What Comes First After the Award: The Relief or the Stay? A case comment on Sepco Electric Power Construction Corpn. v. Power Mech Projects Ltd.

One of the ambivalent aspects of the relationship between national courts and Arbitral Tribunals is the judicial control exercised on the award rendered by a tribunal. An award holder can, in the interregnum period, between the date of passing the award till its enforcement, secure his rights under the award by knocking on the doors of the court for interim relief. As per Section 9¹ of the Arbitration and Conciliation Act, 1996 (the Act), a party is not only entitled to claim reliefs and/or interim reliefs before the commencement or during the arbitration proceedings but also after the arbitral award before its enforcement. For the court to exercise its powers under Section 9 of the Act, a party must satisfy three cardinal principles being prima facie case, balance of convenience and irreparable loss in case no relief is granted.

The scope of a post-award Section 9 remedy was analysed by the Bombay High Court in the landmark judgment of Dirk India (P) Ltd. v. Maharashtra State Electricity Generation Co. Ltd.² (Dirk), wherein the Court held that an interim relief can only be sought for enforcement or protection of the arbitral award. The above observations were quoted with approval with the Supreme Court of India in Hindustan Construction Co. Ltd. v. Union of India³ (Hindustan Construction).

The grant of reliefs under Section 9, post the award, is significant in light of the statutory period of three months for the award debtor to assail the award. Naturally, the court under the provision of Section 9 of the Act does not have the power to stay the arbitration award. Such relief can only be claimed by the award debtor under Section 36(2)⁴ of the Act.

However, this extra window of subsequent action poses peculiar challenge wherein the award holder and award debtor can simultaneously file applications for securing the award and seeking a stay on the enforcement of the award, respectively. In a recent decision of the Supreme Court in SEPCO Electric Power Construction Corpn. v. Power Mech Projects Ltd.⁵, the Supreme Court was faced with such a situation.

Facts

The parties went to arbitration which culminated in an award of approximately INR 1,42,00,00,000 in favour of the respondent. On 3-12-2017, the appellant filed an application under Section 34⁶ of the Act before the Delhi High Court challenging the arbitral award along with an application under Section 36(2) seeking stay of the same. Thereafter, within a few days, the respondent filed an application under Section 9 before the court seeking orders on the appellant to furnish security against the amount awarded by the Arbitral Tribunal.

A spate of applications were filed by the parties in the pending Section 9 application, which resulted in the court directing the appellant to deposit the entire amount under the award. On the same day, the court issued notice in the application under Section 36(2) and directed that upon deposit of the awarded amount (as directed in Section 9 application), there would be a stay on the enforcement of the award. The directions passed by the court in Section 9 application were ultimately challenged before the Supreme Court.

Arguments made before and observations made by the Supreme Court

The appellant argued before the Supreme Court that the Single Judge ought to have considered the application under Section 36(2) before passing any orders in the application under Section 9, as the application for stay was filed prior to the application for deposit of security. Further, the appellant further argued that while dealing with an application under Section 36(2), the Court has to ex facie review the award and must follow the directives provided in Section 36(3).

Additionally, the appellant objected to the clubbing of the orders passed in the two applications. The arguments raised against clubbing of the application was based on the surmise that by doing so, the Court had practically deprived the appellant of the right to challenge the order passed in the application under Section 9, since an order under Section 36(2) is not appealable.

The Supreme Court rejected the above arguments and observed that Section 9 confers wide power on the Court to pass orders securing the amount in dispute in arbitration. The Court reinstated that while exercising power under Section 9, the court is not strictly bound by the provisions of the Code of Civil Procedure, 1908 (CPC)⁷ and while arriving at a decision, must defer to the underlying purpose of the conferment of the power which is to promote the efficacy of arbitration and protection of the award so rendered.

Comments

The Supreme Court correctly reaffirmed the extensive scope of judicial power which has been vested under Section 9, however, it did not deal with the underlying issue apropos the simultaneous filing and analogous hearing of applications under Sections 9 and 36(2). In treating both applications as one and the same and by making the stay of the award conditional upon the compliance of the directions made in Section 9 application, the Supreme Court overlooked the dissimilarities in the factors to be considered for each of the applications.

It is admitted that Sections 9 and 36(2) provide analogous remedies to the award holder in a post-award scenario, as the court can direct the award debtor to secure the awarded amount, or any percentage of it as per discretion, in both the said scenarios. However, the award debtor must face widely different eventualities since the nature of both applications are distinct.

Unlike judicial proceedings, directions passed by an Arbitral Tribunal are not appealable at every stage and Section 36(2) presents the first opportunity to an award debtor to place a hurdle to the enforcement of the award. On the other hand, as noted by the Supreme Court in Hindustan Construction case⁸ and the Bombay High Court in Dirk case⁹, Section 9 applications filed in a post-award scenario are intended as a measure of protection is a “step-in-aid of enforcement”. The simultaneous filing of both must be considered appropriately to balance the distinctive objectives.

As correctly reaffirmed in this judgment, any court dealing with a Section 9 application is not statutorily guided by the provisions of Order 39 Rules 1¹⁰ and 2¹¹ and Order 38 Rule 5¹² CPC. Per contra, in case of an application made under Section 36(2) for stay of the award, the statute specifically stipulates that the Court shall have due regard to the provisions for grant of stay of a money decree under the CPC and must record reasons for the same. The considerations which shall weigh in favour of the Court’s decision-making while deciding on a stay on execution of a money decree are embedded in Order 41 Rules 1¹³ and 5¹⁴ CPC. Appositely, the Supreme Court in Pam Developments (P) Ltd. v. State of W.B.¹⁵ and Toyo Engg. Corpn. v. Indian Oil Corpn. Ltd.¹⁶ held that Order 41 Rule 5 CPC must be followed as guidance in all applications for stay of an arbitral award directing deposit of money. Even though the discretion of the court is limited, and provisions of CPC do not have to be mandatorily followed, the court is empowered to exercise discretion if the facts of the case demand the same. As follows, a Section 9 application, unlike an application under Section 36(2) necessitates a review of multitudinous factors which may convince the court to pass any direction in favour of the award debtor. Consequently, linking the two applications, as was done in this case, tips the scales in favour of the award holder and waters down the remedy available under Section 36(2), making it difficult for the award debtor to get a stay without complying with the directions passed in Section 9 application.

Notwithstanding, as per the latest amendment, an award debtor has the right to request the court to review the award passed on the ground that arbitration agreement or the contract which forms the basis of the award, or the making of the award itself prima facie appears to be rooted in fraud or corruption. Accordingly, since the Act presupposes the duty of a court to review the award in a manner not required during proceedings under Section 9, the pendency of an application under Section 36(2) merits an independent hearing at the least.

Lastly, in the case of a Section 9 application, the award debtor has the right to challenge any direction passed by the court under Section 37¹⁷ of the Act. However, any order passed under Section 36(2) cannot be challenged until disposal of the underlying Section 34 application. This means that if two applications are dealt with concurrently and the stay is made contingent upon the directions passed in Section 9 application, the award debtor has no option but to comply with the same.

In sum, although it is a valid proposition in law that the mere filing of Section 36(2) application earlier in time does not entitle the award debtor to a hearing prior to the hearing of Section 9 application, hearing the latter first disregards the protection afforded to the award debtor under the Act. If Section 9 application is heard earlier, rather than getting an opportunity to prima facie show the perversity in the award and build a case for itself, the award debtor’s scope of submissions will be limited to defending itself in the case presented against it in Section 9 application. The same makes the remedy under Section 36(2) infructuous in more ways than one. Therefore, although the courts under Section 9 are indeed vested with wide powers, the said scenario presents one of the few situations which require the unbridled powers to be exercised with caution.