The Punjab & Haryana High Court has clarified that the release of 50% of an arbitral award amount under Section 36(2) of the Arbitration and Conciliation Act, 1996 cannot be ordered unconditionally. The judgment reinforces the requirement of a bank guarantee as a precondition for such withdrawal, aligning with prior binding precedent and ensuring protection of the award debtor’s interests.
Background & Facts
The Dispute
The dispute arises from an arbitration award passed in favor of respondents, who were land losers in a land acquisition proceeding under the National Highways Act, 1956. The National Highways Authority of India (NHAI), as the petitioner, was directed to deposit the full award amount in execution proceedings. Respondent No.1, Ramel Singh, applied under Section 36(2) of the Arbitration and Conciliation Act, 1996 for the unconditional withdrawal of 50% of the deposited amount. The Additional District Judge, Rupnagar, by order dated 06.03.2026, permitted such withdrawal without any security condition.
Key Facts
- The arbitral award was passed in favor of respondents in ARB/433/2023
- NHAI deposited the full award amount in execution proceedings prior to the impugned order
- The amount was attached in execution proceedings as of the date of the impugned order
- Respondent No.1 sought release of 50% of the deposited amount without any condition
- The learned Additional District Judge granted the request unconditionally on 06.03.2026
Procedural History
- Date of Arbitral Award: Not specified in judgment, but proceedings initiated under ARB/433/2023
- Date of Deposit: Prior to 06.03.2026, full award amount deposited with executing court
- 06.03.2026: Additional District Judge, Rupnagar, ordered unconditional withdrawal of 50% of deposited amount
- 17.03.2026: NHAI filed revision petition under Article 227 of the Constitution before the Punjab & Haryana High Court
- 04.09.2025: Punjab & Haryana High Court delivered judgment in CR-2594-2025 (National Highways Authority of India v. Piara Lal and others) establishing the bank guarantee requirement
The Parties' Positions
For the Petitioner (NHAI)
- Argued that the impugned order violated the binding precedent in National Highways Authority of India v. Piara Lal and others (Annexure P-7)
- Contended that unconditional release of 50% defeats the purpose of safeguarding the award debtor’s interest
- Highlighted that the amount was already attached and no security was furnished by respondents
- Undertook to deposit the entire award amount within one week if the court modified the order
For the Respondent (Ramel Singh)
- Submitted that the order permitting 50% withdrawal was lawful and reasonable
- Argued that imposing a bank guarantee was unnecessary since only half the amount was being released
- Maintained that the court below had discretion to grant relief without security
Relief Sought
NHAI sought modification of the order dated 06.03.2026 to condition the release of 50% of the award amount on the furnishing of an adequate bank guarantee, in line with the precedent in National Highways Authority of India v. Piara Lal and others.
The Legal Issue
The central question was whether, under Section 36(2) of the Arbitration and Conciliation Act, 1996, a court may permit the unconditional withdrawal of 50% of the arbitral award amount, or whether such withdrawal must be subject to the condition of furnishing an adequate bank guarantee, as previously laid down by this Court.
Arguments Presented
For the Petitioner
NHAI relied on the binding precedent in National Highways Authority of India v. Piara Lal and others, wherein this Court held that 50% of the deposited award amount may be released only upon the land losers furnishing an adequate bank guarantee. It argued that the impugned order directly contradicted this ruling and created a risk of irretrievable loss to NHAI if the award were later set aside under Section 34. The petitioner also undertook to deposit the full amount within one week, demonstrating good faith and compliance.
For the Respondent
The respondents contended that the court below had exercised its discretion appropriately and that imposing a bank guarantee was an unnecessary burden. They argued that since only half the amount was being released, and the balance remained attached, there was no real risk to NHAI. No statutory provision, they submitted, mandated a bank guarantee for such partial withdrawal.
The Court's Analysis
The Court examined the precedent in National Highways Authority of India v. Piara Lal and others and found that the impugned order directly conflicted with its binding directions. The earlier judgment had explicitly laid down a structured mechanism: 50% of the award amount may be released only upon the furnishing of an adequate bank guarantee, while the remaining 50% must be kept in a Fixed Deposit Receipt (FDR) in a nationalized bank.
"The respondents-land losers shall be permitted to seek release of the aforesaid amount of 50% mentioned in the preceding para, even partially i.e. less than 50% also subject to furnishing of adequate bank guarantee and thereafter, the remaining amount shall be deposited in the Nationalized Bank in the shape of FDR in the same manner."
The Court emphasized that the purpose of this condition is to balance the rights of both parties: the land losers must receive timely compensation, while the award debtor (NHAI) must be protected against the risk of having to recover funds if the award is later set aside. Unconditional release, the Court held, undermines this balance and exposes NHAI to potential financial harm.
The Court further noted that the amount in question was already attached in execution proceedings, which provided a degree of security. However, attachment alone does not substitute for a bank guarantee, which is a proactive, enforceable, and liquid form of security. The Court rejected the respondent’s argument that the quantum of withdrawal (50%) justified dispensing with security, stating that the principle established in Piara Lal was categorical and not subject to quantitative exceptions.
The Verdict
The revision petition was allowed. The order dated 06.03.2026 of the Additional District Judge, Rupnagar, is modified. Upon NHAI depositing the entire award amount before the executing court within one week from today, respondent No.1 shall be entitled to withdraw 50% of the amount only upon furnishing an adequate bank guarantee. If NHAI fails to deposit the full amount within one week, the stay on execution proceedings shall stand vacated. The balance 50% shall remain in the executing court’s custody until final disposal of any Section 34 petition.
What This Means For Similar Cases
Bank Guarantee Is Mandatory for Partial Withdrawal
- Practitioners must now insist on the bank guarantee condition in all Section 36(2) applications for partial withdrawal of award amounts
- Courts cannot grant unconditional release even if the amount is only 50% or less
- The guarantee must be adequate, issued by a scheduled bank, and enforceable against the beneficiary
Precedent Overrides Judicial Discretion
- The Piara Lal precedent is binding on all subordinate courts in Punjab & Haryana
- Lower courts cannot rely on general discretion under Section 36(2) to bypass this condition
- Any order granting unconditional withdrawal is liable to be set aside on revision
Strategic Implications for Award Debtors
- NHAI and similar public entities should immediately deposit full award amounts to trigger the protection mechanism
- Once deposited, they may invoke Piara Lal to oppose any request for release without security
- The one-week deposit window established here provides a clear procedural pathway to secure relief
