CIVIL APPEAL NO. 6112 OF 2021, LL 2021 SC 637
DATE OF JUDGEMENT
November 10, 2021
Justice Sanjay Kishan Kaul
Justice M.M. Sundaresh
Appellant- Ratnam Sudesh Iyer
Respondent- Jackie Kakubhai Shiroff
Section 34 of the Arbitration and Conciliation Act 1996 was amended in 2015. According to this, patent illegality cannot be used as a ground to challenge an award in international commercial arbitration matters.
Section 34, Section 2(f) (1) of Arbitration and Conciliation Act, 2015:
- The appellant and the respondent entered into a Deed of Settlement on 3.01.2011 to settle their dispute. Clause 4.1 of the deed stated that an amount of US$ 1.5 million was to be paid to the respondent. This amount was to be held by M/s. D.M. Harish & Co., in an escrow and was to be handed over to the respondent when it was confirmed that he had withdrawn his complaint.
- Clause 6 clarified that violation of the terms of deed by the respondent would result in the Deed of Settlement being terminated and the release of US$ 1.5 million held in escrow to the appellant.
- The deed also contained an arbitration clause for resolution of disputes in clause 9. After some events triggered the arbitral proceedings, the arbitrator on 10.11.2014 made the final award awarding the claim of damages to the appellant.
- The respondent filed a petition under S.34 of the Arbitration& Conciliation Act, 1996 on 24.01.2015 before the Bombay High Court. The learned single counsel set aside the award in terms of the judgement dated 20.04.2021 along with interim protection against withdrawal of the amount specified under the deed of settlement for a limited period of time.
- In the impugned judgement dated 20.04.2021, the Division Bench dismissed the respondents' appeal filed under section 37 of the Act.
Whether the 2015 amendment to section 34 will apply to the applications made before the amendment?
- The appellant argued that the Award could not be contested under Section 34 of the Act on the basis of patent illegality since Section 34 was amended in 2015, and this could no longer be used as a reason for challenging awards in international commercial arbitration disputes.
- On the issue of the nature of the award, the court said that in terms of section 2(f) of the Act, it is an “international commercial arbitration” and that the award in question would be a domestic award arising out of an international commercial agreement.
- The court said on the Arbitration and Conciliation (Amendment) Act, 2015 that by inserting Explanations to Section 34(2) of the said Act as well as by inserting Sub-Section 2A to Section 34, the scope of the interference by the court became more restrictive.
- The court noted that by the amendment, it was an aim to carve out distinction between a domestic award arising from an international commercial arbitration and a purely domestic award.
- The court noted that it is not disputed that the proceedings of Section 34 in this commenced prior to the 2015 Amendment Act. The court referred to the case of Board of Control for Cricket in India v. Kochi Cricket Pvt Ltd &Ors, wherein it was held that 2015 Amendment Act is prospective in nature and it would only apply to arbitral proceedings commenced after 2015 Amendment Act. The court also relied on the case Ssangyong Engineering and Construction Company Ltd. v. National Highways Authority of India where it was held that Section 34 as amended will only apply to Section 34 applications that came to court after or on 23.10.2015. The fact that arbitration proceedings may have commenced before that does not matter.
- The appellant relied on the clause 9 of the settlement deed which said "the Arbitration proceedings shall be governed by the Arbitration and Conciliation Act, 1996 of India or any amendment thereto"to which the court said that these observations above cannot help the appellant as there are a number of judicial pronouncements by this Court which deals with a similar issue and does not support his claim.
- The court relied on the case S.P.Singla Constructions Pvt Ltd v. State of Himachal Pradesh, in which the court found that the general terms of the contract cannot be construed as an agreement between the parties to apply the provisions of the 2015 Amendment Act, and that as a result, the 2015 Amendment Act would only apply to arbitral proceedings began or after that date.
- The court explained in this case that the Section 34 proceedings had already begun when the 2015 Amendment Act came into force. The court proceedings were already subject to the pre-2015 legal position and that a generically worded language such as Clause 9 of the Deed of Settlement cannot be deemed to constitute an agreement to change the course of law that the Section 34 procedures were subject to a conspectus of the aforementioned.
- It was also said 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."
- The court set aside the Award and affirmed that the judgement of the single judge and division bench interfered with the award.
In this case, the court made it clear that Section 34 of the Arbitration and Conciliation Act will apply on the applications made after the amendment of 2015.The court set aside the award and ruled in favour of the respondent.
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