A&C Amendment Act of 2015 Applies Even If Arbitration Commenced Prior, In Case It Is Stated That Amendment Act Applies: Bombay High Court

The Bombay High Court has ruled that where an arbitration agreement between the parties provided for the application of the Arbitration & Conciliation Act, 1996 (A&C Act), along with any statutory modification or re-enactment to the A&C Act, existing at the time being in force, it constituted an agreement between the parties as contemplated under Section 26 of the A&C (Amendment) Act, 2015. Thus, the Court held that the parties were bound by the 2015 Amendment Act, notwithstanding the fact that the arbitral proceedings commenced prior to the cut-off date, i.e., 23.10.2015. The bench of Justices Mangesh S. Patil and Abhay S. Waghwase were dealing with an arbitration agreement that provided for the applicability of the A&C Act, 1996, along with any modification introduced in the Act. The Court concluded that the said agreement clearly conveyed the intention and understanding between the parties to be bound by the 2015 Amendment Act, and that it was not merely an understanding in respect of the procedural aspects of the arbitration proceeding. Thus, the Court ruled that the substituted provisions of Section 31(7)(b) of the A&C Act, 1996, regarding award of interest, were applicable to the arbitrable proceedings commenced in 2014, which culminated by passing of an award in 2016. The appellant- M/s Skoda Auto Volkswagen India, an automobile manufacturing company, appointed the respondent- M/s Commercial Auto Products, as a dealer. After the respondent allegedly committed defaults under the dealership agreement, the appellant terminated the contract between the parties. Thereafter, the respondent invoked the arbitration clause. The Arbitrator passed an award, allowing the respondent's claim partly. The Arbitrator awarded a sum in favour of the respondent along with interest. The appellant challenged the award under Section 34 of the A&C Act before the Commercial Court, who dismissed the application. Against this, the appellant filed an appeal under Section 37 of the A&C Act before the Bombay High Court, challenging the interest awarded to the respondent. The appellant- Skoda Auto Volkswagen India, submitted before the High Court that since there was no stipulation contained in the contract between the parties regarding payment of interest, the provisions of Section 31(7)(b) of the A&C Act were attracted. The appellant added that the interest awarded by the Arbitrator was contrary to the statutory provisions contained in Section 31(7)(b) of the A&C Act, which provides that an arbitral award shall carry interest at the rate of 2% higher than the current rate of interest prevalent on the date of the award. Thus, the appellant argued that the respondent was entitled to the pendente lite and future interest, only at the rate of 9% per annum and not 18% per annum. The respondent- Commercial Auto Products, contended that the provisions of Section 31(7)(b) were substituted by the Arbitration and Conciliation (Amendment) Act, 2015, with effect from 23.10.2015, in place of the earlier provision, which empowered the arbitral tribunal to award interest at the rate of 18% per annum. Placing reliance on Section 26 of the A&C (Amendment) Act, 2015, the respondent submitted that since the arbitral proceeding had commenced in 2014, i.e., prior to the cut-off date of 23.10.2015, even if the award was passed in 2016, the amended provisions of Section 31(7)(b) were not applicable to the arbitration proceedings. Section 26 of the A&C (Amendment) Act, 2015 provides that nothing contained in the A&C (Amendment) Act, 2015 shall apply to the arbitral proceedings commenced before the commencement of the 2015 Amendment Act, i.e., 23.10.2015, unless the parties otherwise agree. The respondent Commercial Auto Products argued that there was no such agreement executed between the parties, as contemplated by Section 26 of the A&C (Amendment) Act, 2015 and thus, the amended Section 31(7)(b) of the A&C Act, 1996 was not applicable. The Court noted that by the Arbitration and Conciliation (Amendment) Act, 2019, Section 26 of the 2015 Amendment Act was retrospectively deleted with effect from 23.10.2015. However, it observed that the Supreme Court in Hindustan Construction Company Ltd. versus Union of India & Ors. (2019) has struck down the A&C (Amendment) Act, 2019 to the extent it retrospectively deleted Section 26 of the 2015 Amendment Act. Therefore, Section 26 of the 2015 Amendment Act still continues on the statute book, the Court ruled. The bench added that the legislature has given an option to the parties, by virtue of Section 26 of the 2015 Amendment Act, to apply the provisions of the 2015 Amendment Act even to the pending arbitrations. Referring to the relevant clause contained in the arbitration agreement, the Court noted that the parties had agreed that the arbitration shall be in accordance with, and be subject to, the "provisions of the ...

A&C Amendment Act of 2015 Applies Even If Arbitration Commenced Prior, In Case It Is Stated That Amendment Act Applies: Bombay High Court

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A&C Amendment Act of 2015 Applies Even If Arbitration Commenced Prior, In Case It Is Stated That Amendment Act Applies: Bombay High Court

Parina Katyal

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