India: Litigation & Dispute Resolution 2016

Last Updated: 16 November 2016
Article by Jyoti Singh and Srisabari Rajan

Prospective Applicability of Indian Arbitration and Conciliation Amendment Act, 2015: Latest Ruling by the Bombay High Court

Based on recommendations made by Law Commission of India, on 23 October 2015, the President of India promulgated the Arbitration and Conciliation (Amendment) Ordinance, 2015 (Arbitration Ordinance) which introduced some crucial amendments to the Arbitration and Conciliation Act, 1996 (Principal Act) with immediate effect. Subsequently, upon sanctions from both the houses of the Parliament, with President's assent, the Arbitration Ordinance was notified as the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act) on 1 January 2016.

The amendments introduced under the Arbitration Ordinance and the Amendment Act came into force on 23 October 2015 and since then there have been divergent views taken by few High Courts on applicability of amendments to the existing proceedings.

Though the saving provision of the Amendment Act, Section 26, provides that "nothing contained in this Act shall apply to the arbitral proceedings commenced" and "this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act", recently in the case of The Board of Control for Cricket in India v. M/s. Rendezvous Sports World (BCCI Case) before the Bombay High Court, questions as to applicability of the Amendment Act to existing proceedings and as to whether an application seeking enforcement of an arbitral award or challenging the arbitral award would be treated as an 'arbitral proceedings' were decided.

The judgment passed by the Bombay High Court on 14 June 2016 in the BCCI Case is likely to have a larger and positive impact on enforcement of arbitral awards and general outlook on the arbitration proceedings in India.

Automatic stay on enforcement – Earlier regime

One of the major amendments introduced by the Amendment Act is amendment to Section 36 of the Principal Act which provides for enforcement of domestic arbitral awards. Prior to the amendment, an arbitral award can be enforced only after either: (a) expiry of time for making an application to set aside the arbitral award (i.e. three months from the date of receipt of award); or (b) such application to set aside the arbitral award was made and it has been refused by the court.

This only meant that, irrespective of merits of the case, the moment a party makes an application challenging the arbitral award before the court within the limitation period, there will be an automatic stay on enforcement of the said arbitral award until final disposal of such application. The automatic suspension of the execution of the award as prescribed in the Principal Act was heavily criticised by the Law Commission of India and also the Supreme Court in the case of National Aluminium Co. Ltd. v. Pressteel and Fabrications Pvt. Ltd. and Anr (2004) 1 SCC 540, as it defeated the very objective of the alternate dispute resolution system to which arbitration belongs.

No more automatic stay – Present regime under the Amendment Act

Under the present regime, Section 36 of the Amendment Act states in no uncertain terms that where an application to set aside the arbitral award has been filed in the court, the filing of such application shall not by itself render the award unenforceable. In order to seek a stay or suspension of execution of the award, a separate application is required to be made for that purpose. The court may grant stay of the operation of such award; however subject to such conditions as it may deem fit.

Question as to applicability of Section 36 of the Amendment Act

The crucial issue that came before the Bombay High Court in the BCCI Case is with respect to applicability of Section 36 as amended by the Amendment Act to the existing matters, including proceedings where an application challenging the arbitral award was filed prior to the commencement of the Amendment Act, i.e. 23 October 2015.

Observations made by the Bombay High Court

After hearing parties at length and considering judgments of various courts including the Supreme Court of India and other High Courts on interpretation of statutes, the Bombay High Court, observed in the BCCI case that:

  • Section 26 of the Amendment Act consists of two parts. The first part provides that nothing contained in the Amendment Act shall apply "to the arbitral proceedings commenced in accordance with Section 21 of the Principal Act" before the commencement of the Amendment Act, unless the parties agree otherwise. The second part provides that the Amendment Act shall apply "in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act".
  • The two parts of Section 26 of the Amendment Act use different expressions to describe the proceedings to which they are meant to apply. The description in the first part is "to arbitral proceedings" and the description used in the second part is "in relation to arbitral proceedings".
  • The term "arbitral proceedings" would not include post-award proceedings, i.e. proceedings for enforcement of arbitral award or proceedings to challenge the arbitral award, which arise only after the award is made. It would also not include the proceedings prior to the commencement of the arbitral proceedings.
  • Prior to the Amendment Act, filing of an application under Section 34 of the Principal Act challenging the arbitral award had the effect of casting shadow upon the executability of the arbitral award.
  • The Amended Section 36 merely lifts the shadow over the right of the award-holder; however, right to challenge the arbitral award remains intact.

In view of these observations, the Bombay High Court held that the application of the amended Section 36 of the Amendment Act even to the existing proceedings, where the application challenging the arbitral award under Section 34 was pending as on the date of the commencement of the Amendment Act, would mean giving prospective effect to the amendment and not retrospective. The Bombay High Court further held that, removal of shadow over the rights of the award-holder cannot be said to be prejudicial to the award-debtor and that the award-debtor (who has already filed an application challenging the arbitral award) has to now only file an application for interim reliefs including suspension of execution of the arbitral award, which may or may not be subject to imposition of conditions by the court.

Take away

The well-reasoned judgment passed by the Bombay High Court in the BCCI Case has brought clarity to certain key amendments made to the Principal Act. The purposive interpretation made by the Bombay High Court of the provisions of the Amendment Act, keeping in mind the legislative intent to introduce a balance between the rights and liabilities of the award-holder and award-debtor, is a progressive step taken by the court and is likely to have a larger and positive impact on efficiency of enforcement of arbitral awards in India.

This article was first published in the October, 2016 issue of Corporate Livewire – Expert Guide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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