Supreme Court of India: The Arbitration and Conciliation (Amendment) Act, 2015 is applicable prospectively to arbitral proceedings and to court proceedings

Supreme-Court-of-India-1_85138_730x419

In the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and etc. Civil Appeal No. 2881 of 2018 (Arising Out of Slp (C) No.20224 of 2016), the Supreme Court of India (the Court) addressed the issue as to the construction of Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (the Amendment Act). It is pertinent to mention herein that the Amendment Act came into force w.e.f. 23rd October, 2015. Before the Amendment Act, there used to be an automatic stay on the enforcement of an award till the application to set aside the award has not been finally disposed off. But in the Amendment Act Order LXI, Rule 5 of the Indian Civil Procedure Code has now became applicable as a result of this, instead of an automatic stay, a deposit of the entire amount or substantial amount of the award have to be made in the interim period between the award and the decision in the application to set aside the award. The Court while dealing with certain applications under Indian Arbitration Act (the Act) resolved the issue of the application of the Amendment Act inter alia holding that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force. Detailed analysis of the case is given below:

Factual Matrix

Kochi Cricket Pvt. Ltd. (KC) invoked arbitration against Board of Control for Cricket in India (BCCI) and an award (the Award) was passed against BCCI. Aggrieved by the Award, BCCI file an application to set aside the award under Section 34 of the Act in the High Court. Meanwhile KC filed an execution petition for enforcing the Award. This was contested by BCCI arguing that the old Section 36 (i.e. prior to the Amendment Act) would be applicable, and therefore, there would be an automatic stay of the Award the application to set aside the Award has been disposed off. This contention of BCCI was rejected by the Single judge in the Court. Aggrieved by the said order, BCCI appealed before the larger bench.

Applicable Legal Principles

Section 26 of the Amendment Act

Section 26. Act not to apply to pending arbitral proceedings.

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.

Section 21 of the Act

Section 21. Commencement of arbitral proceedings.

Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular
dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

Section 36 Pre Amendment Version (i.e. before the Amendment Act came into force)

Section 36. Enforcement.

Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.

Section 36 Amendment Version (i.e. after the Amendment Act came into force)

Section 36. Enforcement.

(1) Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the court. 

(2) Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.

(3) Upon filing of an application under subsection (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing:

Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).

 Section 85A as proposed by the Law Commission of India

(1) Unless otherwise provided in the Arbitration and Conciliation (Amending) Act, 2014, the provisions of the instant Act (as amended) shall be prospective in operation and shall apply only to fresh arbitrations and fresh applications, except in the following situations –

(a) the provisions of section 6-A shall apply to all pending proceedings and arbitrations.

Explanation: It is clarified that where the issue of costs has already been decided by the court/tribunal, the same shall not be opened to that extent.

(b) the provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the court/tribunal.

(c) the provisions of second proviso to section 24 shall apply to all pending arbitrations.

(2) For the purposes of the instant section,—

(a) “fresh arbitrations” mean arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.

(b) “fresh applications” mean applications to a court or arbitral tribunal made subsequent to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.

[NOTE: This amendment is to clarify the scope of operation of each of the proposed amendments with respect to pending arbitrations/proceedings.]”

Parties Contentions

Both side raised a number of arguments on the interpretation of specific terms used in Section 26 of the Amendment Act. The major arguments are summarized below:

BCCI made following contentions:

  • That Section 26 of the Amendment Act consists of two parts. The second part, which makes the Amendment Act applicable in relation to arbitral proceedings commenced on or after the date of commencement of this Act, is the principal part, whereas the first part of Section 26 is in the nature of a proviso or exception. It is therefore, that so far as the first part is concerned, Section 6 of the General Clauses Act, 1897 would be attracted, in which event the vested right to challenge arbitral awards would continue by virtue of the said Section under the old Act, which would, therefore, apply to the facts of all these cases.
  • That the expression“arbitral proceedings” in both parts of Section 26 refers only to proceedings before an arbitrator and is the same in both parts. Consequently, it is clear that it is only arbitral proceedings that have commenced after 23rd October, 2015 and Court proceedings in relation thereto, that will be governed by the Amendment Act. If the arbitral proceedings have commenced under the old Act, then those proceedings as well as all Court proceedings in relation thereto, would be governed only by the old Act.

KC made following contentions

  • That in the first part of Section 26, there is an absence of the mention of Court proceedings. This was of great significance and would, therefore, show that the Amendment Act would retrospectively apply to Court proceedings, as distinguished from arbitral proceedings. On a correct construction of Section 26, the second part of Section 26 takes within its sweep both arbitral proceedings as well as Court proceedings in relation thereto and would, therefore, apply to arbitral proceedings as well as Court proceedings in relation thereto, which have commenced after the Amendment Act came into force.

 Analysis

The Court remarked that without any doubt, an Amendment Act does include within it provisions that may be repealed either wholly or partially and that the provisions of Section 6 of the General Clauses Act would generally apply to such Amendment Acts.

The Law Commission of India has proposed Section 85A in its 246th Report which stated the scope of the Amendment Act but ultimately Section 26 in its present form has been devised in the Amendment Act. The Court made a comparison between Section 85A, as proposed by the Law Commission, and Section 26 as ultimately enacted and found that that Section 26 has, while retaining the bifurcation of proceedings into arbitration and Court proceedings, departed somewhat from Section 85A as proposed by the Law Commission. And also, a provision such as Section 26 has to be construed literally first, and then purposively and pragmatically, so as to keep the object of the provision also in mind.

The Court also noticed that so far as the first part of Section 26 is concerned, which states, “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…” is that:

  • “the arbitral proceedings” and their commencement is mentioned in the context of Section 21 of the principal Act;
  • the expression used is “to” and not “in relation to”; and
  • parties may otherwise agree.

So far as the second part of Section 26 is concerned, namely, the part which reads,“…but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act” makes it clear that the expression “in relation to” is used; and the expression“the” arbitral proceedings and “in accordance with the provisions of Section 21 of the principal Act” is conspicuous by its absence.

The Court cited Chapter V of the Act titled “Conduct of Arbitral Proceedings” and observed that the entire chapter consists of Sections 18 to 27 dealing with the conduct of arbitral proceedings before an arbitral tribunal. What is also important to notice is that these proceedings alone are referred to, the expression “to” as contrasted with the expression “in relation to” making this clear that the expression “the arbitral proceedings” refers to proceedings before an arbitral tribunal.

Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form the subject matter of the first part of Section 26.

In stark contrast to the first part of Section 26 is the second part, where the Amendment Act is made applicable “in relation to” arbitral proceedings which commenced on or after the date of commencement of the Amendment Act. What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 Act. Whereas the first part refers only to arbitral proceedings before an arbitral tribunal, the second part refers to Court proceedings in relation to arbitral proceedings, and it is the commencement of these Court proceedings that is referred to in the second part of Section 26, as the words in relation to the arbitral proceedings in the second part are not controlled by the application of Section 21 of the 1996 Act. Section 26, therefore, bifurcates proceedings, as has been stated above, with a great degree of clarity, into two sets of proceedings – arbitral proceedings themselves, and Court proceedings in relation thereto.

Conclusions

The Court held as under:

  • That Section 26 is in two parts. The first part refers to the Amendment Act not applying to certain proceedings, whereas the second part affirmatively applies the Amendment Act to certain proceedings.
  • That the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force.
  • That the expression “the arbitral proceedings” refers to proceedings before an arbitral tribunal is clear from the heading of Chapter V of the Act.
  • That in all cases where the Section 34 petition is filed after the commencement of the Amendment Act, and an application for stay having been made under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted.
  • That “enforcement” in Section 36 is to treat the award as if it were a decree and enforce it as such under the Code of Civil Procedure, which would only mean that such decree has to be executed in the manner indicated.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s