Application of Provisions of the Arbitration and Conciliation (Amendment) Ordinance, 2015 to Existing Arbitrations

The promulgation of the Arbitration and Conciliation (Amendment) Ordinance, 2015 [hereinafter “Ordinance”] vide Ordinance No. 9 of 2015 dated 23.10.2015 and the lack of express words clarifying whether the Ordinance is to operate prospectively or retrospectively begs the question of the application of the Ordinance to existing arbitrations.

The Ordinance is largely in line with the recommendations of the Law Commission of India’s 246th Report on Amendments to the Arbitration and Conciliation Act, 1996. However, due to the material omission of Proposed Section 85A from the Ordinance, there is ambiguity as whether unless otherwise provided the provisions of the Ordinance are prospective or retrospective [See Zile Singh v. State of Haryana and Ors., (2004) 8 SCC 1, Para 23].

I believe the Ordinance operates retrospectively insofar it does not impair an existing right or obligation of any party. Thus, as far as is possible, without prejudice to a party’s rights and obligations and without hitting the barrier of impossibility, the Ordinance is to be given retrospective effect. However, it may be noted that an equally convincing case can be made for a prospective application only and I will attempt to make one of those below as well.

Retrospective Application?

In support of the proposition that the Ordinance applies retrospectively, support may be gathered from the settled law that retrospective operation is not to be given to a statute so as to impair an existing right or obligation, other than as regards a matter of procedure [See Rashid Ahmad v. State of U.P. and Anr., (1979) 1 SCC 596, Para 27].

It must be noted that the Arbitration and Conciliation Act, 1996 as well as the Ordinance, while creating substantive rights and obligations, also lays down procedural rules. Accordingly, unless by giving a provision retrospective application, there is impairment caused to a party’s rights and obligations, there is no bar to retrospective application of the Ordinance. It is trite law that no party can claim injury owing to alteration of rules to access substantive rights merely based on the event of alteration and only when the alteration substantively impairs the rights being accessed itself is when the procedure is vulnerable to challenge [See Anant Gopal Sheorey v. State of Bombay, AIR 1958 SC 915, Para 4].

To make the aforesaid clear, an example may be taken of the Second Proviso to Section 12(5) wherein is specifically stated that the sub-section shall not apply to cases where an arbitrator has already been appointed on or before commencement of the Ordinance. Such a provision becomes necessary in that in a contract wherein a right had been bestowed on say party A to unilaterally choose an arbitrator and such party chose a former employee of its own as the arbitrator, giving retrospective operation to Section 12(5) would have impaired what is arguably a right of party A. However, in case of a provision like Section 17, no impairment is caused to the rights and obligations of the parties by enhancement of the arbitrator’s or the arbitral tribunal’s powers.

It must also be noted that in certain cases retrospective application is an impossibility. For instance in Section 29A it is provided that an arbitral tribunal passes the award within 12 months of entering reference with such time period extendable up to 18 months if the parties consent to such extension. However, a situation where an arbitration is ongoing for even a day over 18 months as on 23.10.2015 is not dealt with by the provision.

In fact it cannot be dealt with by the provision nor is it in the interest of policy to attempt to do so. Interpreted literally and retrospectively, an arbitration ongoing for 18 months and 1 day on 23.10.2015 automatically stands stalled owing to termination of the mandate of the arbitral tribunal until the Court grants further time to the arbitral tribunal. The consequence of a such a situation is that in case of interim measures, the parties would have to rush to Court under Section 9 while the Court hears the application under Section 29A(5). Thereafter, assuming the arbitral tribunal is granted further time, the Section 9 automatically becomes infructuous due to the effect of Section 9(3). In the event the arbitral tribunal is not granted further time, the Court then is burdened with hearing the matter and protecting the parties interests until another arbitral tribunal is constituted. Such a situation cannot be desirable as the aim and logic of arbitral laws across the world is to reduce the burdens on the courts and prevent frequent “trips” to courts.

The above observations apply not only in regard to arbitrations that are ongoing for 18 months and 1 day but also to say one that is ongoing for say 17 months and is at the stage of rejoinder for whatever reasons. Does that imply that the arbitral tribunal now has only 1 month to complete evidence, hear the parties, and pass the award? It would be seem not [See National Agricultural Cooperative Marketing Federation of India Ltd. and Anr. v. Union of India, (2003) 5 SCC 23, Para 15].

Moreover a situation like the one described above in regard of Section 29A of the Ordinance is likely to cause a massive upheaval and confusion and as such is unlikely to have been enacted with a retrospective effect. Of course the argument of confusion can be extended to the whole Ordinance to argue for its prospective application. [See Bharat Aluminium Company v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552, Para 197].

Another argument in favour of retrospectivity is that despite there being a general presumption of prospectivity [See Keshavan Madhava Menon v. State of Bombay, AIR 1951 SC 128, ¶ 15 (7-Judge Bench)], the Second Proviso to Section 12(5) of the specifically uses language against retrospectivity. A logical implication being that in fact the entire Ordinance is to be construed retrospectively, unless specific language is expressed against such retrospectivity. A flip of the ‘unless stated as retrospective, deemed to be prospective’ argument.

Moreover, even the choice of an instrument, i.e. Ordinance, would suggest an urgency to effect change and to my mind supports retrospectivity insofar as possible. It could also as easily mean lack of coherent governance as we all saw with the repeated turn arounds with Section 138 of the Negotiable Instruments Act, 1881. For the sake of this piece, lets go with the former.

Lastly, the argument in favour of retrospectivity, even if only where it is possible, is that relating to the objects and purposes of the Ordinance [See Sree Bank Ltd. (In Liquidation) v. Sarkar Dut Roy and Co., AIR 1966 SC 1953, Paras 5-6; Vatan Mal v. Kailash Nath, (1989) 3 SCC 79, Para 12]. The Ordinance has been necessitated by the conversion of the arbitral process into court process, in that judicial interventionism, delays, and lack of finality due to broad grounds of challenge to awards, defeated the purposes of arbitration [See Paras 3-4 of Chapter II of the 246th Report of the Law Commission of India]. If the objects and purposes are indeed to shorten the time taken to get justice and to take a certain class of disputes outside the court system, then retrospective application is a welcome possibility.

Prospective Application?

Turning to the argument in favour of prospective application only, the argument that instantaneously appeals arises from the principles of lex prospicit, non respecit (the law looks forward, not backward) and nova constitutio futuris forman imponere debet non praeteritis (a new law ought to be construed to interfere as little as possible with vested rights), both of which have found their place in the foundational rules of statutory interpretation as a general presumption of prospectivity in absence of express words or necessary implications to the contrary [See Keshavan Madhava Menon v. State of Bombay, AIR 1951 SC 128, ¶ 15 (7-Judge Bench)].

Express words regarding retrospectivity are not found in the Ordinance, and therefore that is a job half done insofar as the above argument is concerned. However, necessary implications remain to be analyzed and are likely to be eventually settled judicially. That said, it can be argued, with some force, that considering the operation of the Arbitration and Conciliation Act, 1996 for almost 20 years, there is no special reason found within or without the Ordinance to retrospectively apply the same [See Zile Singh v. State of Haryana and Ors., (2004) 8 SCC 1, Para 15].

The above is an argument of thresholds wherein the bedrock of the argument is that unless the words are express, minor insinuations or benefits of retrospective application would not lead the courts to apply a legislation retrospectively. The necessary implication must also attempt to rise, even if it may fall short ultimately, to the level of express words. The legislation should be so drafted that any other interpretation but that of retrospectivity would render the legislation a nullity or in the very least significantly less useful.

Conclusion

The entirety of the above piece is a brief glimpse of the arguments possible on the opposite sides of the spectrum and the issue on whether the Ordinance is to be applied prospectively or retrospectively very much remains open until it is settled by the Hon’ble Supreme Court of India eventually, as is the trend in our country. Until then it is a matter of picking a side and arguing for it. However, the best interests of arbitration, in my opinion, are served by reading the Ordinance retrospectively as far as is possible.

*Comments, especially contrarian views, are welcome.

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