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Time Extension In Arbitration In India: A Garden-Fresh Controversy

The UNCITRAL Model Law on International Commercial Arbitration and the UNCITRAL Arbitration Rules 1976 became the basis for the advent of arbitration legislation in India. The Indian law of arbitration is contained in the Arbitration and Conciliation Act 1996. The Statement of Objects and Reasons of the Act recognizes that India's economic reforms will become effective only if the nation's dispute resolution provisions are in tune with the international regime.

Some of the main objectives can be stated as to make provision for an arbitral procedure that is fair, efficient, and capable of meeting the needs of the specific arbitration and to provide that every final arbitral award is enforced in the same manner as if it were a decree of the court.

However, there were a number of issues and problems that were encountered in due course of the application of this act in the nation and the modus operandi taken up by the judicial system of the Country.

With effect from 23 October 2015, the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) came into force. This amendment was incorporated in the Arbitration and Conciliation Act, 1996 (Parent Act), to eliminate these aforementioned disputes and smooth out wrinkles for the smooth functioning of the methods of Alternate Dispute Resolution in India. However, this act, in addition to providing certain reliefs to the people when it came to the Arbitration proceedings in our country, has created its own collection of disputes.
One of the burning concerns was the 2015 amendment's applicability.

There were a number of sections that were controversial and had created a number of stipulations as over the application of the amendment act of 2015 in consideration with the amendment act of 2019. Some of the sections in the amendment act of 2015 which are controversial include section 26 and section 34 and some more in this regard.

Section 26 of the 2015 Amendment stipulates its applicability, and reads: '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.'

One would think that the above clause should have settled the doubt of the 2015 amendment's applicability as decreed by the Hon'ble Supreme Court itself in the case, 'Rendezvous Sports World v. Board of Control for Cricket in India'[1] and in Electrosteel Casting v. Reacon Engineers[2]. Instead, it has given rise to further lawsuits, which the Supreme Court has now partly addressed in the case Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Etc[3].

The dispute surrounding the applicability of amended Section 36 of the Parent Act in all the litigation which emerged before the High Courts and which also saw contrasting viewpoints. In the pre-amendment period, when an award debtor contested an award under Section 34, the award creditor was prevented from implementing the award until a court had made a decision on the appeal, owing to a 'forced stay' on the award process.

To address this issue, Section 36 of the Parent Act was amended to end this 'forced stay' for the benefit of award creditors. It allowed the challenging party to apply for a stay separately and also allowed the court to instruct the award debtor to deposit the balance of the award, in order to prevent frivolous challenges. The problem for the courts was the applicability of the amended Section 36 to Section 34 applications which were filed before and after the coming into force of the 2015 Amendment.

One can take a look at the diminutive background of this issue so as to comprehend the issue a bit more. One of the first substantive judgments to rule on this issue of applicability was the case of Ardee Infrastructure v. Anuradha Bhatia[4] in the Hon'ble Delhi High Court. Rendered by Justice Badar Durrez Ahmed, the judgment in this case interpreted Section 26 as extending the 2015 amendment only to certain arbitral proceedings instituted after the beginning of the 2015 amendment and to the court proceedings resulting from it.

Arbitral and court proceedings arising from them, conducted prior to the beginning of the 2015 law, will be controlled by the original legislation not standing amended. It held that Section 26 was divided into two sections and that the first part could not, as implied by the phraseology, be limited to the arbitral proceedings only. That was because the court proceedings arising from these arbitral proceedings would be left ungoverned under such an understanding.

It was further claimed that the right to impose an award included the negative right not to impose it until the challenges to the award pursuant to Section 34 were resolved. Consequently, the parties who submitted an application under Section 34 in connection with an arbitral process that started before the amendment of 2015 had a reserved right to immediately stay the award pending under an appeal. According to Section 6 of the General Clauses Act, 1897, the rights accrued would not be impaired by any repealing legislation, unless a contrary purpose emerges from the abrogating legislation.

In the case of BCCI-Kochi, this view differed from that followed by the Bombay High Court. In this case, before the beginning of the 2015 amendment, a petition to the award was filed and the application for execution for the award was filed after the beginning of the 2015 amendment. The appellants challenged the order for execution that applied the unamended Section 36 to the evidence and argued that the award had been automatically stayed on. Nevertheless, the Single Judge ruled that the revised Section 36 must apply, and no automatic stay must take effect, and ordered execution.

Finally, the Bombay High Court's Supreme Court of appeal has put the issue of the applicability of the 2015 amendment to Section 36 to rest.

Including the above appeal from the Bombay High Court and all other civil appeals, the Supreme Court dealt with two types of cases in its judgment:
  • Where a challenge to an arbitral award was filed pursuant to Section 34 before the beginning of the 2015 amendment; and
  • Where a challenge was filed after the start of the 2015 amendment, both in relation to the arbitral proceedings which commenced before the amendment.

The Court herein held that the revised Section 36 should extend to only those petitions for the setting aside of an arbitral award pursuant to Section 34 that had been submitted after the Amendment Act had started. However, the revised Section 36 will also refer retrospectively to demands from Section 34 that were made prior to the enactment of the Amendment Act.

In ruling that Section 36 in itself applied retrospectively, the Court examined Section 6 of the General Clauses Act, 1897 as cited above. According to the Court, since compliance is merely procedural and not substantive, an automatic stay of awards may not be asserted as a reserved right under Section 6.

The terms of the revised Section 36 should not be applied retrospectively, as they are solely procedural. The operative portion of the judgment that determines Section 36 is merely procedural reads as follows: 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.

By deciding this, the Court seemed to have found precedents only for the implementation of a decree, and not for the compliance of an award under Section 36. The Court did not decide that the unamended Section 36 was still merely procedural, or whether the essence of the unamended Section 36 had changed in relation to content and practice due to the amendment Act. In finding that Section 36 of the 1996 Act is solely procedural; the Court considered only the post-amendment scenario that prevented automatic stay on awards.

There are some other practical considerations in this regard as well. The Court's decision that Section 36 of the Act applies retrospectively because it is solely procedural may result in more litigation over the retrospective application of other similarly placed provisions which only concern procedural issues. The Court did not conduct a thorough review of whether the proceedings pursuant to Section 36 were not arbitration proceedings.

This leaves room for further attempts to pursue retrospective applicability of certain laws similarly situated on the grounds that they are merely procedural. The Court's decision goes a long way towards providing relief to award-debtors who have been waiting for their judgments to be implemented but have also created confusion towards arbitration law. The decision also runs contrary to the Srikrishna Committee's recommendations that the Amendment Act should not be applied retrospectively, lest it lead to confusion and ambiguity, and trigger prejudice to the parties.

However an attempt has been made in the new amendment bill of 2018, which became an Act in the year 2019. The Arbitration and Conciliation (Amendment) Act, 2019 seeks to address such issues and clarifies that the Amendment Act does not extend to arbitral proceedings and court proceedings which result from such arbitral proceedings that began before the Amendment Act.

Further, the 2019 Act provides that the Amendment Act will apply only to arbitral and court proceedings that begin after the Amendment Act. It may be important to note that during the hearing for BCCI v. Kochi the provisions of the 2018 Bill (the act of 2019) were brought to the Court's attention, however the Court was not willing to consider them.

The Court noted that the changes to the 2018 Bill (then) would place all the big changes to the Amendment Act on a "back-burner." Nevertheless, the Parliament's lower house passed the 2018 Bill without making any significant amendments and the bill was later passed by the upper house and got the assent of the president thereby becoming an Act.

The controversy still stands firm, even with the passing of the bill. There are a number of contemplations still being made by various organs of the judicial system of India. A number of cases have this issue as a core fragment of their being. It would be important to see how the courts view the 2019 Act on the amendment law's applicability.

End-Notes:
  1. 2017 (2) BomCR 113
  2. AIR 2016 (NOC 764) 349
  3. Civil Appeal Nos. 2879-2880 of 2018.
  4. 2017 (2) ArbLR 163 (Delhi)

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