On January 6 2017 the Delhi High Court clarified the scope and interpretation of Section 26 of the Arbitration and Conciliation (Amendment) Act 2015 in Ardee Infrastructure Pvt Ltd v Bhatia.(1) The Delhi High Court held that if arbitration was commenced before October 23 2015, the amendment act does not apply to the court proceedings for setting aside an arbitral award rendered in relation to such proceedings.
Applications to set aside an arbitral award can be made under Section 34 of the Arbitration and Conciliation Act 1996. Before the amendment act came into force, the filing of a set-aside application under Section 34 operated as a stay on the enforcement of the award. However, after the amendment to Section 36, the mere filing of an application under Section 34 to set aside an arbitral award does not, by itself, render the award unenforceable, unless the court grants an order of stay on a separate application made for that purpose. The question which arose in the present case was whether the amendment act applied to an application made under Section 34 when such application was filed after the date on which the amendment act came into force (but in relation to arbitration proceedings commenced before the amendment act). An arbitration is deemed to have been commenced when the request for arbitration is received by the respondent.(2)
The arbitral award was issued on October 13 2015. Ardee Infrastructure challenged the award under Section 34 of the Arbitration Act before the Delhi High Court. By way of an order dated May 31 2016, a single judge of the Delhi High Court directed the appellant to deposit Rs27 million without prejudice to the rights and contentions of the parties, failing which the petition under Section 34 would be treated as dismissed. This order was passed on the basis that the amendment act applied to the application made under Section 34, since the application was filed after the date on which the amendment act came into force. Application of the amendment act meant that the filing of the set-aside application under Section 34 did not, by itself, render the arbitral award unenforceable, unless the court granted an order of stay on a separate application made for that purpose.
Aggrieved by the impugned order, the appellant challenged it before the Division Bench of the Delhi High Court. On January 6 2017 the Division Bench set aside the order, to the extent that it imposed a condition on the appellant to pay Rs27 million. The rationale for this decision was that by virtue of Section 26 of the amendment act, the amendments did not apply to the present case since they affected the accrued rights of the appellant and therefore the filing of the petition under Section 34 of the Arbitration Act amounted to an automatic stay on the enforcement of the arbitral award.
Section 26 of the amendment act comprises two parts:
- Part 1 states that nothing contained in the amendment act "shall apply to the arbitral proceedings" commenced in accordance with Section 21 of the Arbitration Act before the amendment act came into force, unless the parties otherwise agree.
- Part 2 states that the amendment act "shall apply in relation to arbitral proceedings" commenced on or after the date on which the amendment act came into force. There is no confusion regarding the interpretation of this part.
The confusion arises with respect to Part 1 of Section 26 because of the phrase "shall apply to the arbitral proceedings". The Division Bench opined that irrespective of whether a narrow or wide interpretation is given to this phrase, the result would be that the amendment act, to the extent that it affects the accrued rights of any party, has prospective application in the context of the commencement of arbitral proceedings.
The Division Bench held that if Part 1 of Section 26 is narrowly interpreted, the amendment act does not apply to proceedings which are pending before the arbitral tribunal. However, in such a case, Section 26 remains silent as to whether the amendment act will apply to proceedings which are pending before court or in the process of being instituted in court. Thus, the applicability of the amendment act to proceedings which may be pending before court or are in the process of being instituted in court must be considered independently of Section 26 of the amendment act. For this assessment, the Division Bench relied on the Supreme Court's judgment in Thyssen Stahlunion Gmbh v Steel Authority of India Limited(3) and held as follows:
- The right to have the award enforced (which also comprises the negative right of the award debtor to not have it enforced until its objections under Section 34 of the act are heard and decided) is an accrued right.
- With respect to Sections 34 and 36, the amendment act impinges on the accrued rights of a party.
- Since an accrued right is affected, unless a contrary intention appears in the amending statute (which is not based on a narrow interpretation of Part 1 of Section 26), the amendments must be treated as prospective.
On the contrary, if Part 1 of Section 26 is given a wide interpretation to include all arbitral proceedings, including court proceedings following proceedings before the arbitral tribunal, then the amendment act would clearly be prospective in its application and all arbitral proceedings (including the court proceedings in relation to proceedings before the arbitral tribunal), which were commenced in accordance with Section 21 of the Arbitration Act before October 23 2015 would be governed by the un-amended Arbitration Act, unless otherwise agreed by the parties.
The Division Bench did not conclusively decide whether Part 1 of Section 26 should be interpreted narrowly or widely; instead, it decided that irrespective of the scope of interpretation available, the accrued rights of the parties with respect to arbitration proceedings which were commenced before October 23 2015 cannot be amended.
The same issue is also pending before the Supreme Court. The Supreme Court's decision is eagerly awaited, since contrary views have been taken by different high courts. For example, the Bombay High Court in Mahanagar Telephone Nigam v SRV Telecom(4) and the Calcutta High Court in Sri Tufan Chatterjee v Sri Rangan Dhar(5) took a contrary view to the Division Bench and held that the amendment act applies to court proceedings commenced after the amendment came into force as well as proceedings pending in court, even where the court proceedings pertain to arbitrations under the un-amended Arbitration Act.
For further information on this topic please contact Sudip Mullick or Niharika Dhall at Khaitan & Co by telephone (+91 22 6636 5000) or email ([email protected] or [email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.
(2) Section 21 of the Arbitration and Conciliation Act 1996.
(3) 1999 (9) SCC 334, the Supreme Court opined on Section 85(2)(a) of the Arbitration Act which repealed the Arbitration Act 1940.
(4) Appeal 79/2016 (pronounced on April 25 2016).