Written By: Apoorv Agarwal, Arya Anand
Introduction
“Discourage litigation. Persuade your neighbours to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fees, expenses, and waste of time”[1], Abrahm Lincoln’s words succinctly highlights the foundational philosophy behind the Arbitration and Conciliation Act, 1996 (hereinafter, “the Act”) which aims at speedy, cost efficient resolution having minimal court interference and maximum party autonomy[2]. However, the Legislation recognising that Arbitral Awards (hereinafter, “the Award”) may contain errors, provided a means to challenge Awards on limited grounds mentioned within Section 34[3] of the Act, however, Section 36(3)[4] of the Act gives discretion to courts hearing such challenges to grant stay on the enforcement of an Award if the case warrants but more critically also impose conditions on which stay shall be granted. Owing to this discretion, courts in recent years have directed parties initiating the challenge to pre-deposit substantial, if not full award amounts, oft with interest, as an entry fees in form of “conditions” for granting a stay under Section 36(3)[5] of the Act, thereby raising grave concerns about the balance between enforceability of awards by the holder and access to justice for the party challenging the award as this condition imposes a hefty financial burden on them to deposit full award amount to secure a stay on enforcement, despite the court having already found merit in the challenge. Therefore, this paper seeks to trace and analyse the jurisprudence of pre-deposit requirements of award amounts in Section 34[6] challenges to the Award.
Was this Always the Case?
Prior to 2015, the law was, simply filing a challenge under Section 34 of the Act automatically stayed the enforcement of arbitral awards, thereby providing instant relief to the challenging party without conditions, however post the 2025 amendment to the Act[7], this was fundamentally changed via the insertion of a revised Section 36 whereby, automatic stays were done away with and instead courts now had discretion to grant stay on enforcement after case-by-case evaluation but more critically also discretion to impose conditions on which stay shall be granted. Unconditional stays are now rare and granted only when the arbitration agreement or making of the award was fraught with fraud, misrepresentation or corruption as per Proviso to Section 36(3)[8] of the Act and as reaffirmed by the Hon’ble Supreme Court in Popular Caterers v Ameet Mehta and Ors[9] where an unconditional stay was set aside and instead subjected to deposit of the award principal amount. This evolution of the law has now raised a new and pertinent question whether a pre-deposit is a condition precedent for a Section 34 challenge and if so, how much?
Is Pre-Deposit a Condition Precedent for Courts to entertain Stay proceedings?
Upon a plain reading and review of the Act and text of Section 34 and 36, there is no statutory provision or requirement which mandates having a pre-deposit of the award amount as a condition for filing or hearing a Section 34 petition[10]. Within the realm of litigation, the Hon’ble Supreme Court has consistently reversed attempts of subordinate courts to impose pre-deposit as a condition precedent for courts hearing appeals. In Kayamuddin Shamsuddin Khan v. State Bank of India[11] the Bombay High Court required the appellant to pre-deposit 75,000 rupees within two weeks in order to avoid the dismissal of the appeal filed by them for non-failure of deposit. When the Appellant did not comply, their appeal was dismissed, whereby the impugned order was challenged before the Hon’ble Supreme Court. However, the Supreme Court, invoking Order 41 Rule 5(5) of the CPC[12], ruled that the Appellant’s non-compliance with such a deposit condition could only permit refusal of a stay on the execution of the decree but not an outright dismissal of their appeal. Whereas in Devi Theatre v. Vishwanath Raju[13]the Hon’ble Supreme Court stated that only merits alone can determine the admission of a first appeal under Section 96 CPC read with Order 41 Rule 11 and not any kind of financial conditions or compliance.
The same principle has been extended to the context of Arbitration as well. A great example being Maharashtra Krishna Valley Development Corporation, Pune v. BT Patil and Sons (Construction) Private Limited[14] which involves a Section 37 appeal wherein the award holder contended that the award challenger had not deposited the full award amount, consequently relying on the same the Bombay High Court refused to entertain the appeal without pre-deposit of the full amount. However, the Hon’ble Supreme Court transported the holding in Kayamuddin[15] & Devi Theatre[16] into the realm of Arbitration as well and set aside the impugned directions passed by the Bombay High Court, thereby upholding the principle that pre-deposit of award amount cannot be a precondition for hearing a Section 34 challenge.
Furthermore, Harshvardhan Metals Ltd & Anr. Versus ISF Commodities (P) Ltd[17]wherein the Hon’ble Delhi High Court stated that even bye-laws cannot impose a pre-deposit of an awarded amount as a precondition for entertaining a Section 34 challenge because this contradicts the Act’s statutory framework which does not prescribe any such requirement for entertaining a plea under Section 34 and that bye-laws serve as operational guidelines but cannot override statutory rights of parties to challenge an award on limited grounds mentioned in Section 34.
Additionally, the holding in Maharashtra Krishna Valley[18] was upheld by the Delhi High Court in SEPCO Electric Power Construction Corporation v. Power Mech Projects Limited[19]where they stated that refusal by courts to hear a Section 34 application merely on grounds of non-compliance with pre-deposit conditions was impermissible and the same was subsequently upheld by the Hon’ble Supreme Court as well[20].
Therefore, in light of the above catena of judgements, an application filed for setting aside an arbitral award under Section 34 of the Act cannot be simply dismissed for want for full/partial payment of Award Amount, which hasn’t been pre-deposited and the remedy to challenge an award is a statutory right.
If Courts may order for Pre-deposit of Award Amount and if so, how much?
While, yes, the Pre-deposit of Award Amount isn’t a prerequisite for filing and entertaining an application for stay proceedings. However, the Courts do have the authority to ask the party filing the Stay Application to pre-deposit the Award Amount as a Security in the event the stay application is rejected, so long as the same doesn’t impact the actual adjudication of the Stay Application by the court even in cases of non-payment of the Award Amount[21]. However, Unconditional stays may be given when the arbitration agreement or making of the award was fraught with fraud, misrepresentation or corruption as per Proviso to Section 36(3) or the award is perverse or prima facie hit by the limited grounds under Section 34(2).
An instance of courts applying the above discretion for pre-deposit as a security is Nitu Shaw vs. Bharat Hitech Cements Pvt. Ltd[22] where the Calcutta High Court stated that under Section 36(3), the conditions the court may deem fit can include requiring pre-deposits for stays as a security measure as this cushions the award holder by ensuring real protection against no-recovery of or any delays in enjoying the fruits of the award in case the challenge to the award fails, thereby rendering enforcement effective rather than mere illusory. Continuing this rationale, in Apollo International Limited v. Man Structurals Private Limited[23], the Punjab and Haryana High Court under a Section 36 directed the challenging party to deposit the decree/award amount to the court until the Section 34 application is disposed off, since arbitral award functions as a money decree, therefore securing the full award amount protects the award holders interests by safeguarding against the judgement debtor from non-payment of the original award amount, thus it acts as a means of a deposit that locks the funds to the court for the final award recovery in case of failure of the challenge.
With regards the quantum of pre-deposit, in Indian Oil Corporation Limited v. Toyo Engineering Corporation & Anr.[24] Justice Jyoti Singh of the Delhi High Court reaffirmed that during an enforcement hearing of an award, the court holds discretion based on law and individual facts and circumstances based on which they may mandate either full deposit of the award amount or a portion of the same, presently in the case, the court required merely 20% of the award amount. However, in Power Mech Projects Ltd v. SEPCO Electric Power Construction Corporation[25], again Justice Jyoti Singh of the Delhi High Court, relying on the Orders observed that going by the Supreme Court as well as the facts of the case, directed the award challenger to pre-deposit 100% of the awarded amount to secure the respondent.
Lastly, to sum it up, in Ecopack India Paper Cup Pvt. Ltd. v. Sphere International[26] the Bombay High Court held while Order XLI Rule 5 CPC guides stays for awards, they are still discretionary and fact specific because there exists no straightjacket formula for calculating pre-deposit award amount yet it is not mandatory for court to demand pre-deposit as a mandatory prerequisite for a section 34 challenge and consequent stay of the award.
Conclusion
Therefore, in conclusion via the catena of judgements on pre-deposits in Section 34 proceedings reflects a carefully evolving balance between competing objects of ensuring enforceability of awards while preserving access to review of the same. While courts have consistently held that pre-deposit cannot be a condition precedent for entertaining a Section 34 challenge, courts still do hold discretion under Section 36(3) to impose such deposit requirement based on a case-to-case analysis and for the sake of security to the award holder. However, the absence of a uniform standard for the same has contributed to inconsistencies and unpredictability which in the end is detrimental to the award challenger. Therefore, moving forward, there is a need for structured and standardized judicial guidelines and factors for imposing pre-deposit such taking into consideration financial capacity of parties, the prima facies merits of the challenge and especially the risk analysis of non-recovery in case of failure of the challenge. Courts may also consider introduction of alternative means of safeguards other than pre-deposits such as bank guarantees, undertakings or assets disclosure and attachment. Ultimately a balanced approach must be adopted by courts to ensure that enforcement does not come at the cost of rendering the statutory remedy under Section 34 as mere illusory.
[1] Abraham Lincoln et al., The Collected Works of Abraham Lincoln (Rutgers Univ. Press 1953).
[2] Bhumika Indulia, ‘Writ Jurisdiction and Arbitral Autonomy: Striking the Right Balance in India’s Arbitration Landscape’ (SCC Times 24 September 2024) <https://www.scconline.com/blog/post/2024/09/24/writ-jurisdiction-arbitral-autonomy-striking-right-balance-india-arbitration-landscape/>.
[3] Arbitration and Conciliation Act, 1996 § 34, Limited grounds include: Party incapacity, invalid arbitration agreements, no sufficient notice or opportunity to defend, dispute being outside scope of arbitration, conflict with public policy or patent illegality among others.
[4] Arbitration and Conciliation Act, 1996 § 36.
[5] Ibid.
[6] Arbitration and Conciliation Act, 1996 § 34.
[7] Arbitration and Conciliation (Amendment) Act, 2015 inserted by Act 3 of 2016 (w.e.f. 23-10-2015).
[8] Arbitration and Conciliation Act, 1996 § 36(3) Proviso.
[9] Popular Caterers v. Ameet Mehta & Ors, 2025 INSC 1354 / MANU/SC/1596/2025
[10] Kapil Arora and Palak Nagar, ‘Can a Challenge to an Arbitral Award Be Dismissed for Non-Compliance with Conditions for Stay on Enforcement?’ (Dispute Resolution Blog – Cyril Amarchand Blogs 4 October 2023) <https://disputeresolution.cyrilamarchandblogs.com/2023/10/can-a-challenge-to-an-arbitral-award-be-dismissed-for-non-compliance-with-conditions-for-stay-on-enforcement/>.
[11] Kayamuddin Shamsuddin Khan v. State Bank of India, (1998) 8 SCC 676.
[12] Code of Civil Procedure, 1908 o41 r5(5).
[13] Devi Theatre v. Vishwanath Raju, (2004) 7 SCC 337.
[14] Maharashtra Krishna Valley Development Corporation, Pune v. BT Patil and Sons (Construction) Private Limited, 2021 SCC OnLine SC 3524.
[15] Kayamuddin Shamsuddin Khan v. State Bank of India, (1998) 8 SCC 676.
[16] Devi Theatre v. Vishwanath Raju, (2004) 7 SCC 337.
[17] Harshvardhan Metals Ltd & Anr. Versus ISF Commodities (P) Ltd, 2025:DHC:3776, O.M.P. (COMM) 351/2020.
[18] Maharashtra Krishna Valley Development Corporation, Pune v. BT Patil and Sons (Construction) Private Limited, 2021 SCC OnLine SC 3524.
[19] SEPCO Electric Power Construction Corporation v. Power Mech Projects Limited, 2023:DHC:3254, FAO(OS)(COMM) 109 of 2023.
[20] Power Mech Projects Limited v. SEPCO Electric Power Construction Corporation, SLP (C) No. 20543 of 2023, 26.09.2023.
[21] Aditya Mehta, Arjun Sreenivas and Swagata Ghosh, ‘Conditional or Unconditional Stay, That Is the Question – the Fate of Arbitral Awards in India, Pending Challenge’ (India Corporate Law – Cyril Amarchand Blogs13 April 2020) <https://corporate.cyrilamarchandblogs.com/2020/04/conditional-or-unconditional-stay-that-is-the-question-the-fate-of-arbitral-awards-in-india-pending-challenge/>.
[22] Nitu Shaw vs. Bharat Hitech Cements Pvt. Ltd, IA No.GA/1/2021; AP/82/2021 dated 19 March 2021
[23] Apollo International Limited v. Man Structurals Private Limited (CR-5996-2024, Judgment dated 20/11/2024)
[24] Indian Oil Corporation Limited v. Toyo Engineering Corporation & Anr, O.M.P. (COMM) 316/2019 decided on 6 March 2020,
[25] Power Mech Projects Ltd v. SEPCO Electric Power Construction Corporation, O.M.P.(I) (COMM.) 523/2017 decided on 17 February 2020.
[26] Ecopack India Paper Cup Pvt. Ltd. v. Sphere International, 2018 SCC OnLine Bom 540.
