Delhi High Court rules on pre and post-amendment Ss. 34, 36 Arbitration Act

The Delhi High Court’s Badar Durrez Ahmed and Ashutosh Kumar, JJ. delivered a significant judgment today on Section 36 of the Arbitration and Conciliation Act, a provision that was amended with retrospective effect in 2015..According to the pre-amended section, the petitioners would have an automatic right of stay on the enforcement of an arbitral award once an application under S.34 (Application for setting aside an arbitral award) was filed..However, after the amendment, a S.34 application did not automatically give the right of stay to the applicant. The award would not be rendered unenforceable unless the court granted the order of stay on a separate application..As the judgment notes,.“The post-amendment scenario is that where an application to set aside an arbitral award is filed under Section 34 before a court, the filing of such an application would not by itself render the award non-enforceable unless the court granted an order of stay of operation of the arbitral award in accordance with the provisions of Section 36(3) on a separate application made for that purpose. .Sub-section (3) of Section 36 stipulates that upon the filing of an application for stay of operation of the arbitral award, it would be open to the court, subject to such conditions, as it may deem fit, to grant stay of operation of the award for the reasons to be recorded in writing.”.And as per S.26 of the amending act, the provision at the centre of the controversy,.“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.”.It was the interpretation of this particular section that the bench had to focus on..The bench that Section 26 was divided into two parts – the first part states that nothing contained in the Amending Act shall be applicable to the arbitral proceedings commenced before the commencement of the Amending Act (i.e., on 23.10.2015), unless, of course, the parties otherwise agree..The second part makes it clear that the Amending Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amending Act..The bench stated,.“It is, therefore, clear that Section 26 bifurcates cases on the basis of the commencement of the arbitral proceedings being ‘prior’ or ‘on or after’ the date of commencement of the Amending Act.”.The notice for arbitration in the present matter was invoked in June 2011 and the arbitration itself began in February 2015. The challenge to the final arbitral award was filed in January 2016. The petitioner, represented by Senior Advocate Rajiv Nayar contended that the right to an automatic stay would only apply prospectively..The judgment reads,.“The mere filing of the petition under Section 36 of the said Act entailed an automatic stay of the enforcement of the award. That vested right of an automatic stay is no longer available under the new Section 36. This, according to the learned counsel for the petitioners, would operate only prospectively, that is, to arbitral proceedings commenced after 23.10.2015 and not to arbitrations commenced prior to 23.10.2015.”.It was contended by the respondent, represented by DHCBA President Kirti Uppal, that,.“The first part of Section 26 which saved the unamended provisions of the said Act only had reference to arbitral proceedings, i.e., proceedings before an arbitral tribunal and not to any other proceedings emanating from or related to such arbitral proceedings, including proceedings before court.”.The judgment illustrates the arbitral proceedings in accordance with Section 26 into three categories, as follows,.The respondents heavily relied on the case of Tufan Chatterjee v. Rangan Dhar in which the division bench of Calcutta High Court held,.“Since Section 26 of the Amending Act uses the expression ‘to arbitral proceedings’ instead of ‘in relation to arbitral proceedings’, the legislative intent was to limit its scope and, therefore, the said Section 26 could not be extended to include post-arbitral proceedings (including court proceedings).”.The Delhi High Court division bench however, disagreed with the Calcutta High Court and stated,.“It must be reiterated that in the said Calcutta High Court decision, the second and third categories of cases mentioned above was not considered at all. Consequently, the arguments of the respondents based on the reasoning adopted in Tufan Chatterjee cannot be accepted.”.The Bench went on to to hold that,.“If the expression to the arbitral proceedings used in the first limb of Section 26 is given the same expansive meaning as the expression in relation to arbitration proceedings as appearing in the second limb of Section 26, then, the matter becomes very simple and does not result in any anomaly. All the arbitral proceedings (and here we mean the entire gamut, including the court proceedings in relation to proceedings before the arbitral tribunal), which commenced in accordance with the provisions of Section 21 of the said Act prior to 23.10.2015, would be governed, subject to an agreement between the parties to the contrary, by the unamended provisions and all those, in terms of the second part of Section 26, which commenced on or after 23.10.2015 would be governed by the amended provisions.”.Preferring this line of reasoning, and disagreeing with the Calcutta High Court’s decision, the division bench held that,.“The petitions filed by the appellants under Section 34 of the said Act would have to be considered under the unamended provisions of the said Act and consequently, the appellants would be entitled to automatic stay of enforcement of the award till the disposal of the said petitions.”.Therefore, the petitioners were declared to be entitled to an automatic stay on the enforcement of the award till the petition is decided..Read the judgment here.