Calcutta High Court
West Bengal Housing Board vs M/S. Abhisek Construction on 11 April, 2023
AP 189 OF 2019
REPORTABLE
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
Present:
The Hon'ble Justice Shekhar B. Saraf
AP 189 of 2019
WEST BENGAL HOUSING BOARD
VERSUS
M/s. ABHISEK CONSTRUCTION
For the Petitioner: Mr. Rohit Banerjee, Adv.
Ms. Shreyanshee Das, Adv.
For the Respondent: Mr. Aniruddh Mitra, Adv.
Last Heard On: March 17, 2023
Judgement On: April 11, 2023
Shekhar B. Saraf, J.:
1. The instant application has been filed by the petitioner, West
Bengal Housing Board ('award debtor'), under Section 34 of the
Arbitration & Conciliation Act, 1996 (hereinafter referred to as 'the
Act' and/or the 'the principal Act') seeking to set aside an arbitral
Page 1 of 31
AP 189 OF 2019
REPORTABLE
award dated December 21, 2018 passed by the sole arbitrator Mr.
Santanu Basu Rai Chaudhuri.
2. The respondent in the instant application is M/s. Abhisek
Construction ('award holder').
3. At the very outset, it would be prudent on my part to mention that
the instant application has been argued on inherent jurisdictional
issues pertaining to the eligibility of the arbitrator to enter
reference in the first place. The petitioner / award debtor has
prayed for setting of the arbitral award on the ground that the
award was passed by a unilaterally appointed arbitrator. It is to be
noted that the challenge under the aforesaid ground was not
present when the instant application was originally filed on March
15, 2019 and becomes available subsequently due to judicial
interpretations on the position of law. The said challenge was
vehemently opposed by the respondent, and hence, in this
judgment, I have only dealt with the point of maintainability of this
Section 34 application.
Facts
4. I have mapped the factual matrix of the present lis below :-
Page 2 of 31
AP 189 OF 2019
REPORTABLE
a. A notice inviting tender was issued by the respondent/award
debtor for "Construction of roads with pavered blocks,
driveways, pathways & open garages of M.I.G. and L.I.G.
clusters of chequered tiles at Eastern High/Grove/Nook
Housing Project of West Bengal Housing Board at New Town,
Kolkata". The bid of the respondent/award holder, in this
regard, was accepted by the petitioner/ award debtor vide its
letter dated April 30, 2010. A formal agreement in this regard
was executed between the parties on May 19, 2010 and the
work order was issued by the Joint Director (EW-1) of the
award debtor on the same day.
b. Subsequently, on account of disputes having arisen between
parties, the respondent vide letter dated March 12, 2012
addressed to the Deputy Director (EW), Eastern Housing
Project, West Bengal Housing Board, Rajarhat, Kolkata raised
several claims and requested the petitioner to make payment
of the said claims within 15 days. On March 16, 2012, the
petitioner rejected the claims raised by the respondent in the
aforesaid letter.
c. By another letter dated March 28, 2012, the respondent
requested the petitioner's Director (Engineer) for appointment
of an arbitrator in terms of clause 25 of the contract between
the parties. The petitioner vide its letter dated April 20, 2012
Page 3 of 31
AP 189 OF 2019
REPORTABLE
nominated Shri Santanu Basu Rai Chaudhuri, retired
Engineer-in-Charge, PWD and ex officio Secretary as the sole
arbitrator.
d. The sole arbitrator concluded the arbitral proceedings on
November 23, 2018 and published the award on December
21, 2018. The arbitrator awarded the respondent a sum of
INR 41,82,385/- (Indian Rupees Forty One Lakhs Eighty Two
Thousand Three Hundred Eighty Five only) along with simple
interest at the rate of 10% per annum from the date of award
till the date of payment.
e. On March 15, 2019, the award debtor filed the instant
application challenging the aforesaid award under Section 34
of the Act.
Submissions
5. Mr. Rohit Banerjee, counsel for the petitioner/ award debtor made
oral submissions and challenged the said arbitral award on the
ground that unilateral appointment of the sole arbitrator is
impermissible under Section 12(5) read with Schedule VII of the
Act. I have reproduced his submissions below :-
Page 4 of 31
AP 189 OF 2019
REPORTABLE
a. The counsel submitted that the sole arbitrator was appointed
unilaterally by the award debtor at the request of the award
holder. The counsel further submitted that the arbitrator
lacked the inherent jurisdiction to pass the said award as he
was appointed by an interested party. In light of the same, the
counsel argued that the award passed is non-est in law and is
liable to be set aside.
b. The counsel further, while drawing the attention of this Court
to Section 12(1) of the Act, submitted that the Arbitrator did
not disclose in writing any circumstances which would give
rise to justifiable doubts regarding his independence or
impartiality. In absence of such a disclosure, the counsel
argued, the award is liable to be set aside. The counsel
submitted the judgment of Satyendra Kumar -v- Hind
Construction reported in 1951 SCC OnLine Bom 89, in
support of his contentions.
c. The counsel submitted that disclosure in writing as mandated
by Section 12(1) of the Act is sine qua non. The counsel
further argued that Section 12(4) of the Act confers a right
upon a party who had participated in the arbitral proceedings
to challenge appointment "...only for reasons of which he
becomes aware after the appointment has been made.....". In
the instant case, the counsel submits that there was no
Page 5 of 31
AP 189 OF 2019
REPORTABLE
disclosure made by the Arbitrator and on this ground itself,
he submits, the award should be set aside.
d. The counsel, in support of his contentions, relied upon the
judgments of the Apex Court in Perkins Eastman Architects
DPC and Ors. -v- HSCC (India) Ltd. reported in (2020) 20
SCC 760, and TRF Ltd. -v- Energo Enginereing Projects
Ltd. reported in (2017) 8 SCC 377.
6. Mr. Aniruddha Mitra, counsel for the respondent/ award holder
propounded the following submissions with regards to unilateral
appointment of the arbitrator made by the award debtor:
a. The counsel submitted that as on the date of invocation of
arbitration and subsequent appointment of the arbitrator, the
appointing authority, that is, the Director of West Bengal
Housing Board was not disqualified to appoint an arbitrator.
The counsel further submitted that the Arbitration and
Conciliation (Amendment) Act, 2015 ('2015 Amendment Act')
came into force with effect from October 23, 2015. He argued
that the un-amended Act was in force at that point of time
wherein the parties were free to agree on a procedure for
appointing an arbitrator(s). Therefore, in light of the
appointment made as per the arbitration clause, an
Page 6 of 31
AP 189 OF 2019
REPORTABLE
application under Section 11(6) of the Act (in the pre-
amended era) would not have been maintainable.
b. The counsel submitted that it was always open for the
petitioner to challenge the independence or impartiality of the
arbitrator under Sections 12, 13 and 14 of the Act as it stood
prior to the 2015 amendment subject to restriction as
provided in Section 16(2). He submitted that in the instant
case, at no point of time during the arbitral proceedings any
such application was filed by the petitioner/ award debtor. In
view of the same, he argued, that the award debtor is
precluded from saying that the arbitrator did not have
jurisdiction to proceed with the reference or that the
arbitrator did not make disclosures under Section 12.
c. The counsel then drew the attention of this Court towards
Section 26 of the 2015 Amendment Act which reads as
follows:
"26. Act not to apply to pending arbitral proceedings -
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."
Page 7 of 31
AP 189 OF 2019
REPORTABLE
He submitted that the Supreme Court had interpreted the
aforesaid section in Board of Control for Cricket in India -
v- Kochi Cricket Pvt. Ltd. reported in (2018) 6 SCC 287
wherein it was held that none of the provisions of the 2015
Amendment Act shall apply to arbitral proceedings
commenced before the commencement of the 2015
Amendment Act unless the parties otherwise agree. He
further submitted that 2015 Amendment Act will apply to
court proceedings which are "in relation to arbitral
proceedings".
d. The counsel submitted that subsequent to 2015 Amendment
Act, the principal Act was further amended in the year 2019
vide the Arbitration & Conciliation (Amendment) Act, 2019
('the 2019 Amendment Act') which came into effect from
August 30, 2019. By virtue of the 2019 Amendment Act, he
submitted that :-
i) a new Section 87 was introduced in the principal
Act; and
ii) Section 26 of the Arbitration & Conciliation
(Amendment) Act 2015 was omitted with effect from
October 23, 2015.
Page 8 of 31
AP 189 OF 2019
REPORTABLE
He argued that by introduction of Section 87 in the principal
Act, the legislature attempted to regulate the applicability of
the 2015 Amendment Act, and in essence overturned the
judicial interpretation of BCCI -v- Kochi (supra).
e. The counsel submitted that the constitutional validity of
Section 87 of the principal Act and the omission of Section 26
of the 2015 Amendment Act was challenged before the apex
court in Hindustan Construction Company -v- Union of
India reported in (2020) 17 SCC 324, wherein it court held
:-
"For all these reasons, the deletion of Section 26 of the
2015 Amendment Act, together with the insertion of
Section 87 into the Arbitration Act, 1996 by the 2019
Amendment Act, is struck down as being manifestly
arbitrary under Article 14 of the Constitution of India."
As a result whereof, the counsel added, Section 26 of the
2015 Amendment Act as interpreted by the Apex Court in
BCCI -v- Kochi (supra) stands restored.
f. The counsel submitted that the 2015 Amendment Act came
into force during the pendency of the instant arbitration
which concluded upon passing of the arbitral award dated
December 21, 2018. He submitted that in view of the law laid
down in BCCI -v- Kochi (supra), none of the provisions of the
2015 Amendment Act is applicable to pending arbitrations
Page 9 of 31
AP 189 OF 2019
REPORTABLE
but is applicable to court proceedings which is in relation to
the arbitral proceeding.
g. The counsel submitted that the 2015 Amendment Act came
into force during the pendency of the arbitration proceedings
herein which concluded upon passing of the Award dated
December 21, 2018. He submitted that in view of the law laid
down by the apex court in BCCI -v- Kochi (supra), none of the
provisions of the 2015 Amendment Act is applicable to the
pending arbitration but is applicable to those court
proceedings which are in relation to the arbitral proceeding.
h. The counsel submitted that the applicability of the 2015
Amendment Act was decided by the Supreme Court
conclusively in BCCI -v- Kochi (supra). He argued that as
such, the most important fact with regard to the applicability
of the 2015 Amendment Act is the date of invocation of
arbitration by way of Section 21 notice.
And, the counsel added, to decide upon the applicability of
judgments of Supreme Court in Voestalpine Schienen
GmbH -v- Delhi Metro Rail Corpoation Ltd. reported in
(2017) 4 SCC 665, TRF (supra), Perkins (supra), and
Bharat Broadband Network Limited -v- United Telecom
Limited reported in (2019) 5 SCC 755 in the instant case, it
is crucial to note the date of invocation of the arbitration.
Page 10 of 31
AP 189 OF 2019
REPORTABLE
Date of Section 21 Notice
Voestalpine Schienen June 14, 2016
GmbH (supra)
TRF Limited (supra) December 28, 2015
Bharat Broadband (supra) January 3, 2017
Perkins Eastman (supra) April 11, 2019
The counsel argued that from the above dates it is manifestly
clear that in all the aforesaid matters before the apex court, the
date of issuance of Section 21 notice which is reckoned as the
date of commencement of arbitral proceeding is after coming
into force the 2015 Amendment Act. As such, he added, all the
clutches of the 2015 Amendment Act regarding appointment of
an arbitrator were applicable to those cases.
i. Lastly, he submitted that the contention of the petitioner/
award debtor that the unilateral appointment of the arbitrator
was bad which can be challenged at the Section 34 stage or
that the arbitrator did not have the jurisdiction to proceed with
reference, cannot be raised and/or agitated in the facts of the
instant case. The counsel added that it is too late in the day for
Page 11 of 31
AP 189 OF 2019
REPORTABLE
the petitioner to question the independence or impartiality of
the concerned arbitrator or about his non-compliance with
disclosure requirements.
Observations & Analysis
7. I have heard the learned counsel appearing on behalf of the
respective parties and have perused the materials on record.
8. For the sake of clarity in the judgment, I have formulated the
contentions of the parties into two issues :-
1. Whether non-disclosure by the arbitrator as mandated
under Section 12(1) of the Act can be a ground for setting
aside an arbitral award?
2. Whether the provisions of 2015 Amendment Act in
relation to unilateral appointment would apply to arbitral
proceedings initiated before October 23, 2015?
Issue 1
9. It has been contended by the counsel for petitioner/ award debtor
that there was no disclosure made in writing by the arbitrator
which is contrary to the mandate under Section 12(1) of the Act.
Page 12 of 31
AP 189 OF 2019
REPORTABLE
Therefore, the arbitral award must be set aside under Section 34
on this ground.
10. In the case of Manish Anand -vs- Fiitjee Ltd. reported in 2018
SCC OnLine Del 7587, the Delhi High Court propounded that
mere non-disclosure under Section 12(1) would not render the
arbitrator ineligible. Relevant portions have been extracted below -
"10. Reading of Section 12(1) of the Act with the Sixth Schedule
would clearly demonstrate the importance of the disclosure to
be made by the proposed Arbitrator who is approached by the
parties with his possible appointment as an Arbitrator. The
disclosure is relevant and necessary as independence and
impartiality of the Arbitrator are the hallmark of any arbitration
proceedings. The amended provision is enacted to identify
'circumstances' which give rise to 'justifiable doubt' about the
independence and impartiality of the Arbitrator.
11. Having appreciated and re-emphasized the importance of the
disclosure under Section 12(1) of the Act, the question is
whether an improper disclosure, as in the present case would
render the Arbitrator so appointed ineligible or de jure
incapable of proceeding with the arbitration proceedings. The
answer to this, in my opinion, has to be in the negative. The
legislature, while emphasizing on the disclosure under Section
12(1) of the Act, has not further stated that the consequence of
such non-disclosure would be automatic termination of the
mandate of the Arbitrator so appointed. In absence of such a
legislative consequences, in my opinion, it would depend on the
facts of the given case whether the mandate of the Arbitrator
would stand terminated upon non-disclosure or giving a false
disclosure under Section 12(1) of the Act."
Emphasis Added
Page 13 of 31
AP 189 OF 2019
REPORTABLE
11. Moreover, in the unamended Section 12(1) of the Act, the challenge
on ground of the arbitrator's non-disclosure under the said section
was provided for in Sections 12, 13 and 14 of the Act subject to
restriction in Section 16(2) of the Act. This is because the arbitral
tribunal is competent to rule on aspects of its competence and
jurisdiction. The Act, being a complete code in itself, in certain
cases provides a procedure for challenge in case of derogation from
its provisions. In case of failure to challenge under Section 13, this
Court is of the view that deemed waiver under Section 4 will apply.
The relevant section is delineated below:-
"4 Waiver of right to object. --A party who knows that--
(a) any provision of this Part from which the parties may
derogate, or
(b) any requirement under the arbitration agreement,
has not been complied with and yet proceeds with the
arbitration without stating his objection to such non-
compliance without undue delay or, if a time limit is
provided for stating that objection, within that period of
time, shall be deemed to have waived his right to so
object."
12. As a result of the aforementioned provision, without challenging
the non-disclosure requirement before the arbitral tribunal first,
the petitioner cannot be allowed to take it up for the first time
under Section 34. While the fact that the arbitrator did not make a
disclosure under Section 12(1) as mandated by the Act does hold
significance, it cannot be the sole ground of setting aside the
instant arbitral award. Merely because the petitioner/ award
Page 14 of 31
AP 189 OF 2019
REPORTABLE
debtor decided to wake up from its deep slumber, and raise this
ground for the very first time in the Section 34 application, without
having taken any recourse to other remedies available in the Act, it
will in no manner render the arbitral award void and invalid. As
law serves those who stand vigilant and at the same time it cannot
serve as a tool for a party to have a second pick at the cherry.
Hence, issue no. 1 is answered in the negative.
Issue 2
13. The practice of unilateral appointments hits the crux of the
arbitration process which is that of independence and impartiality
in decision making. In TRF Limited (supra) and Perkins
Eastman (supra), the apex court held that the Courts have a duty
to uphold and safeguard the sanctity of arbitral process at every
step in the entire arbitration process. By virtue of the aforesaid
decisions, the apex court judicially expanded Schedule VII of the
Act to include persons unilaterally appointed by one of the parties.
It has now become a settled principle of law that compliance with
Section 12(5) r/w Schedule VII of the Act is sine qua non for any
arbitral reference to gain recognition and validity before the
Courts. An arbitral reference which begins with an illegal act
vitiates the entire arbitral proceedings including the award itself,
and the same cannot be validated by the Courts at any later stage.
Page 15 of 31
AP 189 OF 2019
REPORTABLE
Thus, it would be a logical inference to consider such arbitral
proceedings and the consequent arbitral award as void ab initio.
14. However, it is to be kept in mind that ineligibility which plagues
such arbitral appointments operates as a result of Section 12(5)
r/w Schedule VII of the Act which in turn emerges from the 2015
Amendment Act. Ergo, it would be appropriate on my part to
adjudicate upon the applicability of the said amendment in the
present facts in hand.
15. As mentioned above, the issue before me is to determine whether
the provisions of the 2015 Amendment Act, in relation to unilateral
appointment of arbitrators, apply retrospectively to arbitral
proceedings which were initiated before October 23, 2015,
('effective date') that is, before the 2015 Amendment Act came into
force but where the award was passed on or after the effective date
that is after the 2015 Amendment Act came into force. Therefore,
to begin, it would be apt for me to reproduce the relevant provision
of the 2015 Amendment Act :-
"26. Act not to apply to pending arbitral proceedings - 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."
16. From the bare reading of Section 26 of the 2015 Amendment Act, it
can be deduced that the said amendment will not apply to those
Page 16 of 31
AP 189 OF 2019
REPORTABLE
arbitral proceedings which have commenced, in accordance with
Section 21 of the Act, before the effective date. However, the
provision permits the parties to agree on the applicability of the
said amendment on pending arbitral proceedings. In the present
case, the arbitral proceedings commenced way back in 2012,
much prior to coming into force of the 2015 Amendment Act.
17. At this juncture, it would be prudent on my part to refer to the
judicial pronouncements on the interpretation of Section 26 of the
2015 Amendment Act. While dealing with a similar situation in the
case of Union of India -v- Parmar Construction reported in
(2019) 15 SCC 682, the apex court outlined that by virtue of
Section 26 of the 2015 Amendment Act, the 2015 Amendment Act
will only apply to those arbitral proceedings which had
commenced in accordance with Section 21 of the Act on or after
the effective date, provided that the parties have not agreed
otherwise. I have extracted the relevant paragraphs below -
"26. The conjoint reading of Section 21 read with Section 26 leaves
no manner of doubt that the provisions of the 2015 Amendment
Act shall not apply to such of the arbitral proceedings which
have commenced in terms of the provisions of Section 21 of the
principal Act unless the parties otherwise agree. The effect of
Section 21 read with Section 26 of the 2015 Amendment Act
has been examined by this Court in Aravali Power Co. (P) Ltd.
v. Era Infra Engg. Ltd. and taking note of Section 26 of the
2015 Amendment Act laid down the broad principles as under :
*
AP 189 OF 2019
REPORTABLE
27. We are also of the view that the 2015 Amendment Act which
came into force i.e. on 23-10-2015, shall not apply to the
arbitral proceedings which have commenced in accordance
with the provisions of Section 21 of the principal Act, 1996
before the coming into force of the 2015 Amendment Act, unless
the parties otherwise agree."
Emphasis Added
18. In another such instance in the case of Union of India -v-
Pradeep Vinod Construction Co. reported in (2020) 2 SCC 464,
the apex court held that for arbitral proceedings commenced
before the effective date, the provisions of the 2015 Amendment
Act will not apply. I have delineated the relevant paragraphs
below:-
"11. The respondent(s) are registered contractors with the Railways
and they are claiming certain payments on account of the work
entrusted to them. The request of the respondent(s) for
appointment of arbitrator invoking Clause 64 of the contract
was declined by the Railways stating that their claims have
been settled and the respondent(s) have issued "no claim"
certificate and executed supplementary agreement recording
"accord and satisfaction" and hence, the matter is not referable
to arbitration. Admittedly, the request for referring the dispute
was made much prior to the Amendment Act, 2015 which came
into force w.e.f. 23-10-2015. Since the request for appointment
of arbitrator was made much prior to the Amendment Act, 2015
(w.e.f. 23-10-2015), the provision of the Amendment Act, 2015
shall not apply to the arbitral proceedings in terms of Section
21 of the Act unless the parties otherwise agree. As rightly
pointed out by the learned counsel for the appellant, the
request by the respondent(s) contractors is to be examined in
AP 189 OF 2019
REPORTABLE
accordance with the principal Act, 1996 without taking resort to
the Amendment Act, 2015."
Emphasis Added
19. Expanding the view taken earlier, the Supreme Court in the case of
BCCI -v- Kochi (supra) held that while the 2015 Amendment Act
will not apply to arbitral proceedings initiated, in accordance with
Section 21 of the Act, before the effective date, it will apply to court
proceedings, which are in relation to arbitral proceedings, initiated
after the effective date irrespective of when the arbitral proceedings
were initiated. I have reproduced the relevant portions of the
judgment below for ease of reference -
"36. All the learned counsel have agreed, and this Court has found,
on a reading of Section 26, that the provision is indeed in two
parts. The first part refers to the Amendment Act not applying
to certain proceedings, whereas the second part affirmatively
applies the Amendment Act to certain proceedings. The
question is what exactly is contained in both parts. The two
parts are separated by the word "but", which also shows that
the two parts are separate and distinct. However, Shri
Viswanathan has argued that the expression "but" means only
that there is an emphatic repetition of the first part of Section
26 in the second part of the said section. For this, he relied
upon Concise Oxford Dictionary on Current English, which
states: "introducing emphatic repetition; definitely (wanted to
see nobody, but nobody)."
Quite obviously, the context of the word "but" in Section 26
cannot bear the aforesaid meaning, but serves only to separate
the two distinct parts of Section 26.
AP 189 OF 2019
REPORTABLE
37. What will be noticed, so far as the first part is concerned, which
states--
"26. Act not to apply to pending arbitral proceedings.--
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...."
is that: (1) "the arbitral proceedings" and their commencement
is mentioned in the context of Section 21 of the principal Act; (2)
the expression used is "to" and not "in relation to"; and (3)
parties may otherwise agree. So far as the second part of
Section 26 is concerned, namely, the part which reads, "... but
this Act shall apply in relation to arbitral proceedings
commenced on or after the date of commencement of this Act"
makes it clear that the expression "in relation to" is used; and
the expression "the" arbitral proceedings and "in accordance
with the provisions of Section 21 of the principal Act" is
conspicuous by its absence.
38. That the expression "the arbitral proceedings" refers to
proceedings before an Arbitral Tribunal is clear from the
heading of Chapter V of the 1996 Act, which reads as follows:
"Conduct of arbitral proceedings"
The entire chapter consists of Sections 18 to 27 dealing with
the conduct of arbitral proceedings before an Arbitral Tribunal.
What is also important to notice is that these proceedings alone
are referred to, the expression "to" as contrasted with the
expression "in relation to" making this clear. Also, the reference
to Section 21 of the 1996 Act, which appears in Chapter V, and
which speaks of the arbitral proceedings commencing on the
date on which a request for a dispute to be referred to
arbitration is received by the respondent, would also make it
clear that it is these proceedings, and no others, that form the
subject-matter of the first part of Section 26. Also, since the
conduct of arbitral proceedings is largely procedural in nature,
parties may "otherwise agree" and apply the Amendment Act
to arbitral proceedings that have commenced before the
AP 189 OF 2019
REPORTABLE
Amendment Act came into force. In stark contrast to the first
part of Section 26 is the second part, where the Amendment Act
is made applicable "in relation to" arbitral proceedings which
commenced on or after the date of commencement of the
Amendment Act. What is conspicuous by its absence in the
second part is any reference to Section 21 of the 1996 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, and it is the
commencement of these court proceedings that is referred to in
the second part of Section 26, as the words "in relation to the
arbitral proceedings" in the second part are not controlled by
the application of Section 21 of the 1996 Act.
39. Section 26, therefore, bifurcates proceedings, as has been
stated above, with a great degree of clarity, into two sets of
proceedings -- arbitral proceedings themselves, and court
proceedings in relation thereto. The reason why the first part of
Section 26 is couched in negative form is only to state that the
Amendment Act will apply even to arbitral proceedings
commenced before the amendment if parties otherwise agree. If
the first part of Section 26 were couched in positive language
(like the second part), it would have been necessary to add a
proviso stating that the Amendment Act would apply even to
arbitral proceedings commenced before the amendment if the
parties agree. In either case, the intention of the legislature
remains the same, the negative form conveying exactly what
could have been stated positively, with the necessary proviso.
Obviously, "arbitral proceedings" having been subsumed in the
first part cannot re-appear in the second part, and the
expression "in relation to arbitral proceedings" would,
therefore, apply only to court proceedings which relate to the
arbitral proceedings. The scheme of Section 26 is thus clear:
that the Amendment Act is prospective in nature, and will
apply to those arbitral proceedings that are commenced, as
understood by Section 21 of the principal Act, on or after the
Amendment Act, and to court proceedings which have
commenced on or after the Amendment Act came into force."
Emphasis Added
AP 189 OF 2019
REPORTABLE
20. Whilst all the aforesaid decisions were delivered by the apex court
considering the existence of Section 26 of the 2015 Amendment
Act, there was a legislative change in circumstances when the
Parliament enacted the 2019 Amendment Act wherein Section 26
of the 2015 Amendment Act was deleted and deemed to have been
omitted with effect from October 23, 20151 and Section 87 was
introduced and deemed to have been inserted in the Act with effect
from October 23, 2015. Section 87 of the Act reads as follows -
"87. Unless the parties otherwise agree, the amendments made to
this Act by the Arbitration and Conciliation (Amendment) Act,
2015 shall--
(a) not apply to--
(i) arbitral proceedings commenced before the
commencement of the Arbitration and Conciliation
(Amendment) Act, 2015 (23rd October, 2015);
(ii) court proceedings arising out of or in relation to such
arbitral proceedings irrespective of whether such court
proceedings are commenced prior to or after the
commencement of the Arbitration and Conciliation
(Amendment) Act, 2015;
(b) apply only to arbitral proceedings commenced on or after the
commencement of the Arbitration and Conciliation (Amendment)
Act, 2015 and to court proceedings arising out of or in relation
to such arbitral proceedings."
This was done by way of adding Section 15 in the 2019 Amendment Act.
AP 189 OF 2019
REPORTABLE
21.0Considering it against the very essence of the ratio laid down by
the apex court in BCCI -v- Kochi (supra), the constitutional gavel
in the case of Hindustan Construction (supra) struck down
deletion of Section 26 of the 2015 Amendment Act together with
the insertion of Section 87 into the Act by the 2019 Amendment
Act. In plain words, Section 26 of the 2015 Amendment Act and
the judicial interpretation thereto stood restored. The relevant
paragraphs have been extracted below:-
"59.This now sets the stage for the examination of the constitutional
validity of the introduction of Section 87 into the Arbitration Act,
1996, and deletion of Section 26 of the 2015 Amendment Act
by the 2019 Amendment Act against Articles 14, 19(1)(g), 21
and Article 300-A of the Constitution of India. The Srikrishna
Committee Report recommended the introduction of Section 87
owing to the fact that there were conflicting High Court
judgments on the reach of the 2015 Amendment Act at the time
when the Committee deliberated on this subject. This was
stated as follows in the Srikrishna Committee Report:
"However, Section 26 has remained silent on the
applicability of the 2015 Amendment Act to court
proceedings, both pending and newly initiated in case of
arbitrations commenced prior to 23-10-2015. Different
High Courts in India have taken divergent views on the
applicability of the 2015 Amendment Act to such court
proceedings. Broadly, there are three sets of views as
summarised below:
(a) The 2015 Amendment Act is not applicable to court
proceedings (fresh and pending) where the arbitral
proceedings to which they relate commenced before 23-10-
2015.
AP 189 OF 2019
REPORTABLE
(b) The first part of Section 26 is narrower than the second
and only excludes arbitral proceedings commenced prior
to 23-10-2015 from the application of the 2015
Amendment Act. The 2015 Amendment Act would,
however, apply to fresh or pending court proceedings in
relation to arbitral proceedings commenced prior to 23-10-
2015.
(c) The wording "arbitral proceedings" in Section 26 cannot
be construed to include related court proceedings.
Accordingly, the 2015 Amendment Act applied to all
arbitrations commenced on or after 23-10-2015. As far as
court proceedings are concerned, the 2015 Amendment
Act would apply to all court proceedings from 23-10-2015,
including fresh or pending court proceedings in relation to
arbitration commenced before, on or after 23-10-2015.
Thus, it is evident that there is considerable confusion
regarding the applicability of the 2015 Amendment Act to
related court proceedings in arbitration commenced before
23-10-2015. The Committee is of the view that a suitable
legislative amendment is required to address this issue.
The committee feels that permitting the 2015 Amendment
Act to apply to pending court proceedings related to
arbitrations commenced prior to 23-10-2015 would result
in uncertainty and prejudice to parties, as they may have
to be heard again. It may also not be advisable to make
the 2015 Amendment Act applicable to fresh court
proceedings in relation to such arbitrations, as it may
result in an inconsistent position. Therefore, it is felt that it
may be desirable to limit the applicability of the 2015
Amendment Act to arbitrations commenced on or after 23-
10-2015 and related court proceedings."
(emphasis supplied)
60. The Srikrishna Committee Report is dated 30-7-2017, which is
long before this Court's judgment in Kochi Cricket case [BCCI v.
Kochi Cricket (P) Ltd., (2018) 6 SCC 287 : (2018) 3 SCC (Civ)
534] . Whatever uncertainty there may have been because of
the interpretation by different High Courts has disappeared as
AP 189 OF 2019
REPORTABLE
a result of Kochi Cricket [BCCI v. Kochi Cricket (P) Ltd., (2018) 6
SCC 287 : (2018) 3 SCC (Civ) 534] judgment, the law on Section
26 of the 2015 Amendment Act being laid down with great
clarity. To thereafter delete this salutary provision and
introduce Section 87 in its place, would be wholly without
justification and contrary to the object sought to be achieved by
the 2015 Amendment Act, which was enacted pursuant to a
detailed Law Commission Report which found various
infirmities in the working of the original 1996 statute. Also, it is
not understood as to how "uncertainty and prejudice would be
caused, as they may have to be heard again", resulting in an
"inconsistent position". The amended law would be applied to
pending court proceedings, which would then have to be
disposed of in accordance therewith, resulting in the benefits of
the 2015 Amendment Act now being applied. To refer to the
Srikrishna Committee Report (without at all referring to this
Court's judgment) even after the judgment has pointed out the
pitfalls of following such provision, would render Section 87
and the deletion of Section 26 of the 2015 Amendment Act
manifestly arbitrary, having been enacted unreasonably,
without adequate determining principle, and contrary to the
public interest sought to be subserved by the Arbitration Act,
1996 and the 2015 Amendment Act. This is for the reason that
a key finding of Kochi Cricket [BCCI v. Kochi Cricket (P) Ltd.,
(2018) 6 SCC 287 : (2018) 3 SCC (Civ) 534] judgment is that the
introduction of Section 87 would result in a delay of disposal of
arbitration proceedings, and an increase in the interference of
courts in arbitration matters, which defeats the very object of
the Arbitration Act, 1996, which was strengthened by the 2015
Amendment Act.
61. Further, this Court has repeatedly held that an application
under Section 34 of the Arbitration Act, 1996 is a summary
proceeding not in the nature of a regular suit--see Canara
Nidhi Ltd. v. M. Shashikala [Canara Nidhi Ltd. v. M.
Shashikala, (2019) 9 SCC 462 : (2019) 4 SCC (Civ) 545] , SCC
para 20. As a result, a court reviewing an arbitral award under
Section 34 does not sit in appeal over the award, and if the
view taken by the arbitrator is possible, no interference is
called for--see Associated Construction v. Pawanhans
Helicopters Ltd. [Associated Construction v. Pawanhans
Helicopters Ltd., (2008) 16 SCC 128] , SCC para 17.
AP 189 OF 2019
REPORTABLE
*
63. Also, it is important to notice that the Srikrishna Committee
Report did not refer to the provisions of the Insolvency Code.
After the advent of the Insolvency Code on 1-12-2016, the
consequence of applying Section 87 is that due to the automatic
stay doctrine laid down by judgments of this Court--which
have only been reversed today by the present judgment--the
award-holder may become insolvent by defaulting on its
payment to its suppliers, when such payments would be
forthcoming from arbitral awards in cases where there is no
stay, or even in cases where conditional stays are granted.
Also, an arbitral award-holder is deprived of the fruits of its
award--which is usually obtained after several years of
litigating--as a result of the automatic stay, whereas it would
be faced with immediate payment to its operational creditors,
which payments may not be forthcoming due to monies not
being released on account of automatic stays of arbitral
awards, exposing such award-holders to the rigors of the
Insolvency Code. For all these reasons, the deletion of Section
26 of the 2015 Amendment Act, together with the insertion of
Section 87 into the Arbitration Act, 1996 by the 2019
Amendment Act, is struck down as being manifestly arbitrary
under Article 14 of the Constitution of India.
*
66. The result is that Kochi Cricket judgment will therefore continue
to apply so as to make applicable the salutary amendments
made by the 2015 Amendment Act to all court proceedings
initiated after 23-10-2015"
Emphasis Added
22. Therefore, it becomes manifestly clear that Section 26 of the 2015
Amendment Act is the position of law on this subject whereas
Section 87 in the principal Act is no longer in existence. While
interpreting a particular statutory provision, the Court has to
accord significance to every word, space, and character in that
AP 189 OF 2019
REPORTABLE
provision. Post BCCI -v- Kochi (supra) interpretation of Section 26
of the 2015 Amendment Act, it is crystal clear that the
applicability of 2015 Amendment Act is prospective in nature, and
will apply to those arbitral proceedings that have commenced, in
accordance with Section 21 of the Act, on or after the effective
date, and also to court proceedings which have commenced on or
after the effective date.
23. Reliance can also be placed upon the decision in Ratnam Sudesh
Iyer -v- Jackie Kakubhai Shroff reported in [2021] 11 S.C.R. 97
wherein after analyzing the earlier pronouncements in BCCI -v-
Kochi (supra) and Hindustan Construction (supra), the apex
court concluded that on a conjoint reading of Section 21 of the
principal Act and Section 26 of the 2015 Amendment Act makes it
apparent that unless the parties otherwise agree, provisions of
2015 Amendment Act will not apply to arbitral proceedings which
had commenced in accordance with Section 21 of the Act before
the effective date. The relevant portions from the aforesaid said
judgment have been extracted below -
"21. In BCCI v. Kochi Cricket (P) Ltd. [(2018) 6 SCC 287] a reference
was made to Section 26 of the 2015 Amendment Act which had
bifurcated proceedings into arbitral proceedings and court
proceedings. The said provision reads as under:
"26. Act not to apply to pending arbitral proceedings.--
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
AP 189 OF 2019
REPORTABLE
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."
22. It was clearly elucidated in para 39 of the judgment that the
reason behind the first part of Section 26 of the 2015
Amendment Act being couched in the negative was only to
state that the Amendment Act will apply even to arbitral
proceedings commenced before the amendment if the parties
otherwise agree. This is not so in the second part. The
judgment derived that the intention of the legislature was to
mean that the 2015 Amendment Act is prospective in nature
and will apply to those arbitral proceedings that are
commenced, as understood by Section 21 of the said Act, on or
after the 2015 Amendment Act, and to court proceedings which
had commenced on or after the 2015 Amendment Act came into
force.
23. The applicability of Section 34(2-A) was further elucidated in
Ssangyong Engg. & Construction Co. Ltd. v. NHAI [(2019) 15
SCC 131], where the SC categorically opined that Section 34 as
amended will apply only to Section 34 applications that have
been made to the Court on or after 23-10-2015, irrespective of
the fact that the arbitration proceedings may have commenced
prior to that date.
24. In the subsequent judgment of Hindustan Construction Co. Ltd.
v. Union of [(2020) 17 SCC 324] , it was observed in para 60
that the result of the BCCI judgment was that salutary
amendments made by the 2015 Amendment Act would apply
to all court proceedings initiated after 23-10-2015."
Emphasis Added
24. In the instant case, the petitioner/ award debtor has presented the
arbitral award before this Court to be sacrificed at the altar of
unilateral appointments. The judicial expansion of Section 12(5)
AP 189 OF 2019
REPORTABLE
r/w Schedule VII of the Act to make the arbitrator de jure ineligible
creates a substantive right on the parties which had not existed
when the arbitrator in the instant case was appointed by the
parties and therefore the arbitral proceedings had begun under the
unamended Act. It is a settled principle of law that a statute which
creates substantive rights and liabilities on the parties shall be
construed to be prospective in operation. Hence, on one hand, due
regard has to be accorded to the principles of impartiality and un-
biasedness which are safeguarded by insertion of Section 12(5)
r/w Schedule VII of the Act, whilst on the other hand, the Court
must ensure that substantive rights and liabilities should not be
imposed on a particular party retrospectively. Therefore, even
though 2015 Amendment Act is applicable on court proceedings in
relation to arbitral proceedings which had commenced before the
effective date, the applicability cannot be said to include the
substantive rights and liabilities emerging out of the 2015
Amendment Act. While I have no doubts in holding that the act of
unilateral appointment is outlawed as of today and cannot be
sustained at any stage whatsoever, it was not so when the
unilateral appointment was made in the instant case. This Court
finds itself in consonance with the arguments put forth by the
counsel for the award holder that there was no bar placed on
unilateral appointment of an arbitrator at the time when the
appointment was made in the instant case.
AP 189 OF 2019
REPORTABLE
25. Moving on, the perplexity which presented itself before me during
pleadings was the case of Ellora Paper Mills Ltd. -v- State of MP
reported in (2022) 3 SCC 1, which is the only such reported
instance where the Supreme Court applied principles of Section
12(5) r/w Schedule VII of the Act to a situation where Section 21
notice was issued prior to the effective date, and the arbitral
tribunal was constituted way back in the year 2001. However,
before jumping the gun and making the principle of retrospective
applicability universal, it needs to be kept in mind that the facts
therein were peculiar and an exception. The proceedings, in that
case, had not technically commenced prior to the effective date.
And therefore, to my understanding, the case of Ellora Paper
Mills (supra) is an extraordinary one and cannot be construed as
a part of the prevailing jurisprudence on the subject.
Hence, issue no. 2 is also answered in the negative.
26. In light of the aforesaid discussions, I am inclined to conclude that
the 2015 Amendment Act would not apply to the instant case
wherein not only arbitral proceedings were initiated before the
effective date in accordance with Section 21 of the Act, but the
petitioner also received the said Section 21 notice before the
effective date. Hence, the present award cannot be rendered as
invalid on the ground of unilateral appointment of the arbitrator.
Further, by way of participation in the arbitral proceedings, the
AP 189 OF 2019
REPORTABLE
petitioner waived its right to challenge the non-compliance of the
disclosure requirements by the arbitrator.
27. In view of the aforesaid findings, the present petition survives the
challenge made on grounds of unilateral appointment of the
arbitrator. The application shall be adjudicated on merits in
accordance with the law.
28. There shall be no order as to the costs.
29. The respondent is directed to file their affidavit-in-opposition within
five weeks from the date of this judgment. Reply, if any, to be filed
within three weeks thereafter. The parties are at liberty to mention
this matter in the month of June 2023 for inclusion in the list.
30. Urgent photostat-certified copy of this order, if applied for, should
be readily made available to the parties upon compliance with the
requisite formalities.
(Shekhar B. Saraf, J.)
