The Silences of Section 26 of the Arbitration (Amendment) Act, 2015: Has the Supreme Court Answered?

[Anirudh Lekhi is an associate at a law firm in New Delhi, having graduated from National University of Juridical Sciences in 2017]

The Arbitration and Conciliation (Amendment) Act, 2015 (Amendment) brought about several much awaited amendments to the Arbitration and Conciliation Act, 1996 (Act). However, section 26 of the Amendment, which delineates its temporal scope, has been the source of divergent interpretations by different High Courts. The Supreme Court in its recent decision in BCCI v. Kochi Cricket Pvt. Ltd. (BCCI) put these differing approaches to rest and clarified the scope of this provision. BCCI has previously been the subject of a post here, where the author therein welcomed the decision despite correctly identifying vacuums the verdict had created. However, it is submitted that while BCCI may have finally defined the contours of section 26, its reasoning is perfunctory, leaving more questions than providing answers. Moreover the Supreme Court in BCCI, while interpreting section 26, has unsettled other areas of statutory interpretation by adopting views contrary to its own previous decisions.

Scheme of Section 26

Section 26 of the Amendment reads as follows:

“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.  

[Emphasis added]

A bare reading of section 26 would denote that it is divided into two limbs, and separated by the word ‘but’. The first limb of the section suggests that arbitral proceedings, which have commenced before the commencement of the Amendment in accordance with section 21 of the principal Act would not be governed by the new regime introduced by the Amendment, unless the parties have agreed otherwise. However, according to its second limb, the post-amendment regime would apply ‘in relation to’ the arbitral proceedings, which have commenced on or after the date of commencement of the Amendment. Curiously, while the first limb of the provision employs the phraseology ‘to arbitral proceedings’; the second limb uses the words ‘in relation to arbitral proceedings’. It is this distinction in the section that becomes crucial in understanding the Court’s verdict in BCCI.

The BCCI Decision

The question, which fell for consideration before the Court, was whether the amended section 36 of the Act would govern the enforcement proceedings, when the challenge to such awards was made under section 34 of the Act under the following two situations—

(i) Before the commencement of the Amendment (Case 1); and

(ii) After the commencement of the Amendment (Case 2).

Determining this question was imperative because while a party under the un-amended section 36 could have availed an automatic stay on the award upon a challenge under section 34, it would have had to obtain a separate order of stay under the amended section 36.

The Court opined that for arbitral awards challenged in Case 1 and Case 2, the amended section 36 would apply for their enforcement. The thrust of the Court’s reasoning was that while the first limb of section 26 applied “to arbitral proceedings” commenced before the commencement of the Amendment, the second limb applied “in relation to arbitral” proceedings commenced after its commencement. It assumed a narrow construction of the phrase “to arbitral proceedings” to mean proceedings that have commenced before an arbitral tribunal. However, the words “in relation to arbitral proceedings”, occurring in the second limb of section 26, in the Court’s estimation, only encompassed court proceedings. Since enforcement proceedings initiated after the commencement of the Amendment, qualified as court proceedings “in relation to arbitral proceedings”, the amended section 36 applied.  Further, specifically with respect to Case 1 proceedings, the Court noted that as the amended section 36 pertained to enforcement, which was itself in the realm procedure, no rights could be vested in any party. This was observed despite that the challenge to the award was made before the commencement of the Amendment.

Comment

The Court’s interpretative distinction with respect to the expression “to arbitral proceedings” as against “in relation to arbitral proceedings” is not new. The Supreme Court in Thyssen Stahlunion GMBH v. Steel Authority of India (Thyssen) addressed a similar situation where the arbitral proceedings had commenced under the Arbitration Act, 1940. However, by the time the award was rendered and proceedings for executing the award were initiated, the Act had come into force. The Court held that since section 85(2)(a) of the Act saved all proceedings “in relation to” arbitral proceedings, which had commenced before the Act’s commencement, even proceedings before an arbitral tribunal would be covered by this expression. It observed: “This expression “in relation to” has to be given effect to…That would mean that the old Act will apply to the whole gambit of arbitration culminating in the enforcement of the award.

Thyssen has been followed by the Delhi High Court in Raffles Design International India Pvt. Ltd & Ors. v. Educomp Professional Education Ltd. & Ors (Raffles) as well as the Calcutta High Court in Tufan Chatterjee v. Rangan Dhar where the distinction between the phrases “to” as opposed to “in relation to”, appearing in section 26 has also been maintained.  In fact the Court in Raffles was also of the view that “…the second limb of Section 26; undisputedly, it has a much wider sweep and covers all proceedings, which are connected with the arbitration proceedings…

Evidently, in terms of Thyssen, the second limb of section 26 is to apply to all proceedings culminating in the award, which would also include the proceedings before an arbitral tribunal. The phrase “arbitral proceedings” occurring in section 26 is common to its first and second limbs. The only difference is with respect to the terminology used before it i.e. “to” and “in relation to”. This difference should not affect the meaning of “arbitral proceedings”, which would also include proceedings before an arbitral tribunal. Thus, inasmuch as the Court in BCCI has opined that the second limb of section 26 applies only to proceedings before a court, and not to those before an arbitral tribunal, it is in direct conflict with its verdict in Thyssen.

Interestingly, if the distinction between the two limbs of section 26 were to be applied, then it would be observed that the provision is silent on its application to court proceedings in relation to arbitral proceedings that were initiated before the commencement of the Amendment. Therefore, the regime applicable to the pre-amendment proceedings would only concern proceedings before a tribunal and not court proceedings. For instance if the arbitral award, its challenge as well as the execution proceedings were all filed before the commencement of the Amendment and have been pending since, then it would be difficult to discern the regime applicable to such a situation. It appears that BCCI has not accounted for this eventuality where all court proceedings have been filed before the commencement of the Amendment.  

To remedy exactly this peculiarity, the Delhi High Court, in Ardee Infrastructure Pvt. Ltd. v. Yashpal & Sons (Ardee) took the view 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”…then the matter becomes very simple and does not result in any anomaly.” Therefore, the effect of Ardee would be to govern the entire gamut of proceedings commenced before and after the commencement the Amendment, by the pre-amendment and post-amendment regimes respectively. However, given the Supreme Court’s decision in BCCI, Ardee no longer holds ground.

Further, according to BCCI, since enforcing a decree pertains to the realm of procedure and no substantive rights could be vested, section 36 as amended would apply to challenges to awards filed even before the commencement of the Amendment. Although this view may hold good for enforcement proceedings, the same would not be true for other court proceedings where substantive rights would be vested. For instance, where court proceedings seeking interim measures under section 9, or challenges to awards under section 34 of the Act have been filed before the commencement of the Amendment and are pending, it would be difficult to suggest that no substantive rights were vested and thus their amended versions would apply. The Delhi High Court has for precisely this reason, observed in Ministry of Defence, Govt. of India v. Cenrex Sp. Z.O.O. that pending challenges under section 34 filed before the commencement of the Amendment would be governed by the pre-amendment regime.

What appears is that the excessive litigation surrounding section 26, evidences an ill-drafted provision. However, according to a recent press release issued by the Ministry of Law and Justice, a new section 87 may be introduced through the Arbitration and Conciliation (Amendment) Bill, 2018, to clarify section 26. Incidentally, if such a clarification were made, then subject to an agreement to the contrary, arbitral proceedings initiated before the commencement of the Amendment and court proceedings in relation to such arbitral proceedings whether initiated before or after the Amendment would be governed by the pre-amendment regime. Although this would stultify BCCI, section 87 may provide answers, which linger even after the verdict.

– Anirudh Lekhi

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