SC Reiterates High Threshold For Unconditional Stay Of Arbitral Awards: Sets Aside Bombay HC Order 

Summary:

¹The Supreme Court has once again clarified that unconditional stay on the execution of an arbitral award is an exception and not the rule. Reiterating its recent ruling in Lifestyle Equities C.V. v. Amazon Technologies Inc. reported in 2025 INSC 1190, the Court held that unless the award is shown to be egregiously perverse, patently illegal, facially untenable, or affected by fraud or corruption, courts should ordinarily direct deposit of the awarded amount or security while granting stay under Section 36(3) of the Arbitration and Conciliation Act, 1996. 

In doing so, the Court set aside the Bombay High Court’s order which had granted an unconditional stay on a ₹4-crore arbitral award obtained by Popular Caterers. Since the case did not involve allegations of fraud or corruption and fell far short of the “exceptional circumstances” standard, the Supreme Court restored the requirement of deposit and reinforced judicial discipline in the execution of arbitral awards. 

Facts: 

• Popular Caterers (the appellant) and Maple Leaf Enterprises LLP (respondent no. 6) entered into a Memorandum of Understanding (MoU) dated 25.05.2017 for the provision of catering services at the Tulip Star Hotel in Mumbai. 

• Under the terms of the MoU, Popular Caterers was required to pay ₹8 crore as an adjustable, interest-free security deposit, out of which ₹4 crore was actually paid and duly received by Maple Leaf Enterprises LLP. 

• Within just 12 days of signing the MoU, disputes arose between the parties because the Mumbai Suburban Collector issued a prohibition order restraining the Tulip Star Hotel from hosting any events, thereby rendering performance of the agreement impossible. 

• Due to this development, Popular Caterers invoked the arbitration clause, leading to the appointment of an Arbitrator by the Bombay High Court. The Arbitrator passed an award dated 28.11.2022, directing the promoters of Maple Leaf LLP to refund the ₹4 crore security deposit to Popular Caterers, pay interest at 9% per annum from 21.06.2017 until the date of the award, and further interest at the same rate until payment and pay ₹19,18,675 towards the costs of arbitration. 

• The promoters of Maple Leaf LLP challenged the award by filing petitions under Section 34 of the Arbitration and Conciliation Act, 1996, which the Bombay High Court admitted for consideration. 

• In the Section 34 proceedings, the Bombay High Court granted an unconditional stay on the execution of the arbitral award, thereby restraining Popular Caterers from enforcing it. Aggrieved by this unconditional stay, Popular Caterers approached the Supreme Court of India, resulting in the present appeal. 

Issues:

1. Whether the Bombay High Court was justified in granting an unconditional stay on the execution of a money award under Section 36(3) of the Arbitration Act. 

2. Whether the case met the threshold of “exceptional circumstances” under Lifestyle Equities, or invoked the grounds of fraud or corruption under the second proviso to Section 36(3). 

Judgement:

• Unconditional stay requires exceptional circumstances-The Supreme Court reaffirmed the test in Lifestyle Equities that an unconditional stay may be granted only if the award or decree is shown to be egregiously perverse, riddled with patent illegalities, facially untenable, or a case of other exceptional circumstances of a similar nature. The Court held that none of these circumstances existed in the present case. 

• Fraud or corruption is mandatory for automatic unconditional stay- Referring to the second proviso to Section 36(3), the Court said that only when the arbitration agreement or making of the award is “induced or affected by fraud or corruption”, the court must grant an unconditional stay. In the present case, no allegation of fraud or corruption was even pleaded, let alone prima facie established. Thus, the High Court’s grant of unconditional stay was wholly unjustified. 

• High Court erred by examining merits at the interim stage- The Supreme Court held that the High Court wrongly conducted extensive merits review while deciding an interim stay application. It noted that the High Court had examined the award in detail and made observations on alleged perversity, which was impermissible at this stage. The Court clarified that such issues must be considered only at the final hearing of the Section 34 petition. An interim application under Section 36(3) is not the stage to assess the correctness or merits of the arbitral award. 

• Section 34 to be heard on merits- The Supreme Court set aside the unconditional stay granted by the High Court. It directed the respondents to deposit ₹4 crore with the Bombay High Court within a period of eight weeks. The Court further ordered that the Section 34 petitions be disposed of by the High Court within six months. It also directed that the deposited amount be placed in an interest-bearing fixed deposit. 

Analysis:

The judgment strengthens the pro-enforcement stance of Indian arbitration law by preventing misuse of Section 36(3) stay powers. The Court emphasized that the stay of arbitral awards cannot become an avenue for delaying enforcement. Unconditional stays are to remain rare, grounded only in fraud, corruption, or cases of extreme perversity. Courts must avoid deep dives into the merits at the interim stage, preserving the sanctity of the Section 34 challenge. By directing strict compliance with deposit requirements and recognizing the limited scope of judicial interference, the decision fortifies India’s commitment to arbitration-friendly jurisprudence and ensures that award creditors are not unfairly deprived of the fruits of their award due to unreasoned judicial discretion.