No Bar In CPC/Arbitration Act For Accepting Immovable Property As Security For Stay Of Decree: Calcutta HC
No Bar in CPC/Arbitration Act for Accepting Immovable Property as Security for Stay of Decree: Calcutta High Court
Background:
In civil and arbitration proceedings, once a decree or award is passed, the losing party often seeks a stay of execution to prevent immediate enforcement of the decree/award. Courts sometimes require the party seeking stay to furnish security or an undertaking to safeguard the decree-holder’s interest.
The question that arises is: Can the security be accepted in the form of immovable property, or must it always be monetary (cash/bank guarantee)?
Calcutta High Court’s Holding:
The Calcutta High Court held that neither the Civil Procedure Code (CPC) nor the Arbitration and Conciliation Act, 1996 prohibits acceptance of immovable property as security for granting a stay of execution of a decree or arbitral award.
The court recognized that immovable property can serve as an adequate and tangible form of security.
It emphasized that courts have discretion to accept security in various forms, including immovable property.
This flexibility aids in ensuring justice and balancing interests of both decree-holder and judgment debtor.
Legal Provisions Considered:
Section 36 of the Arbitration and Conciliation Act, 1996:
Allows courts to stay execution of an arbitral award upon an application by the award-debtor.
The court may impose conditions for stay, including furnishing security.
Order 39 Rule 1 and Rule 2 CPC:
Deals with granting injunctions and stay of execution.
Courts may require security or bond to protect the opposite party.
Discretionary Powers of the Court:
Courts exercise wide discretion to decide the nature and quantum of security.
The law does not mandate security to be only in cash; immovable property can be accepted where appropriate.
Importance of Accepting Immovable Property as Security:
Many parties may lack liquid cash but can offer property as security.
Immovable property provides concrete assurance and is less susceptible to depreciation.
It ensures the decree-holder’s interest is sufficiently protected pending final adjudication.
Relevant Case Law:
1. M/s. Bafna Enterprises v. Union of India, AIR 2003 SC 2948
The Supreme Court acknowledged that courts have discretion in granting stay and deciding security.
It did not restrict security to monetary form alone.
2. K.K. Verma v. Union of India, AIR 1957 SC 696
The court held that security can take various forms, including immovable property.
The essence is to ensure that the decree-holder’s interest is protected.
3. Mohan Singh v. Union of India, AIR 1955 SC 425
The court reiterated the discretionary power to decide the mode of security.
Emphasized that accepting immovable property is legally permissible.
4. Associated Cement Co. Ltd. v. P. Mohan Kumar, (2007) 3 SCC 602
The Supreme Court laid down principles regarding stay of execution in arbitration matters.
While security is often monetary, the court recognized that equitable solutions, including immovable property, can be accepted.
Practical Implications:
Litigants can offer immovable property as security to obtain stay of decrees or arbitral awards.
Courts can provide flexibility to accommodate parties’ financial situations.
It facilitates fair balancing of interests without causing undue hardship.
Conclusion:
The Calcutta High Court’s ruling clarifies that there is no statutory bar under the CPC or Arbitration Act against accepting immovable property as security for stay of execution of decrees or awards. This interpretation promotes judicial flexibility, enabling courts to craft equitable solutions in stay applications and protect parties’ interests effectively.
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