2015 Arbitration Amendment Not Applicable Though S.11 Application Was Filed After It, If Arbitration Notice Was Issued Pre-Amendment : Supreme Court

The Supreme Court has ruled that where the notice invoking arbitration is issued prior to the coming into force of the Arbitration and Conciliation (Amendment) Act, 2015, i.e., prior to 23.10.2015, and the application under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking appointment of an arbitrator, is made post the enforcement of the Amendment Act, the 2015 Amendment Act shall not be applicable.

"It is observed and held that in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015 and the application under Section 11 for appointment of an arbitrator is made post Amendment Act, 2015, the provisions of pre-Amendment Act, 2015 shall be applicable and not the Amendment Act, 2015", the Court hedl.

The bench of Justices M.R. Shah and C.T. Ravikumar was dealing with an appeal against the decision of the Telangana High Court, who had dismissed the Section 11 application of the appellant, by applying the A&C Act, prevailing prior to the 2015 Amendment Act, and by entering into the question of ‘accord and satisfaction’. The appellant had challenged the said decision on the ground that the court was restrained from entering into the issue of ‘accord and satisfaction’ in view of Section 11 (6A) of the A&C Act, as inserted by the 2015 Amendment Act.

While upholding the decision of the High Court, the bench dismissed the contention of the appellant that the decision of the Apex Court in Union of India vs. Parmar Construction Company, (2019) 15 SCC 682 and Union of India vs. Pradeep Vinod Construction Company, (2020) 2 SCC 464 are per incuriam, as they fail to consider the top court’s decision in Board of Control for Cricket in India (BCCI) vs Kochi Cricket Private Limited and Ors., (2018) 6 SCC 287.

In Parmar Construction (2019) and Pradeep Vinod Construction (2020), the Supreme Court had specifically held that where the request to refer the dispute to arbitration was made before the 2015 Amendment Act came into effect, the unamended A&C Act shall be applicable for appointment of arbitrator.

The court remarked that in BCCI (2018), the Apex Court has ruled the 2015 Amendment Act to be prospective in nature only so far as the proceedings under Sections 34 and 36 of the A&C Act are concerned. Further, the application under Section 11(6) was not in issue before the court.

The appellant, M/s. Shree Vishnu Constructions, entered into an agreement for some repair work with the respondent, Military Engineering Service. After some dispute arose between the parties with respect to payment of the dues under the agreement, the appellant invoked the arbitration clause. The appellant’s application under Section 11 of the A&C Act before the Telangana High Court seeking appointment of arbitrator, was opposed by the respondent on the ground that the amount due under the final bill raised by the appellant was paid, and that the appellant had also issued a “no further claim” certificate. The respondent had, therefore, pleaded that on the ground of ‘accord and satisfaction’, the dispute was not required to be sent for arbitration.

The appellant, on the other hand, had contended before the High Court that in view of the 2015 Amendment Act by which Section 11(6A) came to be inserted, the court has a very limited jurisdiction while deciding the Section 11 application. The court, therefore, must only consider whether there is an existence of the arbitration agreement or not, and the issue with respect to the ‘accord and satisfaction’ has to be left to be decided by the arbitrator / arbitral tribunal.

The High Court, however, concluded that the 2015 Amendment Act was not applicable to the dispute. The court thus dismissed the application by holding that there was a full and final settlement, noting that the appellant had issued a “no further claim” certificate.

The appellant, M/s. Shree Vishnu Constructions, challenged the decision of the High Court before the Supreme Court.

The respondent, Military Engineering Service, argued before the Apex Court that though the application under Section 11(6) of the A&C Act was filed on 27.04.2016, i.e., after the 2015 Amendment Act came into force, the notice invoking the arbitration was issued on 20.12.2013, i.e., much prior to the enforcement of the Amendment Act. Thus, the 2015 Amendment Act was not applicable.

The top court observed that as per Section 11(6A), as inserted by the 2015 Amendment Act, the powers of the court while deciding an application under Section 11(6) of the A&C Act, are confined to the examination of the existence of an arbitration agreement, which powers were not restricted in the pre-amendment Act.

The bench reckoned that Section 26 of the 2015 Amendment Act provides that nothing contained in the Amendment Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the A&C Act, before the commencement of the Amendment Act, unless the parties otherwise agree.

Perusing Section 21 of the A&C Act, the court further observed that as per Section 21, the arbitral proceedings can be said to have commenced on the date on which a request for the dispute to be referred to arbitration is received by the respondent.

The court referred to its decision in BCCI (2018) where it was held that the 2015 Amendment Act is prospective in nature and will apply to the court proceedings which have commenced on or after the 2015 Amendment Act came into force, irrespective of whether the arbitration proceedings- out of which the said court proceedings arose- commenced prior to or after the 2015 Amendment Act.

The bench took note that in Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131, the Apex Court has followed the decision rendered in the case of BCCI (2018).

The court further noted that in Parmar Construction Company (2019) it was specifically observed that, where the request to refer the dispute to arbitration was made before the 2015 Amendment Act came into effect, the unamended A&C Act, i.e., as it existed prior to the 2015 Amendment Act, shall be applicable for appointment of arbitrator. The said decision was followed by the court in Pradeep Vinod Construction Company, (2020).

The appellant, M/s. Shree Vishnu Constructions, argued before the Apex Court that while taking a contrary view in the cases of Parmar Construction Company (2019) and Pradeep Vinod Construction Company, (2020), the Supreme Court had not noticed and/or considered the binding decision of the top court in the case of BCCI (2018) and therefore, the said decisions were per incuriam.

Dismissing the said contention, the court remarked that in the case of BCCI (2018), the Apex Court has held the 2015 Arbitration Amendment Act to be prospective in nature insofar as the proceedings under Sections 34 and 36 are concerned. “It is required to be noted that in the case of BCCI (supra), application under section 11(6) was not the subject matter and there was no issue before the Court that even in a case where the notice invoking the arbitration is issued prior to the Amendment Act, 2015, but the application under section 11(6) is filed post Amendment Act, 2015, what will be the position and whether the old Act will be applicable or the amended Act,” said the court.

It added: “On the other hand, the decisions in the case of Parmar Constructions Company (supra) is directly on the point, namely, the application under section 11(6) of the Act. In the case of Parmar Constructions Company (supra), it is specifically observed and held that in a case where notice invoking arbitration is issued prior to Amendment Act, 2015 and the application under section 11(6) is filed post amendment, as per section 21 of the principal Act, the date of issuance of the notice invoking arbitration shall be considered as commencement of the arbitration proceedings and therefore as per section 26 of the Amendment Act, 2015, the Amended Act, 2015 shall not be applicable and the parties shall be governed by the pre-amendment Act, 2015.” It reckoned that a similar view has been expressed in the case of S.P. Singla Constructions Private Limited vs. State of Himachal Pradesh and Anr., (2019) 2 SCC 488.

While noting that the court in the case of BCCI (2018) was only considering the court proceedings under Sections 34 and 36, the court said, “Therefore, any observations made by this Court in paragraphs 37 to 39 in the case of BCCI (supra) shall be understood and construed with respect to court proceedings which have commenced on or after the Amendment Act coming into force, namely, the proceedings under sections 34 & 36.”

Thus, the decisions of the Apex Court in Parmar Constructions Company (2019) and Pardeep Vinod Construction Company (2020) cannot be said to be per incuriam and/or in conflict with the decision of the court in the case of BCCI (2018), the bench concluded.

Referring to the facts of the case, the bench reckoned that the notice invoking arbitration was issued on 26.12.2013, i.e., much prior to the enforcement of the 2015 Amendment Act, and the application under Section 11(6) had been filed on 27.04.2016, i.e., much after the Amendment Act came into force. Thus, it concluded that the law prevailing prior to the 2015 Amendment Act shall be applicable.

Thus, applying the law laid down in Parmar Constructions Company (2019) and Pardeep Vinod Construction Company (2020) and S.P. Singla Constructions Private Limited (2019) to the facts of the case, the court concluded that the High Court had rightly entered into the question of accord and satisfaction and had rightly dismissed the application under Section 11(6) by applying the A&C Act, prevailing prior to the 2015 Amendment Act.

“We are in complete agreement with the view taken by the High Court. It is observed and held that in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015 and the application under Section 11 for appointment of an arbitrator is made post Amendment Act, 2015, the provisions of pre-Amendment Act, 2015 shall be applicable and not the Amendment Act, 2015,” said the court.

The bench thus dismissed the appeal.

Case Title: M/s. Shree Vishnu Constructions vs The Engineer in Chief Military Engineering Service & Ors.

Citation : 2023 LiveLaw (SC) 417

Counsel for the Appellants: Mr. K. Parameshwar, AOR Ms. Arti Gupta, Adv. Ms. Kanti, Adv.

Counsel for the Respondents: Mr. Padmesh Mishra, Adv. Mr. Arvind Kumar Sharma, AOR Ms. Megha Karnwal, AOR

Arbitration and Conciliation Act, 1996: Section 11(6), 11 (6A), 21; Arbitration and Conciliation (Amendment) Act, 2015-

The Supreme Court has ruled that where the notice invoking arbitration is issued prior to the coming into force of the 2015 Amendment Act, i.e., prior to 23.10.2015, and the application under Section 11 of the Arbitration Act, seeking appointment of an arbitrator, is made post the enforcement of the Amendment Act, the 2015 Amendment Act shall not be applicable.

The bench took note that in Parmar Construction (2019) and Pradeep Vinod Construction (2020), the Supreme Court had specifically held that where the request to refer the dispute to arbitration was made before the 2015 Amendment Act came into effect, the unamended A&C Act shall be applicable for appointment of arbitrator.

The court remarked that in BCCI (2018), the Apex Court has ruled the 2015 Amendment Act, 2015 to be prospective in nature only so far as the proceedings under Sections 34 & 36 of the Act are concerned. Further, the application under Section 11(6) was not in issue before the court.

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