Recently, the Supreme Court in a bench comprising Hon’ble Mr. Justice M.R. Shah and Hon’ble Mr. Justice C.T. Ravikumar upheld the judgment of the Telangana High Court stating that in situations where the notice seeking arbitration was served prior to the promulgation of the Amendment Act, 2015, and the plea for the appointment of an arbitrator was filed after it had come into effect, the legal system prevailing before the amendment shall be in force. Hence, the Arbitration & Conciliation Act, 1996 shall govern the matter.
Brief Facts of the Case:
The appellant filed a Civil Appeal before the Supreme Court challenging the impugned judgment and order passed by the Hyderabad High Court. The High Court had dismissed the appellant’s application filed under Section 11 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the “Act, 1996”) and refused to appoint an arbitrator. This was because the appellant had previously accepted the amount as per the final bill in full and final settlement, without raising any dispute, and had also signed and issued a “no further claim certificate”.
Brief Background of the Case:
The Appellant and Respondents had entered into an agreement in July 2010 for alterations to Senior Non-Commissioned Officers’ mess and repairs/renewals to floors in the tech area at Air Force Academy, Hyderabad. The appellant raised a revised final bill for the said work in July 2012, and payment was made in April 2013. The appellant issued a “no further claim” certificate.
Procedural History:
The appellant sent a notice in December 2013 invoking the arbitration clause. An application under Section 11(6) of the Act, 1996 was filed before the High Court in April 2016, requesting the appointment of an arbitrator. The respondents opposed the application, stating that the “accord and satisfaction” had been reached as the entire amount due and payable under the final bill was paid, and the “no further claim” certificate was issued.
The appellant argued that the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as “Amendment Act, 2015”), which inserted Section 11(6A), would limit the Court’s jurisdiction to determine only the existence of an arbitration agreement and not further inquiries. The issue of “accord and satisfaction” should be left to the arbitral tribunal. The respondents contended that the Amendment Act, 2015, would not be applicable if arbitration proceedings under Section 21 of the Arbitration Act had begun before the Amendment Act, 2015.
The High Court dismissed the arbitration petition and refused to appoint the arbitrator/arbitral tribunal, citing the pre-Amendment Act, 2015, as applicable. It held that there was a full and final settlement of payment as per the final bill in April 2013, and the appellant’s application was filed after a delay of three years.
Contentions of the Appellant:
The Appellant argued that the issue had already been settled in the Board of Control for Cricket in India v Kochi Cricket Private Limited and Ors. [(2018) 6 SCC 287]. They contended that the Amendment Act, 2015 would apply prospectively, as held in the BCCI judgement, even if the arbitration proceedings were initiated before the Amendment Act came into force. The Appellant submitted that the first part of Section 26 of the Amendment Act, 2015, only applied to arbitral proceedings before an Arbitral Tribunal, while the second part applied to judicial proceedings in relation to arbitral proceedings. The Appellant further argued that the Amendment Act, 2015 would apply to Court proceedings related to arbitral proceedings commenced on or after the date of the commencement of the Amendment Act, 2015.
The Appellant also contended that the decision in BCCI (supra) was binding on the coordinate bench, which rendered the decision in Union of India v Parmar Construction Company [(2019) 15 SCC 682]. They submitted that the decision in Parmar Construction Company’s case (supra) could be considered per incuriam and/or sub silentio.
Contentions of the Respondents:
The respondents argued that the High Court rightly rejected the Section 11(6) application, stating that the pre-amendment Arbitration Act, 2015, should apply. This is because the notice to initiate arbitration proceedings was issued on 20 December 2013, before the Amendment Act 2015 was introduced. The application was filed after the Amendment Act came into force. Therefore, according to Section 26 of the Amendment Act, since the notice to invoke arbitration was issued before the Amendment Act, the pre-Amendment Act, 2015 should be applicable, not the Amendment Act, 2019.
The respondents argued that the decision in BCCI (supra) only pertains to Sections 34 and 36 proceedings, which are treated as Court proceedings, and that the Court has bifurcated Section 26 into two parts. This means that for judicial proceedings under Sections 34 and 36, the Amendment Act, 2015 should apply. However, in Parmar Construction Company (supra), which dealt with the application under Section 11(6) of the Act, the Court held that the pre-Amendment Act, 2015 should apply when the notice invoking arbitration was issued before the Amendment Act, 2019 as was the case here. This decision was subsequently followed in the case of Union of India v Pradeep Vinod Construction Company, [(2020) 2 SCC 464].
The respondents further contended that the BCCI case (supra) could not be used to argue that Section 26 of the Amendment Act, 2015 should apply to Section 11 applications, as the Court was interpreting the Act with regards to Section 36, which the Amendment Act, 2019 had amended and its applicability to Sections 34 and 36 proceedings that were initiated before its commencement.
Therefore, any observation in the BCCI case (supra) must be understood in context and cannot be said to have laid down the law regarding the applicability of the Amendment Act, 2015 to Section 11 applications.
Observations of the Court:
The Supreme Court held that specific issues related to arbitration must be addressed by referring to relevant Sections of the Amendment Act, 2015, including Sections 11(6A), 21, and 26. Section 11(6A) restricted the Court’s power only to examine the existence of an arbitration agreement when deciding an application under Section 11(6) of the Act. Section 26 stated that the Amendment Act would not apply to arbitration proceedings initiated under the provisions of Section 21 of the Act, 1996 before the commencement of the Amendment Act, 2015 unless agreed upon by the parties.
The Court observed that the Amendment Act, 2015 would apply to arbitral proceedings before an Arbitral Tribunal, and the expression “the arbitral proceedings” in Section 26 referred to it. However, the expression “the arbitral proceedings” “in accordance with the provisions of Section 21 of the principal Act” was absent.
The Court held that the Amendment Act, 2015 would not apply to arbitration proceedings that began in accordance with Section 21 of the Act, 1996 Act before the commencement of the Amendment Act, 2015 unless the parties agreed otherwise. As the appellants received the request for arbitration before the Amendment Act, 2015 came into effect, the application for the appointment of an arbitrator was not legally affected by the Amendment Act, 2015. The respondent’s applications should be examined in accordance with the 1996 Act, without resorting to the Amendment Act, 2015.
The Court found that since the notice invoking arbitration was issued prior to the Amendment Act, 2015, and the application under Section 11(6) of the Act, 1996 was filed after the amendment came into force, the law prevailing prior to the Amendment Act, 2015 would apply. Therefore, the case was examined according to the 1996 Act, without resorting to the Amendment Act, 2015.
The decision of the Court:
Therefore, the Supreme Court upheld the impugned order and judgment of the High Court to dismiss the application under Section 11(6) of the Act, 1996. The Court noted that in cases where the notice invoking arbitration was issued before the Amendment Act, 2015, and the application for appointment of an arbitrator was filed after the Amendment Act, 2015 came into force, the pre-amendment law would apply. The appeal was therefore dismissed.
Case Title: M/s. Shree Vishnu Constructions v The Engineer in Chief Military Engineering Service & Ors.
Case No.: Civil Appeal No. 3461 of 2023
Citation: 2023 Latest Caselaw 455 SC
Coram: Hon’ble Mr. Justice M.R Shah and Hon’ble Mr. Justice C.T Ravikumar
Advocates for Petitioner: Mr. K. Parameshwar, AOR, Ms. Arti Gupta, Adv. and Ms. Kanti, Adv.
Advocates for Respondent: Mr. Padmesh Mishra, Adv., Mr. Anukalp Jain, Adv., Mr. Yuvraj Sharma, Adv., Mr. Akshay Nain, Adv., Mr. Arvind Kumar Sharma, AOR, Ms. Megha Karnwal, AOR and Mr. Gopal Jha, AOR
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