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The Remedy To Post–Arbitral Award Stay : A Paradigm Shift From Enigma To Efficacy

Arbitration in India is acknowledged as one of the most dynamic and accommodative means of alternate dispute resolution. Most of these attributes stem from the presence of internationally acknowledged manifestations of alternate dispute resolution, particularly the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration, which is the genesis of Arbitration and Conciliation Act, 1996 (“Act”). Further, even a miniscule deviation in the implementation of the Act against the legislative intent can be observed to be cured by the instrument of amendments, followed by an apt judicial scrutiny of the same. An explicit event reflecting of the same was the recent annulment of section 87 of the Act in the year 2019, which was a step forth by the Indian judiciary to level the Act at par with the international standards of arbitration, particularly with the spirit of UNCITRAL Model. This was the consequence of an expedient journey of legislature and judiciary to bring forth a remedy to the problem of automatic stay of arbitral award.
There were a series of amendments and judicial scrutiny associated with the Act, which resulted in its efficacy. According to sections 34 and 36 of the pre-amendment version of the Act, an application to set-aside an arbitral award, could be filed to give effect to an automatic stay of the award, unless that application was dismissed by the court. This provision acted at the prejudice of the award creditor, who would not be entitled to the award, unless the application to challenge the award was dismissed by the competent court.
This problem was resolved partially in the year 2015 by way of an amendment in sections 34 and 36 to that effect, and completely in the year 2018 by the judicial interpretation of the amended version of the Act. However, the legislature acted against this interpretation, and gave a prospective effect to the Act, contrary to the judicial verdict mentioning for the effect to be retrospective. This was done in the year 2019 through another amendment, by inserting section 87 in the Act. This section was therefore, struck down, as it was considered unconstitutional and ‘Manifestly Arbitrary’ by the judiciary.  The result of such efforts on the legislative and judicial fronts eventually led to the much awaited remedy to the loophole of automatic stay of arbitral award.
Legislative and Judicial Competence – The Interplay of Power Dynamics
Whenever any law is provided with a different version of itself by way of amendment, the tussle of two out of the three power centres is readily observed.  These two power centres are legislature and judiciary. Both the power centres press upon the eventuality of any law to be decided by them, leaving limited scope of intervention by the other. Similar was the case with sections 34, 36 and 87 of the Act.
It is significant to mention that as an interpretation to sections 34 and 36 of the Act, Indian judiciary had previously ruled that if an application challenging an arbitration award is filed, the award would stand stayed unless the application is dismissed. This interpretation was given way by the court in the case of  NALCO v. Pressteel & Fabrications Ltd  , which was upheld subsequently in Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd.
 To avail a cure to this problem of automatic stay to the arbitral award, the legislature brought forth an amendment to the Act in the year 2015. The explication of this amendment in relation to the mentioned sections was that an application challenging the arbitral award would not automatically result in the stay of award. The amendment necessitated for a separate application to be filed to that effect. Further, on the situation of the court finding it necessary to grant a stay, specific reasons along with a security amount was to be availed to the award creditor, so that there is no prejudice caused to the creditor. The amendment, therefore resolved the problem of automatic stay, however, only partially.
The issue of the application of this amendment in relation to the mentioned sections still remained another enigma, until the time it was resolved by the judiciary in the year 2018, in the case of Board of Control for Cricket in India v. Kochi Cricket Private Limited  where the Supreme Court held that regardless of the date of commencement of arbitral proceedings, the amended version of sections 34 and 36 would apply to all the proceedings, thereby with a retrospective effect.
However, the Parliament, in the year 2019 introduced Section 87 in the Act as a part of amendment, to nullify the effect of the judicial verdict of 2018. The Section mentioned that all the proceedings initiated prior to 23rd October, 2015 will not be benefitted by the amendment. In other words, the Parliament, through insertion of section 87, barred the retrospective application of amended versions of sections 34 and 36. This directly meant that the much awaited remedy to the problem of automatic stay of post arbitral award was futile for all the arbitral proceedings commenced before 23rd October, 2019, as per amendment. It also meant that Parliament had defied the judicial verdict of retrospective application.
The Supreme Court, in the case of Hindustan Construction Company Limited v. Union of India struck down the insertion of section 87. By declaring the section to be against the constitutional spirit and ‘Manifestly Arbitrary’, the court tacitly levelled the arbitration laws in India with the genesis of the Act, which is the UNCITRAL Model. By this massive verdict, the judiciary provided eventuality to the much awaited remedy to automatic stay of arbitral award post an application.
The Eventual Remedy
After 2019, the impediment to enforcement of arbitral award was cured. The present status is, that an application filed under sections 34 and 36 of the Act, does not automatically lead to a stay in the arbitral award, unless a separate application to that effect is filed. Further, the competent court, while deciding on the application, has to record reasons for setting aside the arbitral award, if such is the case. Further, if the court deems fit, a security amount is availed to the award creditor. The remedy has a retrospective application, which means, regardless of the date of initiation of arbitration proceedings, the remedy would be available.
Efficacy of the Remedy in Association with the UNCITRAL Model
As the Arbitration and Conciliation Act, 1996 has the UNCITRAL Model as its genesis; it becomes crucial to associate the efficacy of every core element with the UNCITRAL Model. On similar lines, the efficacy of the remedy is to be gauged with respect to the parameters set in the UNCITRAL Model.
Article 17 (E) of the UNCITRAL Model accommodates the provision of security to be availed if an interim measure is allowed by the appropriate authority. The present remedy, operating in exact consonance with the same, gives way to the provision of security to be availed if the court deems fit. Further, Article 18 of the Model mandates the parties to be treated equally. The present status in relation to sections 34 and 36 of the Act ensure that there is no prejudice caused to the party in whose favour the arbitral award is pronounced. Prior to this remedy, the award creditor was at an explicit disadvantage, because the party who was bound to pay the award could simply file an application, which resulted in automatic stay of the award, which is not the case now, thereby giving effect to the spirit of Article 18 of the UNCITRAL Model.
So far as the advantage to the award debtor is concerned Article 34 of the UNCITRAL Model provides for the application to set aside an arbitral award. This is analogous to sections 34 and 36 of the Act, which describe about application for setting aside an arbitral award and the procedure thereof. Therefore it can be safely stated that the remedy has accommodated additional efficacy in relation to the UNCITRAL Model, while keeping the originality intact.
Conclusion
The remedy to post award stay in arbitration has been aptly decided by the combined competence of legislature and judiciary. This journey, from an enigma that prevailed prior to the remedy, gave way to efficacy of the Act in relation to the UNCITRAL Model. Further, owing to its application to a large number of cases regardless of date of initiation of arbitral proceedings, the Act brought forth the perfect cure to the impediment of automatic stay of an arbitral award. The efficacy of the Act, after this remedy, therefore, has added to the number of commercial disputes resorting to arbitration, thereby materialising the intent of the Act.

ABOUT THE AUTHOR

 

Aditi Richa Tiwary is a Second Year student at Dharmashastra National Law University, Jabalpur. She has a keen interest in International Law, Constitutional Law and Law of Contracts.

 

 

 

 

 

In content Picture Credits: singhania.in

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