Supreme Court clarifies applicability of 2015 Arbitration Amendment Act in appointment of arbitrator: Shree Vishnu Constructions vs. Military Engineering Service (2023)

Date of the Judgment: May 9, 2023

Citation: Civil Appeal No. 3461 of 2023 (@ SLP (C) NO. 5306 OF 2022)

Judges: M.R. Shah, J. and C.T. Ravikumar, J.

When does the amended Arbitration Act of 2015 apply to cases where arbitration was initiated before the amendments, but court proceedings for appointing an arbitrator began after? The Supreme Court of India addressed this question in a recent case, clarifying the scope and applicability of the 2015 amendments to the Arbitration and Conciliation Act, 1996. This judgment revolves around whether the amended or pre-amended law should govern the appointment of an arbitrator when the arbitration notice was issued before the 2015 amendments, but the court application for appointment was filed after.

The bench consisted of Justice M.R. Shah and Justice C.T. Ravikumar, with the majority opinion authored by Justice M.R. Shah. There were no concurring or dissenting opinions.

Case Background

M/s. Shree Vishnu Constructions (the appellant) and the Military Engineering Service (the respondents) entered into an agreement on July 22, 2010, for additions/alterations to a Senior Non-Commissioned Officers mess and repairs/renewals to floors at the Air Force Academy, Hyderabad. The appellant submitted a revised final bill on July 10, 2012. Payment for this final bill was made on April 29, 2013, and the appellant issued a “no further claim” certificate.

Despite this, the appellant sent a notice invoking the arbitration clause on December 20, 2013. Subsequently, on April 27, 2016, the appellant filed an application under Section 11(6) of the Arbitration Act, 1996, before the High Court, seeking the appointment of an arbitrator. The respondents opposed this, arguing that the full and final settlement had already been made and a “no further claim” certificate was issued, therefore, the dispute should not be referred to arbitration.

Timeline

Legal Framework

The core legal issue revolves around the interpretation and application of the Arbitration and Conciliation Act, 1996, particularly concerning the amendments introduced in 2015. The relevant sections are:

• Section 11(6A) of the Arbitration and Conciliation Act, 1996: This section, inserted by the 2015 Amendment Act, limits the court’s jurisdiction when considering an application under Section 11(6) to only examining the existence of an arbitration agreement. It states:

  “(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

• Section 21 of the Arbitration and Conciliation Act, 1996: This section defines when arbitral proceedings commence, stating:

  “21. Commencement of arbitral proceedings – Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.”

• Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015: This section addresses the applicability of the 2015 amendments, stating:

  “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.”

The interplay between these sections determines whether the pre-amendment or post-amendment law applies to the present case.

Arguments

Appellant’s Arguments:

• The primary argument of the appellant was that the 2015 Amendment Act, specifically Section 11(6A), should apply to judicial proceedings initiated after the Act came into force on October 23, 2015.
• The appellant contended that the relevant date for the applicability of Section 11(6A) is the date of commencement of judicial proceedings under Section 11, not the date of invocation of arbitration.
• The appellant relied heavily on the Supreme Court’s decision in Board of Control for Cricket in India (BCCI) Vs. Kochi Cricket Private Limited and Ors., (2018) 6 SCC 287, arguing that it established that the 2015 Amendment Act applies prospectively to court proceedings related to arbitration, regardless of when the arbitration itself commenced.
• The appellant argued that the decision in BCCI (supra) clarified that Section 26 of the Amendment Act bifurcates proceedings into arbitral proceedings and court proceedings, with the latter not being controlled by Section 21 of the principal Act.
• The appellant submitted that the decisions in Union of India Vs. Parmar Construction Company, (2019) 15 SCC 682 and Union of India Vs. Pradeep Vinod Construction Company, (2020) 2 SCC 464, which held that the relevant date is when the request for appointment of arbitrator was made, were wrongly decided as they did not consider the judgment in BCCI (supra).
• The appellant also argued that the reliance on Aravali Power Company Private Limited Vs. Era Infra Engineering Limited, (2017) 15 SCC 32 and S.P. Singla Constructions Private Limited Vs. State of Himachal Pradesh and Anr., (2019) 2 SCC 488 in Parmar Construction Company (supra) was misplaced, as those cases did not concern judicial proceedings.
• The appellant further cited Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131, which followed BCCI (supra), holding that Section 34 as amended in 2015 applies to Section 34 applications made on or after October 23, 2015.
• The appellant highlighted that the Parliament’s attempt to omit Section 26 of the Amendment Act, 2015 was struck down in Hindustan Construction Company Limited and Anr. Vs. Union of India and Ors., (2020) 17 SCC 324, thereby reinstating the law as stated in BCCI (supra).
• The appellant contended that the decision in BCCI (supra) was followed in Government of India Vs. Vedanta Limited, (2020) 10 SCC 1 and Patel Engineering Limited Vs. North Eastern Electric Power Corporation Limited, (2020) 7 SCC 167.
• The appellant argued that, as the decisions in Parmar Construction Company (supra) and Pradeep Vinod Construction Company (supra) were rendered without considering BCCI (supra), they are per incuriam.

Respondents’ Arguments:

• The respondents argued that the High Court rightly dismissed the Section 11(6) application by applying the pre-amendment Arbitration Act, 2015.
• The respondents contended that since the notice invoking arbitration was issued on December 20, 2013, before the 2015 Amendment Act, the pre-amendment Act should apply.
• The respondents argued that the decision in BCCI (supra) and subsequent decisions were with respect to proceedings under Sections 34 and 36 of the Act, 1996, and not Section 11(6).
• The respondents relied on the direct decision of the Supreme Court in Parmar Construction Company (supra), which specifically dealt with applications under Section 11(6) and held that if the notice invoking arbitration is issued before the 2015 Amendment Act, the pre-amendment Act applies.
• The respondents pointed out that the decision in Parmar Construction Company (supra) was followed by a three-judge bench in Pradeep Vinod Construction Company (supra).
• The respondents argued that the observations in BCCI (supra) regarding “court proceedings” should be understood in the context of Sections 34 and 36 and not Section 11 applications.
• The respondents submitted that Parmar Construction Company (supra) followed the judgment in S.P. Singla Constructions Private Limited (supra), which concluded that Section 11 petitions initiated before the commencement of the 2015 Amendment Act would be governed by the pre-amended legal position.
• The respondents argued that the arbitration commences upon invocation of the notice as per Section 21 of the Act, 1996, and therefore, in this case, the pre-amendment Act should apply.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. In relation to arbitration proceedings, in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015, should the old Act (pre-amendment 2015) or the new Act apply?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issue:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The court noted that in Mayawati Trading v. Pradyut Debbarman, (2019) 8 SCC 714, it was held that after insertion of section 11(6A), the court’s role is limited to examining the existence of an arbitration agreement.
• BCCI (supra)* was distinguished by the Court, stating that it was in relation to proceedings under sections 34 and 36 of the Arbitration Act, 1996, and not Section 11(6). The Court clarified that the observations in BCCI (supra) were in the context of court proceedings under Sections 34 and 36, and not to Section 11 applications.
• Parmar Construction Company (supra)* was followed by the Court as it was directly on the point of application under section 11(6) and held that the pre-amendment act will be applicable if the notice for arbitration is received prior to the Amendment Act, 2015.
• Pradeep Vinod Construction Company (supra)* was followed, which in turn followed Parmar Construction Company (supra), reinforcing the view that the unamended 1996 Act applies for appointment of arbitrator if the request to refer the dispute to arbitration was made before the 2015 amendment.
• Ssangyong Engineering and Construction Company Limited Vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131* was followed which had followed BCCI (supra), but the court clarified that the same was in relation to Section 34 applications.
• Hindustan Construction Company Limited and Anr. Vs. Union of India and Ors., (2020) 17 SCC 324* was mentioned to show that the law as stated in BCCI (supra) was reinstated.
• Government of India Vs. Vedanta Limited, (2020) 10 SCC 1* and Patel Engineering Limited Vs. North Eastern Electric Power Corporation Limited, (2020) 7 SCC 167* were mentioned as they had followed BCCI (supra), but the court clarified that the same was in relation to court proceedings arising out of arbitration proceedings.
• Aravali Power Company Private Limited Vs. Era Infra Engineering Limited, (2017) 15 SCC 32* was mentioned in context of the reliance by Parmar Construction Company (supra), to show that it had discussed the effect of Section 21 of the principal Act read with Section 26 of the Amendment Act, 2015, in the context of disqualification of arbitrator.
• S.P. Singla Constructions Private Limited Vs. State of Himachal Pradesh and Anr., (2019) 2 SCC 488* was relied upon, as it had held that the provisions of the amended 2015 Act shall not apply to arbitral proceedings commenced before the commencement of the Amendment Act.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to maintain consistency and clarity in the application of the Arbitration Act. The court emphasized the importance of adhering to the specific language of Section 26 of the Amendment Act, 2015, and Section 21 of the principal Act. It was crucial for the court to distinguish between arbitral proceedings and court proceedings, as defined in the Act. The court also aimed to ensure that the decision was in line with previous rulings, particularly in cases dealing specifically with Section 11(6) applications.

The court was also keen to ensure that the decision was in line with the legislative intent behind the 2015 Amendment Act, which was to streamline the arbitration process and reduce court interference, but not to apply the amended act retrospectively to arbitration proceedings that had already commenced. The court was also mindful of the fact that the decision in BCCI (supra) was in relation to a different section of the act and not Section 11(6) applications.

Fact:Law Ratio

Logical Reasoning

Key Takeaways

• The Supreme Court reaffirmed that the 2015 Amendment Act is prospective in nature.
• The relevant date for determining the applicability of the 2015 Amendment Act to the appointment of an arbitrator is the date of the notice invoking arbitration, as per Section 21 of the Arbitration Act, 1996.
• The court clarified that the decision in BCCI (supra) was in the context of proceedings under Sections 34 and 36 of the Act, and not Section 11(6).
• The court upheld the decisions in Parmar Construction Company (supra) and Pradeep Vinod Construction Company (supra), which specifically dealt with Section 11(6) applications.
• In cases where the notice invoking arbitration was issued prior to the 2015 Amendment Act, the pre-amendment Act will apply, even if the application for appointment of an arbitrator is made after the amendment.
• The court emphasized the importance of adhering to the specific language of Section 26 of the Amendment Act and Section 21 of the principal Act.

Directions

No specific directions were given by the Supreme Court.

Development of Law

The ratio decidendi of this case is that when a notice invoking arbitration is issued before the 2015 Amendment Act came into force, the pre-amendment act will be applicable for the appointment of the arbitrator, even if the application for appointment of arbitrator is made after the amendment. This clarifies the position of law with respect to Section 11(6) applications, distinguishing it from the position of law with respect to sections 34 and 36, which was laid down in BCCI (supra). This judgment reinforces the principle that the commencement of arbitration is linked to the date of the notice invoking arbitration, as per Section 21 of the Arbitration Act, 1996, and that the 2015 Amendment Act is prospective in nature and not retrospective.

Conclusion

The Supreme Court dismissed the appeal, holding that in cases where the notice invoking arbitration is issued prior to the 2015 Amendment Act, the pre-amendment Act will apply for the appointment of an arbitrator, even if the application for appointment is made after the amendment. The Court clarified that the decision in BCCI (supra) was in the context of proceedings under Sections 34 and 36 of the Act and not Section 11(6). The court upheld the decisions in Parmar Construction Company (supra) and Pradeep Vinod Construction Company (supra), which specifically dealt with Section 11(6) applications. This judgment provides clarity on the applicability of the 2015 Amendment Act in the context of Section 11(6) applications, emphasizing that the date of the notice invoking arbitration is the critical factor in determining the applicable law.