22 May, 2018
The Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) came into force with effect from October 23, 2015. Although this amendment was enacted to remove controversies and iron out wrinkles in the Arbitration and Conciliation Act, 1996, (Parent Act), it has in fact, given rise to its own set of controversies. One of the burning issues was the applicability of the 2015 Amendment. Section 26 of the 2015 Amendment provides for its applicability, and reads as follows:
Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.
One would believe that the above provision would have settled any issue of applicability of the 2015 Amendment. It has instead given rise to more litigation,[i] which has now been partially addressed by the Supreme Court.[ii]
The controversy in all the litigation that came up before the High Courts, and which also saw conflicting points of view, was around the applicability of the amended Section 36 of the Parent Act. In the pre-amendment era, when an award debtor challenged an award under Section 34, the award creditor was prevented from enforcing the award until a determination had been made by a court on the challenge, because of an ‘automatic stay’ on the operation of the award.
In order to overcome this, and for the benefit of award creditors, Section 36 of the Parent Act, was amended to do away with this ‘automatic stay’. It required the challenging party to separately apply for a stay and also required the court to direct the award debtor to deposit the award amount, so as to avoid frivolous challenges. The question for the courts has been the applicability of the amended Section 36 to Section 34 applications that were filed before and after the 2015 Amendment came into force.
Background
One of the first judgments to substantively rule on this issue of applicability was the Delhi High Court case of Ardee Infrastructure v. Anuradha Bhatia.[iii] Rendered by Justice Badar Durrez Ahmed, the judgment interpreted Section 26 as applying the 2015 Amendment only to those arbitral proceedings which were initiated after the commencement of the 2015 Amendment and to court proceedings arising out of them. Arbitral and court proceedings arising out of them, which were initiated before the commencement of the 2015 Amendment, would be governed by the un-amended legislation. It held that Section 26 was divided into two parts and the first part could not be restricted only to the arbitral proceedings, as the language suggested. This was because in such an interpretation, the court proceedings arising out of such arbitral proceedings would be left ungoverned.
Further, it was held that the right to have an award enforced, included the negative right to not have it enforced till the objections to the award under Section 34 are cleared. Therefore, the parties who filed a Section 34 application in relation to an arbitral proceeding which was commenced before the 2015 Amendment, had a vested right to get the award automatically stayed, pending a challenge to the same. As per Section 6 of the General Clauses Act, 1897, any repealing enactment will not affect the rights accrued, unless a contrary intention appears from the repealing enactment. Therefore, Section 36 could not be applied retrospectively to an application challenging an award, as long as the award was passed in arbitral proceedings, which had commenced before the 2015 Amendment.
This position differed from that taken by the Bombay High Court, in the case of Kochi Cricket Pvt. Ltd. v. Board of Control for Cricket in India.[iv] In this case, a challenge to the award was filed before the commencement of the 2015 Amendment, and the execution application for the award was filed after the commencement of the 2015 Amendment. The appellants challenged the execution application applying the un-amended Section 36 to the facts and argued that there was an automatic stay on the award. However, the Single Judge ruled that the amended Section 36 would apply, and there would be no automatic stay, and ordered execution.
Finally, the Supreme Court in appeal from the Bombay High Court has laid to rest the issue of applicability of the 2015 Amendment to Section 36.
Including the above appeal from the Bombay High Court, and all other civil appeals, the Supreme Court dealt with two types of situations in its judgment:
- Where a challenge to an arbitral award has been filed under Section 34, before the commencement of the 2015 Amendment; and
- Where a challenge has been filed after the commencement of the 2015 Amendment, both in relation to arbitral proceedings which commenced before the amendment.
Findings of the Supreme Court
The Supreme Court held that Section 26 is bifurcated into two parts. The first part applies only to the arbitral proceedings which have been initiated in accordance with Section 21. This section appears in Chapter V of the Parent Act, titled “Conduct of Arbitral Proceedings”. Therefore, the first part only deals with the conduct of the arbitral proceedings in accordance with Sections 18-27, forming part of this Chapter V. The second part is separated by a ‘but’ and does not contain the words ‘thearbitral proceedings’ or ‘in accordance with Section 21’. It only contains ‘in relation to arbitral proceedings’. Therefore, the two parts apply to two different situations, and all arbitral proceedings that are the subject matter of the first part are excluded from the second part. The second part only applies to proceedings that are initiated in relation to arbitral proceedings, meaning court proceedings.
Therefore, with respect to one situation, the court held that when a challenge under Section 34 is filed after the commencement of the 2015 Amendment, then the amended Section 36 will apply to such a proceeding, as it is a court proceeding, which is in relation to an arbitral proceeding.
With respect to the second situation – i.e. whether the amended Section 36 would apply to Section 34 applications filed before the commencement of the 2015 Act – the Supreme Court considered Section 6 of the General Clauses Act, 1897.
First, it was held that the automatic stay of the operation of the award under the un-amended Section 36 was not a vested right. This was because Section 36 was nothing but an execution proceeding, and there was sufficient case law to say that there is no substantive right in a judgment debtor to resist execution. Further, the automatic stay under the un-amended Section 36 was more of a clog on the rights of the decree holder, as opposed to a right granted to the award debtor.
Second, the Court held that, in any case, the contrary intention to take away the vested right was clear from Section 26, especially when interpreted in accordance with the object and purpose for which it was enacted.
Analysis
While there is no fault to be found in the reasoning of the Supreme Court here, a glaring lacuna in the judgment is why the analysis of vested rights and effect of the 2015 Amendment was only restricted to the amended Section 36. There are several other amendments such as those of Section 9, 17, 8, 16, etc., which also include court proceedings and arbitral proceedings and would be covered by the 2015 Amendment, but they were not even considered by the Supreme Court. In fact, it refused to look into the said aspects claiming that they were independent and separate inquiries.
Further, by not addressing the above amended sections, the Supreme Court also completely skipped the anomalies that will arise if the interpretation as accorded by it to Section 26, is applied to other situations. For instance, while a Section 17 amendment will only to apply to arbitral proceedings commenced after the 2015 Amendment, a Section 9 amendment, being a court proceeding, will apply even before amendments came into force. This was highlighted in Ardee infrastructure. One argument which may be taken here is that while Section 36 did not affect vested rights, amendments of Section 9 and 17 will affect vested rights, and therefore, a Section 9 amendment would not apply retrospectively. However, instead of leaving the parties to work these issues out for themselves, the Supreme Court could have pronounced upon them. Whether these potential anomalies will give rise to another set of litigation is yet to be seen.
It appears, however, that we may expect some clarity on these issues from the Executive realm. On March 7, 2018 the Union Cabinet issued a press release announcing that it had approved the Arbitration and Conciliation (Amendment) Bill, 2018 (the Bill) for introduction in Parliament. The Bill was introduced to implement recommendations contained in the Report dated July 30, 2017 issued by the High Level Committee (HLC) under the Chairmanship of Justice B. H. Srikrishna, which was constituted inter alia, to evolve an effective and efficient arbitration eco-system for commercial dispute resolution.
Among other proposals, the Bill has sought to clarify the applicability of the 2015 Amendment by introducing a new Section 87 in the Arbitration & Conciliation Act, 1996. The Bill is in line with the interpretation of Ardee Infrastructure – i.e., the 2015 Amendment will only apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated after the commencement of the 2015 Amendment. It will not apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated before the commencement of the 2015 Amendment, even if the court proceedings have been initiated after the commencement of the 2015 Amendment.
While the Bill is yet to be passed in both Houses of Parliament, it is expected that this amendment will conclusively determine the issue regarding applicability of the amended provisions to proceedings before courts, especially in view of the conflicting views of the various High Courts.
[i] Rendezvous Sports World v. Board of Control for Cricket in India, 2017 (2) BomCR 113; Electrosteel Casting v. Reacon Engineers AIR 2016 (NOC 764) 349, New Tirpur Area Devp Corp v. Hindustan Construction O.S.A. Nos.21 & 22 of 2016 (30.08.2017 – Madras High Court), Enercon v. Yogesh Mehra, 2017 SCC OnLine Bom 1744, Tufan Chatterjee v. Rangan Dhar, AIR 2016 Cal 213.
[ii] Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Etc., Civil Appeal Nos. 2879-2880 of 2018 along with other civil appeals.
[iii] Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia 2017 (2) ArbLR 163 (Delhi) (hereinafter ‘Ardee Infrastructure’)
[iv] 2017 (2) BomCR 113.
For further information, please contact:
Anuradha Mukherjee, Partner, Cyril Amarchand Mangaldas
anuradha.mukherjee@cyrilshroff.com
