India: Automatic Stay Of Arbitral Award: Pre And Post Amendment Act, 2015

Last Updated: 10 March 2017
Article by Gunjan Chhabra

Most Read Contributor in India, December 2018

Before the coming into effect of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act), the law as it stood was that filing of an objection petition under Section 34 of the Arbitration and Conciliation Act, 1996 ("Act") would lead to an automatic stay of the impugned award. However, this scenario has changed after the coming into force of the Amendment Act, which has specified that mere filing of the petition under Section 34 would not lead to an automatic stay, but a separate application would be required to be filed in this respect.

However, a Division bench of the Delhi High Court in Ardee Infrastructure Pvt. Ltd v. Anuradha Bhatia1, has held in January, 2017, that if the Petition under Section 34 relates to an award which has been passed under the Act, un-amended by the Arbitration and Conciliation (Amendment) Act, 2015("Amendment Act"), then an automatic stay would operate on the impugned award, by mere filing of such a Petition, even when such a Petition has been filed post the amendment.

The Position before the Amendment Act

The pre-amendment scenario was that as soon as a Petition under Section 34 of the Act was filed, an automatic stay would operate on the award. This was the case owing to Section 36 of the Act, which read as under:-

"36. Enforcement.-Where the time for making an application to set aside the arbitration award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court."

A plain reading of this section made it evident that until the application under Section 34 had been disposed off as being refused, the award would not have become enforceable. This implied that there would be an automatic stay on the award on the mere filing of the Petition under Section 34.

The Position after the Amendment Act

After the coming into effect of the Amendment Act, Section 36 of the Act was amended to read as follows:-

"36. 1. Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court.

  1. Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose.
  2. Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing: Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908.".

The change in the language of Section 36 makes the following things evident:-

  1. Section 36(2) clearly specifies that filing of Section 34 application shall not by itself render the award unenforceable unless the Court grants a stay on a separate application made.
  2. Upon filing of the application, the stay is not to be granted as a matter of right, but the Court "may" in its discretion grant such a stay, subject to such conditions, and on recording of specific reasons.
  3. While granting such a stay provisions of the Civil Procedure Code, 1908, regarding stay of money decree need to be followed.

Section 36 under the Amended Act, therefore clearly does not make the stay on the impugned award automatic upon filing of Petition under Section 34.

However, the question of whether the new Section 36 would be applicable to a Petition under Section 34 would depend upon the applicability of the Amendment Act to these proceedings.

The applicability of the Amendment Act is governed by Serial No. 26 o the Amendment Act, which reads as under:-

"26. 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."

The applicability of the Amendment Act, to a Petition under Section 34 filed after 23.10.2015, but where the award had been passed before 23.10.2015, was discussed in the judgment of Ardee Infrastructure (Supra)

Interpretation given by Ardee Infrastructure (Supra)

The award in the present case had been passed on 13.10.2015 and the Petitions under Section 34 had been filed on 04.01.2016. The judgement analyzed the language of Serial no. 26 of the Amendment Act and decoded the words "arbitral proceedings" and "in relation to arbitration proceedings".

This was done in light of the judgment of Thyssen Stahlunion Gmbh v. Steel Authority of India Limited2, wherein the Court had held that the words, "in relation to arbitration proceedings" include not just the arbitration proceedings but also proceedings before the Court. The judgments of Tufan Chatterjee v. Rangan Dhar3 and New Tirupur Area Development Corporation Limited v. Hindustan Construction Company Limited4 were also analyzed wherein it had been held, that the use of the words "arbitral proceedings" specifically implied that the restriction provided under Serial no. 26 was limited, only to proceedings before the arbitral tribunal and not to the Court.

However, the division bench of the Delhi High Court did not agree with the view of the Calcutta High Court and Madras High Court in this respect. The Delhi High Court in the case of Ardee Infrastructure (Supra) was of the view that once an Arbitration has been conducted under the un-amended Act, it is a substantive right of a party to get it enforced under the un-amended Act. This reading was in view of specific applicability of Section 6 of the General Clauses Act, which reads as under:-

"6. Effect of repeal. - Where this Act, or any [Central Act] or Regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not-

  1. revive anything not in force or existing at the time at which the repeal takes effect; or
  2. affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or
  3. affect any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed; or
  4. affect any penalty, forfeiture or punishment incurred in respect of any offence committed against any enactment so repealed; or
  5. affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed as if the repealing Act or Regulation had not been passed."

Another reasoning which the Delhi High Court had used was that if it is assumed that the converse is true, and the Amendment Act is applicable to Court proceedings arising out of the old arbitrations but not to the old arbitration proceedings themselves, it would give rise to absurdity. The Amendment Act brought about amendments in Section 9 as well as Section 17of the Act. While Section 9 pertains to interim measures which may be directed by the Court prior, during arbitral proceedings or after the making of the award, Section 17 deals with the interim measures which may be ordered by an arbitral tribunal.

If it was to be accepted that the Amendment Act would apply to Court proceedings arising out of old arbitrations but not to proceedings before arbitral tribunals arising out of pending arbitration, then, in respect of arbitral proceedings commenced prior to 23.10.2015, the amended provisions would apply to proceedings under Section 9 of the said Act, but not to Section 17 thereof. This would result in a serious anomaly.

It is pertinent to note, that such a stand taken by the Division Bench of the Delhi High Court is also in stark contrast to the earlier single judge judgment of the Delhi High Court in Raffles Design International v. Educomp Professional Education5 as well as the single judge judgment of the Bombay High Court in Kochi Cricket Pt Limited . Board of Control for Cricket in India6, wherein the Courts have observed that there is a difference between the terms "arbitration proceedings" and "in relation to arbitration proceedings" and it is owing to this discussion that although the Amendment Act is applicable to Court proceedings arising out of old Arbitrations, it is not applicable to arbitration proceedings initiated under the old Act.

Footnotes

1. Decided by the Delhi High Court on 6 January, 2017, Division Bench

2. 1999 (9) SCC 334

3. AIR 2016 Cal 213

4. Application No.7674/2015 in O.P. 931/2015, Madras High Court 5. Delhi High Court on 7 October, 2016

6. Bombay High Court on 14th June 2016

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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