Bombay High Court rules A&C Amendment Act applies even if arbitration began prior to the revision

Bombay High Court rules A&C Amendment Act applies even if arbitration began prior to the revision

Holds that parties were bound by it irrespective of the cut-off date

The Bombay High Court has ruled that where an arbitration agreement between the parties provided for the application of the Arbitration & Conciliation (A&C) Act, 1996, along with any statutory modification or re-enactment to the Act, being in force then, it constitutes an agreement between the parties as contemplated under the A&C (Amendment) Act, 2015.

The court held that the parties were bound by the 2015 Amendment Act, notwithstanding the fact that the arbitral proceedings commenced prior to 23 October 2015, the cut-off date.

The bench of Justice Mangesh S Patil and Justice Abhay S Waghwase were dealing with an arbitration agreement that provided for the applicability of the 1996 A&C Act, along with any modification introduced in the Act.

It concluded that the agreement conveyed the understanding between the parties to be bound by the 2015 Amendment Act. It was not merely related to the procedural aspects of the arbitration proceedings. The court ruled that the substituted provisions of the 1996 Act, regarding the award of interest, were applicable to the arbitrable proceedings commenced in 2014, which culminated in the passing of an award in 2016.

Skoda Auto Volkswagen India (appellant), an automobile manufacturing company, appointed Commercial Auto Products (respondent) as a dealer.

After the respondent allegedly committed defaults under the dealership agreement, the appellant terminated the contract between the parties. Thereafter, the respondent invoked the arbitration clause. The arbitrator passed an award, allowing partly claim by the respondent.

The arbitrator awarded a sum in favor of the respondent along with interest. The appellant challenged the award under the A&C Act before the commercial court, which dismissed the application. Thereafter, the appellant filed an appeal before the high court.

Skoda submitted that since there was no stipulation in the contract between the parties regarding payment of interest, the provisions of the A&C Act were attracted. It said the interest awarded by the arbitrator was contrary to the statutory provisions, which provided that an arbitral award would carry interest at the rate of 2 percent higher than the current rate of interest prevalent on the date of the award. Thus, Commercial was entitled to the interest at the rate of 9 percent and not 18 percent per annum.

On the other hand, Commercial contended that the provisions were substituted by the 2015 Amendment Act, which empowered the arbitral tribunal to award interest at the rate of 18 percent per annum.

Relying on the Amendment Act, Commercial argued that the arbitral proceedings commenced in 2014 (prior to the cut-off date). So, even if the award was passed in 2016, the amended provisions were not applicable.

(The 2015 Amendment Act provided that nothing contained in the Act would apply to the arbitral proceedings started before the commencement of the Act unless the parties otherwise agreed).

Commercial argued that no such agreement was executed between the parties.

The court noted that by the Arbitration and Conciliation (Amendment) Act, 2019, the 2015 Amendment Act was retrospectively deleted with effect from 23 October 2015. However, it observed that the Supreme Court in the Hindustan Construction Company Ltd. Versus Union of India & Ors case struck down the 2019 Act. Therefore, the 2015 Act continued.

The bench ruled that the legislature provided an option to the parties to apply the provisions of the 2015 Act even to the pending arbitrations. Referring to the clause contained in the agreement, the court noted that the parties agreed that the arbitration would be in accordance with the "provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification or re-enactment there-off for the time being in force."

The judges reckoned that the word 'modification' clearly indicated an understanding between them that the provisions of the Act, as amended or modified from time to time, were to govern the arbitration proceedings that would subsequently arise.

The bench ruled that the words 'for the time being in force clearly conveyed the understanding between the parties that the application of the 1996 Act to the arbitral proceedings, had no nexus with the date of commencement of the proceedings.

Therefore, the bench held, "In view of such an interpretation, the arbitrator had no power to award interest at 18 percent per annum purportedly invoking the 1996 Act. The arbitrator has not even assigned any specific reason why he was awarding interest at that rate."

The court thus allowed the appeal in part, modifying the award, and reducing it to 9 percent per annum.