that mere filing of an application for stay shall not by itself render the award unenforceable unless the Court grants an order of stay of the Arbitral award”
The Court held that the object of the amendment to the Act was to give the award-holder interim relief unless it renders the award-debtor without a remedy. In the present case, the award-holder undertook to replace the withdrawn amount with a bank guarantee of an equivalent amount, ensuring complete security for the award-debtor in case the award is set aside.
The Court held that the award-holder can withdraw the amount of Rs. 9 crores upon furnishing a bank guarantee of an equivalent amount. The Court further held that the award-holder is not required to file the present application with the application for stay.
While allowing the present application, the Court held that application for withdrawal of the secured amount is maintainable and not required to be made in the application for stay. The Court directed the award-holder to furnish the bank guarantee before withdrawing the money, and it shall be from a bank that is a constituent of the RBI.
The Court awarded the award-debtor the liberty to take steps for listing the application for setting aside of the award.
[State of W.B. v. BBM Enterprise, 2023 SCC OnLine Cal 2134, order dated 25-07-2023]
*Judgment by Justice Moushumi Bhattacharya
Advocates who appeared in this case:
Mr. Paritosh Sinha, Mr. Arindam Mandal, Mr. Shourya Samanta, Counsel for the Petitioner/State;
Mr. Sakya Sen, Ms. N. Adhya, Counsel for the Respondent.