Government Entities To Be Treated Like Private Parties In Arbitration Proceedings, Except Where Law Indicates Otherwise: Supreme Court
The Supreme Court observed that the Governmental entities must be treated in a similar fashion to private parties in Arbitration proceedings except where otherwise indicated by law.
The Court said that the Arbitration & Conciliation Act, 1996 is a self-contained code – it does not distinguish between governmental and private entities.
The Court was hearing a Civil Appeal arising from an interim order of the Madras High Court in Arbitration Original Petition.
The bench of Justice Dhananjaya Y Chandrachud, Justice JB Pardiwala and Justice Manoj Misra observed, “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.”
Senior Advocate Shyam Divan appeared for the Appellant and Senior Advocate CA Sundaram appeared for the Respondent.
Brief Facts-
The Respondent issued a letter of award to the Appellant for executing capital dredging phase 3 at Kamarajar Port and entered into a contract. The Appellant invoked arbitration as disputes arose. The Arbitral Tribunal directed the Respondent to pay the Appellant a certain amount with nine percent annual interest increasing to twelve percent if unpaid within three months, and an additional amount in costs. The tribunal rejected the Respondent's request for corrections to the award. The Respondent challenged the award under Section 34 of the Arbitration Act. The High Court granted a stay on the award’s execution conditional on the Respondent furnishing the bank guarantee.
The Court mentioned the Supreme Court decision in Pam Developments Private Limited v State of West Bengal and quoted, “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…there is no exceptional treatment to be given to the Government while considering the application for stay under Section 36 filed by the Government in proceedings under Section 34 of the Arbitration Act.”
The Court said 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.
“the decision of the Court cannot be influenced by the position of the party before it and whether it is a fly-by-night operator. Moreover, an assessment as to whether a party is reliable or trustworthy is subjective.”, the Court said.
The Court observed, “Many private entities, too, may rely on the size of their undertaking, its success, public image, or other factors to argue that they are not fly-by-night operators. In the absence of any provision of law in this regard, it would be inappropriate for courts to apply this standard while adjudicating the conditions upon which a stay of an award may be granted. Similarly, 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.”
Accordingly, the Court modified the impugned award.
Finally, the Court allowed the Appeal.
Cause Title: International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited (Neutral Citation: 2024 INSC 827)