Analysis of Section 36 of the Arbitration and Conciliation Act, 1996

The Evolving Landscape of Enforcement of Arbitral Awards in India: A Critical Analysis of Section 36 of the Arbitration and Conciliation Act, 1996

Introduction

Section 36 of the Arbitration and Conciliation Act, 1996 (hereinafter "the Act") is a cornerstone provision governing the enforcement of domestic arbitral awards in India. Its interpretation and application have undergone significant evolution, primarily driven by legislative amendments and judicial pronouncements aimed at streamlining the enforcement process and aligning it with the pro-arbitration objectives of the Act. This article critically examines the trajectory of Section 36, from its original formulation leading to an automatic stay of enforcement upon the filing of a challenge application, through the transformative 2015 Amendment, to the subsequent judicial clarifications that have shaped its current understanding. The analysis will draw heavily upon landmark Supreme Court decisions and High Court rulings to elucidate the complexities and nuances surrounding the enforcement of arbitral awards in India.

The Original Framework of Section 36: Automatic Stay on Enforcement

Prior to the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter "2015 Amendment"), Section 36(1) read as follows: "Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court."

This language led to a judicial interpretation that once an application under Section 34 of the Act to set aside an arbitral award was filed, there was an automatic stay on the enforcement of the award until the Section 34 application was refused. The Calcutta High Court in Radheshyam Shaw Alias Radhey Shyam Shaw v. Union Of India[12] explicitly held that "pending final disposal of an application under section 34 of the arbitration and conciliation act, 1996, the award cannot be enforced... In other words, there is an automatic stay of execution in such cases".

The Supreme Court of India, in National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd. And Another (NALCO)[1], lamented this state of affairs. While acknowledging that the 1996 Act was a significant improvement over the 1940 Act, the Court noted a "lacuna in the 1996 Act" regarding the absence of a provision for grant of interim relief by the court pending a challenge to an award, or during the interregnum between the award and the expiry of the time for challenging it. The Court observed that under the then-existing Section 36, once an award was challenged under Section 34 within the stipulated timeframe, it became "unexecutable". This often led to award-debtors filing frivolous Section 34 applications merely to delay enforcement, thereby frustrating the award-holder and undermining the efficiency of the arbitration process. The NALCO judgment highlighted the "urgent need" for legislative intervention to rectify this anomaly, stating, "This sub-section (Section 36) makes it clear that an award becomes enforceable as a decree only when the time for making an application to set aside the arbitral award under Section 34 has expired or such an application having been made has been refused. ...This results in a situation where even where a party has a just claim and has been able to get an award in its favour, it is unable to reap the fruits of the said award during the pendency of the challenge to the award."[1]

The Supreme Court in National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd.[16] also referenced the NALCO decision regarding the non-executability of an award when a Section 34 application was pending under the unamended Section 36.

The Paradigm Shift: The 2015 Amendment to Section 36

Heeding the concerns expressed by the judiciary and the recommendations of the Law Commission of India, Parliament enacted the 2015 Amendment, which significantly overhauled Section 36.

Key Changes Introduced

The amended Section 36 reads as follows:

36. Enforcement.—(1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court.

(2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.

(3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).

The most crucial change was the introduction of sub-section (2), which explicitly states that the mere filing of a Section 34 application does not automatically render the award unenforceable. An award-debtor must now file a separate application for stay, and the Court has the discretion to grant such a stay, subject to conditions it deems fit, and must record reasons in writing (sub-section (3)). The proviso to sub-section (3) further guides the Court to consider the principles applicable to the stay of money decrees under the Code of Civil Procedure, 1908 (CPC), such as those contained in Order XLI Rule 5.

Rationale Behind the Amendment

The Law Commission of India in its 246th Report, which formed the basis for the 2015 Amendment, directly addressed the issue of automatic stays. As noted in the Bombay High Court's judgments in the NANDBALA NATHALA MAYANI series of cases,[11] the Law Commission recommended the amendment to Section 36 "to ensure that the mere filing of an application under section 34 does not operate as an automatic stay on the enforcement of the award." The Commission specifically referred to the Supreme Court's recommendation in NALCO[1] as the impetus for this change.

The Bombay High Court in Rendezvous Sports World v. Board Of Control For Cricket In India[9] also observed, "Under the original Section 36, filing of an application under Section 34 had the effect of casting shadow upon the executability of the award. This as of the award-debtor disabled the award-holder from executing the award in his favour irrespective of the merit in the challenge. In order to rectify this mischief, certain amendments have been suggested by the Commission to section 36 of the Act..."

Judicial Interpretation and Application of the Amended Section 36

Prospective Application of the 2015 Amendment: The BCCI v. Kochi Cricket Dictum

A significant question that arose post the 2015 Amendment was its applicability to pending proceedings, particularly Section 34 applications filed before the amendment came into force (October 23, 2015). The Supreme Court in Board Of Control For Cricket In India v. Kochi Cricket Private Limited And Others (BCCI)[4] provided a definitive answer. The Court meticulously analyzed Section 26 of the 2015 Amendment Act, which governed its applicability. It held that the amended Section 36 would apply to all Section 34 applications that were filed after the commencement of the 2015 Amendment (i.e., on or after October 23, 2015), irrespective of whether the arbitral proceedings themselves had commenced before or after this date. Conversely, for Section 34 applications filed prior to this date, the unamended Section 36 (providing for an automatic stay) would continue to apply. The Court reasoned that "enforcement" under Section 36 is akin to "execution" and that procedural changes generally apply to pending proceedings unless they create new obligations or impair vested rights. The Court found that the amended Section 36 dealt with the execution of an award and did not take away any vested right of the award-debtor.

This ruling clarified the position, superseding some earlier High Court views, such as the one noted in M/S. Medico Abroad Decree Holder v. M/S. Ism Focal Point Judgement Debtor[17] which, relying on Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia, had suggested the amendment was prospective and would only apply to awards passed after October 23, 2015. The Calcutta High Court in Saraf Agencies Pvt. Ltd. & Anr. v. Federal Agencies For State Property Management & Anr.[10] had also grappled with the interpretation of Section 26 before the BCCI judgment.

The Aborted Reversal: Section 87 of the 2019 Amendment and its Invalidation

In an attempt to alter the position established by the Supreme Court in BCCI[4], the Arbitration and Conciliation (Amendment) Act, 2019 introduced Section 87. This section sought to provide that the 2015 Amendment would apply only to arbitral proceedings commenced on or after October 23, 2015, and to court proceedings arising out of or in relation to such arbitral proceedings. This would have effectively meant that for arbitral proceedings commenced before October 23, 2015, the unamended Section 36 (with its automatic stay) would apply, regardless of when the Section 34 application was filed, thereby nullifying the BCCI[4] ruling.

However, the Supreme Court in Hindustan Construction Company Limited And Another v. Union Of India And Others[3] struck down Section 87 of the 2019 Amendment Act as being "manifestly arbitrary" under Article 14 of the Constitution. The Court held that Section 87 reintroduced the mischief of delaying enforcement of awards that the 2015 Amendment sought to cure and was contrary to the object of the Arbitration Act. By invalidating Section 87, the Supreme Court restored the legal position enunciated in BCCI[4], confirming that the amended Section 36 applies to Section 34 applications filed on or after October 23, 2015.

Granting Stay of Enforcement: Principles and Discretion

Under the amended Section 36(3), the court has discretion to grant a stay of the arbitral award, subject to conditions and for reasons to be recorded in writing. The proviso specifically directs the court, when dealing with an award for payment of money, to "have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908." This typically refers to Order XLI Rule 5 of the CPC, which requires the applicant to demonstrate substantial loss, furnish security, and show that the application has been made without unreasonable delay.

The Himachal Pradesh High Court in State Of H.P. Through Principal Secretary And Another v. Deepak[13], while primarily dealing with condonation of delay in filing a Section 34 application, touched upon the strict timelines which, if not adhered to, would make an award enforceable under Section 36. The case underscores that the window to challenge an award is limited, and once that passes or a challenge is refused (and no stay is granted), enforcement proceeds.

Enforcement Against Government Entities: The Principle of Equal Footing

A significant clarification regarding the conditions for stay came in Pam Developments Private Limited v. State Of West Bengal[2]. The Supreme Court held that government entities are not entitled to any special treatment or automatic stay of enforcement of arbitral awards merely by virtue of their status. The Court ruled that provisions like Order XXVII Rule 8A of the CPC (which historically exempted the Government from furnishing security in certain cases) would not automatically apply to override the conditions for stay under Section 36(3) of the Act. The Court emphasized that the Arbitration Act is a self-contained code and its provisions, particularly Section 18 (mandating equal treatment of parties), must be given effect. Therefore, when seeking a stay of a monetary award, the government, like any other party, must satisfy the court and may be required to deposit the awarded amount or furnish security as deemed appropriate by the court, in line with the principles of Order XLI Rule 5 CPC.

Mechanism and Scope of Enforcement under Section 36

Enforcement as a Deemed Decree

Section 36(1) provides that once the time for challenging an award under Section 34 has expired, or a challenge has been refused, and no stay is operative, the award "shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court." This "deeming fiction" allows the award-holder to execute the award through the regular machinery of the civil courts available for the execution of court decrees. The Delhi High Court in GUJARAT JHM HOTELS LTD v. RAJASTHALI RESORTS AND STUDIOS LIMITED[14] dealt with an execution petition preferred under Section 36 for enforcement of an award.

Jurisdictional Aspects of Enforcement

The "Court" for the purpose of Section 36 is the principal Civil Court of original jurisdiction in a district, or the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit (as defined in Section 2(1)(e) of the Act). The Orissa High Court in Industrial Incubators Pvt.Ltd. Another v. The Waterbase Ltd.[18] clarified that only the Principal Civil Court (District Judge) has jurisdiction to execute an award, not a Civil Judge (Senior Division). The Chhattisgarh High Court in SANTOSH KUMAR v. STATE OF CHHATTISGARH[19] also directed the petitioner to approach the District Judge for execution of an arbitral award under Section 36. The issue of transfer of execution proceedings to a Commercial Court was considered in South Eastern Coal Fields Ltd. v. Tirupati Construction[15], where the court held that an application for execution of an award, where the award had become final, could not be treated as an original application to be transferred to the Commercial Court under Section 15(2) of the Commercial Courts Act, 2015, particularly in light of the proviso regarding final judgments.

Distinction from Other Statutory Arbitration Regimes

It is important to note that Section 36 of the Act applies to arbitrations governed by the Arbitration and Conciliation Act, 1996. Other statutes may provide for their own arbitration and enforcement mechanisms. For instance, arbitrations under the Industrial Disputes Act, 1947, are distinct. As observed in Nowrozabad Colliery Mazdoor Sangh v. F. Jeejeebhoy And Another[7], Section 10-A(5) of the Industrial Disputes Act completely excludes the application of the (erstwhile) Arbitration Act, 1940, to arbitrations under that section. The Industrial Disputes Act has its own provisions for interpretation (Section 36A) and recovery of dues under an award (Section 33C(2)), as discussed in Pioneer Embroideries Ltd, Mumbai v. Prithvi Singh And Others[8]. Similarly, the Act distinguishes between arbitration proceedings (Part I) and conciliation proceedings (Part III), as highlighted in Haresh Dayaram Thakur v. State Of Maharashtra And Others[5] and Bernard Ingenieure Zt - Gmbh Petitioner v. Ircon International Ltd.[6]. Section 36 specifically pertains to the enforcement of arbitral awards under Part I of the Act.

Conclusion

Section 36 of the Arbitration and Conciliation Act, 1996, has traversed a significant journey from a provision that inadvertently facilitated delays in enjoying the fruits of an arbitral award to one that now actively promotes its swift enforcement. The 2015 Amendment, by abolishing the automatic stay regime, marked a watershed moment, reinforcing the legislative intent to make arbitration an efficacious dispute resolution mechanism. The judiciary, through landmark pronouncements such as BCCI v. Kochi Cricket[4], Hindustan Construction Company[3], and Pam Developments[2], has played a crucial role in clarifying the scope and application of the amended Section 36. These interpretations have ensured that the pro-enforcement stance of the legislature is upheld, frivolous challenges are disincentivized, and parties, including government entities, are placed on an equal footing when it comes to the stay and enforcement of arbitral awards. The current legal framework surrounding Section 36 reflects a mature and robust approach towards arbitration, aiming to secure the finality and enforceability of arbitral awards in a timely manner, thereby enhancing India's credentials as an arbitration-friendly jurisdiction.

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