This article was written by Mohammed Fardeen Yusuf. This article provides readers with an overview of Section 36 of the Arbitration and Conciliation Act of 1940. Following an overview of the significant provisions, it provides a detailed explanation of the provisions of the other included statutes. The article also discusses the important cases and pronouncements relating to this Section. 

Introduction 

The procedure in the Indian judicial system for achieving vital justice in society, like the enforcement of the arbitral award, plays a very crucial role. One needs to enforce this award with the court’s help, or else it would remain in papers only. Several questions stand as a barrier to approaching the right court that has jurisdiction for the enforcement of the said award. To pass an order of execution, one must approach the court as directed under the Code of Civil Procedure of 1908. Section 36 of the Arbitration and Conciliation Act of 1996 talks about enforcing an award that shall stand similar to a decree passed by the court. This article shall give the reader an in-depth analysis of the provisions governing the aspect of the award, along with related provisions and case laws.

It is all about enforcement as provided under Section 36 of Arbitration and Conciliation Act 

The term “Enforcement” is defined under Section 36 of the Arbitration and Conciliation Act as:

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  • As an application is made to set aside the arbitral award under Section 34, which gets expired, it shall be subjected to sub-section (2), and the award shall be further enforced in compliance with the Code of Civil Procedure of 1908, as it will be done in the same manner as a decree of the court.
  • Section 34 talks about setting aside the arbitral award that is filed in court, and if filed, it shall not make the award enforceable until and unless the court gives direction in the form of a stay on the arbitral award in compliance with the sub-section (3), which talks about an application that is made separately for the said purpose.
  • Suppose the said application is filed under sub-section (2) for putting a stay on the arbitral award. In that case, the Court can further give directions upon the stay for the award concerning the reasons to be recorded in writing.

Provided that the court grants further the said application for put stay upon the arbitral award regarding the payment of money in compliance with the grant of the stay, including the decree of money under the Code of Civil Procedure, 1908.

As provided, the satisfaction of the court is upon the prima facie case, which states:

  1. The basis of the awards concerning the contract or the agreement.
  2. And the making of the award.

In case the awards were affected due to certain acts of corruption or fraud, the award shall stay upon the pendency for disposing of the challenge to the award under Section 34.

Explanation: The above-mentioned provision is only applicable to cases that are concerned with arbitral proceedings, and it does not affect the proceeding of court proceedings, which was only when the Arbitration and Conciliation (Amendment) Act, 2015, commenced.

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National Aluminium Company Ltd v. Presstel & Fabrications (P) Ltd. & Anr. (2003)

In this case, it was held that the enforceability of an award can only be made as it is similar to a decree passed under the Civil Procedure Code of 1908. It functions only if the application made under Section 34 has expired or been refused. The SC further stated the language of Section 36 as it allowed, and no discretion is to be made by the court to place parties on the terms that might significantly defeat the aspect of Alternative Dispute Resolution.

Malwa Strips Private Limited v. Jyoti Limited (2008)

In this case, it was held by the court that there should be valid reasoning made for a stay upon the money decree, as the stay must not be imposed only upon asking for the condition mentioned under Order XLI Rule 5(3)(a) of CPC. The decree of money can only be stayed in extraordinary circumstances, including the deposit of the amount as security, under which the respondent does not face any hardships due to the application of such specified conditions.

Amendments to Section 36 of Arbitration and Conciliation Act 

Concerning the amendment that was made under the Arbitration and Conciliation (Amendment) Act of 2015 from the Arbitration and Conciliation Act of 1996, it has played a significant role in uplifting the aspect of arbitration in the Indian context.

The most prominent change was made regarding Section 36 of the Act, which previously talked about removing the stay in executing the arbitral award if an application was filed under Section 34 of the Act and is only applicable when there is a refusal made on the said application. However, this led to questions about its applicability on its original or amended form towards the appeals that are still pending and were filed before the date of amendment, i.e., October 23, 2015. 

Retrospective application of Section 36 of Arbitration and Conciliation Act

Even though the amendment of 2015 was to be prospective in its applicability, it came out differently as applications were made under Sections 36 and 34 before the commencement of the Amendment Act. Below are the reasons under which Section 36 can be applied retrospectively:

  • The concept of enforcement and execution must be dealt with simultaneously, as enforcement stands out substantively and procedurally with its execution. Section 36 refers to the execution of the award that is made like a decree by the court under Order XXI and Order LXI, Rule 5 of the Code of Civil Procedure of 1908, and will be regarded as the only provision for the execution of the awards as a consequence of arbitration.
  • If the decree of execution is part of the procedure, then it shall not attract any substantive right that is vested in the award.
  • The application made under Section 34 with Section 36(2) is to be an attractive factor and is in the amended form, which is to be regulated according to the amended provisions only.
  • The proceeding that is made concerning the arbitral proceedings is to be an independent form of proceeding and should not be considered an arbitral proceeding.
  • If an automatic stay is taken upon an execution order, then the old Act might be a restriction for the decree-holder, and will not be able to follow the procedure as mentioned under Section 36 of the old Act. This will not signify an action towards the corresponding right concerned with the arbitral award for putting a stay on the execution of the award.
  • It was also highlighted by the court that the stay that was made previously was unfair and could not do justice towards the essence of achieving the objective of arbitration.

Notion of an unconditional stay in the Act of 2021

As highlighted in the column of the statement of objects and reasons, the Act of 2021 refers to the amendment as it was only brought into action to eradicate the aspects of corruption and illegal measures that affected the enforcement of the Arbitral Award. The amendment to Section 36 was made in the Act of 2021, which further introduced sub-section 3 under Section 36, and it states that the court, on having prima facie evidence, has the power to put an unconditional stay on being executed for arbitral awards made from fraud or corrupted acts. This states that the amendment made under Section 36 has defeated the sole structure of the arbitral agreement, which is concerned with the separation of the arbitration agreement from the contract.

This is the vital principle of a contract under which the agreement of arbitration can be completely severed from any form of contract. The 2021 Act refers to an “arbitration agreement or contract that is the basis of the award” and conflicts with the settled legal agreements, as the invalid contract does not affect the arbitration agreement, which can be severed under law.

The provision states the use of the phrase “it shall stay,” because of which the discretion of the courts does not have a vital effect. Ultimately, cases in which there is a prima facie assumption concerning arbitral awards made with the assistance of fraud and corruption give the court the power to impose an unconditional stay on that specific award that is pending to be disposed of under Section 34 of the Act.

If an award is made to be set aside under Section 34, it is on the parties who challenge the said award during the process of adjudication. The court can only grant a stay upon the prima facie contention that leads to the circumstances that would attract such a stay.  It is then the responsibility of the court to further examine the aspect arising from prima facie contention, which is done on the presented grounds. It also includes the case made by the award-debtor in compliance with Section 34 of the Act, which further grants a stay in execution of the award.

One of the landmark cases to discuss this aspect is the case of United Commercial Bank v. Bank Of India (1981). It was held in this case that facts and circumstances lead to a bona fide contention between the parties and is to be decided by the party itself. It highlights the low standards of proof that are required to be obtained for an unconditional stay and the stay can only be made after the enforcement of an award under Section 34 of the Act.

Role of Section 34 of Arbitration and Conciliation Act

The final decree will only be implemented if the other side does not apply, setting aside that arbitral award. The setting aside of an arbitral award is only possible to comply with Section 34 of the Act. The only purpose of setting aside the arbitral award is to modify the said award either wholly or in part.

Features of Section 34 of Arbitration and Conciliation Act

  • Any recourse made towards the arbitral award is prohibited except as provided under sub-section (1) of Section 34.
  • It restricts the grounds under which the award can be acquired under sub-section(2) of Section 34.
  • The time limit stays very short, as in sub-section(3) of Section 34, under which an application is made for setting aside the award.
  • If there is any remission concerning the award, then it shall be cured by the arbitral tribunal.

The time limitation, as mentioned under sub-section(3) of Section 34, is that the application for setting aside the arbitral award is to be filed within three months from the day on which the applicant receives the award. As provided under sub-section if the applicant shows sufficient reason under which he/she was not able to apply within three months, then an additional 30 days shall be provided for applying to set aside the arbitral award.

Union of India v. Popular Construction Company (2001)

In this case, a conflict arose concerning the applicability of Section 5 of the Limitation Act with the award under Section 34 of the Act. The Court focused on the historical aspect and the objective of the Act, including the intention of the legislature. The Act’s sole purpose is to limit the intervention made by the Court in matters of the arbitral process and the various provisions of the Act. The intention of the legislature can be referred from the phrase “But not thereafter” under Section 34(3). This expression is taken into express exclusion under Section 29(2) of the Limitation Act and would significantly limit the aspects of Section 5. If the court is satisfied with the application made after the expiry of the limitation period to set aside the arbitral award in compliance with the Act, further will be equivalent to the phrase “but not thereafter” as serving no purpose.

Effect of Section 36 of Arbitration and Conciliation Act 

The very perception that is made under Section 36 of the Arbitration and Conciliation Act is that the enforcement of the arbitral award that is in the domestic form of arbitration shall be implemented in the same manner as a decree is passed by the court.

If the limitation for further proceeding with the objection petition has expired or been dismissed under Section 34 of the 1996 Act, the execution process can also be initiated. The Act gives validity to a domestic arbitral award only if an Objection Petition is not filed under Section 34 of the Arbitration Act.

The rule of automatic stay came from the Arbitration and Conciliation (Amendment) Act of 2015. Only the filing of a challenge in compliance with Section 34 will not affect the enforceability of the arbitral award. The application for stay is required to be made for the operation of the arbitral award, which is to be only granted by the relevant court.

If the court had made a stay upon the arbitral award, then the award holder shall further enforce it in compliance with the Arbitration Act.

The enforcement of the domestic awards can only be done by the courts but there comes the proceedings of the court which attract more time and several procedures and the amendments of 2015 and 2019 were a huge leap in the Arbitration Act. As stated earlier, the domestic award will be regarded as an award passed by a civil court only when the period of setting aside the arbitral award has expired or the application has been refused. Another confusion involved whether the operation of an arbitral award will stay on challenge under Section 34 of the Arbitration Act.

This was significantly held in the National Aluminium Company Ltd v. Presteel & Fabrication in which the domestic award will not get executed as it is challenged under Section 34 of the Arbitration Act and the notion of “Automatic suspension” can only be applied once the challenging proceeding gets dismissed.

As the amendment made in 2015 concerning the automatic stay rule, it was amended under Section 36  as it does not make the arbitral award unenforceable and the stay concerning the award can only be demanded from a relevant court. This amendment was being pro-arbitration and was in huge controversy, challenging the retrospective effect to the proceeding about the arbitration matters. It led to further interpretation of Section 26 as stating that it shall not affect the arbitral proceedings before the date of commencement and would certainly be applied only on the arbitral proceeding which was on or after the date of commencement. This conflict was finally settled in the below-mentioned case.

Judicial pronouncements 

BCCI v. Kochi Cricket Pvt. Ltd (2016)

Facts

In this case, a challenge was filed before the amendment of 2015 came into force followed by the execution petition which was filed after the 2015 amendment came into force. It was challenged by the appellants that the execution of the application made under Section 36 which is still yet to be amended already had an automatic stay on the award. But it was ruled by the single judge bench that the amended Section 36 would apply and no automatic stay would be granted and further ordered execution.

Issues

  • What is the validity of challenging the arbitral award made under Section 34 before the 2015 amendment came into force?
  • What is the validity of challenging the arbitral award made after the 2015 amendment including the proceeding and commencement of the award?

Judgement

The court held that the application filed under Section 34 after the 2015 amendment then the amended Section 36 will apply towards the proceeding and is a court proceeding which is made concerning the arbitral proceeding.

The stay which was made on the operation of the award under the 2015 amendment of Section 36 is not vested as a whole right, as Section 36 is only an execution petition and there are ocean of cases available to highlight that there is no substantive right in a judgement debtor to resist the part of the execution. The stay made under Section 36 before the 2015 amendment curtailed the rights of the decree holder which also opposes the right granted to the award debtor.

Finally, it was held by the court that the intention to take away the aspect of vested right is clear from Section 36 only when it is interpreted in compliance with the objects and purpose for which the Act was enacted.

As a consequence, the award debtors were required to file an application followed by the amended Section 36 of the Arbitration Act for getting a stay on the operation of the award, if not then the award holder will be entitled to proceed further for the enforcement of the award.

Satyawati v. Rajender Singh and Another (2013)

Facts

In this case, the plaintiff is entitled to the possession of the land measuring 80 sq. yards, which is in Khasra no. 95/24/2 which is in the municipal limit of the town. As the execution application was filed, it was rejected by the executing court as the decree was not in a position to be executed due to certain circumstances. One more highlighting aspect is that the judgement was given in favour of the plaintiff on September 17, 1989, because the executing court considered some of its reports, and it hence came to a conclusion on March 16, 2009, stating that the decree is not executable. Because of this, the plaintiffs appealed to the HC for the revision, but it was still rejected by the HC on May 25, 2011.

Issues 

Does the judgement given by the HC concerning the execution of the decree stand as a valid point that affects the procedure of the Executing Court to give its judgement on the same decree?

Judgement

The SC allowed the appeal that was made and further quashed and set aside the judgement given by the HC. The SC further directed the Executing Court to do the required things to execute the decree. The SC also highlighted that “it is agonizing to learn that the appellant-decree holder is unable to enjoy the fruits of her success even today, i.e., in 2013, though the Appellant-Plaintiff had finally succeeded in January 1996.” Hence, the appeal was allowed.

There were further observations made by the court as to the execution of the decree; even though it was passed, it remained on paper only, and the plaintiff refrained from enjoying the fruits of the decree. The purpose of the Code is to make sure that not only the party gets a decree, but it shall also ensure that relief is provided quickly. The position has not seen any improvements till today, as there are still delays made for the decree to be executed, because of which the decree-holder is not able to enjoy the fruits of success, and the efforts of the successful litigant remain in vain.

Siliguri Jalpaiguri Development Authority v. Bengal Unitech Siliguri Projects Limited (2019)

Facts

In this case, a petition filed under Section 34 and Section 36(2) of the Act further demanded a stay on the award made by the arbitral tribunal on December 27th, 2021. The award required the petitioner to pay a pendent lite interest and the future interest from the date of declaration of award till the date of payment with a 9% rate of simple interest per annum. If the award was not paid within 3 months from the date of passing of the award then the pendent lite interest will be imposed. The payment of Rs 25,00,000 was also made by the Arbitral Tribunal to cover all the legal and arbitral fees.

Issues

Whether the award holder has the right to hold the entire sum of an arbitral award under Section 36 of the Act during the application for setting aside is pending.

Judgement

It was held by the court that the award holder is fully liable for the sum to be paid as decided by the Arbitral Tribunal including the interest and the other fees.  The court also directed the petitioner to deposit 50% of the arbitral award to satisfy the registrar of the High Court of Calcutta including interests in the form of cash security or its equivalent.

Later the petition was dismissed by the court specifying the directions which were to be achieved within four weeks.

Conclusion 

The aspect of the arbitral award that is to be enforced stands as a right towards the individual. One talks about the stay orders on the award; one defines the finality of the award; and another refers to the enforcement of the award. The recent amendments show a significant impact on arbitral court proceedings and the enforcement of the arbitral award, and the aspect of stay is be granted after enforcement under Section 34 of this Act, which certainly deprives the rights of the award holder. Further, the arbitral award can only be set aside on limited grounds or declared invalid under Section 30 of the Act. The only objective is to lessen the burden on the court with minimal interference in the settlement of disputes and provide smooth and stable functioning.

Frequently Asked Questions (FAQs)

How shall the award be enforced as per Section 36?

When an application to set aside the arbitral award expires under Section 34, it will be subjected to the provisions under sub-section(2) and the award will be enforced in compliance with the Code of Civil Procedure of 1908. 

What is Section 34 of the Arbitration Act’s limitation period?

Section 34(3) highlights 90 days for further challenging the award. The three-month limitation period is intended to ensure that the finality of an arbitral award is not unduly delayed.

How do you execute an arbitration award?

Only upon receiving the stage of finality, and in the absence of any stay on execution granted by the court under Section 36(3) of the Arbitration Act, does the award-holder knock on the doors of the appropriate executing court to execute the award as if it were a decree of the court.

References 

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