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November 28, 2019

“Court Proceeding” “In Relation To” “Arbitral Proceeding” Under Section 87: Case for a Re-Look?


- Devansh A. Mohta, Advocate [ Supreme Court of India ]

Devansh-A-Mohta

Perhaps, it’s time to consider whether “in relation to arbitration proceeding” has to be looked with a different lens than in Thyssin; perhaps the time has come to shift focus from construing the expression “in relation to”, to the expressions “arbitration agreement”, “arbitration proceeding” and “arbitral award” and give them their true meaning; neither narrow nor wide...

1. After passing of the Arbitration & Conciliation Act, 1996 (A&C Act, 1996), the Supreme Court in Thyssin v. Steel Authority of India [(1999)3 SCC 334 was called upon to construe the expression “in relation to arbitral proceeding” found in section 85 (2) (a) of the A & C Act, 1996. The section refers to application of A&C Act 1996 to proceedings commenced under the Arbitration Act, 1940. The Court held that the expression had a wide meaning and covered the following proceedings: (i) those before the arbitrator; (ii) those before the court; (iii) those required to enforce the award and (iv) appeals.

The Arbitration and Conciliation (Amendment) Act, 2015

2. Two decades later, the Parliament passed the Arbitration & Conciliation (Amendment) Act, 2015 (the 2015 Act) with the intention to facilitate and encourage resolution of dispute through arbitration in a more user-friendly and cost-effective manner. The Government also desired to improve India’s ranking as a ‘contract enforcement’ nation. The 2015 Act introduced many changes to many chapters of the A&C Act, 1996. However, by virtue of section 26; the Act was made applicable in the following manner:

(i) it may apply, if the parties so agree, to the arbitral proceeding which commenced before 23rd October, 2015.

(ii) it shall apply in relation to arbitral proceedings which commenced on or after 23rd October, 2015;

3. In BCCI v. Kochi Cricket (2018)6 SCC 287, the Supreme Court held that the first part of section 26 covered only the proceeding before the arbitrator, and second part because of the expression “in relation to” covered court proceedings in relation to arbitral proceedings. Moreover, the 2015 Act was prospective, therefore, it applied to arbitral proceedings and court proceedings which commenced after 23rd October, 2015.

4. In Kochi Cricket, the question which arose was whether it was open to the parties to take recourse to section 36 (as amended) even where arbitral proceedings had commenced prior to 23rd October, 2015? The amended section 36 changed the law pertaining to enforcement of arbitral awards. It made an arbitral award enforceable even during the pendency of an application under section 34, unless its operation was stayed by the Court which had to be sought by filing a separate application. In this case, some parties applied for enforcement of the arbitral award, under the amended section 36, while the application challenging those awards under section 34 were pending. This move was resisted on the ground that the recourse to amended law was not permissible. The resisting parties lost before the High Court. In the appeal, the Supreme Court considered both scenarios namely (i) where section 34 applications were filed after 23rd October, 2015 and (ii) those filed before 23rd October, 2015.

5. In the first scenario, the Supreme Court held that where the court proceedings - section 34 application in this casewere filed (commenced) after 23rd October, 2015; it was open to the parties to take recourse to the amended section 36. In respect of the second scenario, the Supreme Court found that the original section 36 was unfair. Therefore, on the principle that it was possible for the court to look into the ‘clamor of change, given the practical value and nature of rights involved’, the Supreme Court permitted the parties to take benefit of the amended section 36 even where section 34 applications were filed before 23rd October, 2015. However, this judgment dealt with the applicability of the amended section 36 only. It did not deal with the applicability of the amended section 34.

The Arbitration & Conciliation (Amendment) Act, 2019

6. The recently enacted Arbitration & Conciliation (Amendment) Act, 2019 [the 2019 Amendment] has the following effect:

Kochi-Cricket

(i) it repeals above mentioned section 26 of the 2015 Act w.e.f from 23.10.2015; and

(ii) introduces S. 87 to the A&C Act, 1996 which provides that the 2015 Act shall apply to arbitral proceedings commenced on or after 23rd October, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings; and, if parties agree it may also apply to the arbitral proceeding and to court proceeding arising out of or in relation to such arbitral proceeding; commenced prior to 23rd October, 2015

Difference between “in relation to arbitral proceeding” and “arbitration and proceeding in relation thereto”

7. Until the introduction of section 87, the idea of proceedings was projected under each chapter of Part I of A&C Act, 1996 in the following manner:

Chapter Title Section Language
1 General Provision s. 2(5) “….. this part shall apply to all arbitration and to all proceedings relating thereto”
2 Arbitration Agreement s. 8(2) “The application referred in subsection (1)…”
s. 9 “A party may……. Apply to the court”
3 Composition of Arbitral Tribunal s. 11(6) “….. a party may request…”
5 Conduct of arbitral proceeding 27 “…may apply to court for assistance in taking evidence”
7 Recourse against arbitral award 34 “….may be made only by an application for setting aside..”

8. In this regard, the language of Section 42 is also significant. It provides that where with respect to an “arbitration agreement” “any application” is made in a Court, that court alone shall have jurisdiction over “arbitral proceeding” and all subsequent application “arising out of” “that agreement” and “the arbitral proceedings” shall be made in that Court and in no other court.

9. The perusal of the provisions tabulated and the language of section 42 are pointers to the legislative intention that the expression “in relation to arbitral proceeding” is not synonymous to “arbitral proceeding” in relation thereto. Part I of the A&C Act, 1996 comprises of 9 chapters. Each chapter deals with issues surrounding the subject covered thereunder and wherever required the effects of judicial intervention. The statutory recognition granted to the concept of “proceeding” in relation to each chapter may be stated in the following manner:

(i) Chapter I which deals with issues of general application of the entire law uses the expression “arbitration and proceeding relating thereto”;

(ii) The judicial proceeding in relation to arbitration agreement have been referred to by using the expression “application arising out of arbitration agreement”;

(iii) The judicial proceedings in relation to the conduct of arbitral proceeding are referred to by using the expression “application arising out of arbitral proceeding”;

(iv) The judicial proceedings relating to “arbitral award” have been referred to as “recourse against arbitral award”.

10. A pointer towards the legislative intention is also the absence of the expression “arbitral proceedings” after section 32 which provides for termination of “arbitral proceeding”. Thereafter, the scheme of the A&C Act, 1996 in chapter VII recognizes the proceeding regarding “recourse against arbitral award”

11. Another reason for strict construction of the above expressions of the A&C Act, 1996 lies in the background of section 42. The UNCITRAL Model Law does not deal with this subject. This section is somewhat similar to sub section (4) of section 31 of the 1940 Act which reads thus:

(4) Notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force where in any reference any application under this Act has been made in a Court competent to entertain it, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that reference and the arbitral proceedings shall be made in that Court and in no other Court”

12. In Kumbha Mawji v. Dominion of India (AIR 1953 SC 313) the Supreme Court was asked to construe the expression “any reference” to mean only “in course of the reference”. The Court, relying on the definition of “reference” found in section 2(e) of the 1940 Act to mean reference to arbitration, held that the phrase “in a reference” would mean “in the matter of reference to arbitration” and was comprehensive enough to cover also an application made even after the arbitration is completed and a final award made.

13. However, it is important to note that the A&C Act, 1996 has a different scheme and defines “arbitration”, “arbitration agreement” as well as “arbitral award” separately. In this background by using different expressions i.e. “arbitration and proceeding in relation thereto”(section 2) and “in relation to arbitral proceeding” (chapter V and section 42); the legislative intent is to construe them narrowly and not comprehensively.

14. In Thyssin, the Supreme Court interpreted the expression “in relation to” in conjunction with the expression “provision” found in Section 85(2)(a) and in the context of transition from 1940 Act to A&C Act, 1996. In my view, the Supreme Court, in Kochi Cricket had begun to take steps away from the comprehensive interpretation of Thyssin by explaining the distinction between the language of section 85 of A&C Act and section 26 of 2015 Act. Further, the Court had afforded recognition to the expression “arbitral proceeding” by relating it to Chapter V of A & C Act, 1996.

Significance of the expression “court proceeding” in relation to arbitral proceeding

15. By the 2019 amendment, the Parliament has introduced a new expression in the A&C Act 1996 i.e. “court proceeding”. It is evident that this expression has been borrowed from the judgment in Kochi Cricket. It appears that by introducing the expression “court proceeding” section 87 (b), the Parliament intends to dilute the effect of Kochi Cricket which had made amended section 36 available even in cases where section 34 have been filed prior to 23rd October, 2015. The Parliament should have taken the opportunity to recognize the gradual move away from Thyssins’ interpretation of the expression “in relation to arbitral proceedings”. Instead, it has reaffirmed that position in spite of the difference in context.

16. Now that the law is enacted and words made part of the statute, it becomes important to assess where it fits in the scheme of A&C Act, 1996? After the 2019 Amendment, the expression “court proceeding in relation to or arising out of arbitral proceeding” would require to be harmoniously construed with the other expression found in the statute. In my view the A&C Act, 1996 regards proceeding in relation to “arbitration agreement” different from those in relation to “arbitral proceeding” whereas, proceeding under section 34 are proceeding in relation to “arbitral award” while section 36 are enforcement. These are not subsumed in one generic expression “court proceeding arising out of or in relation to arbitral proceeding”. Perhaps, it’s time to consider whether “in relation to arbitral proceeding” has to be looked with a different lens than in Thyssin; perhaps the time has come to shift focus from the construing expression “in relation to”, to the expressions “arbitration agreement”, “arbitral proceeding” and “arbitral award” and give them their true meaning; neither narrow nor wide.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.



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