India – The Saga Continues In 2019 – Applicability Of The 2015 Amendments In Light Of The 2019 Amendments..

Readers may recall our earlier blog published here, where we discussed the Supreme Court’s decision of BCCI v. Kochi Cricket[1] dealing with the date of coming into force of the amendments that were made to the Arbitration and Conciliation Act, 1996 (“Act”), by the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendments”). We also briefly discussed the position as set out in the then tabled, proposed 2018 amendments to the Act.

 

Briefly recapped, in BCCI, the Supreme Court ruled that generally the 2015 Amendments applied prospectively. However, it dealt with the issue slightly differently insofar as Section 36 was concerned. Section 36 of the Act prior to the 2015 amendments provided that if the time for making an application challenging an award had expired or if a challenge application had been made and refused, the award could be enforced. This implied an automatic stay against enforcement. The 2015 Amendments took away the automatic stay and instead stated that the mere filing of a challenge application under Section 34 against the award will not render the award unenforceable, unless the Court grants a stay against enforcement on a separate application being made.

 

The Apex Court ruled that the issue of stay on enforcement was a procedural matter (rather than a substantive and vested right), and that accordingly, insofar as the 2015 Amendments applied to Section 36, they would apply retrospectively, that is, to all court proceedings related to arbitral proceedings, filed after or pending on October 23, 2015 (the date on which the 2015 Amendments came into force), whether those arbitral proceedings were commenced before or after October 23, 2015. Keeping in mind that further amendments to the Act were on the cards (by way of the Arbitration and Conciliation 2018, (Amendment) Bill), the Supreme Court also asked that a copy of its judgment be sent to the Law Ministry and the Attorney General in view of what the judgment stated about the purpose of the 2015 Amendments which was to reduce delay and court interference in arbitration.

 

The 2018 proposed amendments lapsed and finally on August 9, 2019, the Arbitration and Conciliation (Amendment) Act, 2019) (“2019 Amendments”) received the President’s assent. They are not, as of the date of writing this piece, in force, and will come into force only upon notification in the Official Gazette. By way of these amendments, the position as laid down in BCCI will no longer stand (despite efforts of the Supreme Court to guide the Law Ministry in this regard).

 

Applicability of the 2015 Amendments:

 

Insofar as the vexed issue of the applicability of the 2015 Amendments is concerned, the 2019 Amendments add a new Section 87 in the Act (deleting Section 26 of the 2015 Amendments), which provides that unless parties otherwise agree, the 2015 Amendments will not apply to arbitral proceedings which commenced prior to October 23, 2015 and any court proceedings arising from them. The 2015 Amendments then apply to arbitrations which commence on or after October 23, 2015 and related court proceedings, thus shifting the focal point to the date from which the arbitral proceedings commenced.

 

Section 87 provides clarity and certainty, given that it is one date and one action, i.e. the date of commencement of the arbitration, which is of consequence in determining whether the pre-amendment or post amendment regime would apply. In doing so, it deviates completely from the BCCI position which applied the 2015 Amendments to court proceedings pending on or filed after October 2015, albeit the arbitration commenced prior thereto. Notably, BCCI also stated that it was restricting its findings to only Section 36, thus leaving it open to interpretation whether the same position would apply to court proceedings under other provisions of the Act (such as for the purposes of challenge to awards or interim reliefs), resulting in some ambiguity as to the rights of parties. Section 87 lays this ambiguity to rest – once it comes into force – the position under BCCI still rules the roost, for now.

 

While the ambiguity may have disappeared for pending proceedings in which no orders have been passed, or proceedings filed, there is still considerable room for confusion and further litigation, given that the BCCI judgment was passed on March 15, 2018. Since then, following BCCI, while an automatic stay may have applied to a proceeding challenging an award (i.e. the pre-amendment position under Section 36), that stay would stand lifted thus allowing enforcement of an award.

 

Additionally, there have been several cases where courts have directed the award debtor to deposit the award amount / security into court (sometimes also allowing the award-creditor to withdraw such amounts).

 

What happens in such cases once the 2019 Amendments come into force? Arguably, a vast number of cases may have to be re-opened. Arguably, any amount / security deposited in court may have to be refunded. In cases where stays have been refused, an automatic stay will begin to apply if the arbitration was commenced prior to October 23, 2015.

 

What about cases in which the award was actually enforced? Can parties be restored to status quo ante?  Perhaps – if it is a monetary amount; but what about asset transfers, say shares in a company, or property transfers? What about third party rights that may have been created thereafter?

 

Parties that have been made to deposit security as a condition for stay under the 2015 regime will now likely apply to court to seek withdrawal of security on the basis that under the old Act no security is required as a condition of automatic stay.

 

It would have been helpful if the 2019 Amendments dealt in some manner with the BCCI ruling and cases where orders had been passed based on BCCI.

 

Apart from the issue of dates, the possibility of further imbroglios arise. Section 87 begins with the words “unless the parties otherwise agree”, i.e. the parties may have agreed to apply the amendments to arbitral and court proceedings that have been filed prior to the cut-off date of October 23, 2015. While there may not be an issue if the language is clear and express, but certainly much ado can and will be made of any ambiguity, either actual of perceived. For example, if the arbitration clause states that the Arbitration and Conciliation Act, 1996, “as amended from time to time” or “for the time being in force”, we may be home free and clear.  Less so, if otherwise.

 

The possibility of further litigation and the need for further clarification is almost certain.

 

Applicability of the 2019 Amendments:

 

Although the Legislature recognised the problems that had arisen in applying the 2015 Amendments, while being relatively particular in taking steps to provide clarity, it appears not to have foreseen that the same issues may arise in relation to application of the 2019 Amendments.  It is not specified whether (once notified), they will apply only to fresh filings or to pending arbitral / court proceedings as well.

 

Further,  the differentiation made by BCCI between procedural matters and substantive or vested rights, or even whether an amendment is clarificatory, declaratory or procedural in nature (based on which the Supreme Court held that amended provisions of Section 36 would apply even to pending proceedings), has been ignored.

 

Current scenario:

 

The 2019 Amendments have not come into force and accordingly, as aforesaid, the Supreme Court’s decision in BCCI must still be followed. It is clear that further clarification is required.

 

Watch this space, we will necessarily have to come back with a further update and conclusion. For now, we wait and watch to see how things unfold once the 2019 Amendments are notified and come into force.