"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Monday, April 4, 2016

Applicability of the 2015 Arbitration Amendment Act to Arbitration Related Court Proceedings: Part I

A few months back, we had brought to the notice of the readers of this blog the legal position pertaining to the commencement of the 2015 Ordinance amending the Arbitration and Conciliation Act, 1996 (see, here and  here). The Ordinance has since been enacted as an amendment Act but the same was brought into force with effect from the effective date of the Ordinance, that is, 23.10.2015.

During the period between the Ordinance and the enactment of the Amendment Act, there was a confusion as to whether the amendments applied to pending arbitral and arbitration-related court proceedings. The applicability of the amendments to these proceedings was unclear so much so that the Madras High Court directed the Ministry of Law and Justice to clarify the stand.

Pursuant thereto, an amendment was introduced in the Amendment Bill pending before the Parliament inserting Clause 26. Clause 26, which on enactment, became Section 26 reads as below:
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."
Despite Section 26, courts differed on the applicability of the amendments to arbitration and arbitration-related court proceedings. Some of these decisions are discussed below in order to understand and highlight the divergent view points surrounding the question:

Electrosteel Castings Limited vs Reacon Engineers (India) Private Ltd. (14.01.2016) (Single Bench, Calcutta High Court):

The short question involved was whether upon filing an application for challenge the award was automatically stayed. Under the unamended Section 36, there was an automatic stay on enforcement of arbital award on filing of an application to set aside the award (“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…”). However, under the amended Section 36 of there is  no automatic stay [Section 36(2) of the amended Act provides: “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…”] 

On facts, the award was passed in July 2015 and the petition for setting aside was filed in November 2015. The Single Judge of the Calcutta High Court held that since Section 26 did not make applicable the Amendment Act to arbitration which commenced prior to 23 October 2015, nothing in the Act applied to the arbitration, which was the subject matter of challenge.

Tufan Chatterjee vs Rangan Dhar (Division Bench, Calcutta High Court-02.03.2016):

A Division Bench of the High Court heard an appeal on the question as to whether a court could entertain an application for interim relief under Section 9 of the 1996 Act post 23 October 2015 even if it was filed before the said date.  The Division Bench of the Calcutta High Court held in the negative. Among other things, the court’s rationale was based on the use of the phrase “arbitral proceedings” in Section 26. The Court held that arbitral proceedings commenced with notice invoking arbitration (or as provided under Section 21 and terminated as per Section 32 by the final arbitral award or by an order of the arbitral tribunal under Section 32(2). Hence, Section 26 did not apply to proceedings initiated under Section 9. The Court held:
A careful reading of the provisions of the 1996 Act, and in particular Sections 21 and 32 thereof, makes it amply clear that the expression 'arbitral proceedings' in Section 26 of the Amendment Act of 2015 cannot be construed to include proceedings in a Court under the provisions of the 1996 Act, and definitely not any proceedings under Section 9 of the 1996 Act, instituted in a Court before a request for reference of disputes to arbitration is made.”
Nitya Ranjan Jena vs Tata Capital Financial Services Ltd. (Single Judge, Calcutta High Court-02.03.2016):

The question was whether an apply for stay of award had to be filed in respect of an arbitral award which was challenged before 23 October 2015. The Single Judge of the Calcutta High Court held in the negative:
Having considered the respective submissions advanced by the parties and upon perusing the substituted section 36 of the Arbitration and Conciliation Act, 1996, which has been introduced by the Arbitration and Conciliation (Amendment) Ordinance, 2015, it appears that this provision has no manner of application at all in view of the specific provision as contained under section 26 of the Arbitration and Conciliation (Amendment) Act, 2015.”

According to a law firm update, the Madras High Court has held that Section 26 did not apply to post-arbitral proceedings. The court, reportedly, based its rationale on two grounds: (1) Section 26 did not deal with arbitration related court proceedings but specifically dealt with only “arbitral proceedings”; (2) Section 85(2)  of the 1996 Act used the phrase “in relation to arbitral proceedings” while stating that notwithstanding the repeal of the pre-1996  arbitration related legislations, such legislations applied “in relation to arbitral proceedings which commenced before” the 1996 Act came into force. The Supreme Court in Thyssen Stahl Union GMBH v. Steel Authority of India Ltd had held that the phrase “in relation to arbitral proceedings” covered even arbitration-related court proceedings. According to the Madras High Court, since Section 26 uses the phrase “to the arbitral proceedings” rather than “in relation to arbitral proceedings”. Consequently, the Madras High Court, reportedly, held that with regard to pending petitions for setting aside arbitral awards, there would be no stay. 

It is not clear from the law firm update as to whether the court held that the judgement applied  even in case of applications which were filed prior to 23 October 2015.

Jumbo Bags v New India Assurance Ltd. (10.03.2016, Single Judge- Madras High Court):

In Jumbo Bags v New India Assurance Ltd. (10.03.2016, Single Judge- Madras High Court), the question was whether procedure for appointment of arbitrators should be followed as per the unamended Act or the amended Act when the notice of arbitration was issued in July 2015. The Chief Justice held that since arbitration commenced under the unamended Act, the procedure to be followed is as per the unamended Act.


It was widely reported that that Madras High Court had sought clarifications in Delphi TVS Diesel Systems Ltd v. Union of India (24.11.2015) from the Central Government on the prospective or retrospective applicability of the 2015 Amendments. Specifically, the High Court sought clarifications on the reason for non-introduction of Section 85A proposed by the Law Commission of India in its 246th Report dealing comprehensively with the temporal applicability of the amendments. For the ease of reference, Section 85A proposed by the Law Commission is provided below:
Transitory provisions .—(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
It is noteworthy that most of the amendments suggested applied to only to fresh arbitrations and applications. 

There is no quarrel in all the decisions cited above regharding the applicability of the  2015 Amendment to arbitration proceedings commenced before 23.10.2015. The fundamental question is whether the amended Act applied to arbitration related court proceedings which were initiated before 23.10.2015 and were pending as on that date and to such proceedings initiated on or after 23.10.2015.

The Text

In order to find an answer to the aforesaid question, it is important to analyse the text of Section 26. 
Section 26 of the 2015 Act contains three fundamental elements: 

(1) It states that the Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act. This is the last limb of Section 26. Note that it states that the Act shall apply “in relation to” arbitral proceedings. 
(2) Section 26 states that none of the  provisions of the 2015 Amendment Act shall apply to the arbitral proceedings commenced before 23.10.2015.  This is the first limb of Section 26.
(3) The provision also states that the 2015 Act shall apply to the arbitral proceedings commenced before  23.10.2015 if the  parties so agree. This is the second limb of Section 26.

[The order in which Section 26 is analysed above is significant for the reason set out  at the last part of this post]

Following are the inferences that one could reasonably make from the aforesaid analysis:

(1) Section 26 uses two different phrases “to the arbitral proceedings” and “in relation to the arbitral proceedings”.
(2) Section 26 does not contain a specific provision akin to Section 85A recommended by the Law Commission.
(3) Section 26 does not specifically/ expressly deal with the prospective/ retrospective applicability of the 2015 Amendments to arbitration related court proceedings.

Given that there is no express mention regarding pending arbitration related court proceedings as on 23.10.2015 or applications filed on or after  23.10.2015 pertaining to arbitral proceedings commenced before the said date, it is important to rely on settled legal principles on retrospective applicability of statutes, which are given below (GP  Singh, Principles of Statutory Interpretation, 2012, p. 532ff):

(1) Every statute is prima facie prospective unless it is expressly or by necessary implication made retrospective. 
(2) Unless there are words in the statute which show the intent to affect existing/ vested rights, the  statutes are deemed to be prospective.
(3) Statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually admissible.
The third principle here is extremely relevant and needs elucidation and  principles related thereto are listed out below.
(4) No person has a vested right in the matter of procedure, such as, for instance, if a court has did not have jurisdiction to  try a suit at the time of filing but had jurisdiction at the time of disposal, the court cannot refuse to try the suit for want  of jurisdiction
(5) While the law relating to forum are matters of procedure, the law relating to right of action and right to  appeal are considered substantive rights even though they  are remedial  in nature. Hence, a procedural statute should  not be applied retrospectively when it would create new disabilities or obligations or impose new duties in respect of transactions already  accomplished.
(6) It appears that English law has been moving in favour of the doctrine of fairness (rather than in wholly relying on the substance/ procedure distinction, which in any case is amorphous). Retrospectivity should be judged, according to the doctrine, after taking  into account several factors such as the value of rights affected, extent to which such value is diminished, clarity of language used, and the circumstances in which legislation was passed.

Having analysed the issue at  hand and the general principles, we would analyse the  consequences of retrospective application of the 2015 Amendments in the next post.

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