Effective 15 October 2015 section 36 of the Arbitration and Conciliation Act, 1996, was amended such that an arbitral award may be enforced even though a challenge to the award is pending unless the court, for reasons to be recorded, stays the operation of the award. The avowed objective was to make arbitration a speedy and effective remedy as before the amendment an award could not be enforced while a challenge was pending. Unfortunately, section 26 of the Arbitration and Conciliation (Amendment) Act, 2015, provided that nothing contained in the amendment act would apply to “arbitration proceedings commenced” before 15 October 2015 and the amendment act “shall apply in relation to arbitral proceedings commenced on or after” that date.
Would the amended section 36 apply when the award and the challenge pre-dated the amendment but enforcement was sought after the amendment? Would the amended section apply where the award and the challenge pre-dated the amendment but a stay of enforcement was applied for after the amendment? These knotty questions were dealt with by the Supreme Court in Board of Control for Cricket in India v Kochi Cricket Pvt Ltd and connected appeals.
It was agreed that section 26 of the amendment act was in two parts – the first part referring to “arbitral proceedings” to which the amendment act did not apply and the second part to proceedings “in relation to arbitral proceedings”. At issue was the precise connotation of these two parts. The court noted that in the first part “arbitral proceedings” referred to arbitral proceedings commenced in accordance with section 21 of the 1996 act. The second part made no reference to section 21 of the 1996 act but referred only to proceedings “in relation to” arbitral proceedings. Thus the distinction between the two parts was that the first part dealt with arbitral proceedings which commenced before the amendment act came into effect while the second part only applied to court proceedings in relation to arbitration.
Rejecting the high court view that section 26 was ambiguous, the Supreme Court ruled that the section was clear and unambiguously differentiated arbitral proceedings from proceedings in court relating to arbitral proceedings. Further, the amendment was prospective and applied only to arbitral proceedings which commenced after 15 October 2015 and to court proceedings instituted after that date. In respect of arbitral proceedings that had commenced earlier, it was open to the parties to agree that the amended 1996 act would apply to the arbitration proceedings.
Another question was whether there was a difference between “enforcement” of an award and “execution” of the award under the Code of Civil Procedure (CPC). This difference, it was submitted, was material as enforcement was substantive while execution was procedural. Under the unamended 1996 act, a right was available to resist enforcement of an award.
This argument was rejected. The scheme of the 1996 act differed from that of the Arbitration Act, 1940. Under the 1996 act, before as well as after amendment, an award is enforceable in the same manner as a court decree under the CPC. In contrast under the 1940 act judgment had to be pronounced in accordance with the award and a decree drawn up, which would then be executed. No judgment debtor had a “substantive vested right” to resist execution; the amendment was procedural and no vested rights were affected. Consequently when the amended 1996 act came into effect, it applied to challenges to awards that were pending in court.
While construing section 26 the court took note of the recommendations of the Law Commission of India’s 246th Report and the amendment act’s statement of objects and reasons. The stated purpose was to give efficacy to arbitration and it would be unfair to stall enforcement proceedings by simply launching a challenge to an award.
In summary, all challenges pending in court on 15 October 2015 are covered by the amended 1996 act. No pending challenge will result in an automatic stay of enforcement of an award. Enforcement may be stayed only if a party applies for a stay and the court, for sufficient reasons, grants such a stay.
The courts will now be flooded with applications for stay of enforcement where challenges are pending in court. Besides, many awards have been challenged without issuing a prior notice to the opposite party of the intention to challenge the award. Must such challenges be dismissed for procedural non-compliance? Or since procedure is the handmaiden of justice will courts condone the omission as procedural non-compliance? The Supreme Court will answer.
Karthik Somasundram is a partner and Sneha Jaisingh is a senior associate at Bharucha & Partners.
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