05 Aug 2019

Author: Saloni Gupta (Law Student at GNLU, Gandhinagar)

Introduction

In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd, the Supreme Court held that amendments made to the Arbitration and Conciliation Act, 1996 (“1996 Act”) by way of the Arbitration and Conciliation (Amendment) Act, 2015 (“2015 Amendment Act”) which came into effect on October 23, 2015 are prospective in nature. However, the Court carved out an exception for Section 36 of the 1996 Act, stating that the said section would operate retrospectively.

Prior to the 2015 amendment to the 1996 Act, under Section 36 Courts granted an automatic stay on enforcement of an award until the expiry of the time limit for challenging the award or until the disposal of such a challenge, if made. Post the 2015 amendment, Section 36 has been amended and states that no automatic stay will be granted on enforcement of an award and such a stay can only be granted on a separate application being made to the court.

Reasoning of the Supreme Court

1. Prospective nature of the 2015 Amendment Act

• Interpretation of Section 26 of the 2015 Amendment Act

Section 26 of the 2015 Amendment Actdeals with the applicability of the said act to pending proceedings.[1] The Supreme Court held that Section 26 comprises of two independent parts.  The first part applies only to the arbitral proceedings which have been initiated in accordance with Section 21. This section appears in Chapter V of the Parent Act, titled ‘Conduct of Arbitral Proceedings.’ Therefore, the first part only deals with the conduct of the arbitral proceedings in accordance with Sections 18-27, forming part of this Chapter V. The second part is separated by a ‘but’ and does not contain the words ‘thearbitral proceedings’ or ‘in accordance with Section 21’. It only contains ‘in relation to arbitral proceedings’. Therefore, the two parts apply to two different situations, and all arbitral proceedings that are the subject matter of the first part are excluded from the second part. The second part only applies to proceedings that are initiated in relation to arbitral proceedings, meaning court proceedings.

1. The amended Section 36 will apply retrospectively

• Section 36 is procedural in nature and automatic stay was not a vested right

The court held that ‘enforcement’ and ‘execution’ are different concepts, the former being substantive and the latter being procedural in nature. Section 36 refers to execution of an award as if it was a decree attracting the provisions of the Code of Civil Procedure, 1908. An execution of a decree pertains to the realm of procedure and there is no substantive, vested right that the award debtor is granted. Hence, Section 36 will have retrospective operation.

• Section 36 as it stood pre-amendment defeated the object of the 1996 Act

The Court held that the grant of automatic stay pre-amendment was unfair and defeated the purpose of alternate dispute resolution mechanism, which was speedy resolution of disputes and minimal interference of courts. The un-amended Section 36 only operated as a clog on the right of the decree holder to execute the award in his favour, unless the conditions of that section were met.

Parliament’s proposal: Section 87 of the Arbitration and Conciliation (Amendment) Bill, 2019

[1]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.

An attempt to conclusively decide on the applicability of the 2015 Amendment Act was made by the Parliament through the Arbitration and Conciliation (Amendment) Bill, 2018 (“2018 Amendment Bill”).The bill was passed by the Lok Sabha, but later lapsed due to the dissolution of the 16^thLokSabha. The same bill was introduced, with minor changes, in the Rajya Sabha in July 2019 as the Arbitration and Conciliation (Amendment) Bill, 2019(“2019 Amendment Bill”).Section 87 of the 2019 Amendment Bill provides that the 2015 Amendment Act will only apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated after the commencement of the 2015 Amendment. It will not apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated before the commencement of the 2015 Amendment Act, even if the court proceedings have been initiated after the commencement of the 2015 Amendment Act.

The Supreme Court while giving its judgment took due note of the proposed position in the 2018 Amendment Bill (now introduced as the 2019 Amendment Bill)but did not agree with it. The Court held that if such a bill is passed, it would be contrary to the objective of the 1996 Act as it would deprive a large number of proceedings from getting the benefit of the changes introduced by the 2015 Amendment Act.

Judiciary v. Parliament: Which position should prevail?

On a prima facie analysis, one can conclude that the Supreme Court’s ruling is based on a pro-arbitration rationale. The 2015 Amendment Act made some very progressive changes to the 1996 Act, and it is only beneficial if the 2015 Amendment Act applies to as many proceedings as possible, instead of being restricted in its sphere of application. However, on a deeper analysis, the author believes that the judgment creates more problems than it solves.

The Supreme Court only dealt with Section 36 in its judgment, and ruled that it will be applied retrospectively after analysing the nature of the provision.  However, it is debatable whether Section 36 does or does not create any vested right. Section 36 is inextricably linked to and allows for Section 34 rights to be exercised. In the absence of a stay, a Section 34 challenge may eventually be rendered otiose. The two decisions which the court relied on to come to the conclusion of Section 36 being procedural in nature were Lalji Raja & Sons v. HansrajNathuram[1] and NarhariShivramShetNarvekar v. PannalalUmediram[2]. In these decisions, the court was deciding whether the right of the judgment debtor to resist execution of a decree can be said to be a vested right or not. However, these decisions were made in a different context wherein the non-executability of the decree was related to the territorial jurisdiction of different courts and not rights given to judgment debtors per se. However, in case of Section 36, parties have the right to ask for a stay on the enforcement of an arbitral award during the pendency of a Section 34 challenge, in the absence of which Section 34 would not have any relevance. Nevertheless, the Court relied on these decisions to reach to the conclusion that Section 34 was procedural in nature.

Furthermore, while the court analysed the nature of Section 36 in great detail, a similar analysis was not made for other sections which have been amended like Section 8, 9, 17, 16, 34 etc. In fact, an argument was raised regarding the retrospective applicability of the 2015 Amendment Act to Section 34 before the Court; however the Court declined to express any opinion in paragraph 54 of the judgment, stating that the issue had not been raised in the petitions.

However, the Court in paragraph 54 stated that Section 26 is prospective in nature, and since Section 26 is an interpretation of the entire Act, it can be argued that all other provisions other than Section 36 will apply prospectively even if the Court refused to comment on specific provisions.

In fact, the B.N. Srikrishna Committee which was constituted in 2017 and on whose recommendations the 2018 Amendment Bill, now introduced as the 2019 Amendment Bill, was formulated stated in its report that:

…permitting the 2015 Amendment Act to apply to pending court proceedings related to arbitrations commenced prior to 23 October 2015 would result in uncertainty and prejudice to parties, as they may have to be heard again. It is not advisable to make the 2015 Amendment Act applicable to fresh court proceedings in relation to such arbitrations, as it may result in an inconsistent position. It is desirable to limit the applicability of the 2015 Amendment Act to arbitrations commenced on or after 23 October 2015 and related court proceedings.

The ideal position would be that in the fresh bill which is drafted, the provisions which will have a retrospective operation should clearly be mentioned to avoid future litigation.However, the 2015 Amendment Act on a whole should operate prospectively, with very few exceptions, as nothing applying retrospectively is a better position than cherry picking.

It would do well for the confusion surrounding the applicability of the 2015 Amendment Act to be laid to rest with a clear delineation of the provisions in the new proposed Amendments.

[1][1971] 1 SCC 721

[2][1976] 3 SCC 203