Navayuga Engineering Company Vs Bangalore Metro Rail Corporation Limited (Supreme Court of India)
Summary: The Supreme Court, in Navayuga Engineering Company Vs Bangalore Metro Rail Corporation Limited, set aside the Karnataka High Court’s order modifying the conditions for stay of an arbitral award of ₹122.76 crore in favour of Navayuga Engineering Company. The dispute arose from a construction contract relating to the Bangalore Metro Rail Project. The Arbitral Tribunal, by its award dated 16 August 2018, allowed 10 out of 16 claims and awarded ₹122.76 crore, comprising approximately ₹56.23 crore as principal and ₹66.53 crore under other heads. Bangalore Metro Rail Corporation Limited challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. On 21 December 2019, the Commercial Court stayed execution of the award subject to depositing 60% of ₹122.76 crore and furnishing security for the balance. Both parties approached the Karnataka High Court, which dismissed the contractor’s writ petition but allowed the employer’s petition and reduced the deposit requirement to 50% of the principal amount of ₹56.23 crore.
The Supreme Court referred to Section 5 of the Arbitration and Conciliation Act and its decision in Deep Industries Ltd. Vs ONGC & Anr., (2020) 15 SCC 706, reiterating that High Courts exercising jurisdiction under Articles 226 and 227 of the Constitution must be extremely circumspect in interfering with orders passed under the Arbitration Act. Such interference is warranted only in exceptionally rare circumstances or where an order patently lacks inherent jurisdiction. Finding neither circumstance present, the Supreme Court set aside the Karnataka High Court’s order and restored the Commercial Court’s original direction requiring a 60% deposit and security for the remaining amount. Compliance was directed within four weeks. The Supreme Court also directed the Commercial Court to dispose of the pending Section 34 petition within four months and disposed of the appeals.
Cases Discussed
1. Deep Industries Ltd. Vs ONGC & Anr., (2020) 15 SCC 706 (Supreme Court): Relied upon by the Supreme Court for the principle that interference under Articles 226 and 227 with orders under the Arbitration and Conciliation Act should be confined to exceptionally rare cases or patent lack of inherent jurisdiction.
2. Hindustan Construction Company Limited & Anr. Vs Union of India & Ors., 2019 SCC OnLine SC 1520 (Supreme Court): Referred to in the Karnataka High Court proceedings concerning the inoperability of automatic stay of arbitral awards.
3. PAM Developments Private Limited Vs State of West Bengal, (2019) 8 SCC 112 (Supreme Court): Relied upon by the contractor before the Karnataka High Court to argue that a State undertaking does not enjoy special treatment when seeking interim relief against an arbitral award.
4. Manish Vs Godawari Marathawada Irrigation Development Corporation, SLA(C) Nos. 11760 and 11761 of 2018 (Supreme Court): Cited by the contractor in support of a higher deposit requirement. The Karnataka High Court distinguished the proceedings on their procedural context.
5. Secretary, Irrigation Department, Government of Orissa Vs G.C. Roy, (1992) 1 SCC 508 (Supreme Court): Discussed by the Karnataka High Court in connection with the arbitrator’s power to award interest where the contract does not prohibit it.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1)Leave granted.
2)We have heard Mr. K.V. Viswanathan, learned Senior Advocate appearing for the appellant as well as Mr. Tushar Mehta, learned Solicitor General appearing for the respondent.
3)An Arbitral Award dated 16.08.2018 was made in favour of the appellant allowing 10 out of 16 claims which amounted to Rs. 175.32 Crores. The Award was made of a sum of Rs. 122.76 Crores amounting to Rs. 56.23 Crores principal and Rs. 66.53 Crores on various heads. A Section 34 petition that has been filed by the respondent is pending before the learned Additional City Civil and Sessions Judge at Bengaluru. On 21.12.2019, execution of the said Award was stayed on deposit of 60% of the figure of Rs. 122.76 Crores and security being given for the balance. Both parties filed writ petitions against the aforesaid order. The writ petition filed by the appellant was dismissed. The writ petition filed by the respondent was allowed in which a deposit of 50% of the principal amount of Rs. 56.23 Crores was ordered.
4)Despite this Court repeatedly referring to Section 5 of the
2 Arbitration Act in particular and the Arbitration Act in general and despite this Court having laid down in Deep Industries Ltd. Vs. ONGC & Anr. (2020) 15 SCC 706 that the High Court under Article 226 and 227 should be extremely circumspect in interfering with orders passed under the Arbitration Act, such interference being only in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction, we find that High Courts are interfering with deposit orders that have been made. This is not a case of exceptional rarity or of any patent lack of inherent jurisdiction.
5)This being the case, the impugned order of the High Court of Karnataka is set aside and that of the learned Additional City Civil and Sessions Judge is restored. The deposit of 60% and security for the remainder is to be made within four weeks from the date of our order.
6)The request of the learned Solicitor General that the Section 34 application be disposed of early is acceded to. The Additional City Civil and Sessions Judge is therefore directed to dispose of the Section 34 petition within a period of four months from today.
7)The appeals are disposed of.
1)Leave granted.
2)We have heard Mr. K.V. Viswanathan, learned Senior Advocate appearing for the appellant as well as Mr. Tushar Mehta, learned Solicitor General appearing for the respondent.
3)An Arbitral Award dated 16.08.2018 was made in favour of the appellant allowing 10 out of 16 claims which amounted to Rs. 175.32 Crores. The Award was made of a sum of Rs. 122.76 Crores amounting to Rs. 56.23 Crores principal and Rs. 66.53 Crores on various heads. A Section 34 petition that has been filed by the respondent is pending before the learned Additional City Civil and Sessions Judge at Bengaluru. On 21.12.2019, execution of the said Award was stayed on deposit of 60% of the figure of Rs. 122.76 Crores and security being given for the balance. Both parties filed writ petitions against the aforesaid order. The writ petition filed by the appellant was dismissed. The writ petition filed by the respondent was allowed in which a deposit of 50% of the principal amount of Rs. 56.23 Crores was ordered.
4)Despite this Court repeatedly referring to Section 5 of the Arbitration Act in particular and the Arbitration Act in general
4 and despite this Court having laid down in Deep Industries Ltd. Vs. ONGC & Anr. (2020) 15 SCC 706 that the High Court under Article 226 and 227 should be extremely circumspect in interfering with orders passed under the Arbitration Act, such interference being only in cases of exceptional rarity or cases which are stated to be patently lacking in inherent jurisdiction, we find that High Courts are interfering with deposit orders that have been made. This is not a case of exceptional rarity or of any patent lack of inherent jurisdiction.
5)This being the case, the impugned order of the High Court of Karnataka is set aside and that of the learned Additional City Civil and Sessions Judge is restored. The deposit of 60% and security for the remainder is to be made within four weeks from the date of our order.
6)The request of the learned Solicitor General that the Section 34 application be disposed of early is acceded to. The Additional City Civil and Sessions Judge is therefore directed to dispose of the Section 34 petition within a period of four months from today.
7)The appeals are disposed of.
Leave granted.
The appeals are disposed of in terms of the signed order. Pending applications, if any, also stand disposed of.
