Uniformity In Arbitration Proceedings: No Exceptions For Government Entities

Posted On - 28 November, 2024 • By - King Stubb & Kasiva

Summary:

[1]This case involves a dispute between International Seaport Dredging Pvt. Ltd. and Kamarajar Port Limited, a government entity. The present dispute arose when the appellant secured an award claim against the respondent, whereby the latter was directed to pay additional interest to the appellant as well as costs. The High Court of Judicature at Madras stayed enforcement of said arbitral award, allowing the respondent to deposit merely the principal amount, without inclusions of interest and costs, justifying that a government entity as large as the respondent posed no risk of fleeing payment due to its stable and significant operations. International Seaport Dredging Pvt. Ltd. challenged this order before the Hon’ble Supreme Court, seeking judicial review of the decision. The apex court has held that the law governing arbitration proceedings cannot be applied differently solely based on the respondent’s status as a government entity. Therefore, the bench modified the order of the Madras High Court and directed the respondent to deposit the arbitral amount inclusive of interest.

Facts:

  • International Seaport Dredging Pvt. Ltd. entered into a contract with Kamarajar Port Limited for executing Capital Dredging Phase-III at the Kamarajar Port on 12.08.2015.
    • Upon a dispute arising between the parties, the appellant invoked the arbitration agreement, whereby the tribunal made an award dated 07.03.2024, directing the respondent to pay a principal sum of Rs. 21,07,66,621 along with interest as well as costs amounting to Rs. 3,20,86,405 to the appellant.
    • The respondent challenged the arbitral award under Section 34 of the Arbitration Act 1996 and moved an application for stay of execution.
    • The High Court of Judicature at Madras, by its impugned judgment and order dated 9 September 2024, granted a stay on the execution of the award conditional on the respondent furnishing a bank guarantee in the sum of Rs. 21,07,66,621 within a period of eight weeks.

Issues:

  1. Was the High Court justified in directing the respondent to merely furnish a bank guarantee in relation to the principal amount?
  2. Did the High Court engage in differential treatment towards the government entity while considering an application for grant of stay of a money decree under Section 34 of the Arbitration Act 1996?

Judgment:

  1. Law qua Arbitration Proceedings:

The court noted that provisions of the Arbitration and Conciliation Act 1996 cannot be applied differently in regard of the status of the respondent as a statutory undertaking / government entity.

  1. Legal Precedents:

The court referred to several Supreme Court judgments to support its decision:

  • Pam Developments Private Limited v. State of West Bengal (2019) 8 SCC 112.

This case emphasized that Section 18 of the Arbitration and Conciliation Act stipulates that all parties involved in arbitration proceedings must be treated equally. This provision eliminates the possibility of granting any special treatment to the Government merely due to its status as a party. Under the framework of the Arbitration Act, no distinction or preferential treatment is permitted for the Government, even when considering applications for a stay of a money decree under Section 34 of the Act. This ensures fairness and parity in arbitration proceedings, irrespective of the nature or identity of the parties involved.

  • Toyo Engineering Corpn. v. Indian Oil Corpn. Ltd. 2021 SCC OnLine SC 3455:

This case reiterated that when public corporations are involved, discretion continues to be exercised not on principles under Order XLI Rule 5 but only because large amounts exist and that Government Corporations have to pay these amounts under Arbitral Awards. Both these considerations are irrelevant and shall not be practiced by judicial courts.

  1. Modification of the High Court Judgement:

Based on the above reasoning, the court modified the impugned judgement of the High Court, directing that the respondent deposit an amount quantified at 75% of the decretal amount, inclusive of interest, on or before 30 November 2024 before the High Court.

Analysis:

The court’s decision upholds the doctrine that the Arbitration Act is a self-contained code – it does not distinguish between governmental and private entities. Owing to the fact that parties have entered into commercial transactions with full awareness of the implications of compliance and non-compliance, there is no avenue for preferential treatment to be given to one of the parties due to their statutory status. This approach is a welcome one and the Hon’ble Supreme Court judiciously acted in modifying the High Court’s judgement.

[1] BEFORE THE HON’BLE SUPREME COURT OF INDIA
https://ksandk.com/wp-content/uploads/4505520241356771judgement24-oct-2024-569390.pdf

International Seaport Dredging Pvt. Ltd. v. Kamarajar Port Limited 

CIVIL APPEAL NO. 12097 OF 2024

Judgment dated 24th October 2024