High Court called port 'trustworthy', gave lighter stay. SC says: no special treatment.

The port said: 'We're a statutory body, not some shady company.' The High Court agreed. The Supreme Court didn't.

The Madras High Court had called a government-owned port 'trustworthy' and let it off with a light condition to pause a Rs 21-crore arbitration award. The contractor who won that award got nothing — just a bank guarantee, a single sheet of paper with a corporate seal. On October 24, 2024, a three-judge bench of the Supreme Court tore that order apart. The question was simple: does the Arbitration Act have a VIP lane for government companies? The answer was no.

When the dredging contract turned sour

In 2015, Kamarajar Port Limited — a statutory body owned by the central government — awarded a capital dredging contract worth approximately Rs 274 crores to International Seaport Dredging Pvt Ltd. The work involved deepening the port's channels so larger ships could dock. Disputes arose over how the work was executed. The contractor invoked arbitration.

A three-member arbitral tribunal heard the case, sitting in a wood-panelled room in Chennai. In March 2024, it awarded the contractor approximately Rs 21 crores, plus interest and costs. The port authority was not happy. It filed a challenge under Section 34 of the Arbitration and Conciliation Act, 1996 (the provision that lets a party ask a court to set aside an award on limited grounds like fraud, bias, or patent illegality). Along with that challenge, it asked the High Court for a stay on the award's enforcement.

The contractor, meanwhile, had also moved the tribunal under Section 33 of the Act (the provision allowing a party to seek correction of computational errors or an additional award on claims omitted from the original award). The tribunal dismissed the port's Section 33 application but partly allowed the contractor's, increasing the costs awarded by Rs 12,00,000.

What the High Court gave — and what it skipped

The Madras High Court granted the stay. But the condition it imposed was unusually light: the port authority only had to furnish a bank guarantee for the principal amount of Rs 21 crores. It did not have to deposit anything towards the interest or the costs awarded by the tribunal.

The reason? The port was 'not a fly-by operator' and was a statutory undertaking — a government entity with deep pockets and no risk of vanishing. The High Court judge, looking at the bank guarantee on the table, seemed satisfied that this single sheet of paper was enough.

The contractor was furious. A bank guarantee, it argued, was cold comfort. The port authority could drag out the Section 34 challenge for years, and the contractor would get nothing in the meantime. The contractor appealed to the Supreme Court under Article 136 of the Constitution (the provision that allows the Supreme Court to hear appeals at its discretion). The contractor's counsel argued that the High Court had given the port a free pass simply because it was a government body, ignoring the contractor's right to enjoy the fruits of its arbitral victory.

The port authority's counsel countered that the port was a reliable entity with substantial assets. It was not going to disappear overnight. A bank guarantee, they argued, was more than adequate security. The port had never defaulted on any payment. Why should it be treated like a fly-by-night operator?

What the Arbitration Act actually says

The legal question turned on Section 36 of the Arbitration Act. Sub-section (2) says an arbitral award is enforceable like a court decree the moment the time for filing a challenge expires. Sub-section (3) gives the court the power to grant a stay of enforcement — but only on conditions. The Act does not list what those conditions should be. That discretion, the Supreme Court has repeatedly said, must be exercised judicially.

The port authority argued that it was a reliable government entity. It had assets. It would not disappear. A bank guarantee was sufficient security.

The contractor countered that the Arbitration Act is a self-contained code that makes no distinction between a government company and a private company. Section 18 of the Act mandates equal treatment of parties. Giving the port a lighter condition simply because it was a 'statutory undertaking' violated that principle. The contractor's counsel pointed to the thick file of the arbitral award, arguing that the tribunal had considered every claim carefully and the port should not get a discount on compliance just because it was a government body.

Why the Supreme Court rejected the 'fly-by-night' test

The bench — Chief Justice Dr Dhananjaya Y Chandrachud, Justice J B Pardiwala, and Justice Manoj Misra — held that the High Court had erred on two counts. The courtroom fell silent as the Chief Justice began reading the operative portion of the judgment.

First, the court said assessing whether a party is 'reliable' or 'not a fly-by-night operator' is a subjective standard that has no place in the Arbitration Act. "In the absence of any provision of law in this regard, it is inappropriate for courts to apply this standard while adjudicating conditions upon which a stay of an arbitral award may be granted," the bench observed. The Act does not create a hierarchy of parties. A government entity is not more entitled to softer conditions than a private company.

Second, the High Court had only considered the principal amount while setting the stay condition. It had ignored the interest and costs awarded by the tribunal. The Supreme Court held that when granting a conditional stay, the court must consider the entire decretal amount — everything the tribunal awarded, not just one part of it. The bench noted that the High Court had discussed only one claim while ignoring others, which was a fundamental error in determining stay conditions.

The court also clarified that Order XLI Rule 5 of the Code of Civil Procedure, 1908 (the provision governing stays by appellate courts in civil proceedings) does not override the Arbitration Act's scheme. The Arbitration Act, being a self-contained code, must be interpreted on its own terms without importing distinctions from the CPC.

What the Supreme Court ordered instead

The bench modified the High Court's order. It directed the port authority to deposit 75% of the total decretal amount — inclusive of interest — before the High Court on or before November 30, 2024. Only upon that deposit would the stay on the award's enforcement continue. The contractor's appeal was allowed.

The judgment relied on two precedents. In Pam Developments Private Limited v. State of West Bengal (2019), the Supreme Court had held that the Arbitration Act does not give special treatment to government entities. In Toyo Engineering Corpn. v. Indian Oil Corpn. Ltd. (2021), the court had reiterated that the Act is a self-contained code and that courts must apply the same standards to all parties.

The court left open the question of whether the port could appeal under Section 37 of the Act (the provision listing appealable orders from arbitration-related proceedings), noting that the present appeal was decided under Article 136 and did not foreclose any other remedies available to the parties.

The full procedural journey

The case travelled through multiple stages before reaching the Supreme Court:

• March 7, 2024 — A three-member Arbitral Tribunal passed an award in favour of the contractor (the appellant) for approximately Rs 21 crores plus interest and costs.
• Post-award — The port authority filed an application under Section 33 seeking correction or interpretation of the award, which was dismissed. The contractor also filed a Section 33 application seeking an additional award, which was partly allowed — the tribunal increased the costs by Rs 12,00,000.
• September 9, 2024 — The Madras High Court (Single Judge), while hearing the port's challenge under Section 34, granted a conditional stay requiring only a bank guarantee for the principal amount.
• October 24, 2024 — The Supreme Court allowed the contractor's appeal, modifying the High Court's stay conditions to require deposit of 75% of the decretal amount inclusive of interest.

What this means for every arbitration in India

For practitioners, this judgment closes a loophole that government entities had been exploiting for years. When a state-owned company loses an arbitration, its first move is often to approach a court for a stay — and then argue that it deserves lighter conditions because it is a 'government body' or a 'statutory undertaking'. This judgment says: that argument is dead.

THE PLAY: When opposing a government entity's stay application under Section 36(3), cite this judgment to block any argument that the state deserves softer conditions — the Arbitration Act treats every party equally.

The port had asked for a lighter stay because it was trustworthy. The Supreme Court said trust is not a legal standard. The only standard is the law. The bench leaned forward as the contractor's counsel argued his case, and the judgment that followed made clear that in arbitration, there are no VIPs — only parties entitled to equal treatment under a self-contained code.