Calcutta High Court
Commissioner Health vs M/S Nitapol Industries on 24 November, 2017
Equivalent citations: AIR 2018 CALCUTTA 54, (2018) 5 CAL HN 552
Author: I.P. Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
GA No.2717 of 2017
AP No.553 of 2017
Commissioner Health, Directorate of Health Services
v.
M/S Nitapol Industries
For the Applicant :- Raja Basu Chowdhury
Purnashish Bhuniya
For the Respondents :- Mainak Bose
(Commissioner & Ors.) Nirmalya Dasgupta
Roshan Sengupta
Aryaa Chatterjee
...Advocates
Judgement On: - 24th November, 2017
I.P. MUKERJI, J.
A new and very interesting point of law arises in this application. The applicant is the Commissioner Health, Directorate of Health Services, Government of Madhya Pradesh, in his official capacity. Hence, for all purposes, the applicant is the Government of Madhya Pradesh. An application (AP 553 of 2017) under Section 34 of the Arbitration and Conciliation Act, 1996 was made by that Government challenging an award dated 21st March, 2017, passed by the West Bengal State Micro Small Enterprises Facilitation Council.. This arbitration was governed by the Micro Small and Medium Enterprises Development Act, 2006 (the 2006 Act).
The Arbitration commenced after coming into force of the Arbitration and Conciliation Amendment Act, 2015 on 23rd October, 2015. The said Act, after the amendment applied to this Arbitration.
If you read Section 34 along with Section 36 of the Arbitration Act after its amendment, you will notice that in arbitrations governed by the Act after its amendment, filing of an application to set aside the award under Section 34 does not operate as an automatic stay of the award, as it used to be prior to the amendment. A separate application for stay has to be made, to be considered by the Court on the same principles as an application for stay of the decree is considered by the Appellate Court under Order 41 of the Code of Civil Procedure.
On 19th July, 2017 the application to set aside the award (AP No.553 of 2017) was admitted after condoning 103 days' delay. Directions for affidavits were made. The stay application (GA 226 of 2017) was directed to be listed on 24th July, 2017. On 25th July, 2017 an order was passed therein on contest staying the operation of the award without furnishing security on the ground that the applicant was the Government of Madhya Pradesh and under Order XXVII of the Code of Civil Procedure, it was not required to furnish security to obtain stay of a decree, in appeal. Since, the same principle was to be applied in considering stay of an award, the government was not required to furnish security.
Thereafter an application (GA 2717 of 2017) has been made by the award holder for discharge of that order. The applicant contends that the Government of Maharashtra is required to deposit the awarded sum before the application is entertained, under the 2006 Act. The 2006 Act was enacted by Parliament. The preamble to the Act states that it is "to provide for facilitating the promotion and development and competitiveness of Micro, Small and Medium Enterprises". The Act provides for a system to resolve disputes. It has to be referred to conciliation under Section 18(2) of the said Act read with Sections 65 to 81 of the Arbitration and Conciliation Act, 1996. If conciliation fails then the dispute is to be referred to arbitration under the provisions of the Arbitration and Conciliation Act, 1996. An arbitration agreement under Section 7(1) of the said Arbitration Act would be implied. Section 19 of the said Act of 2006 is very important. It is in the following terms:-
"19. - Application for setting aside decree, award or order. - No application for setting aside any decree, award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) had deposited with it seventy five per cent of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court:
Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case subject to such conditions as it deems necessary to impose."
An appreciation of Section 24 of the 2006 Act would show that the provisions regarding arbitration contained in that Act have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
The question is whether the Government of Maharashtra could be compelled to deposit 75% of the award? If so when?
Section 36 before its amendment was as follows:-
36. - 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.
After amendment Section 36 is as follows:-
36. - 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 provision 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 a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).
The said 2006 Act would have overriding effect over every law prevailing at the time of its enactment.
The Arbitration and conciliation Act, 1996 was certainly in force at the time of enactment of the 2006 Act. The amended Act was not. The amendment was with effect from 23rd October, 2015.
Whether it is to have overriding effect over the amendment Act or both would operate concurrently has to be seen from the language of the Amendment Act. Section 36 on its amendment does not say that this amendment would be notwithstanding anything contained in the 2006 Act. Therefore, both the Acts would apply concurrently to an arbitration under the 2006 Act which would have overriding effect.
When, under Section 36 a general application to set aside an award is being filed, no deposit is required. However, under the 2006 Act under Section 19 no Court shall entertain an application to set aside an award passed by the Council unless 75% of the amount is deposited. Pending disposal of the setting aside application the Court is invested with the power of disbursing such percentage of the amount to a supplier as it considers under the circumstances of the case.
To my mind, entertaining of a setting aside application has to be understood as the first dealing of the application by the Court or a judicial authority.
The amended Section 36 of the Arbitration and Conciliation Act, 1996 stipulates the condition of grant for stay of an award pending hearing of the setting aside application.
The concept of stay of an award upon making the deposit is entirely different from consideration of the main application to set aside the award. It is the security which the Court wants to order stay of the award, under the amended Section 36 of the Arbitration and Conciliation Act, 1996. The principles applicable to obtain stay of a decree before the Appellate Court would apply for stay of an award. Order XLI Rule 5 of the Code of Civil Procedure is very relevant. Sub-Rules 2 and 3 provide as follows:-
"(2) - Stay by Court which passed the decree. - Where an application is made for stay of execution of an appealable decree before the expiration of the time allowed for appealing therefrom, the Court which passed the decree may on sufficient cause being shown order the execution to be stayed. (3) - No order for stay of execution shall be made under sub-rule (1) or sub- rule (2) unless the Court making it is satisfied -
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him."
It follows that the Appellate Court shall not grant stay unless security is furnished by the applicant for due performance of the decree or order. Therefore, the judgment debtor in an arbitration is required to furnish to the award holder security for the amount covered by the award. However Order XXVII Rule 8A of the Code of Civil Procedure provides that no security is required from the Government under Order XLI Rules 5 and6. If Section 19 of 2006 Act and Section 36 and Order XLI Rules 5 and 6 and Order XXVII Rule 8A are read and applied harmoniously the interpretation would be that in an arbitration arising out of the 2006 Act, for obtaining stay of the award under Section 34 of the Arbitration and Conciliation Act, 1996 the applicant Government of Madhya Pradesh would not have to furnish any security, by virtue of the exemption granted under Order XVII Rule 8A of the Code of Civil Procedure. Without such security the Court is enjoined with a duty to decide whether it would grant stay or not. The Arbitration and Conciliation Act, 1996 makes a clear difference between a setting aside application and a stay application. Now, this setting aside application cannot be moved without deposit of the 75% of the awarded amount under the 2006 Act. If the award debtor being the government keeps the setting aside application pending after obtaining stay without security, the award holder may ask for its dismissal for non- prosecution.
Hence, the setting aside application (AP 553 of 2017) cannot be further entertained by the Court without the Government of Madhya Pradesh depositing 75% of the awarded amount The above application (GA 2717 of 2017) is accordingly disposed of. Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)