Supreme Court Rules on the Arbitration and Conciliation (Amendment) Act, 2015

[Raghav Kohli is a III year B.A., LL.B. (Hons) student at Gujarat National Law University]

On 23 January 2019, a division bench of the Supreme Court of India in Rajasthan Small Industries Corporation Limited v. M/s Ganesh Containers Movers Syndicate set aside an order of the Rajasthan High Court, which had allowed an application for appointment of a substitute arbitrator under sections 11 and 15 of the Arbitration and Conciliation Act, 1996 (“Act”). In doing so, the Court has unequivocally affirmed the approach adopted earlier in BCCI v. Kochi Cricket Private Ltd on the question of the applicability of the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”). It held that the provisions of the Amendment Act cannot have retrospective operation in ongoing arbitrations unless parties agreed otherwise. The Court also clarified that ‘mere neglect’ of an arbitrator to act or cause a delay in passing an award by itself cannot be grounds for appointing another arbitrator.

Factual Background

The case arose out of an agreement between the parties dated 21 January 2000 (“Agreement”), which provided for an arbitration clause. Clause 4.20.1, Schedule 4 of the Agreement provided that all disputes arising out of the contract were to be referred for arbitration to the Managing Director or his/her nominee. When disputes arose, the matters were referred to arbitration in 2005. However, due to the unsatisfactory conduct of the arbitrator, he was removed and replaced twice by the parties. Eventually, the Chairman-cum-Managing Director was appointed as the sole arbitrator in 2009.

Due to inordinate delay, Ganesh Containers Movers Syndicate, the respondents, in 2015 filed an application for the appointment of a substitute arbitrator before the Rajasthan High Court under sections 11 and 15 of the Act. While the petition was pending, the arbitrator hastily fixed a hearing date and passed an ex-parte award on 21 January 2016, without providing an adequate hearing to Ganesh Containers. Three months later, the High Court allowed the petition and appointed an independent arbitrator to settle the disputes. Rajasthan Small Industries Corporation Limited, the appellant, accordingly approached the Supreme Court to set aside the High Court decision.

Decision of the Supreme Court

The Supreme Court identified the following issues, among others, for adjudication: first, whether section 12 of the Amendment Act made the Chairman-cum-Managing Director ineligible to act as the arbitrator? Second, whether the High Court was right in terminating the mandate of the appointed arbitrator and appointing a substitute arbitrator on the ground of delay in passing the award?

On the first issue, the Court found that section 12 was inapplicable in the instant case as section 26 of the Act proscribed the application of the Amendment Act to proceedings initiated after its commencement, unless agreed otherwise.  It also distinguished the case of TRF Limited v. Energo Engineering Projects Limited relied upon by Ganesh Containers, where the notice invoking arbitration was issued on 28 December 2015, after the Amendment Act came into force with effect from 23 October 2015.

On the second issue, the Court held that ‘mere neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint another arbitrator in deviation from the terms agreed to by the parties.’ In this case, since delay was caused by a variety of factors such as non-availability of important documents, the High Court decision terminating his appointment was reversed.

Interestingly, while upholding the appointment of the Chairman-cum Managing Director as the arbitrator, the Court set aside the award passed by him. Exercising its powers to do complete justice under Article 142 of the Constitution, the Court directed the arbitrator to pass the final award within four months after affording a fair hearing to both the parties.

Conclusion

This judgment has confirmed the non-retrospective applicability of the Amendment Act, which had beleaguered courts in India before 2018. Thus, the ‘intermediate approach’ to interpret section 26 of the Amendment Act prospectively, as laid down by Justice Rohinton Nariman in BCCI, has now been firmly rooted in Indian arbitration jurisprudence. Under this approach, the Supreme Court divided section 26 into two parts: the first couched in negative terms applicable only to proceedings before arbitral tribunals, and the second couched in positive terms applying to court proceedings in relation thereto. After bifurcating the section, the Court relied upon its plain meaning along with the scheme and object of the Act to hold that the Amendment Act only applied prospectively to both court and arbitral proceedings which commenced on or after the commencement of the Amendment Act (i.e. 23 October 2015).

By reversing the High Court’s interference with the agreed terms of the parties, the Court in Rajasthan Small Industries Corporation Limited has also reiterated its pro-arbitration stance and furthered the principle of minimal curial intervention in India. 

Raghav Kohli

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1 comment

  • “On the first issue, the Court found that section 12 was inapplicable in the instant case as section 26 of the Act proscribed the application of the Amendment Act to proceedings initiated after its commencement, unless agreed otherwise. ”

    Proceedings initiated “after” or “before”? I think you mean to say “before”.

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