The Supreme Court in its recent judgment in the matter of Ratnam Sudesh Iyer v. Jackie Kakubhai Shroff1 has held that an amendment made to Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) via the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment”) will apply prospectively only to Section 34 applications that have been filed after the date of the 2015 Amendment, i.e., October 23, 2015.
Facts of the Case
In the present case, the Appellant is a Singapore national, and the Respondent is an Indian national. Both parties were shareholders in an Indian investment holding company called Atlas Equifin Pvt. Ltd. which held 11,05,829 equity shares in another Indian entity named Multi Screen Media Pvt. Ltd. (“MSM”). In 2010, a dispute arose between the parties wherein the Respondent alleged that his signatures were forged by the Appellant on a placement instruction through which the Appellant sought to sell his shares in MSM.
The parties, however, entered into a Deed of Settlement which contained an arbitration clause which specifically allowed any disputes to be referred to Arbitration in terms of the provisions of the Arbitration Act existing on the said date and any subsequent amendments to the provisions thereto.
In 2012, while a sale of the parties shares in MSM was pending, the Appellant filed an application under Section 9 of the Arbitration Act seeking interim relief i.e. preventing the proceeds of the sale of shares from being released to the Respondent, on account of the breach of the Deed of Settlement caused due to a certain e-mail sent by the Respondent’s wife. The dispute was then referred by the consent of the parties to a sole arbitrator. The sole arbitrator issued a final award in favour of the Appellant, awarding him liquidated damages to the tune of $1.5 million. Furthermore, the Respondent was held not entitled to receive an amount of $2 million which was in escrow on account of his breach of the Deed of Settlement.
Thereafter, in January 2015, the Respondent filed an application under Section 34 of the Arbitration Act before the High Court of Bombay for setting aside of the arbitral award on the ground of patent illegality. The Single Judge of the High Court ruled in favour of the Respondent and set aside the arbitral award. Later on the Appellant’s appeal under Section 37 of the Arbitration Act before the Division Bench of the High Court was dismissed. The Appellant thereafter filed a petition before the Supreme Court.
Question of Law
- Whether the instant case would be an international commercial arbitration within the meaning of Section 2(f) of the Arbitration Act as the Respondent was a Singapore national?
- Whether proceedings initiated prior to the amendment of Section 34 of the Arbitration Act, would be retrospectively applicable in the present case keeping in mind the Arbitration Clause in the agreement?
Decision of the Supreme Court
With respect to the first question of law, the Supreme Court observed that the distinction made sought to be carved out by the 2015 Amendment to Section 34 of the Arbitration Act between a domestic award arising from international commercial arbitration and a purely domestic award. Further, the Hon’ble Court opined that while the plea of the award being vitiated by patent illegality is available for a purely domestic arbitral award, such a plea is not available for domestic award arising from an international commercial arbitration. The Supreme Court observed that in relation to the present dispute both the Single Judge and the Division Bench of the High Court have failed to bear in mind the aforestated distinction. The judgments passed by the Single Judge and the High Court proceed on the premise that the present award cannot be sustained in either scenarios.
Thereafter, on the second question of law the Supreme Court analysed whether the 2015 Amendment would be retrospectively applicable as proceedings under Section 34 of the Arbitration Act were initiated by the Respondent prior to the amendment. The Supreme Court followed the law laid down in the judgments of BCCI v. Kochi Cricket Pvt. Ltd.2 and Ssangyong Engineering and Construction Company Ltd. v. National Highways Authority of India3, wherein it was clarified that the amendment to Section 34 of the Arbitration Act will only apply prospectively.
The Supreme Court while rejecting the contention of the Appellant that parties had the freedom to mutually agree to apply the procedural law in force at the relevant point in time, inter alia reiterated that the general conditions of a contract cannot constitute an agreement between the parties to apply the provisions of the subsequent amendments (2015 Amendment) retrospectively. Pertinently in this regard, reference was made to its earlier decision in S.P. Singla Constructions Pvt. Ltd. v. State of Himachal Pradesh4.
Accordingly, applying the aforestated principles to the facts of the present case, the Hon’ble Court explained in this case that the proceedings under Section 34 of the Arbitration Act had already begun when the 2015 Amendment Act came into force. Pertinently, the Court proceedings were already subject to the pre-2015 legal position and that a generically worded language such as Clause 9 of the Deed of Settlement cannot be deemed to constitute an agreement to change the course of law prescribed under the procedures under Section 34 of the Arbitration Act. Conclusively, the Court then examined the arbitral award and held that the arbitrator’s conclusions were not in accordance with the fundamental policy of Indian law and could thus be set aside as per the pre-2015 provisions of Section 34 of the Arbitration Act.
Article first published on Mondaq.
Footnotes
1. 2021 SCC OnLine SC 1032
2. (2018) 6 SCC 287
3. (2019) 15 SCC 131
4. (2019) 2 SCC 488
