Section 26 of the Arbitration (Amendment) Act, 2015 gets Retrospective and Prospective Application.
[Fathima Nooh]
The author is a third-year student at National University of Advanced Legal Studies, Kochi. She may be reached at vnfathima89@gmail.com.
The Supreme Court has, in its latest judgment in the case of Board of Cricket Council of India v. Kochi Cricket Board, settled an important issue about the applicability of the 2015 amendments to the Arbitration and Conciliation Act, 1996. The Court was called upon to decide whether section 36 of the Act, as amended by the 2015 Amendment Act, was applicable to applications filed under section 34 before the commencement of the Amendment Act. The Court decided in the affirmative. The decision is welcome as it is in line with the pro-arbitration approach followed by the Supreme Court in its recent decisions.
Section 26 of the 2015 Amendment Act, which deals with the applicability of the amendments, has been controversial ever since its introduction as it left unclear whether the amendments would apply to the court proceedings in relation to the arbitration proceedings commenced prior to the commencement of the Amendment Act. There have been several conflicting decisions by various High Courts in the country in this regard.
The Case
The case came before the Supreme Court as a civil appeal arising out of a Special Leave Petition of 2016. Seven other similar appeals were also considered along with this appeal. Four of these appeals related to section 34 applications filed prior to the commencement of the Amendment Act and the remaining four appeals pertained to similar applications filed after the commencement of the Amendment Act.
The issue involved in the case was whether the amended section 36 would apply to section 34 applications filed before the commencement of the Act i.e. the pending applications, and whether the same would apply to section 34 applications filed after the commencement of the Act, though the arbitration proceedings were commenced prior to the coming into force of the Amendment Act.
Before discussing the decision of the Court, it is pertinent to have a look at section 36 of the Act in both the pre-amendment and the post-amendment versions. The pre-amendment version reads as follows:
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.
The post-amendment section 36, while providing that the arbitral 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 in case the time for making an application to set aside the award under section 34 has expired, subjects the same to its sub-section (2), which provides that:
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.
The Decision
Section 26 of the Amendment Act lays down that the Amendment Act shall not apply to“the arbitral proceedings commenced, 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.”
The Court observed that section 26 has two separate and discrete parts as indicated by the word “but” in between. The first part refers to the Amendment Act not applying to certain proceedings and the second refers to its applicability to certain proceedings. The first part undoubtedly applied to arbitration proceedings as evident from the wording of the section “…to arbitration proceedings…,” but the second part makes the interpretation of the section difficult by using the expression “in relation to arbitration proceedings.”
The second part does not have any reference to section 21, which speaks of the arbitration proceedings commencing on the date on which the request for referral has been received by the respondent; therefore, it was concluded that the second part does not include arbitration proceedings but rather court proceedings in relation to arbitral proceedings. Thus, the Court found that it is the commencement of these court proceedings that is referred to in the second part of section 26.
The Court thus noted:
“The scheme of Section 26 is thus clear: 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.”
While the position regarding the arbitration proceedings commenced after the coming into force of the Amendment Act was clear, the same was not true regarding section 34 applications filed before the commencement of the Amendment Act. In order to make the position clear, the Court equated “enforcement” (as found in section 36) with execution. Under section 36 of the principal Act, the arbitration award is a decree and thus is enforced as per the provisions of the Code of Civil Procedure, 1908. The decree can be enforced only through the execution process given in order XXI of the Code. The Court further observed that the old version of section 36 was only a clog in the right of the decree-holder, who cannot execute the award in his favour unless the conditions in the section are met. This does not mean that there is a corresponding right in the judgment debtor to stay the execution of the award. Thus, since execution clearly pertains to the “realm of procedure,” the new section 36 would also apply to pending section 34 applications on the date of commencement of the Amendment Act.
During the course of its observations, the Court discussed in detail the decision of another co-ordinate bench of the Supreme Court in Thyssen Stahlunion GmBH v. Steel Authority of India. The decision gave a view contrary to the one in the instant case. In that case, it was observed that the phrase “in relation to arbitral proceedings” include both proceedings pending before an arbitrator and proceedings before the court, and that it cannot be given a narrow meaning so as to include only court proceedings. The Court in the instant case found that Thyssen dealt with a differently worded provision contained in section 85(2) of the 1996 Act. The Court then pointed out the differences between section 26 and section 85(2). Section 85(2) has two parts and the phrase “in relation to” appears in both the parts, whereas in section 26, the phrase appears only in the second part. Further, the “commencement” in the first part of section 26 is understood in the context of section 21, but this reference is absent in section 85(2). Thus, the Court distinguished the decision inThyssen from the instant one.
Analysis
The judgment seems to have settled the ambiguity that surrounded section 26 at least for now. The ruling of the Court that substituted section 34 applies even to pending section 34 applications was taken by considering the objects and reasons for the Amendment Act. The Amendment Act of 2015 was enacted to provide for a speedy disposal of cases relating to arbitration with less court intervention. Thus, in the context of amendments to section 36, the interpretation of section 26 may be correct as it is in favour of arbitration and also is in line with the objects of the Amendment Act. However, the Court seems to have overlooked the impact of retrospective application of the Amendment Act with respect to other aspects of the Act. However, in Thyssen, the Court had identified this potential difficulty and stated that if a narrow interpretation to the phrase “in relation to arbitral proceedings” is to be accepted, it is likely to create a great deal of confusion with regard to the matters where the award is made under the old Act.
The Court also referred to section 87 of the proposed Arbitration and Conciliation (Amendment) Bill, 2018. Section 87 of the Bill clarifies that the 2015 amendments will apply only to arbitration proceedings commenced after 23 October 2015 and to court proceedings in relation thereto. The Court thus emphasized the need for the legislature to reconsider section 87. The Court stated that the immediate effect of the proposed provision would be to put all the important amendments made by the Amendment Act on a back-burner. The fate of this decision will now depend upon whether or not the Parliament will accept the recommendations of the Court.