Safiya Malik

The Calcutta High Court has denied an application for an unconditional stay of an arbitral award and directed the petitioner to secure a sum of ₹2,70,00,000 to stay the award and execution proceedings. The court held that allegations of fraud and corruption must be prima facie evident from the records and cannot be inferred from alleged errors in the arbitral award. The court further ruled that if the petitioner fails to comply with the security deposit requirement, the award holder will be at liberty to enforce the award, and the stay shall stand automatically vacated.

The dispute arises from a contract between the Director General of the National Library, Ministry of Culture, Government of India, and Expression 360 Services India Private Limited (now known as Expression Ad Agency Pvt. Ltd.) for curating an exhibition at the National Library, Kolkata. Following disagreements between the parties, the matter was referred to arbitration, resulting in an arbitral award dated February 20, 2024, in favor of Expression 360 Services India Pvt. Ltd.

The Director General of the National Library filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, seeking to set aside the award. Simultaneously, an application was filed before the Calcutta High Court for an unconditional stay of the award. The petitioner contended that the award holder had committed fraud by failing to perform its contractual obligations and had wrongfully claimed payment for unfinished work. It was further argued that the arbitrator exceeded the scope of the dispute by awarding a sum larger than what was claimed in the Statement of Claim.

In response, the award holder argued that the arbitral tribunal had properly adjudicated the dispute, examining the claims and counterclaims before issuing a reasoned award. The petitioner’s allegations of fraud, it was submitted, were not borne out by the Statement of Defence.

The court examined whether the allegations of fraud and corruption warranted an unconditional stay under Section 36(3) of the Arbitration and Conciliation Act, 1996. It noted that fraud and corruption must be prima facie evident from the records and that the threshold for proving such allegations is high. The court stated: "It is not the contention of the award debtor that the agreement was a product of fraud. It is also not the case run that award holder in a fraudulent manner influenced the learned Arbitrator to make and publish the award. Fraud and corruption should, prima facie, be evident from the records. The threshold to prove fraud and corruption is very high."

The petitioner further argued that, as a Central Government authority, it was entitled to an automatic stay under Order 27 Rule 8-A of the Code of Civil Procedure (CPC), which exempts the government from furnishing security in certain cases. The court rejected this argument, relying on the Supreme Court's decision in Pam Developments Private Limited v. State of West Bengal [(2019) 8 SCC 112], which held that Order 27 Rule 8-A CPC does not override the provisions of Section 36(2) of the Arbitration and Conciliation Act, 1996. The court cited the Supreme Court’s ruling: "Arbitration proceedings are essentially an alternate dispute redressal system meant for early/quick resolution of disputes and in case a money decree – award as passed by the arbitrator against the Government is allowed to be automatically stayed, the very purpose of quick resolution of dispute through arbitration would be defeated as the decree-holder would be fully deprived of the fruits of the award on mere filing of objection under Section 34 of the Arbitration Act."

The court also referred to Hyder Consulting (UK) Limited v. Governor, State of Orissa [(2015) 2 SCC 189], which held that an arbitral award includes both principal and interest, and any stay of execution must secure both components.

The Calcutta High Court denied the request for an unconditional stay of the arbitral award and directed the petitioner to secure ₹2,70,00,000 as a condition for staying the award and execution proceedings. The court ordered:

1. Security Deposit Requirement:

• 50% of the amount must be secured in cash before the Registrar, Original Side, Calcutta High Court.

• 50% must be secured by a bank guarantee to the satisfaction of the Registrar, Original Side, within four weeks from the date of communication of the order.

2. Stay Duration and Enforcement:

• An unconditional stay of the award and execution proceedings will remain in force for four weeks.

• If the security deposit requirement is met within this period, the stay will continue until the disposal of the Section 34 application.

• If the petitioner fails to comply, “the award holder shall be at liberty to proceed with the execution and enforce the award and the stay shall stand automatically vacated.”

The court disposed of AP-COM/860/2024 and directed that AP-COM/644/2024 be listed in the monthly list of February 2025 under the appropriate heading. EC-COM/245/2024 was removed from the list with liberty to mention it again.

Case Title: The Director General, National Library, Ministry of Culture, Government of India v. Expression 360 Services India Private Limited (Now Known as Expression Ad Agency Pvt. Ltd.)
Case Number: AP-COM/860/2024, AP-COM/644/2024, EC-COM/245/2024
Bench: Justice Shampa Sarkar

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