No Automatic Stay of Arbitral Awards on Filing Section 34 Application Post‑2015 Amendment

Introduction

M/s LR Print Solutions (the petitioner) challenged an order of the Executing Court (Commercial Court No. 2, Gautam Buddh Nagar) directing it to pay mesne profits and interest under an arbitral award dated July 19, 2017. The petitioner had filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the award, contending that its mere filing automatically stayed the award’s operation. The High Court (Allahabad), in this petition under Article 227, examined whether post‑2015 amendments to Section 34/36 preclude an automatic stay upon filing an objection, and upheld the executing court’s computation of mesne profits.

Summary of the Judgment

• The arbitral award (19.7.2017) directed the petitioner to vacate and pay mesne profits with 10% compound interest if it failed within 30 days.
• The petitioner filed a Section 34 application in 2017 but produced no interim stay order from any court.
• The executing court granted the decree holder (respondent) payment of Rs. 8,58,795 (mesne profits plus interest) by its order dated June 24, 2024.
• This Article 227 petition alleged that the award was automatically stayed by the Section 34 filing, and that the court mis‑computed rent for Dec 2020–Mar 2021.
• The High Court dismissed the petition, holding that post‑2015 amendments made Section 34 challenges “court proceedings” that attract no automatic stay, and no stay was on record.

Analysis

Precedents Cited

The Court relied heavily on Supreme Court rulings interpreting the 2015 Amendment to the Arbitration Act:

• Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287
  Held that:
  • Section 26 bifurcates “arbitral proceedings” (Sections 18–27) from “court proceedings in relation to arbitral proceedings” (Sections 34–37).
  • Post‑2015 amendments apply prospectively to court proceedings commenced on or after October 23, 2015.
  • No automatic stay of an award arises by mere filing of a Section 34 challenge commenced after that date.
• Shree Vishnu Constructions v. Engineer in Chief Military Engineering Services (2023) 8 SCC 329
  Reaffirmed BCCI: Section 34/36 proceedings are “court proceedings” and amendments apply prospectively.
• Hindustan Construction Co. Ltd. v. Union of India, AIR 2020 SC 122
  Confirmed no implied stay follows filing of Section 34 challenge without express order.

Legal Reasoning

1. Nature of Section 34 proceedings: Post‑2015, an objection under Section 34 is a judicial review, not a continuation of arbitral procedure. Section 26 expressly confines the automatic application of amendments to court proceedings beginning on or after October 23, 2015.

2. No implicit stay: The Court noted the petitioner produced no stay order. Unlike pre‑2015 law, no statutory provision now grants an automatic stay on award execution on mere filing of a Section 34 application.

3. Finality of award and mesne profits: Since the award’s directions stood unsuspended, the petitioner’s continued occupation until April 2024 attracted mesne profits and penal interest as stipulated in the award.

Impact

This Judgment reinforces the post‑2015 arbitration regime in India:

• It curtails delay tactics: litigants cannot stall enforcement by merely filing Section 34 applications.
• It confirms that parties seeking stays must secure express orders from courts.
• It provides clarity to executing courts to compute mesne profits and interest once an award is unsuspended.
• It guides practitioners to be vigilant about amendment‑effective dates and the procedural nature of post‑2015 Section 34/36 challenges.

Complex Concepts Simplified

• Mesne Profits: Compensation for profits the decree holder could have earned had possession been delivered as per award.
• Section 34 Application: A petition in a court to set aside an arbitral award on limited grounds (e.g., excess of jurisdiction, violation of natural justice).
• Automatic Stay: A legal suspension of enforcement measures without express order. Post‑2015, such stay is not triggered by Section 34 filing alone.
• 2015 Amendment (Arbitration Act): Redefined procedural chapters; distinguished “arbitral proceedings” (tribunal process) from “court proceedings” (judicial review/enforcement). Amendments apply prospectively to court processes started on/after October 23, 2015.

Conclusion

The Allahabad High Court’s decision in M/s LR Print Solutions v. M/s Exflo Sanitation Pvt. Ltd. clarifies that in the post‑2015 Arbitration and Conciliation Act framework, filing a Section 34 challenge does not itself stay execution of an arbitral award. Parties must obtain a formal stay order; otherwise, awards operate immediately, and defaulting parties accrue mesne profits and interest as prescribed. This precedent secures the efficacy of arbitration awards and curbs procedural stalling in execution proceedings.