Whether retrospective or prospective in nature

The Arbitration and Conciliation (Amendment) Act, 2015 marks a turning point in the history of arbitration in India. The idea of ​​the Amendment germinated in a Law Commission Report submitted in 2014, which recommended a review of the current Arbitration framework. ^{The amendment aimed at reducing judicial interference and ensuring timely resolution of arbitration matters by amending Sections 9, 11, 17, 34 and 36 of the Act. However, the amendment has created uncertainty regarding its applicability to Arbitration Proceedings commenced before the entry into force of the amending Law. Section 26 of the 2015 Amendment resolved this confusion to some extent.}

Supreme Court in Ellora Paper Mills v. State of Madhya Pradesh (2022) clarified that the provisions amended by the 2015 Act are applicable to arbitral proceedings commenced before the amendment came into force. In a contrary judgment, in West Bengal Housing Board Vs. Abhishek Construction (2023)^{The Calcutta High Court held that the 2015 Amendment Act will not be applicable to arbitration proceedings commenced before its enactment. This divergence in judicial interpretation reignited the unresolved debate over the retrospective applicability of the 2015 amendment.}

This article discloses the issue of the applicability of the 2015 Amendment to arbitral proceedings commenced before the commencement date, i.e. 23 October 2015, along with other related issues.

Background to the 2015 Amendment Act

Initially, the Arbitration Act was criticized for having an “automatic stay” provision, which meant that the filing of a challenge to an award under Section 34 immediately stayed its enforcement. This provision has encouraged parties to routinely challenge awards and delay payments to award holders, thereby undermining the effectiveness of the arbitration process. To address this issue, the Arbitration and Conciliation (Amendment) Act, 2015 was enacted. The Amendment Act, 2015 removed the automatic stay by ensuring that awards will not be stayed merely because of a pending petition under section 34.

However, the 2015 Amendment Act introduced new uncertainties regarding the application of its provisions. In particular, there was ambiguity as to whether the amended Act applied to court proceedings relating to arbitrations commenced before its commencement on 23 October 2015. It remained unclear whether the removal of the automatic stay applied to appeals under section 34 that were already pending from with date Start date.

This ambiguity was resolved by the Supreme Court in Board of Control for Cricket in India (BCCI) v. Kochi Cricket Private Limited and Ors., (2018), which held that section 26 of the 2015 Amendment Act would apply prospectively unless the parties agreed otherwise. The Court held that judgments would not be subject to an automatic stay even if an appeal was filed before the Commencement Date.

Subsequently, the government enacted the Arbitration and Conciliation (Amendment) Act 2019. Section 87 reintroduced the automatic stay of awards in certain cases and repealed section 26 of the Amendment Act 2015. Finally, this legislative amendment came to to be considered by the court in Hindustan Construction Company case. The court declared Section 87 unconstitutional.

The debate on the retroactive application of the 2015 Amendment Law was reignited in the Supreme Court’s judgment of Ellora Paper Mills v. State of Madhya Pradesh (2022).In Ellora Paper Mills (above), The Supreme Court held that a tribunal made up only of state officers had “lost its mandate” under the 2015 amendment to the Arbitration and Conciliation Act, which prohibits the appointment of arbitrators with a business relationship with a party. Although the arbitration began before the amendment, the Court applied this prohibition retroactively, disqualifying the members of the tribunal.

The Court did not strictly apply the amendment retroactively, but relied on the stay to infer that the proceeding technically began after the amendment. The ruling brings to the fore questions about its wider ramifications.

In Shree Vishnu Constructions v. Chief Engineer, Military Engineering Service and others (2023)^, The Supreme Court has addressed the applicability of the Amendment Act, 2015 in cases where a notice invoking arbitration has been issued prior to the amendment. The Court held that the Amendment Act 2015, which came into force on 23 October 2015, does not apply to arbitration proceedings commenced under section 21 of the Act before that date. “unless the parties agree otherwise”.

Interpretation of Section 26: Prospective vs. Retrospective Applicability Debate

In BCCI (above)The Supreme Court dissected section 26 of the Amendment Act, 2015. It observed that this provision is divided into two parts. The first part refers to the application of the amendment act in the arbitral procedure, while the second part refers to the request for amendment of the judicial procedure. This distinction is further strengthened by the fact that section 21 of the principal Act is referred to in the first part, which falls under Chapter V of the principal Act, entitled “Conduct of Arbitration by the Arbitral Tribunal”. When it comes to the second part. , the reference to Article 21 is conspicuous by its absence, which further supports the conclusion that it refers to arbitral proceedings other than the proceedings before the Arbitral Tribunal.

After examining this distinction between two parts of the section, the court further observed that the first part is couched in negative language as it restricts the application of the amending act. “At arbitration proceedings” initiated after the commencement of the Deed, unless the parties have agreed to comply with the provisions of the Amending Deed. Whereas the second part of the section positively extends the application of the Amending Act to proceedings commenced “Regarding Arbitration” after the implementation of the amending act. When it comes to the second part, the amending act cannot be applied retroactively if the proceedings were initiated before the commencement of the amending act.

The upshot of this discussion is that the intention of the legislature was to maintain the application of the Amending Act prospective in nature.

It is important to note that in the above case the court considered proceedings under Sections 34 and 36 of the Arbitration Act. In this context, the court considered that the amending act has a prospective character. The court did not address the effects of the amendment on other provisions that were amended such as sections 9, 11 and 17 of the main act.

The question of the nature of the amendment, whether it is prospective or retroactive, was further emphasized by the Supreme Court in Union of India v. Parmar Construction Company (2019)in which the interpretation of section 11 as amended was directly addressed.

In case Parmar Construction (above), the question for consideration before the Supreme Court was whether the amending act was applicable to claims filed after the coming into force of the amending act under section 11(6) of the arbitration act, while the notice of arbitration was received by the other party in under section 21 of the arbitration act before the commencement of the amending act.

The court, at the outset, held that the amending act does not apply to arbitral proceedings for which a notice under section 21 has been issued before the commencement of the amending act because of section 26 of the act, unless the parties agree otherwise.

The court further noted the combined effect of Sections 21 and 26 and observed as follows:

“We are also of the view that the Amending Act 2015 which came into force i.e. on 23 October 2015 will not apply to arbitral proceedings commenced under the provisions of section 21 of the Principal Act 1996 onwards. the entry into force of the 2015 Amendment Act, unless the parties otherwise agree.”

Supreme Court in Union of India v. Pradeep Vinod Construction Company, (2020) confirmed his decision in Parmar Construction (above) and held that the arbitral proceedings will be governed by the unamended Act regarding the appointment of the arbitrator where the request to refer the parties to arbitration was made prior to the enactment of the Amending Act. The same was reiterated in Ratnam Sudesh Iyer V. Jackie Kakubhai Shroff (2021).These cases specifically addressed concerns about the appointment of the arbitrator and held that the Amending Deed is prospective in nature unless the parties have agreed to be bound by the Amending Deed.

In Shree Vishnu Constructions (Up), the court observed that in BCCIit was considered that “The amending Act is prospective in nature and will apply to those arbitration proceedings which are commenced under section 21 of the principal Act on or after the Amending Act of 2015 and to court proceedings commenced on or after the Amending Act. , 2015 came into force.” The court further held that the cases of Parmar Constructions Company (supra) and Pardeep Vinod Construction Company (supra) cannot be held to be per incuriam and/or in conflict with the BCCI case (supra).

Recent development

Recently, the Delhi Commercial Court faced the same question in Sh. Pankaj v. Delhi Metro Rail Corporation Ltd . (2024) in which the court referring to the judgment of the Supreme Court in BCCI held that “therefore clearly the Amending Act 2015 would apply in the present case by virtue of the agreement of the parties. As already mentioned, section 26 of the Amending Act 2015 clearly provides that the parties could agree to the application of the Amending Act 2015 even to proceedings commenced before the commencement of the Amending Act 2015.”

This resolves the debate as to the applicability of the Amending Act to arbitral proceedings commenced before the Amending Act came into force.

Conclusion

Although section 26 of the 2015 amendment makes it clear that the Amending Act does not apply to proceedings commenced before it came into force, conflicting judgments were still being issued.

The issue was finally settled by the Supreme Court in BCCI case and Shree Vishnu Constructions where other provisions amended by the 2015 Amendment Act were interpreted in the light of section 26 of the Act.