Arbitration amendments applicable to pending post-award court proceedings: Bombay High Court

Bombay High Court

Namit Oberoy

The Bombay High Court’s recent decision in Kochi Cricket v. BCCI (see judgment below below) dwells on the so far unsettled question on the applicability of the Arbitration (Amendment) Act to post-award proceedings pending before the Courts.

Especially in view of the procedural amendment in Section 36 of the Act, it has been uncertain which law applies to proceedings pending as on the date of the amendments. The conflicting viewpoints form the subject of this discussion, and are analysed through the course of this write-up.

Background

Three separate arbitral awards were passed in respect of arbitrations between (I) RSW and BCCI (II) Kochi Cricket Private Ltd and BCCI and (III) Global Asia Venture Co. and Arup Deb, Reach Cargo & Ors before the date of commencement of the Arbitration (Amendment) Act, i.e 23rd October, 2015. BCCI and Reach Cargo against whom the respective awards were passed challenged the awards before the Bombay High Court, also before the date of commencement of the Act.

The award holders (RSW, KCPL, Global Asia) (Respondents) moved execution applications before the Court, and subsequently BCCI and Reach Cargo (Applicants) sought dismissal of these execution applications. A common order was passed on the above three proceedings, which debated the same question of law namely,  whether the new or the old Act applied to court proceedings pending before the commencement of the Amending Act?

Applicability of amended Section 36 to pending post-award proceedings

The Amendment to Section 36 and interpretation of the saving Section 26 of the Amending Act was the limited subject-matter of the contest between the parties.

The Amendment Act has substituted the old Section 36 which stood as follows:-

“36. Enforcement: Where the time for making an application to set aside the arbitral 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 (5 of 1908) in the same manner as if it were a decree of the Court.”

Under the above un-amended Section 36, an award could not be enforced against a party if an application under Section 34 (to annul the award) had been filed by it. An automatic suspension operated on the execution of the award; the award could be otherwise enforced only upon the expiry of limitation period of a S. 34 petition, or upon the dismissal of such application.

This procedure, as earlier criticized by the Apex Court in Nalco, imposed a disability upon a successful award-holder preventing him from enforcing the award if an application under Section 34 is pending. It prevented the award-holder from enjoying the fruits of his success merely because the unsuccessful award-debtor filed an application to challenge the award.

The Applicants’ case was that if applications under Section 34 of the Arbitration Act to challenge arbitral awards are filed prior to promulgation of the Arbitration Ordinance, the same would be governed by the old Section 36 of the Arbitration Act. As a result, the awards will become enforceable against the judgement-debtors, only if and when, the petitions under Section 34 are refused, and they would enjoy an automatic stay against execution during the pendency of the 34 petition.

By way of the amendment of Section 36, the effect of this automatic suspension has been removed.

The section now reads,

“36. Enforcement:

(2) Where an application to set aside the arbitral award has been filed in the Court under Section 34, the filing of such application shall not by itself render the award unenforceable, unless the Court grants an order of stay of operation of said arbitral award in accordance with the provisions of sub-section (3), on separate application made for that purpose.

…”

The Respondents contended that the new S. 36 must be held applicable to the pending court proceedings; after expiry of three months from the date of the arbitral award, the awards become enforceable against the Applicants irrespective of whether a challenge has been filed by them or not.

On the one hand, in rulings such as Electrosteel Castings and Nitya Ranjan Jeva it is held that if the arbitral proceedings commenced before the effective date of the Amendment, there would be no need to take out a separate stay application as per S. 36 (2) of the new Act.

In other words, the old Act would continue to apply to court proceedings pending before 23rd October 2015. On the other hand, in a more recent trend observed in rulings such as New Tirupur, the amended Act is held applicable to pending post-award proceedings.

Parties’ submissions

On whether Saving Section 26 of the Amending Act is exhaustive

“26. Nothing contained in this Act shall apply to 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 phrase “arbitral proceedings” covers a specified duration within the meaning of S. 21 of the Arbitration Act. An arbitration commences from the date on which a request to arbitrate is received by the Respondent, and terminates by the final award (S. 32(1)) or by an order of the tribunal under S. 32 (2). Therefore, the phrase does not include pre-commencement or post-award court proceedings. This meaning was not in dispute between the Parties.

According to the Applicants, the first part of Section 26 provides that the amendments would not apply to tribunal proceedings, but is silent on the effect of these amendments on post-award proceedings. For this reason, the phrase is necessarily non-exhaustive. Resultantly, resort must be had to Section 6 (Effect of Repeal) of the General Clauses Act, which provides that unless a repealing statute expressly extinguishes a vested right or expressly affects a pending legal proceeding under the repealed statute, that accrued right or legal proceeding is not affected.

The applicants submitted that whatever rights are expressly saved by a “saving” provision stand saved, but that does not mean that rights not saved by the savings provisions stand ipso facto extinguished.  The rights which are accrued are saved unless they are taken away expressly.

Thus, the automatic stay on enforcement of the award would continue to operate in respect of pending post-award litigations.

The Respondents on the other hand urged that though the meaning of “arbitral proceedings” is restrictive, it is not on account of any inadvertent error by the legislature, instead is a deliberate and intentional omission to keep post-award litigations outside the purview of the saving clause. Unless expressed otherwise, the language employed by the legislature must be presumed to be deliberate and conscious. The Respondents’ rebutted the applicability of Section 6 of the General Clauses Act on the ground that it is to resorted only when no “different intention” appears in the provision, and in Section 26 the intention to exclude post-award proceedings is manifestly clear. Use of the restrictive phrase “arbitral proceedings” in the first part of Section 26 as against the use of a wider phrase “in relation to arbitral proceedings” in the second part of Section 26 must be held to be intentional, and that the language was constructed with a purpose to restrict the saving to “arbitral proceedings” only. 

They further argued that the intention of the legislature behind this expression can be inferred from the 246th Law Commission Report (Paras 43-45) and the Supreme Court’s criticism of the pre-amendment position in Nalco.

On whether an application u/s 34 to annul the award (a) is akin to a right of appeal; and/or (b) amounts to a single arbitral proceeding

The Applicants urged that the right to challenge an award u/s 34 and the limits on enforceability of the award under the old S. 36 together form a package of rights, which all accrue to a party on the date of commencement of the arbitration. The sole remedy available to a party aggrieved by an award to file an application u/s 34, and that by itself must be treated as a continuation of the arbitral proceedings.

In the Respondent’s case, an application u/s 34 was argued to be distinct from an appeal since the only order that can be passed on such a challenge is either upholding of the Award, or setting it aside in its entirety (except the parts of the award are separable); the Court u/s 34 exercises supervisory and not appellate jurisdiction. The Respondents contended that considering the provisions of Section 21 of the Principal Act in which the exact time at which arbitral proceedings are terminated is provided, the singular proceeding argument holds no water. At best, the continuation of proceedings could be possible between S. 34 and S. 37 of the Act, but not between passing of a final award and a S. 34 proceeding.

On the interpretation of the phrase “has been filed” in S. 36 (2) of the Amended Act

The Applicants contended that the verb “has been” used in S. 36 (2) is in “present perfect tense”, relying on an Apex Court’s decision which held “has been” to be in the present perfect tense describing past actions, used to express a hypothesis without regard to time. The phrase “has been” hence takes in its fold the proceedings already filed and pending in Court.

Keeping in mind the object of the amendment to S. 36, the Court was inclined to accord plain literal meaning to the words “has been”, holding that Section 36 will be applicable not only to cases where a petition under Section 34 of the Arbitration Act is filed after 23rd October, 2015 but also to cases where a petition has been filed before such date. 

Final decision 

Under the old Section 36, there operated a disability on the award-holder to get his award enforced if a Petition u/s 34 was pending. The Court held that under the new Act, all that has been removed is this disability by giving him the right to enforce the award, but only as long as a stay (on a separate application u/s 36 (2)) has not been granted on the execution application. However, no substantive right, much less a vested right, has been snatched away from the Applicants. It was the intention of the legislature to cure the mischief in the old S. 36.

The court held that,

“The Amended Section 36 lifts the shadow over the right of the award- holder. His disability gets removed. At the same time, the application under Section 34 of the award-debtor remains intact. The removal of disability is not complete. It is partial. The provision enables the award-debtor to apply to the Court for make the award inexecutable pending his application. His right to apply for interim relief during the pendency of the application under Section 34 is not affected in any way. In this way in fact the Amending Act brings in balance between the rights and liabilities of both the sides. The ambit and scope of the Amended Section 36, is to cure the defect by removing the imbalance.”

On the basis of ordinary literal meaning of S. 26 & S. 36, as well as the context to the Amendment, the Court went on to hold that the amended S. 36 will apply to Section 34 petitions pending as on 23rd October 2015.

 

Namit Oberoy

Namit Oberoy is an Associate in the Arbitration Practice team at Advani & Co, Mumbai,

Read the full judgment below.

Kochi v BCCI