Arbitration

Conundrum relating to the applicability of the Arbitration and Conciliation (Amendment) Act, 2015

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Brief Background

The BCCI v. Kochi Cricket Private Limited was heard by the Apex court to finally but partially settle the uncertainty pertaining to Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (“Amendment Act”). Section 26 in the Amendment Act refers to the applicability of the amended provisions to proceedings filed prior to the commencement of the Amendment Act. The court stated that Section 26 consisted of two distinct segments with the former pertaining “to arbitration proceedings” and the latter being associated with court proceedings, which were “in relation to” arbitration proceedings. The Section 26 is worded as follows:

“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 court made varying observations with respect to the two segments. Firstly, the court held that arbitration proceedings instituted prior to the Amended Act would be dictated by the pre-amended Arbitration and Conciliation Act,1996 (“1996 Act”). Secondly, with respect to the latter court proceedings segment, the court provided for a retrospective application of the Amendment Act regardless of the timeframe of initiation of court proceedings associated with arbitration proceedings initiated in the pre-amended regime, at least in procedural matters.

Following the above-mentioned distinction, the court held that the amendments made to Section 36 under the Amendment Act would be applicable to court proceedings initated prior to the commencement of the Amendment Act. The amended Section 36 provided that there will be no automatic stay granted to the enforcement of the arbitral award, if proceedings for setting aside the award are filed under Section 34 of the 1996 Act. The court held that Section 36 falls in the procedural realm with no substantive right vested. On this premise the court allowed proceedings initiated prior to the Act to be dictated by the Amendment act.

Analysis of the Judgement

Retrospective Application of the Amendments

Retrospective application of laws implies that a subsequent or prospective legislation can dictate proceedings pending or instituted prior to its implementation. Usually retrospective application of laws is avoided in order to prevent an impairment of rights. This trend usually extends to statutes that have the potentiality of adversely impacting the substantive rights of an individual. Substantive laws pertain to the legislations dealing with the rights, liabilities and responsibilities of the parties. Whilst procedural laws deal with the enforcement of such rights, liabilities and responsibilities.

An advantage of retrospective application of laws is its ability to rectify or clarify the omissions in the previous legislation. The courts must apply a utilitarian model and gauge the social utility relative to the individual costs. However, the negatives of retrospective application supersede as such laws always have a potentiality of obscurity. Allowing arbitrary or unreasonable usage by the legislation can result in a bias or infringement of party rights in cases.

The courts must gauge the probity of the legislation whilst balancing the legislative intent. The judgment showcases that the court sought to strike this balance by adopting a pro-arbitration approach that would pave the way to reduce the burden on the court.

However, in the current case, the Supreme Court provided for the retrospective application of the Amendment Act with respect to Section 36, which is a procedural provision. The judgment remained obscure on the applicability of the Amendment Act in instances where the provision’s substantive or procedural nature has not been determined.  Therefore, a need exists to determine whether provisions under the 1996 act are substantive or procedural to determine the applicability of the Amendment Act.

Impact of the Arbitration and Conciliation (Amendment) Bill, 2018 on the Judgement

The Arbitration and Conciliation (Amendment) Bill, 2018[1] (the “Bill”) has been endorsed by the Union Cabinet in an attempt to further institutional arbitration.  It proposes to incorporate an additional Section 87 and retrospectively expunge Section 26 of the Amendment Act. The provision aims to tackle the ambiguity brought about due to Section 26 of the Amendment Act. The Bill posits that the Amendment Act would not be applicable to arbitration proceedings initiated prior to the Amendment Act, nor to court proceeding associated with such arbitration proceedings filed before or after the Amendment Act. Although the parties can agree to the contrary and allow the application of the Amendment Act to such proceedings. The Amendment Act would be applicable to arbitration proceedings and associated court proceedings instituted post commencement of the Amendment Act.

The impact of this provision seemingly defeats the purpose of the pro-arbitration Amendment Act, as the pre-amended provisions would continue to be  applicable furthering court intervention. Subsequently, a gargantuan portion of arbitration would not fall under the ambit of the Amendment Act.

It seems that BCCI v. Kochi Cricket Private Limited is far from settling the law on the subject matter of the applicability of the Amendment Act. There remains uncertainty with respect to the application of the amendments to substantive provisions. Further, the Bill may nullify the holding of the case.

[This post has been contributed by Ananya Kuthiala, a second year student of Jindal Global Law School, Sonipat]

Reference-

[1] Cabinet approves the Arbitration and Conciliation (Amendment) Bill, 2018, Press Information Bureau, Government of India, Ministry of Law and Justice, 7th March’ 2018 http://pib.nic.in/newsite/PrintRelease.aspx?relid=177128

 

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