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."

Is Transfer of Decrees under the Civil Procedure Code a Vestigial Requirement?

Section 38 of the Code of Civil Procedure, 1908 describes the courts can execute a decree. It states that a decree can be executed by the Court which passed it or by the Court to which the decree is sent for execution. The expression "Court which passed a decree" is explained in Section 37 of the Code. Section 38 reads: "A decree may be executed either by the Court which passed it, or by the Court to which it is sent for execution." 

One of the implications of this provisions seems to be this: say, if a decree is passed by a court in Mumbai, the decree can be executed by the Mumbai court, and if the decree-holder wants to execute the decree against the judgement-debtor who has his office, bank accounts accounts, assets, etc. at Kolkata, the decree-holder cannot directly file the decree directly in the relevant court at Kolkata for execution. The decree-holder has to file the decree in the Mumbai court for it to be transferred to the Kolkata court for execution. Section 39 of the Code states in this regard:

"(1) The Court which passed a decree may, on the application of the decree-holder, send it for execution to another Court of competent jurisdiction,-

(a) if the person against whom the decree is passed actually and voluntarily resides or carries on business, or personally works for gain, within the local limits of the jurisdiction of such other Court, or

(b) if such person has not property within the local limits of the jurisdiction of the Court which passed the decree sufficient to satisfy such decree and has property within the local limits of the jurisdiction of such other Court, or

(c) if the decree directs the sale or delivery of immovable property situate outside the local limits of the jurisdiction of the Court which passed it, or

(d) if the Court which passed the decree considers for any other reason, which it shall record in writing, that the decree should be executed by such other Court.

(2) The Court which passed a decree may of its own motion send it for execution to any subordinate Court of competent jurisdiction.

(3) For the purposes of this section, a Court shall be deemed to be a Court of competent jurisdiction if, at the time of making the application for the transfer of decree to it, such Court would have jurisdiction to try the suit in which such decree was passed.

(4) Nothing in this section shall be deemed to authorise the Court which passed a decree to execute such decree against any person or property outside the local limits of its jurisdiction."

Given the antiquity of these provisions [Section 38 and a part of Section 39 existed even under the 1877 Code (see, here)], it is possible that the requirement of transfer of decrees was laid down in a period in history when it was difficult for an executing court which did not pass the decree to confirm the valdidity of decree passed by another court, especially if the executing court was at a considerable distance from the court which passed the decree.  However, such constraints may not be altogether valid in the current times. 

Now, compare this scenario with an arbitral award. There is an arbitral award rendered, say, by an arbitral tribunal at Singapore. There is no need to file the said award in a Singaporean court for the award to be executed/ enforced in India. If the assets of the Award debtor are located at, say, Mumbai, the Award-holder can proceed to directly enforce the arbitral award in the relevant Mumbai court having jurisdiction over the Award Debtor. Similarly, an arbitral award passed in the domestic context also can be directly executed/ enforced even if the place of arbitration is not the place where execution of the arbitral award is sought (see, this post). 

Given that even arbitral awards, domestic and foreign, are directly enforceable, why shouldn't decrees be directly executable in the court within whose jurisdiction the judgement debtor or his assets are in place?

Transfer of Arbitral Awards to Court of Execution is Unncessary: SCI Clarifies

Way back in 2011, we did a post providing a descriptive comment on the decision of the Madras High Court in Kotak Mahindra Bank Ltd. v Sivakama Sundari S Narayana S B Murthy where it was held that it was not really necessary to file the award in the court within whose jurisdiction the award was transferred for the purposes of executing it in another court. But some High Courts had held that it was so required as the Code of Civil Procedure, 1908 necessitated it in the context of decrees and that since the arbitral award was deemed to be a decree, the execution of the arbitral award had to also undergo the same rigour. 

In view of the divergence in views of different High Courts, the Supreme Court has clarified the legal position, correctly, in the case of Sundaram Finance Ltd.v. Abdul Samad. This presentation provides a descriptive comment of the judgement of the Supreme Court.

The presentation concludes by arguing that the vestigial requirement of filing the award in the court having jurisdiction over the arbitration for onward transfer to the executing court had the effect of only delaying the award holder from enjoying the fruits of the arbitral award and that the decision has paved way for an easier and more efficient execution of arbitral awards. 

This begs a larger question: Is filing a decree in the civil court which passed the judgement really necessary? 

Further Updates on the Nissan- Government of India Treaty Arbitration

Readers would recollect that we had done a post on the invocation of investor treaty arbitration by Nissan against the Government of India for the default committed by the State of Tamil Nadu. In the presentation uploaded in the post, we had noted that the State of Tamil Nadu had filed a petition in the Madras High Court seeking an anti-arbitration injunction against Nissan from proceeding with the arbitration. Nissan had filed a counter in the Madras High Court stating, among other things, that the Government had filed the suit belatedly after 10 months from the invocation of arbitration (February 2017)

Nissan had also moved an anti-suit injunction seeking to restrain the Government from proceeding further in the suit. 

Newspapers report that Nissan is now mulling withdrawal of the application for anti-suit injunction. It appears that the application it filed with the tribunal, whose seat is at Singapore, could not be taken up by the tribunal owing to the Chinese New Year. These submissions were made in the Madras High Court in the recent hearing held in the matter. The Judge has posted the matter on 27 February to enable Nissan's counsel to obtain instructions from his client on the anti-suit injunction it sought from the tribunal. 

The newsreport from the Hindu can be accessed from here.

It also appears that against the arbitration notice, the Government had raised jurisdictional issues and had appointed Justice JS Khehar (former Chief Justice of India) as its nominee arbitrator. It also appears that Nissan had no objections to the tribunal bifurcating the arbitration by deciding the jurisdictional issues first. (See this newsreport)

We'll keep the readers posted on further proceedings in the matter.