The Bench of Justice Rahul Bharti of the J&K and Ladakh High Court in an appeal under Section 34 of the Arbitration and Conciliation Act, 1996(hereinafter referred to as “the Act”) delved into the principles governing the enforcement of an Arbitral Award while drawing a distinction between the pre and post amended Section 36 of the Act. 

In a challenge thrown to the Arbitral Award by the Union of India, the High Court had directed a stay of the operation of the Award subject to the deposition of the awarded amount in terms of requirement of section 36(3) of the Act before the Registrar Judicial of the Court. The Respondent/Award Holder had moved the Court with an application seeking release of the amount so deposited by the Appellant contending that the locking of the award amount in a fixed deposit serves neither party’s interest, and while relying upon the sub-section (2) and (3) of Section 36 (post-amendment) of the Act, argued that the court may in taking forward the direction of mere deposit of award amount in order to serve some purposeful and desired end which is to order the release of the deposited amount in favor of an award bearer/holder subject him to any terms and conditions as may be deemed fit to secure the return of release money or any part thereof to the Court in the event of award suffering reversal/alteration.

The Court, in order to settle the controversy, examined Section 36 of the Act dealing with enforcement of the Award, as it stood pre as well as post amendment. It observed that under the pre-amended Section 36, the Arbitral Award had a deferred enforcement subject to two conditions, one, upon expiry of the time for making an application to set aside the award under section 34 without any challenge taking place, and two, upon the refusal/rejection of an application made for setting aside of an award. Therefore, an award achieved the status of a deemed decree only when one of the two aforesaid conditions were met. 

In the context of the pre-amended Section 36, the Court observed, “Enforceability and executability of an arbitration award was a sort of two in one feature under pre-amended section 36 and that was an award enforceable only when it acquired the deemed status of a decree of a court which admitted of execution for its enforcement on its terms as the executability being an essence of a decree of court.”

Furthermore, with respect to the amended Section 36, the Court enumerated the following situations as being envisaged vis-a-vis an Award under the Act:

a) “An un-challenged award upon expiry of prescribed period of challenge under section 34 as envisaged under section 36(1)”, which thereafter earns de jure status and effect as a decree of civil court and thereby attaining instant executability.

b) “A challenged award within period prescribed under section 34 and stayed unconditionally as envisaged under section 36 (3)”, meaning thereby that there will be no scope of any intervening operational aspect/prospect of the award till final adjudication of the proceedings under section 34 takes place,

c) “A challenged award within period prescribed under section 34 but without being stayed as envisaged under section 36(2)”; with respect to which the Court observed that not staying the Arbitral Award does not bestow upon such award the status of a decree, unless it is confirmed in an adjudication under Section 34. 

The Court held, “enforceability of a non-stayed award as envisaged section 36(2) is not meant to be, and cannot be, enforceability of an award under section 36(1) or of a confirmed award under section 34.”

Moreover, the Court observed, “enforcement of a non-stayed award under challenge cannot be before and by the court other than the court petitioned under section 34 as only in this eventuality, while not staying a challenged award, the enforceability of such an award can be conceived to be workable without straining the text and context of section 36 in its entirety”, thus, keeping the Award under the gaze and guard of judicial discretion of the Court seized of the matter under Section 34- so as to direct the Appellant to fulfil any obligation including deposit of award amount subject to any terms and conditions imposed upon the award holder to save the final outcome of the Award.

d) “A challenged award within period prescribed under section 34 and stayed subject to terms and conditions in terms of section 36(3)”, wherein, the Court may call upon the challenger to fulfill any obligation under the award in order to ensure that the party coming to challenge the award is willing to bear the cost of exhausting the remedy under Section 34 and is not merely seeking to gain time. However, a conditional stay on the award does not entitle the award holder to any instant release of benefit granted under the Award. 

Finally, in the instant case, the Court observing that the respondent/award-holder was prejudiced by issuance of a direction staying the operation of the impugned award subject to deposit of the awarded amount as he was not given an opportunity to respond/object to the same, the Court recalled the unconditional stay granted with respect to the operation of the award and allowed the plea of the respondent for release of the deposited amount subject to furnishing of bank guarantee to the full amount along with interest accrued in fixed deposit thereupon till date of its release in his favor.