The Bombay High Court observed that Section 26 of the Amendment Act of 2016 in the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Arbitration Act”) made provisions of the Act applicable prospectively.
However, an option has been given to the parties for making amendments applicable to even pending arbitrations by using specific wording.
In the present case, the contract of the parties was worded in a way that m veans that the parties had an understanding that provisions of the Act as were amended and modified were to be applicable to the arbitration proceedings.
Brief Facts:
The Appellant and the Respondent entered into a dealership agreement which was, thereafter, terminated by the Appellant. The Respondent invoked the arbitration clause and an arbitrator was appointed by the Court. The claim of the Respondent was partly allowed by the Arbitrator.
Thereafter, the award passed by the Arbitrator was challenged by the Appellant before the Commercial Court. The Court dismissed the application and therefore, the present appeal is being preferred under Section 37 of the Arbitration Act.
Contentions of the Appellant:
The Appellant challenged the award only to the extent of interest awarded in favor of the Respondent. Any other part of the award was not challenged by the Appellant. It was contended that the interest awarded violates Section 31(7)(b) of the Arbitration Act. It was argued that the contract does not stipulate any such interest and therefore, interest would be regulated under Section 37(1)(b), and hence, the interest would be payable at 2% higher than the current rate of interest.
It was further argued that parties vide the said agreement agreed that Arbitration proceedings would apply with all statutory modifications and re-enactments. The Parties had agreed to abide by all amendments so even if the Proceedings commenced in 2014, the award was passed in 2016 and therefore, interest had to be awarded in accordance with amended Section 37.
Contentions of the Respondent:
The Respondent argued that Section 37 originally empowered the Tribunal to award interest @18% per annum. The present proceedings commenced in 2014 and hence, the amended provision of 2015 amendments, would not be applicable to the present proceedings. It was further argued that the clause in the contract regarding amendments was merely an understanding of the procedure to be followed. There was no such agreement as per Section 26 of the Amendment Act of 2016.
Observations of the Court:
The Court observed that Section 26 of the Amendment Act of 2016 was retrospectively deleted, however, the said deletion was held to be unconstitutional and now as a result, Section 26 is still a part of the Amendment Act of 2016.
Earlier, the Arbitrator had the power to award interest at 18% per annum, but these powers were curtailed by the Amendment Act of 2016. Section 26 made provisions of the Act applicable prospectively. This means that the pending Arbitration proceedings would not be affected by amended Section 31(7)(b).
The Bench further observed that an option has been given to the parties for making amendments applicable to even pending arbitrations by using specific wording.
In the present case, the contract of the parties was worded in a way that means that the parties had an understanding that provisions of the Act as were amended and modified were to be applicable to the arbitration proceedings.
The High Court held that the language of the contract proves that the parties had agreed to the applicability of the Act as was to be amended from time to time and it was not merely an understanding in regards to procedural aspects.
The words “for the time being in force” incorporated in the contract indicate that the provisions of the Act were to be available to be applied while deciding the dispute and had no nexus with the date of commencement of arbitration proceedings.
Therefore, the Arbitrator could not have awarded interest at @18 % per annum and moreover, there is no reason also given for awarding such interest.
The decision of the Court:
Based on the above-mentioned reasons, the Bombay High Court allowed the appeal partly and reduced the interest to 9% per annum.
Case Title: M/s Skoda Auto Volkswagen India v. M/s Commercial Auto Products
Coram: Hon’ble Mr. Justice Mangesh S. Patil, Hon’ble Mr. Justice Abhay S. Waghwase
Case No.: Commercial Arbitration Appeal No. 3 of 2022
Advocate for Appellant: Mr. S.V. Adwant
Advocates for Respondent: Mr. A.N. Sabris with Mr. Satyajit R. Vakil
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