Understanding Arbitration And Conciliation (Amendment) Act, 2015: Whether Retrospective Or Prospective In Nature

The Arbitration and Conciliation (Amendment) Act, 2015 marks a watershed moment in the history of Arbitration in India. The idea of the Amendment germinated in a Law Commission Report submitted in 2014 which recommended an overhaul of the current framework of the Arbitration.^[1] The Amendment aimed to reduce judicial interference and ensure the timely resolution of the Arbitration matters by amending sections 9, 11, 17, 34 and 36 of the Act. However, the amendment brought in uncertainty regarding its applicability to the Arbitral Proceedings commenced before the Amendment Act came into force. Section 26 of the 2015 Amendment resolved this confusion to some extent.

The Supreme Court in Ellora Paper Mills v. State of Madhya Pradesh (2022)^[2] has clarified that the provisions amended by the 2015 Act are applicable to arbitral proceedings initiated before the amendment came into force. In a contrary judgment, in West Bengal Housing Board v. Abhishek Construction (2023)^[3], the Calcutta High Court held that the 2015 Amendment Act would not be applicable to arbitral proceedings initiated before its enactment. This divergence in judicial interpretation has rekindled the unsettled debate around the retrospective applicability of the 2015 amendment.

This article unpacks the issue of applicability of the 2015 Amendment to Arbitral Proceedings initiated before the commencement date, i.e. October 23, 2015 along with other connected issues.

Background of the 2015 Amendment Act

Initially, the Arbitration Act was criticised for having an 'automatic stay' provision, which meant that filing a challenge to an award under Section 34 immediately suspended its enforcement. This provision encouraged parties to routinely challenge awards and delay payments to award holders, thereby undermining the arbitration process's efficiency. To address this issue, the Arbitration and Conciliation (Amendment) Act of 2015 was passed. The 2015 Amendment Act eliminated the automatic stay, ensuring that awards would not be stayed solely because of a pending Section 34 petition.

However, the 2015 Amendment Act introduced new uncertainties concerning the application of its provisions. Particularly, there was ambiguity about whether the amended Act applied to court proceedings related to arbitrations initiated before its commencement on October 23, 2015. It remained unclear whether the removal of the automatic stay applied to challenges under Section 34 that were already pending as of the Commencement 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)^[4], which held that Section 26 of the 2015 Amendment Act would apply prospectively unless the parties agreed otherwise. The Court had held that awards would not be subject to an automatic stay, even if a challenge was filed before the Commencement Date.

Subsequently,the government enacted the Arbitration and Conciliation (Amendment) Act, 2019. Section 87 reinstated the automatic stay on awards for certain cases and repealed Section 26 of the 2015 Amendment Act. Ultimately, this legislative change came for the court's consideration in the Hindustan Construction Company case. The court declared Section 87 unconstitutional.

The debate regarding the retrospective application of the 2015 Amendment Act was reignited in the judgment of the Supreme Court in Ellora Paper Mills v. State of Madhya Pradesh (2022)^[5].In Ellora Paper Mills (Supra), the Supreme Court held that a tribunal consisting solely of State officers had “lost its mandate” under the 2015 amendment to the Arbitration and Conciliation Act, which prohibits appointing arbitrators with a business relationship with a party. Although the arbitration had commenced before the amendment, the Court applied this prohibition retrospectively, disqualifying the tribunal members.

The Court did not strictly apply the amendment retrospectively but relied on the stay to infer that the proceedings technically commenced post-amendment. The judgment brings to the fore questions about its wider ramifications.

In Shree Vishnu Constructions v. Engineer-in-Chief, Military Engineering Service & Others (2023)^[6], the Supreme Court addressed the applicability of the 2015 Amendment Act to cases where a notice invoking arbitration was issued before the amendment. The Court held that the 2015 Amendment Act, which came into effect on October 23, 2015, does not apply to arbitration proceedings that commenced under Section 21 of the Act before this date “unless the parties otherwise agree”.

Interpretation of Section 26: The Prospective vs. Retrospective Applicability Debate

In the BCCI (Supra), the Supreme Court dissected section 26 of the Amendment Act, 2015. It observed that this provision is divided into two parts. First part deals with the application of the amendment act to the arbitral proceedings while the second part provides for the amendment application to the court proceedings. This distinction is further fortified by the fact that section 21 of the Principal Act is referenced in the first part which falls under Chapter V of the principal act that is titled “Conduct of Arbitration by the arbitral tribunal". When it comes to the second part, the reference of section 21 is conspicuous by its absence which further supports the conclusion that it refers to other arbitral proceedings than the proceedings before the Arbitral Tribunal.

Having examined this distinction between two parts of the section, the court further noticed that the first part is couched in a negative language as it restricts the application of the amendment act “To Arbitral Proceedings” initiated after the commencement of the act unless parties agreed to be bound by the provisions of the Amendment Act. Whereas the second part of the section positively extends the application of the Amendment Act to the proceedings commenced “In Relation To Arbitration” after the enforcement of the amendment act. When it comes to the second part, the Amendment act cannot be applied retrospectively if the proceedings were initiated before the commencement of the Amendment Act.

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

It is important to note that in the above case, the court was considering the proceedings under section 34 and 36 of the Arbitration Act. It was in that context the court held the amendment act to be prospective in nature. The court did not address the effects of the Amendment on other provisions which stood amended like sections 9, 11, and 17 of the principal act.

The question of Amendment's nature whether prospective or retrospective was further highlighted by the Supreme Court in Union of India v. Parmar Construction Company (2019)^[7]wherein the interpretation of section 11 as amended was directly addressed.

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

The court, at the outset, noted that the amendment act does not apply to the arbitral proceedings for which a notice under section 21 was issued before the commencement of the amendment act due to section 26 of the Act unless agreed otherwise by the parties.

The court further noted the combined effect of sections 21 and 26 and observed as under:

“We are also of the view that the Amendment Act, 2015 which came into force, i.e. on 23rd October, 2015, shall not apply to the arbitral proceedings which has commenced in accordance with the provisions of Section 21 of the Principal Act, 1996 before the coming into force of Amendment Act, 2015, unless the parties otherwise agree.”

The Supreme Court in Union of India v. Pradeep Vinod Construction Company, (2020)^[8] affirmed its decision in Parmar Construction (supra) and held that the arbitration proceedings would be governed by the unamended act with respect to the appointment of the arbitrator when request to refer parties to arbitration was made prior to the enforcement of the Amendment Act. The same was reiterated in Ratnam Sudesh Iyer v. Jackie Kakubhai Shroff (2021)^[9].These cases specifically addressed the concerns pertaining to the appointment of the arbitrator and held the Amendment Act to be prospective in nature unless parties have agreed to be bound by the Amendment Act.

In Shree Vishnu Constructions (Supra), the court observed that in BCCI, it was held that “the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced as understood by section 21 of the principal Act, on or after the Amendment Act, 2015 and to court proceedings which have commenced on or after the Amendment 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 said to be per incuriam and/or in conflict with the case of BCCI (supra).

Recent Development

Recently, the Commercial Court, Delhi grappled with the same question in Sh. Pankaj v. Delhi Metro Rail Corporation Ltd. (2024)^[10] wherein the court while referring to the Supreme Court judgment in the BCCI held that “hence, clearly, the 2015 Amendment Act would apply in the present case by virtue of the agreement of the parties. As already mentioned, Section 26 of the 2015 Amendment Act clearly provides that the parties could agree for application of the 2015 Amendment Act even to proceedings commenced prior to the commencement of the 2015 Amendment Act.”

This settles the debate as far as the applicability of the Amendment Act to the arbitral proceedings instituted prior to the enforcement of the Amendment Act is concerned.

Conclusion

Although Section 26 of the 2015 Amendment makes it clear that the Amendment Act does not apply to proceedings initiated before it came into force, conflicting judgments were still being rendered.

The issue was finally put to rest by the Supreme Court in the BCCI case and Shree Vishnu Constructions case wherein other provisions as amended by the Amending Act of 2015 were interpreted in light of section 26 of the Act.

1. Law Commission of India, 246th Report: Amendments to the Arbitration and Conciliation Act, 1996 (Along with Supplementary Report), 2014. ↑

2. 2022 SCC OnLine SC 8. ↑

3. AP 189 OF 2019. ↑

4. AIR 2018 SC 1549. ↑

5. 2022 SCC OnLine SC 8. ↑

6. 2022 LiveLaw (SC) 523. ↑

7. AIR 2019 SUPREME COURT 5522. ↑

8. 2020 (2) SCC 464. ↑

9. 2021 SCC OnLine SC 1032. ↑

10. ARBTN No.7418/17. ↑