SUPREME COURT RULES ON PROSPECTIVE APPLICABILITY OF SECTION 36 OF THE ARBITRATION AND CONCILIATION ACT, 2015

The Supreme Court has recently passed a judgment in Board of Control for Cricket in India v Kochi Cricket Pvt. Ltd. and etc on 15.03.2018. The Appellant herein had filed Chamber Summons in December 2015 before a Single Judge Bench of the Supreme Court for dismissal of Execution Applications moved by the Respondent on the ground that the filing of Section 34 Application under the Arbitration and Conciliation Act 1996 (the Act), which provides for setting aside of arbitral award, resulted in an automatic stay of Execution of the Awards under Section 36 of the Act. But the Single Judge dismissed the Chamber Summons and held that Section 36 of the Act as amended in 2015 (the Amended Act) would be applicable in the facts of this case. Thus, the Respondent was not barred from proceeding with the Execution Applications. The Appellant, therefore, filed an appeal against the aforesaid judgment before the Division Bench of the Supreme Court, which made the following observations:

The Supreme Court referred to this Court’s judgment in National Aluminum Co. Ltd. v. Pressteel & Fabrications, (2004) 1 SCC 540 and the 246^th Law Commission Report 2014, where it was discussed that pendency of Section 34 application under the Act rendered an arbitral award unenforceable. This automatic suspension of execution of award with the filing of Section 34 application left no discretion with the court to put the parties to terms and that it became impermissible for the court to pass any order directing the losing party to deposit the award amount, wholly or substantially, into the court.

The Supreme Court further discussed the Objects of the Act stating that the Act was enacted to provide for speedy disposal of cases relating to arbitration with least court intervention. But it was observed that there was an increase in the intervention of courts in arbitration matters as stated above, which resulted in delay of disposal of arbitration proceedings. As a consequence, it defeated the very objective of the alternate dispute resolution system to which arbitration belongs.

Thus, the Law Commission suggested in its Report certain amendments to the Act including Section 36, which provides that the award will not become unenforceable merely upon the making of an application under Section 34. These amendments would facilitate settlement of disputes in a more user-friendly, cost effective and expeditious manner.

The Supreme Court further held that applications under Section 34 cannot be considered as an appeal against the arbitral award and that court proceedings in relation to arbitral proceedings, being independent from arbitral proceedings, would not be viewed as a continuation of arbitral proceedings, but would be viewed separately.

Further, execution proceedings are matters of procedure and in case there is a change in law during the pendency of such matter, the appellate court is bound to take notice of the change in law.

Thus, in view of the aforesaid observations, the Supreme Court herein held that:

Section 36 of the Amended Act is applicable to court proceedings commenced on or after 23.10.2015;

Section 36 of the Amended Act is also applicable to applications filed under Section 34 of the Act pending on the date of commencement of the Amended Act, i.e. 23.10.2015;

Arbitration and Conciliation (Amendment) Act 2015, as a whole, is prospective in nature.

Harini Daliparthy

Senior Legal Associate