Introduction
In a recent judgment, the Hon'ble Supreme Court modified the order of the High Court, which had granted a stay on the execution of an arbitral award. The High Court had imposed a condition requiring the party, statutory authority to merely furnish a bank guarantee equivalent to the awarded amount, rather than directing the deposit of a portion of the awarded sum in court. The Supreme Court held that such relief should not be granted solely based on the party's status as a statutory authority.

Facts in a Nutshell
The Supreme Court was deciding an appeal arising from an interim order of the Madras High Court, which stayed the execution of an arbitral award dated 7th March 2024. The award directed the respondent to pay Rs. 21,07,66,621/- with interest and costs to the appellant.

The High Court had granted a stay on the execution of the arbitral award on the condition that the respondent furnish a bank guarantee for the principal amount having regard to the Respondent’s status a staturoty authority, reasoning that the respondent was a credible entity and not "a fly by operator." The appellant challenged this order, contending that under Section 36 of the Arbitration and Conciliation Act, 1996, the respondent should have been directed to deposit the awarded amount in court as a condition for the stay.

Findings of the Supreme Court and conclusion
The Supreme Court observed that the High Court had declined to issue orders concerning the interest and costs awarded to the appellant, citing the respondent's status as a statutory undertaking and "not a fly-by operator." The Supreme Court held that arbitration law cannot be applied differently based on the respondent’s status as a statutory entity.

Referring to Pam Developments Private Limited v. State of West Bengal (2019) 8 SCC 112, the Court reiterated that Section 36 of the Arbitration and Conciliation Act, 1996 provides no special treatment to governmental bodies regarding stay applications under Section 34. It also emphasized Section 18 of the Act, which mandates equal treatment of parties, confirming that no exceptional leniency can be extended to the government in such matters.

The Court criticised the High Court for failing to consider, even prima facie, that the arbitral award covered claims beyond the issue of cess. It held that the High Court erred in basing its decision on the respondent's status as a statutory authority. The Supreme Court clarified that the Arbitration Act is a self-contained code that does not distinguish between governmental and private entities. The status or reliability of a party, whether governmental or private should not influence the conditions for granting a stay.

Further, the Court highlighted that subjective assessments, such as a party being "not a fly-by operator," are inappropriate, as private entities could also claim similar credibility based on size, success, or public image. In the absence of any statutory provision to this effect, courts must refrain from applying such standards. The form of security required for a stay must not depend on whether the party is a government body or a private entity.

The Court concluded that governmental entities should be treated like private parties in arbitration proceedings, except where the law explicitly provides otherwise. Since the parties had knowingly entered into commercial transactions with full awareness of the legal implications, the argument that the High Court was correct in allowing a bank guarantee solely because the respondent was a statutory body was rejected.

The Supreme Court observed that under Order 41 Rule 5 of the Code of Civil Procedure, the court possesses the authority to direct either a full or partial deposit or the furnishing of security concerning the decretal amount. Considering the guiding principles applicable to such cases, the Supreme Court opined that the High Court's order required modification. Accordingly, the Supreme Court modified the High Court's order, directing the respondent to deposit 75% of the decretal amount, inclusive of interest¹.

By - Chaitanyaa Bhandarkar