After many rounds of deliberations and at least two Law Commission Reports separated by more than a decade (Report 176 in 2001 and Report 246 in 2014), the Arbitration and Conciliation Act, 1996 was finally amended on 23 October 2015 by way of an ordinance. The ordinance route was justified on grounds that the amendments were urgent to send the right message about Indian government’s intentions of making the necessary legal reforms for ease of doing business in India.
Despite good intentions, an unintended result followed. Immediately following the promulgation of the ordinance, Indian courts have been dealing with contentions on whether or not the amended provisions apply to proceeding pending before them or new court proceedings initiated in old arbitrations. There is simply no guidance in the provisions of the amending legislation itself.
The Bill was tabled in the Parliament without any changes, despite the issue having become national debate by then – at least in legal circuits. Subsequently though, the government hurriedly moved an amendment to the tabled Bill introducing the now (in)famous Section 26 to the amendment Act.
If one was to compile the most poorly-drafted savings and repeal clauses in the Indian legislative history, Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”) is likely to be in the hall of fame. The enormity of this blunder ought to be highlighted: the 246th Recommendation of the Law Commission on which the amendments were modelled provided an express and crystal-clear provision providing what proceedings – whether arbitration, applications before arbitrator, or court – will the amended provisions apply to. The recommendation was both sound and well drafted. Not only was this ignored at the time of promulgating the ordinance, but despite its absence having been highlighted in multiple courts day after day since October 2015, the provision continued to be ignored even at the time of tabling the Bill, and shockingly even later when the tabled Bill was amended – all in favor of what was essentially a conjunction of two hurriedly framed sentences that became Section 26 of the Amendment Act.
The net result of Section 26 of the Amendment Act was that it solved nothing. While it was anticipated that the Bill, when passed, will correct this anomaly in the ordinance, it only confounded the issue. The only thing that Section 26 did make clear was that amended provisions will not apply to an arbitration proceeding per se, if the notice of arbitration was issued prior to the ordinance. All else was left to be deciphered.
As a natural consequence, the immeasurable judicial time has been spent over the last 30-odd months on this one and singular question – does the amended provision apply to the issue at hand or not? This is an inexcusable legislative drafting slip-up, particularly in a jurisdiction where courts have been clogged with humongous dockets. Also note the irony – the ordinance route was chosen because a couple of months was considered too long to wait to bring in these urgent reforms, but no urgency has been shown for the past 30 months in solving this gateway issue.
Ever since the decision of the Bombay High Court dated 22 June 2016 in Rendezvous Sports was challenged before the Supreme Court, it was expected that soon the Supreme Court will clarify this issue one way or the other. Unsurprisingly, it took quite some time before that happened. In the meantime, a number of differing decisions of different high courts travelled to the apex court – all of which were finally heard and disposed off by a common decision dated 15 March 2018 in BCCI v. Kochi Cricket.
One would expect that after a wait of about two and a half years, and with the apex court now having dealt with the issue pursuant to a long and detailed hearing, there will be clarity once and for all. More than anything, it was anticipated that the Supreme Court decision in Kochi Cricket will end the need for any further investment of judicial time on this preliminary issue. Unfortunately, the recent decision fails to settle the debate.
Before considering the Supreme Court’s determination of what section 26 of the Amendment Act provides, a quick read of the provision in the middle of the proverbial storm is necessary:
Section 26: Act not to apply to pending arbitration proceedings: 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 Supreme Court has held that Section 26 of the Amendment Act indeed constitutes of two parts, both of which are independent of each other. It then holds that the first part relates to arbitration proceedings per se only and the second part relates to court proceedings arising out of arbitration alone. The net impact of the court’s decision can be summarized as below:
After interpreting Section 26 to effectively mean that the amended provisions are to apply prospectively and holding that it was a special provision (thereby not bound by consequences of repeal in Section 6 of the General Clauses Act), the court went on to pose to itself the question whether amended Section 36 will apply to pending Section 34 proceedings. The fact that the court posed this question essentially means that the apex court concluded that court proceedings relating to arbitration, initiated prior to the ordinance, is not governed by either part of Section 26 – a conclusion the court fails to expressly record anywhere in the judgment.
After considering the issue in some detail, the court finally determined that:
The net impact of the decision is that no matter when Section 34 was filed, if it is still pending, the award has now become enforceable. The automatic stay stands lifted and the judgment debtor will need to specifically seek a stay under new provisions or prepare to pay the award notwithstanding the pending challenge.
Normative analysis must hail the decision. Not paying an award, which in law is final and binding unless set aside, cannot be a “right”. Undeniably, the law provided an impediment by making an arbitration award inexecutable until the Section 34 application was finally disposed off – thereby providing an automatic stay. When combined with the inevitable judicial delays in India, this became the most potent weapon of a judgment debtor. Nothing in the unamended Act specifically provides this right to the judgment debtor. It was a consequence of the provision that provides when the award will become executable. Relying on the distinction between abstract right or an advantage accruing due to a provision as against a vested right specifically granted by a statute, the court held that the removal of this impediment did not amount to taking away of any vested right. Therefore, the court held that the amended Section 36 would be applicable retrospectively.
Despite having reached the right destination, the decision is disappointing because it leaves the entire debate on the applicability of the amendment to pending proceedings (except Section 36) wide open. Certainty is the mainstay of law. The fact that even two and a half years since the amendment, there is no clarity on which existing proceedings will be governed by the amended provisions is a sad state of affairs – particularly in a jurisdiction which continues to struggle with the pendency of legendary proportions in courts.
In its eagerness to eliminate the automatic stay on awards once and for all, the apex court’s judgment in Kochi Cricket applies inconsistent logic resulting in the crucial issue of applicability of pending provisions remaining wide open. The court held that (a) Section 26 of amending Act is a special provision which overrides Section 6 of the General Clauses Act, and (b) the negative in first part of Section 26 obviously implies the positive.
In light of these findings, why would the second part of Section 26 also not imply its negative formulation, just like the first part? If consistent logic was applied, the second part ought to have been interpreted to mean that amended provisions will not apply to court proceedings initiated prior to the ordinance – as a natural negative corollary to the stated positive in the statute. Why should the court have jumped to determining whether vested rights are involved in Section 36 and whether it could apply retrospectively when the court specifically held that Section 26 of the Amendment Act was a special provision and expressed “a different intention” from Section 6 of the General Clauses Act?
If the court had consistently followed its own interpretation of Section 26 in the judgment, it would have had to hold that amended provisions will not apply to court proceedings initiated prior to the ordinance. This would mean that amended Section 36 would not apply to pending Section 34 applications and the automatic stay would have lived another life. It is clear that the court chose the death of automatic stay over a logically consistent decision which could have otherwise settled the retrospective-prospective debate surrounding the 2015 amendment once and for all.
In the end, the Kochi Cricket decision, apart from being inconsistent by reference to its own interpretation, leaves open question of applicability of amended provisions to pending court proceedings other than Section 36 [for instance under sections 8, 9, 11, 14, 27, 34 (on applicability of amended grounds of challenge), 45, and 48]. It also does not specifically deal with applications before the tribunal, such as under sections 16 and 17 – despite the fact that it acknowledges that arbitration proceedings in first part of Section 26 relates to Chapter V of the Act (Ss. 18 to 27), thereby leaving important applications under Sections 16 (jurisdiction) and 17 (interim measures) outside its purview.
All things considered, the Supreme Court in the Kochi Cricket case has done what it could to remove many years of injustice to the successful parties in arbitration whose awards have been lying dormant for years thanks to the automatic stay. Arguably, if the legislature had done its job, the court would not have had to stretch to reach a just result. But, whether arbitration jurisprudence is better or worse off in light of this inconsistent but just decision is a matter that time will tell. We cannot forget that Bhatia International was also an attempt to reverse engineer a just result. What happened subsequently is too well known. We can only hope this is not the beginning of another such saga.
[The opinions expressed in this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of LiveLaw and LiveLaw does not assume any responsibility or liability for the same]