- Apprentice Lawyer
- Legal Jobs
In a judgment which could have a major impact on arbitration cases pending in courts, the Supreme Court today held that Section 36 of Arbitration Act as amended by the Amendment Act of 2015 will apply to Section 34 applications filed before the commencement of the Amendment Act.
The judgment was rendered by a Bench of Justices Rohinton Fali Nariman and Navin Sinha.
The Court while making the said ruling gave a detailed interpretation of the Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act).
Senior Advocates including KV Viswanathan, CA Sundaram, Abhishek Manu Singhvi, P Chidambaram, Kapil Sibal, Neeraj Kishan Kaul, Arvind Datar and Sajan Poovayya and advocates Anirudh Krishnan and Nakul dewan and Additional Solicitor General Tushar Mehta appeared for various parties.
The question before the Court was whether Section 36, which was substituted by the Amendment Act, would apply in its amended form or in its original form to the appeals in question from Bombay High Court.
Section 26 of the Amendment Act reads thus:
“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.”
Wide ranging arguments were advanced by the parties with respect to the interpretation of Section 26 of the Amendment Act.
Following counsel took the stand that in court proceedings that commenced before October 23, 2015 (the date on which the amended Act came into force), the old Act will apply.
Following counsel had taken the stand that in court proceedings that commenced before October 23, 2015, the amended Arbitration Act will apply:
The Court made a clear distinction between two parts of Section 26.
“…this Court has found, on a reading of Section 26, that the provision is indeed in two parts. The first part refers to the Amendment Act not applying to certain proceedings, whereas the second part affirmatively applies the Amendment Act to certain proceedings.”
The Court noted the following with respect to the first part of the section: (1) “the arbitral proceedings” and their commencement is mentioned in the context of Section 21 of the principal Act; (2) the expression used is “to” and not “in relation to”; and (3) parties may otherwise agree.
As regards the second part, the court noted that the expression “in relation to” is used; and the expression “the” arbitral proceedings and “in accordance with the provisions of Section 21 of the principal Act” is conspicuous by its absence.
The Court held that expression “the arbitral proceedings” refers to proceedings before an arbitral tribunal as was clear from the heading of Chapter V of the 1996 Act. The Court then noted the difference in the expressions used in the two parts – “to” is used in first part of the section while “in relation” to is used in the second part.
Thus, the Court concluded that the first part of the Section deals with arbitral proceedings before the Arbitral tribunal alone.
“What is also important to notice is that these proceedings alone are referred to, the expression “to” as contrasted with the expression “in relation to” making this clear. Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form thesubject matter of the first part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may “otherwise agree” and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force.”
However, in stark contrast to the first part of Section 26 is the second part, where the Amendment Act is made applicable “in relation to” arbitral proceedings which commenced on or after the date of commencement of the Amendment Act.
“What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 Act. Whereas the first part refers only to arbitral proceedings before an arbitral tribunal, the second part refers to Court proceedings “in relation to” arbitral proceedings, and it is the commencement of these Court proceedings that is referred to in the second part of Section 26…”
Thus, Section 26, bifurcates proceedings – into two sets of proceedings – arbitral proceedings themselves, and Court proceedings in relation thereto. The Court, therefore held the following with respect to the scheme of Section 26:
“The scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force.”
The Court then proceeded to address the question in relation to Sections 34 and 36 of the Arbitration Act. Section 34 provides for application for setting aside arbitral awards while section 36 deals with enforcement of the award.
As per the old Section 36, if an application under Section 34 was filed, the arbitral award could be enforced only after the said application was refused. However, the amended Section 36 provides that filing of such application shall not by itself render the award unenforceable, unless the Court grants an order of stay of operation of said arbitral award.
It held that when Section 34 petition is filed after the commencement of Amendment Act and an application for stay has been made under Section 36, the amended provisions will apply.
“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, the Court delved into the meaning of “enforcement” under Section 36.
It held that Section 36 refers to the execution of an award as if it were a decree, attracting the provisions of Order XXI and Order LXI, Rule 5 of the Code of Civil Procedure and would, therefore, be a provision dealing with the execution of arbitral awards.
That being the case, the Court concluded that the new Section 36 would apply even to pending Section 34 applications on the date of commencement of Amendment Act.
“Thus, it was the Court’s conclusion that since execution of a decree pertains to the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the Amendment Act.”
The Court also offered an alternate reasoning for the same.
“In 2004, this Court’s Judgment in National Aluminium Company (supra) had recommended that 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.”
The Court, therefore, upheld the Bombay High Court verdict and dismissed the appeals.
Read the judgment below.