The Supreme Court recently ruled that government entities must be treated in a similar fashion to private parties in arbitration proceedings before courts of law. [International Seaport Dredging Pvt Ltd v. Kamarajar Port Limited].
A Bench of Chief Justice of India DY Chandrachud and Justices JB Pardiwala and Manoj Misra said,
"Governmental entities must be treated in a similar fashion to private parties insofar as proceedings under the Arbitration Act are concerned, except where otherwise indicated by law."
The Court further ruled that an assessment as to whether a party is reliable or trustworthy is subjective, and courts cannot make such a distinction. According to the judgment, it would be inappropriate for courts to differentiate between government and private entities while adjudicating the conditions upon which a stay of an award may be granted.
"Similarly, the form of security required to be furnished should not depend on whether a party is a statutory or other governmental body or a private entity," the Court added.
The judgment was passed in an arbitration dispute between International Seaport Dredging and Kamarajar Port, the latter being a government entity. International Seaport was engaged by Kamarajar Port in 2015 to undertake removal of offshore boulders and transportation, removal of debris, and environmental monitoring, among other work.
A dispute arose between the parties in 2017, as a result of which they commenced arbitral proceedings before a panel of three arbitrators. In March 2024, the arbitral tribunal directed Kamarajar Port to pay International Seaport an amount of ₹21,07,66,621 with interest from 2017 and costs of ₹ 3,20,86,405.
Kamarajar Port challenged the validity of the arbitral award before the Madras High Court. On September 9 this year, the High Court granted an interim stay on the arbitral award, on the condition that the government entity provides a bank guarantee for the principal amount awarded (over ₹21 crore). The High Court refused to issue orders in relation to the interest and the costs awarded on the ground that Kamarajar Port was not a fly-by operator and is a statutory undertaking.
International Seaport challenged this order, contending that the High Court was not justified in directing merely the furnishing of a bank guarantee in relation to the principal amount. It further contended that Kamarajar Port should have been directed to deposit the amount awarded to it as a condition for the grant of a stay on the execution of the award.
The Court accepted International Seaport's contention, ruling that the courts cannot apply different criteria for government entities to grant a stay on arbitral awards.
"The Arbitration Act is a self-contained code – it does not distinguish between governmental and private entities. Hence, the decision of the Court cannot be influenced by the position of the party before it and whether it is a fly-by-night operator," the judgment said.
In these terms, the Bench modified the High Court order and directed Kamarajar Port to deposit 75% of the decretal amount, inclusive of interest, on or before November 30.
It also made the stay on the enforcement of the award conditional on Kamarajar Port depositing the amount with the High Court.
International Seaport was represented by Senior Advocate Shyam Divan, who was briefed by a team from Shardul Amarchand Mangaldas comprising Partners Shally Bhasin and Chaitanya Safaya, and Senior Associate Prateek Yadav.
Kamarajar Ports was represented by Senior Advocate C Aryama Sundaram with Advocate Rohini Musa.
[Read judgment]