3 December, 2019
We have previously dealt with the Supreme Court’s decision in the case of BCCI v. Kochi[1] (see here and here) as well as the 2015 Amendments[2] to the Arbitration and Conciliation Act, 1996 (Act) and thereafter the 2019 Amendments[3] to the Act. Briefly recapped, the BCCI case read Section 26 to mean that the 2015 Amendments as a whole were to apply prospectively (meaning thereby that they would apply to arbitral proceedings commencing after October 23, 2015). However, as far as Section 36 (enforcement of a domestic award) of the principal Act was concerned, the 2015 Amendments applied retrospectively since the right to an “automatic stay” under Section 36 was not a vested one.
This meant that both in pending Section 34 petitions (filed prior to October 23, 2015) and in fresh Section 34 petitions, there would be no automatic stay of an award unless a separate application was made for such a stay, which the Court would have the discretion to grant or refuse and would also be premised on the posting of security.
The 2019 Amendments further changed this position by deleting Section 26 altogether and introducing a new Section 87, which provided that (unless the parties agreed otherwise) the 2015 Amendments would apply prospectively to all arbitral and court proceedings commenced after October 23, 2015, and not otherwise.
The Supreme Court on November 27, 2019 in Hindustan Construction Company v. Union of India[4] (Hindustan Construction) struck down Section 87 as unconstitutional for being arbitrary and revived Section 26 of the 2015 Amendments. The emphasis of the Court’s decision was in its policy approach to providing award creditors the benefit of an award by way of security and not letting any automatic stay stymie the execution for several years. Its purpose was to give the benefit of the 2015 Amendments to all arbitrations, regardless of whether they commenced before or after October 23, 2015.
The language of Section 36 did not suggest, according to the Court, that an award would be incapable of execution once a Section 34 petition was filed.[5] In fact it found that the purpose of Section 36 was to emphasise that the award would be a deemed decree under the Civil Procedure Code, 1908(CPC). The reasoning applied was that if the purpose of Section 36 (under the old regime) was read to mean that an automatic stay on enforcement would be available, then it would render the ability to receive interim reliefs under Section 9 in aid of the award “…after the making of the arbitration award but before it is enforced in accordance with Section 36”[6] otiose. That being so, the Court found the cases of NALCO[7] and Fiza Developers[8] to be per incuriam inasmuch as they found that courts did not have any discretion to pass interlocutory orders once a Section 34 proceeding was filed as a result of the automatic stay. On this basis, the purpose of Section 36 (even under the old regime) according to the Apex Court was to emphasise that India does not have a “two bites at the cherry” regime: once a challenge to the award has been decided under Section 34, then the award would be deemed as a “decree” under the CPC and the same grounds may not once again be taken in execution. By declaring this as the law, BCCI was explained in the following words, it is also clear that the amended Section 36, being clarificatory in nature, merely restates the position that the unamended Section 36 does not stand in the way of the law as to grant of stay of a money decree under the provisions of the CPC.”[9]
According to the Supreme Court, the deletion of Section 26 and the introduction of Section 87 (that too, without even referring to the BCCI decision) subverted the purpose of the Act and the 2015 Amendments, and was contrary to public interest because it revived a regime that caused delay in the disposal of arbitral proceedings and was thus arbitrary and unconstitutional.[10] The Court went on to state that the very purpose of the new Section 36 under the 2015 Amendments was to do away with the anomaly under the 1996 Act of a stay operating and the inability to go ahead with enforcement proceedings (much like in the case of a decree where the existence of an appeal does not prevent enforcement as a result of the Order XLI, Rule 5 of the CPC).[11] Section 87 turned the clock back on the proceedings arising out of arbitrations commenced pre the 2015 Amendments and this was manifestly arbitrary.[12]
Accordingly, Section 87 was struck down as was the deletion of Section 26 (thereby reviving it). The Court then gave a clear explanation of the applicability of the 2015 Amendments (all amendments and not just Section 36) in one pithy statement at paragraph 54: “The result is that the BCCI judgment (supra) will therefore continue to apply so as to make applicable the salutary amendments made by the 2015 Amendment Act to all court proceedings initiated after 23.10.2015.” In fact, one may argue that this is an expansion of the scope of the BCCI since in that judgment the Court had specifically stated that while Section 26 was prospective in nature, whether each amendment as a result of the 2015 amendments is clarificatory, declaratory or procedural, and therefore retrospective, would require an independent inquiry.[13]
It is also interesting that now that the Court has given a specific interpretation to Section 36 (whether under the principal Act or after the 2015 Amendments) of the automatic stay never existing, assuming that the applicability of the 2015 Amendments is once again changed by way of a change in law, Section 36 will have to be interpreted to mean that no automatic stay can operate. This judgment focussed on the interplay between BCCI (particularly Section 36) and the new Section 87, which dealt with the applicability of the 2015 Amendments. It remains to be seen, though, how it will pan out when an independent inquiry is indeed undertaken (in a separate challenge) for the applicability of other amended provisions of the Act, a matter that was already foreshadowed by the Court in BCCI itself.
After four rounds, the saga of the applicability of the 2015 Amendments has finally been put to rest with this judgment. Time will tell how this case will play out in practice since in cases where parties have applied to withdraw their deposit, deposit orders will have to be made again, no automatic stays will apply and enforcement proceedings can continue. All in all, however, this decision is a welcome development in the Indian arbitration regime.
For further information, please contact:
Shaneen Parikh, Partner, Cyril Amarchand Mangaldas
shaneen.parikh@cyrilshroff.com
[1] (2018) 6 SCC 287.
[2] Arbitration and Conciliation (Amendment) Act, 2015.
[3] Arbitration and Conciliation (Amendment) Act, 2019.
[4] Writ Petition (Civil) No. 1074 of 2019, Supreme Court, judgment rendered on November 27, 2019.
[5] Hindustan Construction at paragraphs 25, 26.
[6] This is the language of Section 9(1).
[7] National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. 2004 1 SCC 540.
[8] Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr. (2009) 17 SCC 796.
[9] Hindustan Construction at paragraph 32.
[10] Hindustan Construction at paragraph 48.
[11] This provision of the CPC stays that a pending appeal does not stay proceedings under, including the execution of a decree.
[12] Hindustan Construction at paragraph 60.
[13] BCCI, paragraph 54.
