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Effect of Amendment Act of 2015 on Section 36, Arbitration and Conciliation Act

The Arbitration & Conciliation Act, 1996 (Principal Act) was amended by way of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act) with effect from 23 October, 2015. These amendments brought many significant changes to facilitate vigorous growth of Arbitration in India. One of these changes, was amendment to section 36 of the Act, the effect whereof was the removal of automatic stay in execution of the Arbitral award as under the old section, if an application under section 34 was filed, the arbitral award could only be enforced when the said application was refused.

Soon after the amendment came into force, the courts across the country were confronted with the question whether Section 36, as substituted by the Amendment Act, 2015 would apply in its amended form or original form to the pending appeals instituted under Section 34 before the date of amendment, i.e. 23.10.2015.

This led to several conflicting views on the issue by High courts that variously held:

1. That the Amending Act applies to court proceedings commenced before the Amending Act came into force.
2. That the Amending Act does not apply to court proceedings commenced before the Amending Act came into force.
3. That the Amending Act does not apply to court proceedings related to arbitrations that commenced before the Amending Act came into force.

Thereafter, the Hon'ble Supreme Court in Board of Cricket in India v. Kochi Cricket Pvt. Ltd. And Ors. was called upon to interpret section 26 of the Amendment Act which reads as follows:

“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.” [Emphasis supplied]

The Supreme Court observed that section 26 is divided into two parts and held that first part refers to the Amendment Act not applying to certain proceedings, whereas the second part affirmatively applying to certain proceedings. The Court observed that in the first part of the section 26, “the arbitral proceedings” and their commencement is mentioned in the context of section 21 of the Principal Act and that the expression used is “to” and not “in relation to”. The court held that the expression “the arbitral proceedings” in the first part of Section 26 refers only to proceedings before an arbitral tribunal and not court proceedings. The court also relied on the statutory scheme apparent from heading of Chapter V of the Principal Act titled “Conduct of Arbitral Proceedings” which only deals with the proceedings before the arbitral tribunal and not before court. Further, the court held that since conduct of arbitral proceedings is largely procedural, that is the reason, that in the first part of the section, a discretion has been given to the parties, if they agree otherwise.

Regarding the second part, the Court observed that the expression “in relation to” is used instead and the expressions “the arbitral proceedings” and “in accordance with the provisions of Section 21 of the principal Act” are absent which shows that the second part is not controlled by Section 21, and applies only to court proceedings that are “in relation to” arbitral proceedings.

Thus, the Apex court concluded that the Amendment Act is prospective in nature and will apply (a) to arbitral proceedings which have commenced on or after October 23, 2015 and (b) to court proceedings which have commenced on or after October 23, 2015.

Applicability of The Amended Arbitration Act To Section 36 Proceeding:

Though, the court held the Amending Act, 2015 to be prospective in nature, it took a different view on applicability of amended Section 36 to Section 34 petitions filed before commencement of the Amendment Act.
The court held such proceedings under section 36 to be retrospective in nature due to the following reasons:

1. Firstly, “Enforcement” and “Execution” are different concepts, “Enforcement” being substantive and “Execution” being procedural in nature. Section 36 refers to execution of an award as if it were a decree attracting the provisions of Order XXI and Order LXI, Rule 5 of Code of Civil Procedure, 1908 and would, therefore, be a provision dealing with execution of arbitral awards.

2. As execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in an award debtor to resist execution.

3. The words “has been” used in Section 36(2) in relation to filing of petition under Section 34 of the Act will be a factor suggesting that petitions under Section 36 post the Amendment Act will also be governed by the amended provisions.

4. Also, the court proceedings in relation to arbitral proceedings are independent from arbitral proceedings and would not be viewed as a continuation of arbitral proceedings.

5. That, the automatic stay on execution under the old Act acted as only a procedural clog on the right of the decree holder, who could not execute the award in his favour unless the conditions under the (old) Section 36 were met. This does not imply that there was a corresponding right in the award debtor to stay the execution of an award.

6. Court was of the opinion that grant of automatic stay under the earlier regime was unfair and defeated the purpose of alternate dispute resolution mechanism.

Hence, considering an earlier judgment in National Aluminium Company Ltd. v. Pressteel & Fabrications (P) Ltd. and Anr5 which was also referred to in the 246th Law Commission Report, wherein it had been recommended that the erstwhile Section 36 be substituted, as the automatic suspension of the execution of the award when an application challenging the award is filed, defeated the objective of the alternate dispute resolution system; held the retrospective applicability of section 36, as substituted, is found to be in line with the statement of objects and reasons for the Amendment Act.

Conclusion:
Amendment Act will be applicable to arbitral proceedings and court proceedings only if they commence after the Amendment Act came into force i.e. after 23 October 2015.

Certain provisions in the Amendment Act may effectively have retrospective operation, depending on the nature and effect of the provision in question viz. Section 36.

Through this judgment, the judiciary has clearly signalled its commitment to take a pro-arbitration and pro-enforcement approach which ensures a radiant future of Arbitration Dispute Resolution in the country.

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