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Analyzing The Case Of BCCI Vs. Kochi Cricket Board

Arbitration in its today's dimension is a phenomenon that represents an alternative system to a state organized litigation. Arbitration is way of settling disputes among subjects in various fields of economic activities. There is commercial arbitration which is the most spread and used in the world, sport arbitration, mixed arbitration and others.

Arbitration is a private system of litigation in which private neutrals are called by parties to resolve their dispute. Arbitration held by individual neutrals chosen particularly for determinate cause is called ad hoc arbitration. In response to a stabilization of arbitration procedure, the arbitration institutions were established to provide arbitrational services and other dispute resolution services. Arbitration administrated by such institutions is in theory called institutional arbitration, which is the subject of present work.

The Supreme Court has, in its latest judgment in the case of Board of Cricket Council of India v. Kochi Cricket Board, settled an important issue about the applicability of the 2015 amendments to the Arbitration and Conciliation Act, 1996. The Court was called upon to decide whether section 36 of the Act, as amended by the 2015 Amendment Act, was applicable to applications filed under section 34 before the commencement of the Amendment Act. The Court decided in the affirmative. The decision is welcome as it is in line with the pro-arbitration approach followed by the Supreme Court in its recent decisions.

Section 26 of the 2015 Amendment Act, which deals with the applicability of the amendments, has been controversial ever since its introduction as it left unclear whether the amendments would apply to the court proceedings in relation to the arbitration proceedings commenced prior to the commencement of the Amendment Act. There have been several conflicting decisions by various High Courts in the country in this regard.

Background
The Arbitration & Conciliation Act, 1996 (Arbitration Act) was amended by way of the Arbitration and Conciliation (Amendment) Act, 2015 (Amendment Act) with effect from 23 October 2015. One of the significant changes was the removal of the automatic stay that operated in favour of the award debtor under the un-amended Section 36 of the Arbitration Act on filing of a challenge petition under section 34.

Soon thereafter, courts across the country were confronted with the question of whether section 36, as substituted by the Amendment Act, applied to a section 34 petition arising out of arbitrations invoked prior to commencement of the Amendment Act, leading to several conflicting views on this issue.

In this background, the Hon'ble Supreme Court was called upon to interpret section 26 of the Amendment Act. The court considered the question in 8 different special leave petitions which were clubbed together, the lead matter being Board of Cricket in India v. Kochi Cricket Pvt. Ltd. And Ors. (SLP (C) ) Nos. 19545-19546 of 2016.

The judgment of the Supreme Court was delivered on 15 March 2018.

The 2015 amendment to the Arbitration and Conciliation Act, 1996 which came into force from 23.10.2015 also brought with itself a host of controversy. This controversy had arisen because of the conflicting views taken by various High courts while interpreting Section 26 of the amendment Act and thereby affecting the position on the stay of an arbitral award under newly added Sections i.e. 32(2) and 36(3).

These newly added sections under enforcement of award say that mere filing of a petition under Section 34 for setting aside the arbitral award by itself will not render it unenforceable unless the court grants a stay on such award, for which now a separate application has to be moved under Section 32(2). It further gives such court the discretion to grant stay subject to such conditions as it deems fit.

The Supreme Court, in Board of Control for Cricket in India v. Kochi Cricket Private Limited, has put to rest the controversy surrounding the construction and interpretation of Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 ("Amendment Act") with respect to the applicability of the amended Section 36. Section 26 of the Amendment Act reads as follows:

Section 26. Act not to apply to pending arbitral 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.

In view of the controversy at hand, the relevant facts are the dates of filing of applications under Section 34 of the Arbitration and Conciliation Act, 1996 ("Act"). Out of the eight appeals, in four instances Section 34 applications were filed prior to the coming into force of the Amendment Act (i.e., 23 October 2015, or "Commencement Date"), while the others were filed after the Commencement Date.

While dealing with the interpretation of Section 26 of the Amendment Act, the primary issue before the Court was whether the substituted Section 36 (Enforcement)1, as introduced by the Amendment Act, would apply in its original form or its amended form. The unamended Section 36 provided for an automatic stay on the enforcement of an arbitral award, on the filing of an application for setting aside such award under Section 34. In contrast, the newly-introduced Section 36(2) does away with such automatic stay and instead requires a separate application to be made before the Court for an order granting stay of the operation of the award.

This can be separated into two discrete issues:
Whether the amended Section 36 will be applicable to a Section 34 application filed after the Commencement Date even though the arbitral proceedings commenced before such date; and
Whether the amended Section 36 will be applicable to a Section 34 application filed prior to the Commencement Date.

Judgment:
The Supreme Court has conclusively determined that the substituted Section 36 will be applicable to Section 34 applications filed both before and after the Commencement Date. The factors considered by the Court in reaching these conclusions are detailed below.

Issue (I):
In dealing with the first issue, the Court referred to the 246th Report of the Law Commission of India, which observed that the automatic stay against the enforcement of an arbitral award under the unamended Section 36, on the filing of an application under Section 34, was leading to delays and rendering the arbitration scenario in India ineffective. The Law Commission had suggested the insertion of a new Section 85A2, which bifurcated proceedings into arbitral proceedings (pending before the arbitral tribunal) and Court proceedings, and made the amendments prospective in application, with certain exceptions.

Noting that Section 26 departed from the language suggested by the Law Commission, the Court looked into the manner in which a provision akin to Section 26 of the Amendment Act ought to be interpreted, stating that such a provision should first be construed literally, then purposively and pragmatically.

Dealing with the scope and ambit of Section 26, the Court held that Section 26 of the Amendment Act consists of two parts separated by the word "but", which signifies that the parts are separate and distinct. While the first part, which is couched in negative terms, applies only to arbitral proceedings, the second part affirmatively applies the Amendment Act to Court proceedings in relation to arbitral proceedings.

That the first part refers exclusively to arbitral proceedings is evident from the use of the words "to the arbitral proceedings" in contrast with the expression "in relation to" (which is used in second part), the reference to Section 21 of the Act (Commencement of arbitral proceedings) and the option provided to parties to "otherwise agree" to apply the Amendment Act to arbitral proceedings that have commenced before the Commencement Date, since the conduct of arbitral proceedings is merely procedural in nature.

 Therefore, Section 26 bifurcates proceedings into two sets – arbitral proceedings themselves, i.e., proceedings before an arbitral tribunal, as covered under Chapter V of the Act [First Part]; and Court proceedings in relation thereto [Second Part]. Since arbitral proceedings are subsumed within the First Part of Section 26, the same cannot fall within the scope of the Second Part thereof, and hence the Second Part refers exclusively to Court proceedings.

With regard to the scheme of Section 26, the Court held that the Amendment Act is prospective in application and applies only to arbitral proceedings and Court proceedings which commenced on or after the Commencement Date.

The Court thought it necessary to discuss the judgment in Thyssen Stahlunion GmBH v. Steel Authority of India Limited3, as it was strongly relied upon by counsels on both sides. The issue in Thyssen was the interpretation of Section 85(2)(a) of the Act.4 The Court distinguished the present case from Thyssen, stating that the judgment in Thyssen dealt with a differently worded provision and emphasised the difference in language between the expressions "to" and "in relation to".

Section 85(2)(a) of the Act has two major differences in language from Section 26 of the Amendment Act. First, the expression "in relation to" appears in both parts of Section 85(2)(a), in contrast to Section 26, where it appears only in the Second Part while the expression "to" arbitral proceedings is used in the First Part. Second, commencement in the First Part of Section 26 must be understood in the context of Section 21 of the Act, which reference is absent in Section 85(2)(a).

In view of the above, the Court held that the substituted Section 36 will be applicable to Section 34 applications which have been filed after the Commencement Date even if the arbitral proceedings were initiated prior to such date.

Issue (II):
In determining the applicability of the substituted Section 36 to Section 34 applications filed before the Commencement Date, the Court looked into the meaning and import of the word "enforcement" used in Section 36.

After setting out the scheme of the Act, the Court stated that under Section 36, an arbitral award is deemed to be a decree of Court and shall be enforced under the Code of Civil Procedure, 1908 ("CPC"). The manner of enforcement of a decree under the CPC is through the execution process, i.e., under Order XXI of the CPC.

Next, the Court considered whether execution proceedings gave rise to vested rights and whether they are substantive in nature. Relying upon the decisions of the Supreme Court in Lalji Raja and Sons v. Hansraj Nathuram 5 and Narhari Shivram Shet Narvekar v. Pannalal Umediram 6, the Court concluded that the execution of a decree pertains to the realm of procedure and there is no substantive vested right in a judgment debtor to resist execution. Further, the Court held that the unamended Section 36 was only a clog on the right of the decree holder, who could not execute the award in his favour till the conditions of this section were met. This does not give rise to a corresponding right in the judgment debtor to stay the execution of the award.

In addition, the Court looked into the use of the words "has been" in the newly introduced Section 36(2), and stated that Section 36 being a procedural provision, the words "has been" would refer to Section 34 applications which were filed before the Commencement Date.

Thus, the Court concluded that the amended Section 36 will apply even to Section 34 applications pending as on the Commencement Date.

Analysis And Personal Opinion:
The judgment has conclusively laid to rest a controversy which had generated widely divergent views from various High Courts. With its focus on minimising judicial intervention and reducing delays, this decision represents a step forward in improving the arbitration landscape in India.

The judgment seems to have settled the ambiguity that surrounded section 26 at least for now. The ruling of the Court that substituted section 34 applies even to pending section 34 applications was taken by considering the objects and reasons for the Amendment Act. The Amendment Act of 2015 was enacted to provide for a speedy disposal of cases relating to arbitration with less court intervention. Thus, in the context of amendments to section 36, the interpretation of section 26 may be correct as it is in favour of arbitration and also is in line with the objects of the Amendment Act.

However, the Court seems to have overlooked the impact of retrospective application of the Amendment Act with respect to other aspects of the Act. However, in Thyssen, the Court had identified this potential difficulty and stated that if a narrow interpretation to the phrase “in relation to arbitral proceedings” is to be accepted, it is likely to create a great deal of confusion with regard to the matters where the award is made under the old Act.

The Court also referred to section 87 of the proposed Arbitration and Conciliation (Amendment) Bill, 2018. Section 87 of the Bill clarifies that the 2015 amendments will apply only to arbitration proceedings commenced after 23 October 2015 and to court proceedings in relation thereto.

The Court thus emphasized the need for the legislature to reconsider section 87. The Court stated that the immediate effect of the proposed provision would be to put all the important amendments made by the Amendment Act on a back-burner. The fate of this decision will now depend upon whether or not the Parliament will accept the recommendations of the Court.

While there is no fault to be found in the reasoning of the Supreme Court here, a glaring lacuna in the judgment is why the analysis of vested rights and effect of the 2015 Amendment was only restricted to the amended Section 36. There are several other amendments such as those of Section 9, 17, 8, 16, etc., which also include court proceedings and arbitral proceedings and would be covered by the 2015 Amendment, but they were not even considered by the Supreme Court. In fact, it refused to look into the said aspects claiming that they were independent and separate inquiries.

Further, by not addressing the above amended sections, the Supreme Court also completely skipped the anomalies that will arise if the interpretation as accorded by it to Section 26, is applied to other situations. For instance, while a Section 17 amendment will only to apply to arbitral proceedings commenced after the 2015 Amendment, a Section 9 amendment, being a court proceeding, will apply even before amendments came into force.

This was highlighted in Ardee infrastructure. One argument which may be taken here is that while Section 36 did not affect vested rights, amendments of Section 9 and 17 will affect vested rights, and therefore, a Section 9 amendment would not apply retrospectively. However, instead of leaving the parties to work these issues out for themselves, the Supreme Court could have pronounced upon them. Whether these potential anomalies will give rise to another set of litigation is yet to be seen.

It appears, however, that we may expect some clarity on these issues from the Executive realm. On March 7, 2018 the Union Cabinet issued a press release announcing that it had approved the Arbitration and Conciliation (Amendment) Bill, 2018 (the Bill) for introduction in Parliament. The Bill was introduced to implement recommendations contained in the Report dated July 30, 2017 issued by the High Level Committee (HLC) under the Chairmanship of Justice B. H. Srikrishna, which was constituted inter alia, to evolve an effective and efficient arbitration eco-system for commercial dispute resolution.

Among other proposals, the Bill has sought to clarify the applicability of the 2015 Amendment by introducing a new Section 87 in the Arbitration & Conciliation Act, 1996. The Bill is in line with the interpretation of Ardee Infrastructure – i.e., the 2015 Amendment will only apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated after the commencement of the 2015 Amendment.

It will not apply to arbitral proceedings and court proceedings arising out of such arbitral proceedings, initiated before the commencement of the 2015 Amendment, even if the court proceedings have been initiated after the commencement of the 2015 Amendment.

Interestingly, the Court noted the proposed Section 87 of the Arbitration and Conciliation (Amendment) Bill, 2018 ("Bill"), approved by the Cabinet of Ministers on 7 March 2018, which stipulates that the Amendment Act shall not apply to Court proceedings arising out of or in relation to arbitral proceedings which commenced prior to the Commencement Date, irrespective of whether such Court proceedings commenced prior to or after the Commencement Date.

However, the Court refused to look into Section 87 of the proposed Bill for the interpretation of Section 26 of the Amendment Act for two reasons: first, that the ultimate form in which Section 87 is enacted may not be the same as is presently proposed; and second, a proposed Bill introducing a new provision of law cannot be the basis for interpretation of a provision of law as it now stands.

The Court has cautioned the Government of India that the immediate effect of the proposed Section 87 would be to "put all the important changes made by the Amendment Act on a back-burner". Quoting from the Statement of Objects and Reasons of the Amendment Act, the Court stated that the Amendment Act was enacted for the specific purpose of providing speedy disposal of cases and minimising court intervention in arbitration in order to make India an investor-friendly jurisdiction; and such purpose must be given effect.

The Court has warned that the basic scheme of bifurcation of proceedings into two parts ought not to be displaced as the very object of the enactment of the amendments would otherwise be defeated. The effect of the judgment in light of the proposed Bill is yet to be seen.

Some High Courts had taken the view that the term ‘in relation to' in Section 26 of amendment act would not include the court proceedings commenced after amendment ; hence no separate application is needed to be filed whereas the other interpretation is that those arbitral proceedings would include the present court proceedings and would be governed by the amended provisions.

Conclusion
While the Bill is yet to be passed in both Houses of Parliament, it is expected that this amendment will conclusively determine the issue regarding applicability of the amended provisions to proceedings before courts, especially in view of the conflicting views of the various High Courts.

While the Madras High Court in New Tirupur Area Development Corporation Ltd. v. M/s Hindustan Construction Co. Ltd had taken the first view, the Division Bench of Kolkata in Sri Tufan Chatterjee v. Sri Rangan Dhar, had taken the latter view i.e. even the pending court proceedings relating to arbitration, which was pending as on date when the amendments were notified, must be governed by the amended act and not the unamended one.

Though the Bombay High Court in Rendezvous Sports World v. BCCI had taken the latter view, the reasoning given by it was different. It said that amendments brought to Section 36 of the Act are procedural in nature and further balances the rights of both parties and ordered the BCCI to file an application seeking stay against enforcement of arbitral awards under challenge.

The latest view is taken by Delhi high court in Ardee Infrastructure Pvt. Ltd vs Yashpal & Sons where it said; the petitions filed under section 34 for challenging the award prior to the amendment would be governed by the unamended provision and would be entitled to automatic stay whereas for the petitions filed after it, will have to move a separate application for seeking a stay on the award.

Thus all the arbitral proceedings (the entire gamut, including the court proceedings in relation to proceedings before the arbitral tribunal), which commenced in accordance with the provisions of Section 21 of the said Act prior to 23.10.2015, would be governed, subject to an agreement between the parties to the contrary, by the unamended provisions and, all those in terms of the second part of Section 26, which commenced on or after 23.10.2015 would be governed by the amended provisions.

Though the view taken by the Delhi court seems to be the most logical interpretation on this point, we must watch out for the Supreme Court's decision which is pending adjudication in Rendezvous Sports World v. BCCI. It is essential that this controversy is put to rest by the apex court as soon as possible both for the purpose of having logical interpretation and enforcement of the award.

End-Notes:
  1. Notably, newly introduced Section 36(2) provides that "Where an application to set aside the arbitral award has been filed in the Court under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose".
  2. The proposed Section 85A
  3. (1999) 9 SCC 334.
  4. Section 85(2)(a) of the Act provides that "Notwithstanding such repeal, the provisions of the said the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force".
  5. (1971) 1 SCC 721.
  6. (1976) 3 SCC 203.

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