April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm ARBITRATION - SUPREME COURT OF INDIA ONSETS A NEW SAGA FOR SECTION 34 FATE OF SECTION 34 THROUGH SECTION 36 OF THE ARBITRATION ACT Much has been discussed on the amended Section 36 of the Arbitration and Conciliation Act, 1996 but the most crucial aspect of continuity of stay or otherwise remains to be checked to the effect as to; “What will be the impact on the already filed and pending applications under Section 34 prior to such an amendment?” This leads to a quick reference to the pre-amended Section 36 & post–amended Section 36. PRE-AMENDED SECTION 36 "36. Enforcement:- Where the time for making an application to set aside the arbitration award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the code of Civil Procedure, 1908 in the same manner as if it were a decree of the Court." AMENDED SECTION 36 "36. Enforcement 1. Where the time for making an application to set aside the arbitral award under section 34 has expired, then, subject to the provisions of sub-section (2), such award April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908, in the same manner as if it were a decree of the Court. 2. Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose. 3. Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing: Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908." DIFFERENCE BETWEEN THE OLD AND AMENDED SECTION 36 Under the pre-amended Section 36, though there is no express use of the words “Suo Motu Stay”, the wording of the Section implies that there will be an automatic stay on the execution proceedings of the Arbitral award till: the time to file an application under Section 34 has elapsed or an application filed under Section 34 has been decided or refused. There was no requirement of filing of a separate application for stay of award of Arbitral Tribunal other than an application under pre-amended Section 36 of the Act. The enforcement of the award at par a decree of the Court was subjective under pre-amended Section 36. However, under the amended Section 36 w.e.f. October, 2015, there will not be an automatic stay on the execution proceedings of an arbitral award. April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm Post amended Section 36 has three limbs. The era of “suo motu stay” ceases due to second leg of the amended Section 36 of the Act. Section 36(2) further provides that along with an application made under Section 34 to set aside the award, a separate application for the stay of execution proceedings also has to be made before the Court. On such a separate application made for granting stay on the execution proceedings, the court may grant a stay on the basis of conditions it may deem fit. Where the arbitral award is in respect of payment of money, the Court shall have due regard towards the provisions of execution of a Money Decree under the Civil Procedure Code, 1908. FOUNDATION OF AMENDED SECTION 36 The amended Section 36 finds it origin from a recommendation of Law Ministry to the Parliament and Supreme Court’s finding in National Aluminum Company Ltd. 1. SUPREME COURT ON PRE-AMENDED SECTION 36 In the case of National Aluminum Company Ltd. v. Pressteel & Fabrication (P) Ltd. (2004) 1 SCC 540 the Supreme Court held that: “However, we do notice that this automatic suspension of the execution of the award, the moment an application challenging the said award is filed under section 34 of the Act leaving no discretion in the court to put the parties on term, in our opinion, defeats the very objective of the alternate dispute resolution system to which arbitration belongs. We do find that there is a recommendation made by the concerned Ministry to the April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm parliament to amend section 34 with a proposal to empower the civil court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in the law.” “….Section 36 be substituted, as it defeats the very objective of the alternative dispute resolution system, and that the Section should be amended at the earliest to bring about the required change in law. It would be clear that looking at the practical aspect and the nature of rights presently involved, and the sheer unfairness of the unamended provision, which granted an automatic stay to execution of an award before the enforcement process of Section 34 was over (and which stay could last for a number of years) without having to look at the facts of each case, it is clear that Section 36 as amended should apply to Section 34 applications filed before the commencement of the Amendment Act also for the aforesaid reasons.” UNQUOTE The Apex Court in National Aluminum supra held that the intent and object of the alternative dispute resolution system was defeated by Section 36 and it should be substituted. Section 36 as a result provided automatic stay for endless years to applications filed under Section 34. It must be noted that the Court in National Aluminum supra has already discussed and categorically held about the applicability of amended Section 36 on applications filed under Section 34 prior to such an amended Section 36. April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm 2. SUPREME COURT ON AMENDED SECTION 36 In Board of Control for Cricket in India (BCCI) v. Kochi Cricket Pvt. Ltd. and etc., Civil Appeal Nos. 2879-2880 of 2018 (Arising out of SLP (C) of 19545-19546 of 2016) the Court had to deal with the question as to whether Section 36, which was substituted by the Amendment Act, would apply in its amended form or in its original form to the applications filed under Section 34. Factum - The Section 34 applications were filed after the Amendment Act came into force. The Court analyzed the relevant provisions to conclude and deliver an in-depth 108 page order. APPLICABILITY OF SECTION 36 VIA SECTION 26 The Court referred Section 26 to analyze the applicability of Section 36 as under: "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." The Court has held that the Section 26 of the Amendment Act has two parts as under: Part I of the Section 26 clearly deals with non-application of the Amendment Act only to those arbitral proceedings which have commenced in relation to Section 21 of the Principle Act of 1996, prior to the enforcement of the Amendment Act 2015. Whereas Part II of the said Section deals with the applicability of the Amendment Act to the Court proceedings in relation to the arbitral proceedings on or after the enforcement of the Amendment Act 2015. April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm The Part I of the Section 26 makes a reference to arbitral proceedings in accordance with Section 21 of the Principle Act which falls under Chapter V of the act (Commencement of the arbitral proceedings). The Court has further pointed out the usage of the words in Section 26 in part I to the effect that “to arbitral proceedings” which relate to the proceedings before the arbitral tribunal, and the option provided to the parties to such arbitration who may “otherwise agree” to the application of the amendment Act to arbitral proceedings commenced before the commencement date, since the arbitral proceedings are merely procedural in nature. The Part II of Section 26 has no such reference to Section 21 of the Principle Act, and the use of words “In relation to arbitral proceedings” has been referred to as Court proceedings in relation to such arbitrations. First Analysis - The Court had to also deal as to whether the Amendment Act is prospective in nature and the amended Section 36 will be applicable to Section 34 applications which have been filed after the Commencement Date even if the arbitral proceedings were initiated prior to such date. The other significant question before the court was that will the substituted Section 36 apply to the applications filed under Section 34 of the arbitration act, prior to the commencement of this Amendment Act. To determine the above issue, the court has examined the word “enforcement” used in Section 36 of the Act. The Arbitration Act clearly states that the enforcement of the arbitral award, being a decree, will be done in accordance with the provisions of the Civil Procedure Code, 1908. Under the CPC, a decree is enforced via execution proceedings under Order XXI. The execution proceedings being procedural in nature per se does not give a rise to any substantive vested right to the judgment Debtor. April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm With regards to Section 36, an application filed under Section 34 of the Act does not provide a vested right to the judgment debtor to stay the execution proceedings of an arbitral award. “39. From a reading of Section 26 as interpreted by us, it thus becomes clear that in all cases where the Section 34 petition is filed after the commencement of the Amendment Act, and an application for stay having been made under Section 36 therein, will be governed by Section 34 as amended and Section 36 as substituted. But, what is to happen to Section 34 petitions that have been filed before the commencement of the Amendment Act, which were governed by Section 36 of the old Act? Would Section 36, as substituted, apply to such petitions? To answer this question, we have necessarily to decide on what is meant by “enforcement” in Section 36. On the one hand, it has been argued that “enforcement” is nothing but “execution”, and on the other hand, it has been argued that “enforcement” and “execution” are different concepts, “enforcement” being substantive and “execution” being procedural in nature.” The Court also held that We have already held that Section 26 does specifically provide that the court proceedings in relation to arbitral proceedings, being independent from arbitral proceedings, would not be viewed as a continuation of arbitral proceedings, but would be viewed separately. On perusal of the above and a joint reading, the following evolves: The pre-amended Section 36 has been referred to as a “clog” on the rights of the decree holder, by the Supreme Court, as the decree holder could not pave a way ahead to execute the award unless certain conditions were met. The ratio which evolved is “enforcement is nothing but execution” whereas “execution” is procedural in nature” April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm Second Analysis - The Court looked into Section 36 of the Arbitration Act as below: 45. Being a procedural provision, it is obvious that the context of Section 36 is that the expression “has been” would refer to Section 34 petitions filed before the commencement of the Amendment Act and would be one pointer to the fact that the said section would indeed apply, in its substituted form, even to such petitions……. Unquote - This also need to be understood from a simple fact that the entire gamut of arbitral proceedings begins with its commencement and the mandate of Arbitral Tribunal ends with the rendering of an award. Further, Section 36 does not create new rights but it results into a procedure of merely an execution of already rendered award at par a decree. PRESENT & FUTURE STATUS - CONCLUSION The decision in the case of BCCI supra will have a substantial and immediate effect on the arbitration matters that are pending in the Court. The major impact of the amended Section 36 of the Act as analysed by BCCI supra, will be as below: a. That the decisions where an execution proceeding had been automatically stayed under the un-amended Section 36 of the Act will now resume. The honeymoon phase of automatic stay will be over or the suo motu stay will become ab initio null and void. b. That an application for stay shall have to be mandatorily filed under Section 36 and Courts will hear and decide about the fate of such an application of stay with or without conditions as it may deem fit. April, 2018 AMLEGALS | Attorneys & Advisors | A Full Service Law Firm c. That the Court, wherever it deems fit, may under its stay order impose a condition of deposit of the award amount or any part of it. d. That those who seek to execute their arbitral award will be able to do so even if there is a challenge to the arbitral award pending in the Court. We anticipate that there shall be further and/or new filing of applications in all matters pending under Section 34 as on date and Bar as well as Bench will be busy with new load of work. AMLEGALS - Anandaday Misshra, Founder Advocate Kamya Shah, Associate The content is purely an academic analysis and does not result into any advice to any person, including any client in any manner. 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