The Supreme Court stated that government entities should be treated like private parties in arbitration cases, unless the law says otherwise
The Court noted that the Arbitration & Conciliation Act of 1996 is a complete code that does not make a distinction between government and private entities. This decision came from a civil appeal related to an interim order from the Madras High Court in an arbitration case. Justices Dhananjaya Y Chandrachud, JB Pardiwala, and Manoj Misra remarked that government entities should be treated like private parties in arbitration proceedings, except where the law specifies differently.
In a case involving Kamarajar Port, the Respondent awarded a contract to the Appellant for capital dredging phase 3. When disputes arose, the Appellant sought arbitration. The Arbitral Tribunal ordered the Respondent to pay the Appellant a specified amount with nine percent interest, increasing to twelve percent if not paid within three months, plus additional costs. The Respondent’s request to amend the award was denied. The Respondent then challenged the award under Section 34 of the Arbitration Act. The High Court stayed the award’s execution, requiring the Respondent to provide a bank guarantee. The Court referenced the Supreme Court’s ruling in Pam Developments Private Limited v State of West Bengal, stating that Section 18 of the Act ensures equal treatment for all parties. It emphasized that the Government should not receive special treatment in these proceedings, and no distinction should be made when considering a stay on a money decree under Section 34 of the Arbitration Act.
The Court stated that the High Court should not have made its decision about granting a stay based on the respondent’s status as a statutory authority. The Court emphasized that its decision should not be swayed by the party’s position or whether they are a questionable operator. It noted that judging a party’s reliability is a subjective matter. The Court pointed out that many private companies might use their size, success, or public image to claim they are not unreliable operators. Without a legal basis for this, it would be wrong for courts to use such standards when deciding on stay conditions. Additionally, the type of security required should not depend on whether a party is a government body or a private entity. As a result, the Court changed the contested award and ultimately allowed the Appeal.
Cause Title: International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited (Neutral Citation: 2024 INSC 827)
