State Govt Not A Privileged Litigant, Must Deposit Entire Arbitral Award Sum For Stay: Calcutta High Court Reiterates - 2025-08-19

State Not A Privileged Litigant, Must Deposit Full Arbitral Award For Stay: Calcutta High Court

Kolkata: In a significant ruling reinforcing the principles of equity in arbitration law, the Calcutta High Court has held that the State government, like any other litigant, must deposit the entire arbitral award amount, including interest, to secure a stay on its enforcement. The court, presided over by Justice Shampa Sarkar, modified a previous order, directing the State of West Bengal to deposit an additional ₹5.32 crores as security against an arbitral award.

The court asserted that its power to grant a stay is equitable and discretionary, and it retains the jurisdiction to modify the conditions of such a stay to balance the rights of both the award holder and the award debtor.

Background of the Case

The dispute originated from an arbitral award dated July 2, 2022, in favour of M/S B B M Enterprise (the award holder) against the State of West Bengal (the award debtor) for non-payment of bills after completion of contractual work. The award, with accrued interest, amounted to a substantial sum.

The State challenged the award by filing a setting-aside application under Section 34 of the Arbitration and Conciliation Act, 1996. Subsequently, it sought a stay on the award's enforcement under Section 36(2) of the Act. In an order dated January 17, 2023, a coordinate bench had granted a stay on the condition that the State deposit ₹9 crores, which the award holder was later permitted to withdraw upon furnishing a bank guarantee.

However, the award holder filed a fresh application, arguing that the initial deposit of ₹9 crores was inadequate as the total dues, including principal and accrued interest, had surpassed ₹14 crores. They sought a direction for the State to deposit the remaining balance of ₹5.32 crores.

Arguments from Both Sides

Award Holder (M/S B B M Enterprise): - Represented by Senior Advocate Sakya Sen, the award holder argued that a complete stay of a money award necessitates depositing the entire "sum," which includes both principal and interest, as established by Supreme Court precedents. - It was contended that the court possesses the inherent power to modify or vary the conditions of a stay order, drawing parallels with Order 39 Rule 4 of the Code of Civil Procedure (CPC). The issue was not barred by res judicata . - The State cannot be treated as a privileged litigant and must adhere to the statutory mandate, which aims to prevent award holders from being deprived of the fruits of their award during prolonged challenge proceedings.

Award Debtor (State of West Bengal): - Senior Advocate Anirban Ray, appearing for the State, countered that the Arbitration Act is a complete code with minimal scope for judicial intervention. - He argued that the court was functus officio (having discharged its duty) with respect to the stay application, which had already been disposed of. - Allowing further deposit and withdrawal would amount to enforcing the award, which has been stayed. He contended that the previous order directing a deposit of ₹9 crores was final and could not be revisited.

Court's Analysis and Ruling

Justice Shampa Sarkar, after a thorough examination of legal provisions and precedents, sided with the award holder. The court underscored that the 2015 amendment to Section 36 of the Arbitration Act was specifically introduced to prevent the automatic stay of awards and ensure that award holders are not left without remedy.

The court made the following key observations:

"To secure an order of stay merely by preferring an appeal, was not a statutory right conferred on the appellant... an award debtor who prays for an order of stay must do equity, to seek equity, by depositing the sum awarded. A balance should be struck between protecting the award debtors as also the award holders."

Citing the Supreme Court's decision in Pam Developments vs State of West Bengal , the High Court reiterated that there can be no special treatment for the government in arbitration proceedings, and the provisions of the CPC serve as a guiding factor. The court held that since CPC principles are applicable to Section 36, the power to modify a stay order, akin to Order 39 Rule 4, can be invoked.

The judgment emphasized that "business common sense does not permit postponement of the enjoyment of the fruits of the award to any uncertain future date." Allowing withdrawal of the deposited amount upon furnishing adequate security is a commercially prudent measure that balances equities. It protects the award holder's immediate financial needs while securing the award debtor’s interests through a counter-guarantee, ensuring restitution if the award is eventually set aside.

Final Decision

The court modified its earlier order and directed the State of West Bengal to deposit the additional sum of ₹5.32 crores within eight weeks. The award holder, M/S B B M Enterprise, was granted permission to withdraw this amount upon furnishing an unconditional bank guarantee of an equivalent sum. The court warned that failure to deposit the amount would allow the award holder to proceed with the execution of the award.