Section 26 of the Arbitration and Conciliation (Amendment) Act 2015: A Case of Misinterpretation

[Guest
post by Aishwarya Singh, IV Year
B.A., LL.B. (Hons.), Jindal Global Law School]
A recent post
on this Blog had discussed the conundrum surrounding the applicability of the Arbitration
and Conciliation (Amendment) Act, 2015 (“Amendment Act”). The post discussed
the conflicting judgements of High Courts regarding the applicability of the
amendment to applications filed under section 34 of the Arbitration and
Conciliation Act, 1996 (“1996 Act”) for setting aside the arbitral award, when
the arbitral proceeding has been commenced before the Amendment Act came into
force. The present post discusses the growing trend amongst High Courts to hold
that the amendment will be applicable to section 34 proceedings, even if the related
arbitral proceedings commenced before the Amendment Act came into place. This post
argues that a substantive right accrues to a party to be governed by the
pre-amendment regime when the arbitration proceedings have been commenced prior
to the amendment. Such an accrued right cannot be taken away unless the
legislature provides expressly in the Amendment Act pointing to the contrary.
The Madras High Court in New Tirupur Area Development v. Hindustan
Construction Co. Ltd.
and the Bombay High Court in Rendezvous
Sports World v. BCCI
and recently in
Wind World Ltd v. Enercon Gmbh
have held that the Amendment Act will be applicable to section 34
applications by virtue of section 26 of the Amendment Act, even when the
arbitral proceedings have commenced prior to the amendment. Section 26 of the
Amendment Act states:
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 High Courts in the abovementioned
judgements have sought to divide section 26 in two parts, holding that “to the
arbitral proceedings” has a different meaning to “in relation to arbitral
proceedings”: thus, the phrase “in relation to arbitral proceedings” includes
court proceedings, while the former is limited to only proceedings before the
arbitral tribunal. Hence, the Amendment Act is prospectively applicable only
with respect to the arbitral
proceedings
and the Amendment Act will be applicable to court
proceedings such as section 34 applications.
The said distinction has led two
major consequences, which are: (1) cases pending in the court prior to the date
of Amendment Act will be governed by the amended provisions because of the
limited interpretation of the term “to
the arbitral proceedings
” and (2) cases filed in the court following
the amendment, which are connected to the arbitral proceedings that have
commenced prior to the amendment will be governed by the amended provisions. As
a consequence, now there is no distinction between the abovementioned
categories of court proceedings which are connected to the arbitration
proceedings that had commenced prior to the Amendment Act and the cases initiated
in the court which are connected to the arbitral proceedings that have
commenced or may commence after the Amendment Act.  
The distinction between the two
phrases results from the reliance of the said High Courts on an earlier
judgement of the Supreme Court in the case of Thyssen Stahlunion GmBH
v. Steel Authority of India
where the court was interpreting the phrase
“in relation to arbitral proceedings” under section 85(2), the repeal clause of
the 1996 Act. Section 85(2) also comprised two parts. But, in both parts, the
expression used was “in relation to
arbitral proceedings
: so it was not confronted with the exact
question facing the High Courts today under the Amendment Act. The Supreme Court
held that the expression “in relation
to arbitration proceedings
” includes not only arbitral proceedings but
also court proceedings relating to the arbitral proceedings. It is respectfully
submitted that the said High Courts while adopting the conclusion of the
Supreme Court regarding the interpretation of phrase “in relation to arbitral
proceedings” have failed to take into consideration the reasoning of the court in
arriving at the said interpretation. The Supreme Court was faced with the
question of the applicability of the provisions of the Arbitration Act, 1940 (“1940
Act”) which had been repealed “in
relation to arbitration proceedings
” which had commenced prior to the
enactment of the 1996 Act. The following conclusions of the court are relevant:
22. 1. The provisions of
the old Act (Arbitration Act, 1940) shall apply in relation to arbitral
proceedings which have commenced before the coming into force of the new Act
(the Arbitration and Conciliation Act, 1996).
2. The phrase ―in
relation to arbitral proceedings cannot be given a narrow meaning to mean only
pendency of the arbitration proceedings before the arbitrator. It would cover
not only proceedings pending before the arbitrator but would also cover the
proceedings before the court and any proceedings which are required to be taken
under the old Act. for the award becoming a decree under Section 17 thereof and
also appeal arising thereunder.
……..
5. Once the arbitral
proceedings have commenced, it cannot be stated that the right to be governed
by the old Act for enforcement of the award was an inchoate right. It was
certainly a right accrued. It is not imperative that for right to accrue to
have the award enforced under the old Act some legal proceedings for its
enforcement must be pending under that Act at the time the new Act came into
force
.
6. If a narrow meaning
of the phrase ―in relation to arbitral proceedings is to be accepted, it is
likely to create a great deal of confusion with regard to the matters where
award is made under the old Act. Provisions for the conduct of arbitral
proceedings are vastly different in both the old and the new Act. Challenge of
award can be with reference to the conduct of arbitral proceedings. An
interpretation which leads to unjust and inconvenient results cannot be
accepted.”
The court further observed:
28. Section 85(2)(a) is
the saving clause. It exempts the old Act from complete obliteration so far as
pending arbitration proceedings are concerned. That would include saving of
whole of the old Act up till the time of the enforcement of the award. This
(sic Thus) Section 85(2)(a) prevents the accrued right under the old Act from
being affected. Saving provision preserves the existing right accrued under the
old Act. There is a presumption that the legislature does not intend to
limit or take away vested rights unless the language clearly points to the
contrary.
It is correct that the new Act is a remedial statute and,
therefore, Section 85(2)(a) calls for a strict construction, it being a
repealing provision. But then as stated above where one interpretation would
produce an unjust or an inconvenient result and another would not have those
effects, there is then also a presumption in favour of the latter
.
The Supreme Court chose to provide an
expansive interpretation to phrase “in
relation to the arbitral proceeding
” holding that court proceedings in
relation to arbitral proceedings under the 1940 Act cannot be governed by the
1996 Act because: (1) a right accrues to the party to have all the aspects of
enforceability of award (including appeal) to be governed by the 1940 Act when
the arbitral proceedings are commenced under the 1940 Act; and (2) the court
also stated that an interpretation that the court proceeding in relation to
arbitral proceedings commenced under the 1940 Act will be governed by the 1996
Act would lead to confusion and hardship as there is a significant difference
in both the Acts, the changes brought about by the 1996 Act may not have been
in contemplation of the parties when they entered into the arbitration
agreement. The same situation will occur if the Amendment Act is to be applied
to court proceedings, when the arbitral proceedings were invoked before the
Amendment Act came into place. The Amendment Act changes the parameters of
setting aside the arbitral award under section 34 and staying the execution of
the same under section 36, and hence it substantively affects the accrued right
of the parties.
In the judgement of Ardee
Infrastructure Pvt. Ltd. v. Ms. Anuradha Bhatia & Ors.
, the Delhi
High Court has accordingly held that that the amended provisions would not be
applicable to ‘court proceedings’ related to arbitral proceedings commenced
prior to the amendment, unless they were merely ‘procedural’ and did not affect
any ‘accrued right. The amendments to sections 34 and 36 affect accrued rights
of the parties. It is submitted that the interpretation adopted by the Delhi
High Court is the correct interpretation and in line with the reasoning of the
Supreme Court in Thyssen Stahlunion GmBH.
It is superfluous to assume that by virtue of the usage of the phrase “in
relation to arbitral proceedings”, the legislature intended to allow
application of the Amendment Act to court proceedings, especially in the light of
the precedent that a statute
cannot take away a substantive right (which includes the right to appeal)
except by an express provision or by necessary implication. The conundrum
regarding the application of the Amendment Act may soon come to an end as the
decision of the Bombay High Court in Rendezvous
Sports World
has been challenged and is pending adjudication in the Supreme
Court.
– Aishwarya Singh

 

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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