Source: Supreme Court 

Why in News? 

A bench of Chief Justice Dr. DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra held that there cannot be any special treatment given to the party because it is a government entity.         

• The Supreme Court held this in the case of International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited. 

What is the Background of International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited Case? 

• The Respondent in this case issued a Letter of Award to the Appellant for executing Capital Dredging Phase III at Kamarajar Port for an approximate sum of Rs. 274 crores. 
• The parties entered into a contract for completing certain works on 12th August 2015. 
• The disputes arose between the parties and the Appellant invoked the arbitration clause. 
• The proceedings commenced an award was made on 7th March 2024. 
• The Respondent challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act) and moved an application for stay of execution. 
• The High Court granted a stay on execution of award conditional on respondent furnishing a bank guarantee within a period of eight weeks. 
• The above judgment was called in question by the Appellant i.e. the original claimant on the ground that since the award operates as a money decree under Section 36 of A & C Act the High Court was not justified in directing merely the furnishing the bank guarantee in relation to principal amount.  
• It is the case of the Appellant that the Respondent ought to have deposited the amount awarded as a condition for grant of stay of execution of award. 

What were the Court’s Observations? 

• The Supreme Court observed that Section 36 (2) of A & C Act provides that where an application has been filed under Section 34 of the Act the filing of such an application shall not by itself render the award unenforceable unless the Court grants stay to the award. 
  • Further, proviso to Section 36 (3) which has been introduced following the Amendment of 2015 provides that the Court shall while considering an application for grant of stay in the case of an arbitral award for payment of money have due regard to the provisions contained in Civil Procedure Code, 1908 (CPC). 
  • The second proviso provides for a situation where an unconditional stay can be granted.  
• The Court observed that the High Court granted a stay on the operation of the award subject to respondent furnishing a bank guarantee for the principal amount. 
  • Further, the High Court also held that the orders are not issued in relation to the interest and costs awarded to the appellant because the petitioner is not a fly by operator and is a statutory undertaking. 
• The Supreme Court held that the law qua arbitration proceedings cannot be different merely because the respondent is a statutory undertaking.  
• The Supreme Court held that the High Court ought not to have based its decision on the condition for the grant of stay on the status of the respondent as a statutory authority. 
• It was observed that the A & C Act Arbitration Act is a self-contained code – it does not distinguish between governmental and private entities.  
• The form of security required to be furnished should not depend on whether a party is a statutory or other governmental body or a private entity.  
• Governmental entities must be treated in a similar fashion to private parties insofar as proceedings under the Arbitration Act are concerned, except where otherwise indicated by law. 
• Hence, the Court rejected the argument that the High Court was correct in directing the respondent to furnish bank guarantees in relation to the amount awarded because it is a statutory body.

What is a Government Entity? 

• As per Collins Dictionary the term ‘entity’ refers to something that exists separately from other things and has a clear identity of it’s own.  
• Similarly, the term ‘Government’ in Collins Dictionary is defined as a group of people who are responsible for governing the country. 
• Under Goods and Services Tax the term Government Entity has been defined as: 
  • Government Entity means an authority or a board or any other body Including a Society, Trust, Corporation, 
    • Set up by an Act of Parliament or State Legislature; or 
    • Established by Government 
    • With 90% or more participation by way of equity or control to carry out a function entrusted by the Central Government, State Government, Union Territory or a local authority.

Whether a Government Entity Should be Treated Differently under the A & C Act? 

• Pam Developments Private Limited v. State of West Bengal (2019): 
  • Section 18 of the Act makes it clear that the parties shall be treated with equality. 
  • Once the Act mandates so, there cannot be any special treatment given to the Government as a party. 
  • As such, under the scheme of the Arbitration Act, no distinction is made nor any differential treatment is to be given to the Government, while considering an application for grant of stay of a money decree in proceedings under Section 34 of the Arbitration Act. 
  • No exceptional treatment shall be given to the Government while considering an application for stay under Section 36 filed by the Government in proceedings under Section 34 of the A & C Act.
• Tokyo Engineering Corporation v. Indian Oil Corporation Limited (2021): 
  • The Court held that largely because public corporations are involved, discretion continues to be exercised not on principles under Order XLI Rule 5 but only because large amounts exist, and that Government Corporations have to pay these amounts under Arbitral Awards. 
  • Both these considerations are irrelevant, as was pointed out by us earlier.