Unconditional Stay of Arbitral Awards

Source: Supreme Court 

Why in News? 

The bench of Justices J.B. Pardiwala and K.V. Viswanathan in the case of Popular Caterers v. Ameet Mehta & Ors. (2025) set aside the Bombay High Court's order granting unconditional stay of execution of an arbitral award and directed deposit of the principal amount as a condition for stay. 

What was the Background of Popular Caterers v. Ameet Mehta & Ors. (2025) Case? 

• Popular Caterers, a partnership firm engaged in catering business, entered into a Memorandum of Understanding dated 25.05.2017 with Maple Leaf Enterprises (LLP) and its five promoters. 
• Under the MoU, Maple Leaf Enterprises sought catering services from Popular Caterers for providing pure vegetarian food at events to be held at Tulip Star Hotel, Juhu, Mumbai. 
• Popular Caterers was required to pay Rs. 8 crore as adjustable interest-free security deposit, of which Rs. 4 crore was paid and received by Maple Leaf Enterprises. 
• Disputes arose within 12 days of signing the MoU on 08.06.2017 because State authorities prohibited Tulip Star Hotel from organizing events, with the Mumbai Suburban Collector directing the hotel to stop renting out their plot for functions. 
• Popular Caterers invoked arbitration, and an Arbitrator was appointed by the High Court vide order dated 11.11.2019. 
• The Arbitrator passed an award dated 28.11.2022, directing respondents jointly and severally to pay Rs. 4 crore with interest at 9% per annum from 21.06.2017 till the date of award, further interest at 9% per annum till realization, and Rs. 19,18,675 towards costs of arbitration. 
• A corrigendum was issued on 19.12.2022 rectifying certain errors in the award. 
• The respondents filed petitions under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge the award, which were admitted by the High Court. 
• In the Section 34 petitions, the respondents filed interim applications seeking stay of execution of the award. 
• The Bombay High Court allowed the interim applications and granted unconditional stay of execution of the arbitral award dated 22.01.2025. 
• Popular Caterers challenged this order before the Supreme Court. 

What were the Court's Observations? 

• The Court noted that the High Court examined the matter threadbare and discussed the arbitral award being perverse but held that all these aspects should have been considered at the time of final hearing of Section 34 petitions. 
• The Court referred to its recent judgment in Lifestyle Equities C.V. and Another v. Amazon Technologies Inc. (2025) where it had discussed principles governing grant of stay of money decree without conditions. 
• The Court clarified that it was not the case of the respondents that the making of the award was induced or effected by fraud or corruption, which would have warranted unconditional stay under the second proviso to Section 36(3) of the Arbitration Act. 
• The Court held that even applying general principles of CPC, the High Court should have considered whether respondents made out an "exceptional case" for granting unconditional stay of execution of the award. 
• The Court reiterated the test from Lifestyle Equities that for granting unconditional stay of money decree, it must be established more than prima facie that: (i) the decree is egregiously perverse, (ii) is riddled with patent illegalities, (iii) is facially untenable, and/or (iv) such other exceptional causes similar in nature. 
• The Court held that the present case did not fall in any of these categories to seek benefit of unconditional stay of the arbitral award. 
• The Court set aside the High Court's order and directed respondents to deposit the principal amount of Rs. 4 crore with the Prothonotary and Senior Master, Original side, Bombay High Court within eight weeks. 
• The Court clarified that Section 34 applications shall be heard on their own merits without being influenced by the Supreme Court's decision to disturb the impugned order. 
• The Court directed that once the amount is deposited, the Registry shall invest it as a Fixed Deposit in an interest-bearing account with any Nationalised Bank with auto-renewal facility initially for six months. 
• The Court requested the High Court to dispose of the Section 34 applications within six months, considering the nature of the dispute. 
• The Court clarified that stay of execution of the arbitral award shall continue, subject to deposit of the principal amount of Rs. 4 crore.

What is the Power to Set Aside Arbitral Award under Section 34? 

• Section 34 (1) provides that recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).    
• Section 34(2) provides that arbitral award may be set aside only if:   
  • The party making the application establishes on the basis of the record of the arbitral tribunal that-   
    • A party was under some incapacity, or   
    • The arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or   
    • The party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or   
    • The arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:   
    • Provided that if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside.   
      • The composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part, or   
  • The Court finds that-   
    • The subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or   
    • The arbitral award is in conflict with the public policy of India.   
      • Explanation 1 provides that for the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, —   
        • The making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or   
        • It is in contravention with the fundamental policy of Indian law; or   
        • It is in conflict with the most basic notions of morality or justice.   
      • Explanation 2 provides that for the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.  
• Section 34 (2A) provides for setting aside of arbitration award other than international commercial arbitration i.e. domestic arbitration.    
  • This provision provides that an arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the Court, if the Court finds that the award is vitiated by patent illegality appearing on the face of the award.   
    Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.   
• Section 34 (3) provides that an application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:    
• Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.    
• Section 34 (4) provides that on receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award.   
• Section 34 (5) provides that an application under this section shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement.   
• Section 34 (6) provides that an application under this section shall be disposed of expeditiously, and in any event, within a period of one year from the date on which the notice referred to in sub-section (5) is served upon the other party.