"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.

Thursday, March 15, 2018

Supreme Court Settles (?) the Debate on Applicability of the 2015 Amendments to Arbitration Related Court Proceedings

We did about four posts (here, here, here, and here) on the retrospective applicability of the Arbitration and Conciliation (Amendment) Act, 2015 on pending arbitration and arbitration-related court proceedings. The Supreme Court has passed the much awaited judgement in the case of BCCI v Kochi. We'll do a detailed post on the topic. The judgement can be read and downloaded from here. Importantly, the Court has held that the amended law (including the amended Section 36) would be applicable to Section 34 petitions pending as on 23.10.2015 and those filed on or after 23.10.2015 (paras 39, 42 and 45). However, the court has left open the question regarding applicability of the 2015 amendments which affect substantive rights (para 54), having declared that the 2015 amendments by virtue of Section 26 thereof is prospective. The Court has also criticised the recent amendments proposed to the 1996 Act by which the 2015 amendments are made applicable prospectively even in respect of arbitration-related court proceedings. 

Salient portions of the judgement are quoted below:

"21. What can be seen from the above is 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."

"25... 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."

"31... Hence, it was held that the award could always have been enforced by one form of procedure and that it subsequently became enforceable by an alternative form. This judgment can have no application to the present case, inasmuch as the Amendment Act, as applicable to Court proceedings that arose in relation to arbitral proceedings, cannot be said to apply to mere forms of procedure, but also includes substantive law applicable to such Court proceedings post the Amendment Act. Also, it is wholly fallacious to say that since the first part of Section 26 does not refer to Court proceedings in relation to arbitral proceedings, the Amendment Act is retrospective insofar as such proceedings are concerned. The second part of Section 26 would then have to be completely ignored, which, as has been seen hereinabove, applies to Court proceedings in relation to arbitral proceedings only prospectively, i.e. if such Court proceedings are commenced after the Amendment Act comes into force. For these reasons, such an interpretation of Section 26 is unacceptable."  

"37. The judgment in Thyssen (supra) dealt with a differently worded provision, and emphasized the difference in language between the expression “to” and the expression “in relation to”. In reference to the Acts which were repealed under Section 85, proceedings which commenced before the 1996 Act were to be governed by the repealed Acts. These proceedings would be the entire 63 gamut of proceedings, i.e. from the stage of commencement of arbitral proceedings until the challenge proceedings against the arbitral award had been exhausted. Similar was the position with respect to the applicability of the 1996 Act, which would again apply to the entire gamut of arbitral proceedings, beginning with commencement and ending with enforcement of the arbitral award. It is clear, therefore, that Section 85(2)(a) has two major differences in language with Section 26: one, that the expression “in relation to” does not appear in the first part of Section 26 and only the expression “to” appears; and, second, that “commencement” in the first part of Section 26 is as is understood by Section 21 of the 1996 Act. The second part of Section 85(2)(a) is couched in language similar to the second part of Section 26 with this difference, that Section 21 contained in the first part of Section 26 is conspicuous by its absence in the second part."

"39. From a reading of Section 26 as interpreted by us, it thus becomes clear 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. But, what is to happen to Section 34 petitions that have been filed before the commencement of the Amendment Act, which were governed by Section 36 of the old Act? Would Section 36, as substituted, apply to such petitions? To answer this question, we have necessarily to decide on what is meant by “enforcement” in Section 36. On the one hand, it has been argued that “enforcement” is nothing but “execution”, and on the other hand, it has been argued that “enforcement” and “execution” are 67 different concepts, “enforcement” being substantive and “execution” being procedural in nature."

"42... Since it is clear that execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act." 

"45. Being a procedural provision, it is obvious that the context of Section 36 is that the expression “has been” would refer to Section 34 petitions filed before the commencement of the Amendment Act and would be one pointer to the fact that the said section would indeed apply, in its substituted form, even to such petitions." 

"54... We do not express any opinion on the aforesaid contention since the amendments made to Section 34 are not directly before us. It is enough to state that Section 26 of the Amendment Act makes it clear that the Amendment Act, as a whole, is prospective in nature. Thereafter, whether certain provisions are clarificatory, declaratory or procedural and, therefore, retrospective, is a separate and independent enquiry, which we are not required to undertake in the facts of the present cases, except to the extent indicated above, namely, the effect of the substituted Section 36 of the Amendment Act. "

55. Learned counsel for the Appellants have painted a lurid picture of anomalies that would arise in case the Amendment Act were generally to be made retrospective in application. Since we have already held that the Amendment Act is only prospective in application, no such anomalies can possibly arise. It may also be noted that the choosing of Section 21 as being the date on which the Amendment Act would apply to arbitral proceedings that have been commenced could equally be stated to give rise to various anomalies... Cut off dates, by their very nature, are bound to lead to certain anomalies, but that does not mean that the process of interpretation must be so twisted as to negate both the plain language as well as the object of the amending statute. On this ground also, we do not see how an emotive argument can be converted into a legal one, so as to interpret Section 26 in a manner that would be contrary to both its plain language and object." 

"57. The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government’s press release dated 7th March, 2018. The immediate effect of the proposed Section 87 would be to put all the important amendments made by the Amendment Act on a back-burner, such as the important amendments made to Sections 28 and 34 in particular, which, as has been stated by the Statement of Objects and Reasons, “…have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act”, and will now not be applicable to Section 34 petitions filed after 23rd October, 102 2015, but will be applicable to Section 34 petitions filed in cases where arbitration proceedings have themselves commenced only after 23rd October, 2015. This would mean that in all matters which are in the pipeline, despite the fact that Section 34 proceedings have been initiated only after 23rd October, 2015, yet, the old law would continue to apply resulting in delay of disposal of arbitration proceedings by increased interference of Courts, which ultimately defeats the object of the 1996 Act."

1 comment:

Unknown said...

Has this Judgment also laid down the law for proper determination of the issue whether the arbitral proceedings have been commenced "in accordance with the provisions of section 21 of the principal Act" - as stated in initial portion of section 26 of the Amendment Act, 2015 - as this Judgment speaks about Notice u/s 21 to be delivered tot he respondent (in para 25 and 40 of the Judgment - mas extracted below.

"25. ...... 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."


"40. At this stage, it is necessary to set out the scheme of
the 1996 Act. An arbitral proceeding commences under
Section 21, unless otherwise agreed by parties, when a
dispute arises between the parties for which a request for
the dispute to be referred to arbitration is received by the
respondent."

From the law as laid down above, can it therefore follow that in case notice u/s 21 has not been served, or the arbitral proceedings have not been commenced in accordance with section 21, then Section 26 will apply to even those cases where arbitral proceedings have commenced.
Request for views. Thnks