arbitral

In this article, Rohit Sharma who is currently pursuing M.A. IN BUSINESS LAWS, from NUJS, Kolkata, discusses applicability & Status of Arbitral Awards passed in any proceedings which Commenced prior to October 23, 2015.

Introduction

The new amended Arbitration and Conciliation Act, 2015 (‘Amended Act’)[1] was first introduced on 23 October 2015 in the form of an Ordinance.The issue of the applicability of the Act has been contentious since the promulgation of the ordinance and the same was put to rest by the Parliament when Lower House on 17 December 2015 passed the Arbitration (Amendment) Act and inserted section 26 which mandated that the Amended Act would not apply to proceedings instituted under the Principal Act unless agreed by the parties.

Inception of the Amended Act

In 2014, 246thReport of Law Commission of India[2]reviewed the provisions of the Arbitration and Conciliation Act, 1996, where it gave some insight into several inadequacies observed in the functioning of the 1996 Act. Prior to this Report, the Commission had also recommended various amendments to the Act in its 176th Report which was introduced as Arbitration and Conciliation (Amendment) Bill, 2001 but unfortunately, could not materialize into law due to several inadequacies. Finally in 2015, Law Commission’s recommendations were incorporated in the Arbitration and Conciliation (Amendment) Ordinance, 2015 later enacted as Arbitration and Conciliation (Amendment) Act, which deemed to have come into force on the October 23, 2015. The Amended Act caused has been cause of much speculation and conjecture since it came to force solely due to ambiguity over its effect on ongoing arbitration.

Main matter of Contention

Arbitration and Conciliation (Amendment) Ordinance, 2015, predecessor of Amended Act, was unclear about whether or not it would apply to pending arbitrations and related court proceedings because of it being so vaguely worded, as it merely stated that- shall come into force at once.[3] This ordinance was orphaned from the intention of the Law Commission, when it gave its recommendation its 246th Report[4] where it in Section 85-A, in no ambiguous words, it explained the scope of application of the proposed Act.The Law Commission in its Report had contemplated insertion of Section 85A to the Arbitration and Conciliation Act, 1996. As per its recommendation Section 85A stated-

Unless otherwise provided, the provisions of the instant Act (as amended) shall be prospective in operation and shall apply only to fresh arbitrations[5] and fresh applications[6], except in the following situations-

  • The provisions of Section 6A 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.
  • 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.
  • The provisions of second proviso to section 24 shall apply to all pending arbitrations.

Although, Section 85A was not incorporated in the Arbitration and Conciliation (Amendment) Ordinance, 2015, and there was no specific provision with respect to prospective or retrospective operation of the Ordinance, yet it is important to note that the Law Commission in its 246th Report had clearly defined ‘fresh arbitration’ as:

  • Arbitrations where there has been no request for appointment of arbitral tribunal, or
  • Arbitrations where there has been application for appointment of arbitral tribunal, or
  • Arbitrations where there has been appointment of the arbitral tribunal.

The recommendations by Law Commission were not incorporated in the Ordinance but this blatant ambiguity was addressed by section 26 of the Amended Act. Yet even after incorporation of section 26, the uncertainty prevails regarding the scope and applicability of the provision.

The critical question that has been contentious since the Amended Act came into force has been-Whether or not the Amended Act applies to arbitration proceedings which commenced before October 23, 2015 and were pending as on that date, or does it apply to only such arbitration-related court proceedings that were initiated on or after October 23, 2015 which are in relation to arbitral proceedings commenced before October 23, 2015. These questions have been addressed in detail in this paper by examining the scope of section 26 and application of general practice on retrospective application of a legislation where there exists no express provision on its retrospective.

Different High Courts have approached the issue differently which has further added to the prevailing confusion. The paper will separately address the stance of various High Courts and their implications.

Section 26 of the Amended Act[7]

The foremost intention behind the introduction of Section 26 was to not only clarify but to settle that unless the parties otherwise agreed, the Amendment would not apply to arbitrations that were initiated prior to the commencement of the Amendment. This is abundantly apparent from the phraseology of the provision-

  1. 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

    .

After a thorough reading of the provision the root of trouble becomes apparent, the is – in the first part of the section declares that Amendment Act shall apply to-arbitral proceedings, and in the later part of the provision states that the Amendment Act shall apply ―in relation to arbitral proceedings. Use of two different phraseology makes it imperative to determine the import and significance of the expression –in relation to arbitral proceedings as differentiated from arbitral proceedings and to decipher why two different expressions have been used.

The Supreme Court in the case of Thyssen Stahlunion Gmbh v. Steel Authority of India[8]has already defined the expression- “in relation to arbitral proceedings” and held that the expression encompasses arbitral proceedings along with court proceedings relating to the arbitral proceedings. Therefore the expression covers the proceedings pending before the arbitrator along with proceedings before the court which are in relation to the same arbitral proceedings.

The Madras High Court on “Arbitral Proceedings” versus “In relation to Arbitral Proceedings

The Madras High Court in a matter New Tirupur Area Development Corporation Limited v. Hindustan Construction Co. Ltd.[9]discussed the two contentious phrases appearing in Section 26. The issue before the court was concerned with the effect ofSection 26 on any proceedings in court or going to be taken to the court, after the Amendment Act came into force. The court here in explicit terms held that the intention of the legislature was unequivocal, that theAmendment Act was prospective to “arbitral proceedings” commenced before the Amendment, but retrospective to matters “in relation to arbitral proceedings” which commenced after theAmendment (including court proceedings, notwithstanding whether these court actions were in relation to arbitral proceedings commenced before, or after the Amendment Act)[10]. This interpretation of statute lead to following conclusions-

Application of Section 26 was generalized. Amendment Act applied similarly to court proceedings related to arbitrations commenced before October 23, 2015, as well as court proceedings initiated on or after October 23, 2015 that are actually in relation to arbitrations, commenced before October 23, 2015.[11]

The anomaly in this judgment is apparent from the fact that concerned court proceedings – ones instituted after the commencement of the Amendment Act and the ones which branch out of arbitral proceedings initiated before the Amendment Act are being treated at the same footing.

In layman words it would imply that arbitral proceedings which commenced before the Amendment Act came into the picture, are to be governed by the 1996 Act, where as any and all court actions arising from said arbitral proceedings(commenced before October 23, 2015) , if instituted on or after the new regime, are to be governed by the new regime. Which in effect means that if an award was passed in an arbitration which commenced prior to October 23, 2015, and if a petition challenging the award is instituted after October 23, 2015, the challenge would be governed by the Amended Act (although the award was passed under the1996 Act).  This interpretation of the provision is fallacious on the face of it as profoundly affects the substantive rights of parties under section 34, with respect to setting aside of arbitral award.

The Substantive Nature of Section 34 Bars Any Retrospective Impact of the Amended Act

Section 34 of the pre-Amendment Act primarily deals with setting aside a domestic award which encompasses domestic award resulting from an international commercial arbitration.[12] It provides the substantive right for challenging an arbitral award which may be set aside on the grounds like- like incapacity of parties[13], invalidity of the arbitration agreement under the law to which the parties have subjected it[14], lack of proper notice of appointment of arbitrator or of the arbitral proceedings[15], where the courts find that the subject matter is not capable of settlement byarbitration[16], et cetera mentioned in Section 34. Additionally, the provision also allows setting aside of an award if it is in conflict with the public policy of India. Supreme Court has decided upon what meaning can be ascribed to “public policy of India” in the case ONGC Ltd. v.Saw Pipes.[17]

The right of Appeal is a Substantive Right

Law stands unanimously with respect to the proposition that the right of appeal is a substantive right and not merely a matter of procedure.[18]It is a vested right and accrues to the litigant and exists as on and from the date the list commences and although it may be actually exercised when the adverse judgement is pronounced, such right is to be governed by the law prevailing at the date of the institution of the suit or proceeding and not by the law that prevails at the date of its decision or at the date of filing of the appeal. This right can only be taken away by means of an express enactment and not otherwise.[19]

There is no argument to the proposition that an appeal is a continuation of suit. This right cannot be taken away by a procedural enactment which is not made retrospective, this right cannot be imperiled. This helps to establish the fact that the right to set aside an award underSection 34 of the pre-Amendment 1996 Act is a substantive right.

The Amendment Act affecting an Accrued Substantive Right cannot be applied

That the Amendment has imposed restriction on the right provided by the Act under section 34. The pertinent question that demands expeditious answer is – whether the restriction discussed above be imposed on the right to set aside an award arising from pre-Amendmentarbitral proceedings?

Several cases in past have settled the present proposition like ColonialSugar Refining Co. Ltd. v. Irving[20] stated that any interference with the existing rights is contrary to the well-known principle that statutes are not to be held to act retrospectively unless a clear intention to that effect is manifested, this principle has been frequently applied by the  SupremeCourt in HooseinKasam Dada (India) Ltd. v. State of Madhya Pradesh[21] which stated that ―a preexisting right of appeal is not destroyed by an amendment if the amendment is not made retrospective by express words or necessary intendment. The fact that the pre-existing right of appeal continues to exist must necessarily imply that the old Act continues to exist for the purpose of supporting the pre-existing right of appeal.[22]On implication from the settled case laws above it follows that the interpretation of Section 26 of the Amendment Act would be rendered fallacious when applying the new regime to court proceedings (commenced after the Amendment) which are in relation to pre-Amendment arbitral while applying the old regime to said arbitral proceedings.[23]

Delhi High Court  on Section 34

The same question recently came for consideration before the Division bench of High Court of Delhi in Ardee Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia &Ors[1].  Here the court while adjudicating upon the controversy with regard to application of the Amendment Act, 2015 held that the right to have an award enforced or not is an accrued right and ‘the amended provisions would apply if they are merely procedural and do not affect any Accrued right(s).

Brief premise of the case was that a notice for invoking arbitration was given by the respondent in June, 2011. The statement of claim for the same was also filed in February 2013 and an interim award was passed on July 10, 2014 followed by the final award in October 2015.

Pursuant to the award, a petition under section 3 objecting the award was filed in January 2016. The Learned Single judge while deciding the case, in his order dated May 31st, 2016 directed the Petitioner to deposit 2.70 crores along with the condition that if the said sum was not deposited within the stipulated time the objections filed by the Petitioner under section 34 would be dismissed. Aggrieved of the impugned order the petitioner preferred appeal before the division bench of Delhi High Court.

While Petitioner/Appellant argued thatFirstly, that the Petition under Section 34 of the Act would not be governed by the amended provisions of Sections 34 and 36 and, therefore they are entitled to an automatic stay on the filing of the Petitions under Section 34 of the Act. They agitated that as per Section 6 of the General Clauses Act, 1897, repeal of an enactment would not affect any right acquired or accrued under the repealed enactment unless a different intention appears in the repealing Act. Based on the same argument they argued that amendment cannot be allowed to take away the vested rights of the party and therefore Section 6 of the General Clauses Act, 1897 would be applicable. It was also argued by the counsel for Petitioners that Section 26 of the Amending Act does not express any intention of retrospective application prior to October 23, 2015, and therefore, it would operate prospectively and not to arbitration commenced prior to October 23, 2015.

Based on the above legal contentions they prayed that the order of Learned Single Judge, imposing condition upon the Petitioner, to deposit Rs. 2.70 Crores for issuing notice in its Petition under Section 34 of the Act to be declared illegal.

Respondent on the other hand heavily relied on the Madras High Court Judgment in New Tirupur Area Development Corporation Limited v. Hindustan Construction Company Ltd[2] to contend that, the legitimate interpretation of Section 26 of the Amendment Act, 2015 would entail that – Section 26 of the Amendment Act uses the expression “to arbitral proceedings” instead of “in relation to arbitral proceedings”,  this implies that the legislative intent was to limit the scope of section 26 and it could not be extended to include post-arbitral proceedingsMoreover, aid to Section 6 of the General Clauses Act cannot be resorted because of use of the restrictive phrase in Section 26 of the Amending Act. It categorically denied that this interpretation of Section 26 would take away right accrued in favour of the Appellant.

Issue that the Hon’ble court culled out from the Appeal was,

The implication of the amendments brought to Section 34 and Section 36 of the Act, by the Amendment Act. The Court was burdened with adjudicating upon the issue that- whether the Appellant would be entitled to an automatic stay of the Award dated October 13, 2015 in terms of Section 36 of the Act or not.

The Hon’ble High Court of Delhi minutely observed that the logical interpretation of Section 26 of the Amended Act should be one which equitably dealt with all types of cases that would fall for consideration under the Act, after the amendments were introduced vide the Amended Act on October 23, 2015.

The Court has lucidly explained and for illustrative purposes identified three categories of cases that would fall under the Act, after introduction of the amendments:-

Category I: Cases whereArbitral proceedings commenced prior to October 23, 2015 and were pending before an arbitral tribunal on October 23, 2015;

Category II: Cases where Arbitral proceedings commenced prior to October 23, 2015 and the award was also made prior to October 23, 2015, but the petition under Section 34 seeking the setting aside of the award was made after October 23, 2015;

Category III: Cases where the arbitral proceedings commenced prior to October 23, 2015 and the awards were made prior to October 23, 2015, and the petition under Section 34 had also been instituted before court prior to October 23, 2015.

The Hon’ble High Court after thorough observation was of the view that, if Respondent’s interpretation to the expression “to the arbitral proceedings” is accepted it would lead to anomalies. However, if the expression “to the arbitral proceedings” which is employed to the first part of Section 26 of the Amended Act is given the same expansive meaning as the expression “in relation to arbitration proceedings” as appearing in second part of Section 26, it would not result in anomaly. The Hon’ble High Court also expounded the reason for digressing from the judgments passed by High Courts of Calcutta and Madras,and observed that if hypothetically a narrow view of the expression “to the arbitral proceedings” in Section 26 of the Amended Act is to be taken, then it would not address those categories of cases where the arbitral proceedings commenced prior to October 23, 2015 and where even the award was made prior to October 23, 2015, but where either a petition under Section 34 was under contemplation or was already pending on October 23, 2015, and this would not be the correct interpretation of the provision.

The interpretation supplied by Madras High Court and Calcutta High Court would still hold good if the amended provisions were merely procedural and would not have affected the accrued right of either party. As a consequence, the petitions filed by the appellants under Section 34 of the said Act would have to be considered under the unamended provisions of the Act and consequently, the appellants would be entitled to automatic stay of enforcement of the award till the disposal of the said petitions.

Conclusion

It cannot be disputed that if the present matter in question was a matter of procedure only, the retrospective applicability of the Amendment would have been well founded. The logical conclusion that may be drawn is that the un-amended 1996 Act would apply to the whole gambit of arbitration proceedings which commenced before the Amendment Act, right upto the culmination of the proceedings into a challenge or an enforcement of the award. [3]

It is evident that the contradictory judgments passed by different High Courts have only added to the confusion among the parties currently embroiled in enforcement proceedings post the amendments in the Act.[4] In the light of these conflicting judgments, it is pertinent that the confusion is clarified and/or settled by either the legislature or the Apex Court; otherwise, the ambiguity will continue and parties in future would suffer indefinitely. The ambiguous nature of this issue requires urgent consideration to provide uniformity to the law and for its effective implementation as this is an eminent threat to alternate dispute resolution mechanism in India

[1] Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015 (India)

[2] LAW COMMISSION OF INDIA, REPORT NO. 176 – THE ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2001[1] Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015 (India) (2001), available at http://lawcommissionofindia.nic.in/arb.pdf. (Hereinafter ‘246th LAW COMMISSION REPORT’)

[3]Section 8, The Arbitration and Conciliation (Amendment) Ordinance, 2015

[4]Supra n.2,  § 85(2)(a) 246th LAW COMMISSION REPORT

[5]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.

[6]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.

[7] Arbitration and Conciliation (Amendment) Act, No. 37 of 2015, § 26 (India).

[8](1999) 9 S.C.C. 334.

[9]A. No. 7674 of 2015 in O.P No. 931 of 2015 (Madras High Court) (India).

[10]D. Gracious Timothy, “The Conundrum Underlying Section 26 Of The Arbitration Amendment Act, 2015: Prospective Or Retrospective?” IJAL.Vol V(2) (2016):205

[11]Id, p. 79-82

[12]Arbitration and Conciliation (Amendment) Act, No. 37 of 2015

[13]Id, § 34(

[14]Id,§ 34(

[15]Id,§ 34(

[16]Id,§ 34(

[17] (2003) 5 S.C.C. 705 (India).

[18]Vijay Prakash v. Collector of Customs (1988) SCC 402

[19]Deep Chand v. Land Acquisition Officer, (1994) 4 SCC 99 at p. 102

[20]1905 A.C. 369 (U.K.).

[21]A.I.R. 1953 S.C. 221 (India).

[22]A.I.R. 1953 SC 221

[23]Supra n. 10 at p. 210

[24] FAO (OS) No. 221 of 2016 &FAO(OS) No. 222 of 2016

[25]Supra n. 9

[26] Seaford Court Estates Ltd. v. Asher, [1949] 2 K.B. 481 (U.K.).

[27]Supra n. 10 at p. 220

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