India: Impact Of The Judgment Of The Hon'ble Supreme Court In ‘BCCI VS KCPL' On The Petitions Filed Under Section 34

The amendment made to the Arbitration and Conciliation Act, 1996 (hereinafter referred to as, "Arbitration Act"), introduced many important changes into the arbitration regime in the country with the aim of streamlining the arbitration proceedings and making it more in sync with the best practices observed in arbitration proceedings worldwide such as limiting the court intervention and completion of the proceedings within a fixed time period. However, as seen over the past two years it seems that some ambiguity exists on the applicability of the amended provisions especially in those court proceedings which arise out of an arbitration which commenced before October 23, 2015.

One of these contentious issues was in the context of the enforceability of the domestic awards prior to the aforesaid amendment, wherein the mere filing and pendency of an application under Section 34 of the Arbitration Act, for the setting aside of an award, operated as an automatic stay against its enforcement. The 2015 amendment made to the Arbitration Act, changed this situation substantially as Section 36 was amended to lift this automatic stay against the enforcement of the arbitral awards. The change implied that instead of the automatic stay, the person aggrieved by the Award would, now, have to make an application for seeking stay which would be decided based on merit, subject to reasonable conditions. In view of this, various applications were filed for the execution of the arbitral awards even when the applications under Section 34 were pending. This raised the question - whether parties would be able to take advantage of the amended provisions even though the arbitration had commenced under the old regime.

The Hon'ble Supreme Court, vide its judgment dated March 15, 2018, in the case of, "Board of Control for Cricket in India vs. Kochi Cricket Pvt. Ltd⁷", decided the issue and cleared the confusion for the time being. In the present matter, the Hon'ble Supreme Court had the opportunity to put to rest one such controversy - whether the amended Section 36 would apply to the pending applications for setting aside the arbitral awards under Section 34 as on the date of coming into force of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter to be referred as, "Amendment Act") in view of the interpretation of the Section 26⁸ of the Amended Act or not. In the present case, the Hon'ble Supreme Court had to interestingly decide a batch of 8 appeals wherein in four cases, the Section 34 applications had been filed prior to the amendment of 2015 and the rest four were filed after the commencement date of the aforesaid amendment. The crux of the issue before the Hon'ble Supreme Court was around the interpretation of Section 26 of the Amendment Act since the same would decide whether the substituted Section 36 of the Arbitration Act would apply in its amended form or not to both a Section 34 application filed after the commencement date of the Amended Act and a Section 34 application filed prior to the commencement date of the Amendment Act, however, pending as on that day.

On the issue of applicability of Amended Section 36, to a pending Section 34 application filed after the commencement date, the Hon'ble Court referred to the 246th Law Commission Report for gauging the intent behind the amendment brought to Section 36 wherein it was stated that the automatic stay against the enforcement of the arbitral award was leading to a lot of delays and thereby, rendering the arbitration proceedings ineffective. The Hon'ble Supreme Court also discussed the bifurcation of the proceedings before the arbitral tribunal and the courts by making a clear and definite distinction between the two limbs of Section 26, it was observed that Section 26 of the Amendment Act consists of two parts separated by the word "but", which signifies that the parts are separate and distinct. While the first part, which is couched in negative terms, applies only to arbitral proceedings, in relation to Section 21 of the Arbitration Act, the second part affirmatively applies the Amendment Act to Court proceedings in relation to arbitral proceedings. The same is evident since the words, "to the arbitral proceedings" are in contrast to the expression "in relation to" which has been used in the second part and the expression "the" arbitral proceedings and, "in accordance with the provisions of Section 21 of the principal Act" is absent. With regard to the scheme of Section 26, the Court held that the Amendment Act is prospective in application and applies only to arbitral proceedings and Court proceedings which commenced on or after the Commencement Date.

On the issue of determining the applicability of the substituted Section 36 to Section 34 applications filed before the Commencement Date, however was pending as on October 23, 2015 (the date on which the Amended Act came into force), the Hon'ble Court looked into the meaning and import of the word "enforcement" used in Section 36. The Hon'ble Court stated that under Section 36, an arbitral award is deemed to be a decree of Court and shall be enforced under the Code of Civil Procedure, 1908 ("CPC"). The manner of enforcement of a decree under the CPC is through the execution process, i.e., under Order XXI of the CPC. The Hon'ble Court considered the question, whether the execution proceedings gave rise to vested rights or were they procedural in nature. Relying upon various case laws namely Lalji Raja and Sons vs. Hansraj Nathuram⁹ and Narhari Shivram Shet Narvekar v. Pannalal Umediram¹⁰, the Hon'ble Supreme Court concluded that the execution of the decree pertains and points towards the realm of procedural law and definitely no substantive vested right was present with the judgment debtor to resist the execution of the award. Further, the Hon'ble Supreme Court also observed that the unamended Section 36 was only a clog on the right of the decree holder who could not execute the award in his own favour until the stay was disposed-off. Additionally, the Hon'ble Supreme Court also looked into the use of the words "has been" in the newly introduced Section 36(2), and stated that Section 36 being a procedural provision, the words "has been" would refer to Section 34 applications which were filed before the Commencement Date. Thus, the Court concluded that the amended Section 36 will apply even to Section 34 applications pending as on the Commencement Date.

The Hon'ble Court also opined that in the respect of the proposed Arbitration Amendment Bill of 2018, a new section 87 is proposed to be inserted to clarify that unless parties agree otherwise, the Amendment Act shall not apply to (a) Arbitral proceedings which have commenced before the commencement of the Amendment Act (b) Court proceedings arising out of or in relation to such arbitral proceedings, irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act of 2015, and shall apply only to Arbitral proceedings commenced on or after the commencement of the Amendment Act and to court proceedings arising out of or in relation to such Arbitral proceedings. It is significant to note that the Court has opined that it appears that the proposed amended Section 87 would put the important amendments introduced by the Amendment Act on the back burner and the purpose of the principal Act. The Supreme Court has conclusively determined that the substituted Section 36 will be applicable to Section 34 applications filed both before and after the Commencement Date. The factors considered by the Court in reaching these conclusions are detailed below. With regard to the scheme of Section 26, the Court held that the Amendment Act is prospective in application and applies only to arbitral proceedings and Court proceedings which commenced on or after the Commencement Date.

This Judgment of the Hon'ble Supreme Court has an effect on all the pending section 34 petitions, irrespective of the fact whether the Arbitration proceedings were held under the Unamended Act or the Amended Act. If the Petition under section 34 was pending as on October 23, 2015, the new section 36 will be applicable to the proceedings. This Judgment of the Hon'ble Supreme Court will be helpful for the industry to enforce the Award or at least get some relief within a specified time frame.

Footnotes

7 (SLP (C) Nos. 19545-19546 of 2016

8 Section 26. Act not to apply to pending arbitral proceedings: 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.

9 (1971) 1 SCC 721

10 (1976) 3 SCC 203

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