The Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act) was notified in the Official Gazette on 1 January 2016.  The Amendment Act is deemed to have come into force with effect from 23 October 2015. The Amendment Act makes substantial changes to the Arbitration and Conciliation Act, 1996 (Act) for making arbitration a preferred mode for settlement of commercial disputes by making it more user-friendly and cost effective and leading to expeditious disposal of cases.

Arbitration and Conciliation (Amendment) Ordinance 2015: debate on prospective or retrospective application?

Report No 246 of the Law Commission of India on Amendments to the Arbitration and Conciliation Act 1996 contained a transitory provision in the form of Section 85A.  As per Section 85A, the provisions of the amended Act shall be prospective in operation and shall apply to fresh arbitrations and fresh applications. However, the Arbitration and Conciliation (Amendment) Ordinance, 2015 (Arbitration Ordinance) was promulgated absent a transitory provision which in turn stirred a debate on whether the new law would be applicable prospectively or retrospectively.

The Arbitration Ordinance hit the first roadblock in court when a division bench of the Madras High Court in the case of Delphi TVS Diesel Systems Ltd v Union of India[1] asked the Central Government to clarify whether the Arbitration Ordinance would apply prospectively or retrospectively. The Petitioners challenged the retrospective application of Section 29A of the Amendment Ordinance, which provided for a time period for completion of arbitration proceedings. The Petitioners contended that such provision could apply only to the arbitration commencing after the Arbitration Ordinance came into force or in the alternative, the time period would have to commence from the date when the Arbitration Ordinance came into force. The Madras High Court found prima facie force in the Petitioner’s contention but observed that it was a larger issue to be examined and listed the matter for hearing in January 2016.

The Bombay High Court is hearing a different aspect of the prospective/retrospective debate with respect to the amendment to Section 36 of the Act to the effect that mere filing of an application for challenging the award would not automatically stay execution of the award. The issue being considered by the Bombay High Court is:

As to whether the amendments under the Ordinance to Section 36 of the Arbitration and Conciliation Act 1996, apply to the Petitions under Section 34 of the Act, already filed and pending as on the date of the amendments.”

This matter has been part-heard before the Bombay High Court.

Amendment Act provides clarity on the applicability to pending arbitration proceedings

The Amendment Act addresses the issue of applicability of the new law to pending arbitration proceedings by adopting the following language:

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.”

Comment

The inclusion of a transitory provision in the Amendment Act has allayed the widespread concerns on the issue of prospective/retrospective application. Absent such clarification this issue may have been the subject matter of considerable litigation defeating the very object of the Amendment Act of making arbitrations more time and cost efficient. The transitory provision in the Amendment Act was the need of the hour and was therefore a welcome development.

Time will tell whether the Amendment Act will be a ‘Game Changer’ for arbitration in India. The attitude of all stakeholders and approach of the courts will be crucial to implementation of the Amendment Act in its letter and spirit.