Introduction

On October 23 2015 India's arbitration law was transformed in several key respects when the Arbitration and Conciliation (Amendment) Ordinance was promulgated by the president. This ordinance was later passed by Parliament as the Arbitration and Conciliation (Amendment) Act 2015. Under the new act, the arbitral regime in India has been revolutionised by changes such as the following:

  • Parties can now claim relief from the Indian courts even in international commercial arbitrations.
  • The scope of interference by the courts through interim relief has been minimised.
  • The interim powers of arbitral tribunals have been enlarged and made enforceable.

Importantly, there is no automatic stay where an award has been challenged before the courts, and thus a separate stay must be obtained. Strict timelines have also been introduced for arbitral proceedings and court proceedings to make arbitration a fast and efficacious remedy.

Ambiguities

Despite the visionary changes introduced by the Amendment Act, it suffers from a fundamental problem: the act itself is vague in applicability and scope. The Law Commission originally proposed the inclusion of Section 85A,(1) which clearly delineated that the amendment applied only to fresh arbitrations and applications, with specific exceptions. However, the legislature chose to not include this section in the Amendment Act. The Law Commission's proposal appreciated the delicate distinction between fresh arbitrations and fresh applications and thus clarified that fresh applications before any court would be governed by the 2015 act (hereby, the new act), even where the arbitration was already commenced and governed by the 1996 act (hereby, the old act). Thus, the Law Commission sought to ensure that the amendments would benefit the regime as a whole and the courts could uniformly apply the new act to all applications made after October 23 2015, regardless of when the arbitration was commenced.

Problematically, the legislature replaced Section 85A with Section 26, which makes no distinction between arbitrations and arbitration-related court proceedings. As such, courts have been passing conflicting decisions on whether the new act applies to court proceedings instituted after October 23 2015, where they pertain to pre-existing arbitrations. This confusion has softened the impact of the amendments and has again mired Indian arbitration law in uncertainty.

Section 26 reads 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."

On a reading of Section 26, various courts have reached different conclusions about its applicability to arbitration-related court proceedings. On a literal reading of Section 26, the Calcutta High Court in Electrosteel Castings(2) found that the old act applies to court proceedings, since they pertain to arbitrations commenced before October 23 2015. However, a larger bench of the same court concluded differently in Sri Tufan Chatterjee,(3) using Section 32 of the Arbitration Act. Section 32 states that arbitration proceedings terminate with the pronouncement of an arbitral award. Thus, applications made to the court to set aside an award are made after such pronouncement and are therefore not included in the definition of 'arbitral proceedings' under Section 26. Therefore, the court held that the new act must apply to court proceedings, even where they pertain to arbitrations under the old act. The court's analysis can be buttressed by the reading that Section 26 excludes the applicability of the new act to "arbitration proceedings" but applies "in relation to arbitration proceedings" which have been instituted after October 23 2015.

Similarly, the Bombay High Court in Mahanagar Telephone Nigam(4) found that court proceedings are not covered in the term 'arbitral proceedings' under Section 26; therefore, all arbitration-related court proceedings which were pending when the act came into force will be governed by the new act. On the other hand, on a literal reading of Section 26, the Madras High Court, through Chief Justice Sanjay Kishan Kaul, in Jumbo Bags Ltd(5) and the Madhya Pradesh High Court in Pragat Akshay Urja(6) both held that court proceedings pertaining to old arbitrations should be governed by the old act, even where they were filed after October 23 2015.

In light of vague language used by the legislature, these conflicting judgments are likely to multiply over time. In order to resolve this quagmire, the Supreme Court will need to weigh in on the following issues (assuming that the legislature will not pass a clarificatory amendment anytime soon):

  • whether the following categories of case will be governed by the new act:
    • arbitrations commenced before October 23 2015, where applications were filed with the court after this date; and
    • arbitrations commenced before October 23 2015, where applications were filed with the court before this date but were not heard until after October 23 (ie, they were pending when the act came into force);
  • whether applications made to a court under Section 34 form a part of arbitral proceedings or whether they are "in relation to arbitral proceedings" since they took place after termination of the arbitration under Section 32; and
  • similarly, whether Section 9 and Section 11 applications fall under the term 'arbitral proceedings'. Unlike Section 34 applications, these are filed before the termination of arbitral proceedings under Section 32 and merit a separate discussion.

Comment

These questions must be answered on a principled basis, not case by case, in order to create a unified arbitration policy in India. The Supreme Court must consider the objective of the amendments and the act, which is to develop a speedy and efficacious alternative dispute mechanism in India. Further, applying the law uniformly is paramount, so that the courts may apply a similar set of rules to those that come before them. Parties should not be denied the benefits of the amendments based solely on when they initiated arbitration, especially since the legislature has categorically decided that certain changes are direly needed in the arbitration law. However, these principles must be balanced with the need to give deference to the parties' intention. If the parties in their arbitration agreement never intended to be bound by a set of rules distinct from the rules that existed when they entered into the agreement, forcing them to do so might be patently unfair. The task before the court is undoubtedly difficult; however, until these issues are resolved, the amendments cannot be hailed as a game changer for the Indian arbitral regime.

For further information on this topic please contact Ajay Bhargava, Vaibhav Joshi or Sanya Sud at Khaitan & Co by telephone (+91 11 4151 5454) or email ([email protected], [email protected] or[email protected]). The Khaitan & Co website can be accessed at www.khaitanco.com.

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