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

Introduction

Date of the Judgment: May 9, 2023

Citation: 2023 INSC 508

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

When does an amended law apply to ongoing disputes? This question often arises when laws are updated, particularly in arbitration. The Supreme Court of India recently addressed this issue, specifically regarding the applicability of the 2015 amendments to the Arbitration and Conciliation Act, 1996. The core issue was whether the amended law applies to court proceedings initiated after the amendment, even if the arbitration notice was sent before the amendment came into effect.

The Supreme Court, in this case, clarified the interplay between the date of the arbitration notice and the date of court proceedings, and whether the amended provisions of the Arbitration and Conciliation Act, 1996, particularly Section 11(6A), apply to court applications filed after the 2015 amendment, even if the arbitration notice was issued before the amendment. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice C.T. Ravikumar.

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 construction work at the Air Force Academy, Hyderabad. The appellant submitted a revised final bill on July 10, 2012. Payment for this bill was made on April 29, 2013, and the appellant issued a “no further claim” certificate.

On December 20, 2013, the appellant invoked the arbitration clause, and on April 27, 2016, 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 payment had been settled in full and the appellant had issued a no-further-claim certificate, thus barring any further dispute.

The appellant contended that the 2015 Amendment Act, specifically Section 11(6A), applied, limiting the court’s jurisdiction to only examining the existence of an arbitration agreement. The respondents argued that the 2015 Amendment Act did not apply because the arbitration proceedings had commenced before the amendment, as per Section 21 of the Arbitration Act.

Timeline

Course of Proceedings

The High Court dismissed the appellant’s application, holding that the 2015 Amendment Act did not apply. The High Court reasoned that the arbitration proceedings had commenced before the amendment, and the appellant had accepted the payment as a full and final settlement and issued a “no further claim” certificate. The High Court also noted that the application under Section 11(6) was filed approximately three years after the final settlement. Aggrieved by this decision, the appellant appealed to the Supreme Court.

Legal Framework

The core of this case revolves around the interpretation of the Arbitration and Conciliation Act, 1996, and its 2015 amendment. The relevant sections are:

• Section 11(6A) of the Arbitration and Conciliation Act, 1996 (as amended in 2015): This section limits the court’s jurisdiction in applications under Section 11(6) to examining only 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 arbitration proceedings commence. It states:
  “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 deals with the applicability of the amended act to pending arbitral proceedings. It 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 but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”

These provisions determine whether the amended or unamended law applies to the case, based on when the arbitration was initiated and when the court application was filed.

Arguments

Appellant’s Arguments:

• The primary argument of the appellant was that the 2015 Amendment Act, specifically Section 11(6A), should apply to the judicial proceedings initiated after the amendment came into force on October 23, 2015. The appellant argued 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, which held that the 2015 Amendment Act applies prospectively. The appellant contended that the BCCI case clarified that Section 26 of the Amendment Act distinguishes between arbitral proceedings and court proceedings, with the amended law applying to court proceedings initiated after the amendment.

• The appellant argued that the High Court erred by considering the issue of “accord and satisfaction,” which, under Section 11(6A), should be left to the arbitrator. The appellant also contended that the judgments 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 arbitration was made, were rendered without considering the BCCI judgment and are therefore per incuriam.

• The appellant further 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 the Parmar Construction case was misplaced because those cases dealt with the qualification of arbitrators, not judicial proceedings under Section 11.

• The appellant cited Ssangyong Engineering and Construction Company Limited vs. National Highways Authority of India (NHAI), (2019) 15 SCC 131, which followed the BCCI ruling, stating that Section 34, as amended in 2015, applies only to applications made to the court after October 23, 2015, regardless of when arbitration commenced. The appellant argued that the same principle should apply to Section 11 applications.

• The appellant also pointed out that although Section 26 of the Amendment Act, 2015 was omitted by the 2019 Amendment Act, the Supreme Court in Hindustan Construction Company Limited and Anr. vs. Union of India and Ors., (2020) 17 SCC 324, declared the omission unconstitutional, thereby reinstating the law as stated in the BCCI judgment.

Respondent’s Arguments:

• The respondents argued that the High Court correctly applied the pre-amendment Arbitration Act, 1996, because the notice invoking arbitration was issued on December 20, 2013, before the 2015 Amendment Act came into force. They contended that the arbitration proceedings commenced on that date, making the pre-amendment law applicable.

• The respondents distinguished the BCCI case, stating that it dealt with proceedings under Sections 34 and 36 of the Act, 1996, not Section 11. They argued that the BCCI judgment’s interpretation of Section 26 applied only to court proceedings under Sections 34 and 36.

• The respondents relied on the Supreme Court’s decisions in Parmar Construction Company and Pradeep Vinod Construction Company, which specifically dealt with Section 11(6) applications. They argued that these cases held that the pre-amendment law applies if the arbitration notice was issued before the 2015 Amendment Act.

• The respondents argued that the phrase “court proceedings in relation thereto” in Section 26 of the Amendment Act, 2015, should not include applications under Section 11. They contended that the observation in BCCI was specific to Section 36 and should not be extended to Section 11 applications.

• The respondents referred to S.P. Singla Constructions Private Limited, which concluded that Section 11 petitions related to proceedings initiated before the 2015 Amendment Act are governed by the pre-amended law. They argued that this case followed the observations in BCCI.

• The respondents contended that arbitration commences upon invocation of the notice as per Section 21 of the Act, 1996. Therefore, if the notice was issued before the 2015 Amendment Act, the pre-amended law should apply.

Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. In relation to arbitration proceedings, 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 issues

Authorities

The Supreme Court considered the following cases and legal provisions:

Judgment

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

How each authority was viewed by the Court?

• The Supreme Court distinguished BCCI vs. Kochi Cricket (P) Ltd. [ (2018) 6 SCC 287 ]*, stating that it pertained to Sections 34 and 36, not Section 11.
• The Supreme Court relied on Parmar Construction Company [(2019) 15 SCC 682]* and Pradeep Vinod Construction Company [(2020) 2 SCC 464]*, which directly dealt with Section 11(6) applications, holding that the pre-amendment law applies if the arbitration notice was issued before the 2015 Amendment Act.
• The Supreme Court noted that Aravali Power Company Private Limited [(2017) 15 SCC 32]* and S.P. Singla Constructions Private Limited [(2019) 2 SCC 488]* were relied upon in Parmar Construction, but did not concern judicial proceedings under Section 11.
• The Supreme Court acknowledged that Ssangyong Engineering and Construction Company Limited [(2019) 15 SCC 131]* followed the BCCI ruling on Section 34 applications, but distinguished it, noting that the current case involves Section 11.
• The Supreme Court noted that Hindustan Construction Company Limited and Anr. [(2020) 17 SCC 324]* declared the omission of Section 26 unconstitutional, but it did not alter the application of the law to Section 11 applications.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Section 21 and Section 26 of the Arbitration and Conciliation Act. The Court emphasized that the arbitration proceedings commence when the notice invoking arbitration is received by the respondent, as per Section 21. Therefore, if the notice was issued before the 2015 Amendment Act, the pre-amended law applies, regardless of when the court application was filed. The Court distinguished the BCCI case, which dealt with Sections 34 and 36, from cases involving Section 11 applications.

Logical Reasoning:

The Court reasoned that the 2015 Amendment Act is prospective, and Section 26 of the Amendment Act clearly states that it applies to arbitral proceedings commenced on or after the date of commencement of the Act. The Court held that the date of the arbitration notice is the date of commencement of the arbitration proceedings, as per Section 21 of the principal Act. Therefore, the Court concluded that the High Court was correct in applying the pre-amendment law and considering the issue of “accord and satisfaction.”

The Court rejected the appellant’s argument that the decisions in Parmar Construction and Pradeep Vinod Construction were per incuriam. The Court clarified that the BCCI case was in the context of Sections 34 and 36, whereas the Parmar and Pradeep Vinod cases specifically dealt with Section 11 applications. The Court also emphasized that the decisions in Parmar Construction and Pradeep Vinod Construction were directly on the point, namely, the application under Section 11(6) of the Act.

The Court quoted the following from the judgment:

• “Therefore, any observations made by this Court in paragraphs 37 to 39 in the case of BCCI (supra) shall be understood and construed with respect to court proceedings which have commenced on or after the Amendment Act coming into force, namely, the proceedings under sections 34 & 36.”
• “As observed hereinabove, in the case of Parmar Constructions Company (supra) which is directly on the point, it is specifically observed and held that the 2015 Amendment Act, which came into force w.e.f. 23.10.2015 shall not apply to the arbitral proceedings which are commenced in accordance with the provisions of section 21 of the principal Act, 1996 before the coming into force the 2015 Amendment Act, unless parties otherwise agree (para 27).”
• “We are in complete agreement with the view taken by the High Court. It is observed and held that in a case where the notice invoking arbitration is issued prior to the Amendment Act, 2015 and the application under Section 11 for appointment of an arbitrator is made post Amendment Act, 2015, the provisions of pre-Amendment Act, 2015 shall be applicable and not the Amendment Act, 2015.”

The Court held that the High Court was correct in applying the pre-amendment law and considering the issue of “accord and satisfaction.”

Key Takeaways

• The 2015 Amendment Act to the Arbitration and Conciliation Act, 1996, does not apply to Section 11 applications if the arbitration notice was issued before the amendment came into force, even if the court application was filed after the amendment.

• The date of the arbitration notice, as per Section 21 of the Arbitration Act, is crucial for determining the applicability of the 2015 Amendment Act.

• The Supreme Court’s decision in BCCI vs. Kochi Cricket is limited to court proceedings under Sections 34 and 36, not Section 11.

• The pre-amendment Arbitration Act, 1996, allows the court to consider issues such as “accord and satisfaction” in Section 11 applications.

• The decisions in Parmar Construction Company and Pradeep Vinod Construction Company are binding precedents for Section 11 applications.

Directions

The Supreme Court did not give any specific directions in this case, other than dismissing the appeal.

Development of Law

The ratio decidendi of this case is that for Section 11 applications, the relevant date for determining the applicability of the 2015 Amendment Act is the date of the arbitration notice, not the date of the court application. This clarifies the position of law regarding the applicability of the 2015 Amendment Act to Section 11 applications. This judgment reaffirms the principle that the 2015 Amendment Act is prospective in nature, and it does not apply to arbitration proceedings that commenced before the amendment, including related court proceedings under Section 11.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision that the pre-amendment Arbitration Act, 1996, applies to the case. The Court clarified that the 2015 Amendment Act does not apply to Section 11 applications if the arbitration notice was issued before the amendment came into force. This judgment provides clarity on the applicability of the 2015 amendments, specifically in the context of Section 11 applications, and reaffirms the importance of the date of the arbitration notice in determining which law applies.