Introduction

• This is a landmark judgment discussing the applicability of Arbitration and Conciliation (Amendment) Act, 2015 on the arbitral proceedings and the Court proceedings.
• The judgment was delivered by a 2-judge bench Justice RF Nariman and Justice Navin Sinha

Facts

• There was a franchise agreement between Appellant and Respondent containing an arbitration clause.
• A notice was sent by the Respondent invoking arbitration under the franchise agreement.
• A sole arbitrator was appointed and two arbitral awards were delivered in favour of Respondents.
• On 16^th September 2015 the Appellants filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (A & C Act) in the Bombay High Court.
• The Respondents filed two execution applications in the High Court pending enforcement of such awards.
• These were resisted by the appellants praying for dismissal of the execution applications stating that the old Section 36 would be applicable and therefore there would be automatic stay of awards until Section 34 proceedings have been decided.
• There were four other appeals in which Section 34 applications were filed after the Amendment Act came into force.

Issue Involved

• Whether Section 36, which was substituted by the Amendment Act, would apply in its amended form or in its original form to the appeals in question?

Observations

• The core controversy in this case revolved around interpretation of Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015.
  • Section 26 provides “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 held that Section 26 should be construed literally first and then purposively and pragmatically.
• The Court made differentiation between first and second part of Section 26:
  • The second part of Section 26 does not refer to Section 21 of A&C Act.
  • Whereas the first part refers only to arbitral proceedings before an arbitral tribunal, the second part refers to Court proceedings “in relation to” arbitral proceedings.
  • Section 26 therefore bifurcates the proceedings to two set of proceedings: arbitral proceedings themselves and Court proceedings in relation thereto.
• Thus, it was held that the scheme of Section 26 was clear:
  • The Amendment act is prospective in nature.
  • It will apply to those arbitral proceedings that are commenced as understood by Section 21 of the principal Act, on or after the Amendment Act.
  • It will also apply to Court proceedings which have commenced on or after the Amendment Act came into force.
• Also, the absence of reference to Section 21 of 1996 Act in second part of Section 26 of the Amendment Act is also a good reason why arbitral proceedings before an arbitral tribunal are not contemplated in second part.
• Thus, it was clear that in all cases where Section 34 petition was filed after the commencement of the Amendment Act and an application for stay is made under Section 36 therein, it will be governed by Section 34 as amended and Section 36 as substituted.

Conclusion

• The issue on which the two sides locked horns was regarding the applicability of the Amendment Act, 2015.
• The Court after analyzing Section 26 of the Act that governed the applicability of Amendment Act concluded that the Amendment will apply to Court proceedings (proceedings in relation to arbitral proceedings) commenced on or after the date of commencement of Act.