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2018 DIGILAW 1021 (KER)

Vipin K. S. v. General Manager

2018-12-07

R.NARAYANA PISHARADI, V.CHITAMBARESH

body2018
JUDGMENT : R. NARAYANA PISHARADI, J. 1. The scope and ambit of the provision contained in Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter referred to as 'the Amendment Act'), Act 3 of 2016, arise for consideration in this appeal. 2. The Southern Railway (hereinafter referred to as 'the Railway') granted to the appellant (hereinafter referred to as 'the claimant'), the successful bidder, the contract of the right to make commercial publicity at Kollam, Ernakulam and Thrissur railway stations for a period of five years. Later, disputes arose between the claimant and the Railway regarding allotment of space to the claimant for display of advertisements. The claimant alleged that the Railway violated the terms and conditions of the agreements executed between them and that it led to the collapse of his business. Meanwhile, the Railway terminated the contract with the claimant. Ultimately, as per the order dated 21.07.2014 of this Court in A.R.No.28 of 2013, the dispute between the parties were referred to arbitration and Justice P.S. Gopinathan (Rtd.) was appointed as the sole arbitrator. 3. An award was passed by the arbitrator on 24.09.2016 in favour of the claimant allowing him to realise from the Railway, an amount of Rs.1,47,20,000/- with interest @ 12% per annum from 27.01.2014 till the date of the arbitration award and thereafter at 18% per annum till the date of realisation with costs of Rs.3,00,000/-. The Railway was also directed to release the bank guarantee given by the claimant within a month failing which the claimant was allowed to realise the amount of the bank guarantee from the Railway with interest @ 18% per annum. 4. Aggrieved by the award passed by the arbitrator, the Railway filed O.P.(Arb) No.16/2017 under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act'). Learned Additional District Judge found that it is a case of breach of contract by the claimant and granting compensation to him is illegal and accordingly, the application under Section 34 of the Act was allowed and the award was set aside. The claimant has now come up in appeal. 5. We have heard learned counsel for the appellant as well as the respondents. 6. Learned counsel for the appellant/claimant contended that the court can set aside an arbitral award only on the grounds mentioned under Section 34(2) of the Act. The claimant has now come up in appeal. 5. We have heard learned counsel for the appellant as well as the respondents. 6. Learned counsel for the appellant/claimant contended that the court can set aside an arbitral award only on the grounds mentioned under Section 34(2) of the Act. Learned counsel would contend that after the amendment of the Act by Act 3 of 2016, the scope of interference with an arbitral award by the court under Section 34(2)(b)(ii) of the Act is very limited. Learned counsel would further contend that the court below has set aside the arbitral award without making any finding regarding the existence of any of the grounds mentioned under Section 34(2) of the Act. 7. An arbitral award can be set aside by the court only on satisfaction by the court of any of the grounds mentioned under Clauses (a) and (b) of Section 34(2) of the Act. The Act has undergone drastic changes through the Amendment Act (Act 3 of 2016) which came into force on 23.10.2015. Prior to the amendment, there was only one explanation provided to Section 34(2)(b)(ii) of the Act. After the amendment, Section 34(2)(b)(ii) of the Act is provided with two explanations which read as follows: “Explanation 1. - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if, - (i) the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81; or (ii) it is in contravention with the fundamental policy of Indian law; or (iii) it is in conflict with the most basic notions of morality or justice. Explanation 2.-For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.” Significantly, Explanation 2 mentioned above states that a review on the merits of the dispute shall not be made by the court to decide whether there is any contravention with the fundamental policy of Indian law in passing the award. 8. 8. Answer to the question, whether an application filed under Section 34(1) of the Act, after amendment of the Act, shall be considered by the court in the light of the amended provisions or not, would depend upon the interpretation of the provision contained in Section 26 of the Amendment Act which reads as follows: “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.” 9. Section 26 of the Amendment Act has got two limbs. The first limb refers to the Amendment Act not applying to certain proceedings. The second limb deals with application of the Amendment Act in relation to certain proceedings. In Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd : AIR 2018 SC 1549 , the Hon'ble Supreme Court has noticed the distinction between the two limbs of Section 26 of the Amendment Act. The Apex Court has held that in stark contrast to the first part of Section 26 is the second part, where the Amendment Act is made applicable "in relation to" arbitral proceedings which commenced on or after the date of commencement of the Amendment Act. Whereas the first part refers only to arbitral proceedings before an arbitral tribunal, the second part refers to court proceedings "in relation to" arbitral proceedings, and it is the commencement of these court proceedings that is referred to in the second part of Section 26. Therefore, Section 26 of the Amendment Act bifurcates proceedings, with a great degree of clarity, into two sets of proceedings - arbitral proceedings themselves, and court proceedings in relation thereto. Obviously, "arbitral proceedings" having been subsumed in the first part cannot re-appear in the second part, and the expression "in relation to arbitral proceedings" would, therefore, apply only to court proceedings which relate to the arbitral proceedings. Obviously, "arbitral proceedings" having been subsumed in the first part cannot re-appear in the second part, and the expression "in relation to arbitral proceedings" would, therefore, apply only to court proceedings which relate to the arbitral proceedings. The Apex Court has held that the scheme of Section 26 of the Amendment Act is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force. 10. The dictum laid down in Board of Cricket Control of India (supra) would mean that an application filed under Section 34(1) of the Act on or after the date of commencement of the Amendment Act, that is, 23.10.2015, shall be governed by the provisions of the amended Act. The court has to dispose of such application in accordance with the provisions of the Act as amended by Act 3 of 2016. 11. In the instant case, the application under Section 34(1) of the Act was filed by the Railway on 12.01.2017. Therefore, it was incumbent upon the court below to dispose of the aforesaid application in the light of the provisions contained in Section 34(2) of the Act, as amended by Act 3 of 2016. The Railway had taken a specific plea in the court below that the arbitral award is against the public policy of India. Explanation 1 to Section 34(2)(b)(ii) of the Act clarifies when an award would be in conflict with the public policy of India. But, the court below has not considered the aforesaid plea made by the Railway on the basis of that provision. The court below has merely made reference to the judgments of this Court in the previous litigations between the parties and found that it was the claimant who committed breach of contract and that the arbitral award is not sustainable in law. The court below has not specified in the impugned order on which ground mentioned under Section 34(2) of the Act the award is being set aside by it. 12. The scope of consideration of an application under Section 34(1) of the Act now vastly differs particularly in view of the introduction of Explanation 2 to Section 34(2)(b) of the Act. The court below has not specified in the impugned order on which ground mentioned under Section 34(2) of the Act the award is being set aside by it. 12. The scope of consideration of an application under Section 34(1) of the Act now vastly differs particularly in view of the introduction of Explanation 2 to Section 34(2)(b) of the Act. The expression, ''the arbitral award is in conflict with the public policy of India'', occurring in Section 34(2)(b)(ii) of the Act, as a ground available to set aside an arbitral award, was being widely construed earlier (See ONGC Ltd. v. Saw Pipes Ltd : AIR 2003 SC 2629 ). The power of the court to set aside an arbtral award, on the ground that it is in conflict with the public policy of India, is now circumscribed by the introduction of Explanation 2 to Section 34(2)(b)(ii) of the Act. Explanation 2 makes it clear that the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute. The scope of challenge to an arbitral award has been whittled down considerably, now after the amendment of the Act. 13. The court below has not considered the application under Section 34(1) of the Act in the light of the amended provisions of the Act. The impugned order does not disclose the specific ground under Section 34(2) of the Act on which the award is set aside by the court. In such circumstances, we find it proper to remand the case for fresh consideration by the court below. 14. There is a plea raised by the claimant that the application filed by the Railway under Section 34(1) of the Act was not maintainable for the reason that the Railway had not complied with the provision contained in Section 34(5) of the Act. As per Section 34(5) of the Act, an application under Section 34 shall be filed by a party only after issuing a prior notice to the other party and such application shall be accompanied by an affidavit by the applicant endorsing compliance with the said requirement. Admittedly, the Railway had not complied with the aforesaid requirement under Section 34(5) of the Act before filing the application under Section 34(1) of the Act. Admittedly, the Railway had not complied with the aforesaid requirement under Section 34(5) of the Act before filing the application under Section 34(1) of the Act. However, noncompliance with the provisions contained in Section 34(5) of the Act will not affect the maintainability of the application filed under Section 34(1) of the Act. In State of Bihar v. Bihar Rajya Bhumi Vikas Bank Samiti : AIR 2018 SC 3862 , the Apex Court has held that the provision contained in Section 34(5) of the Act is not mandatory but it is only directory and that an application filed under Section 34(1) of the Act cannot be dismissed for noncompliance with the provisions contained in Section 34(5) of the Act. Therefore, the fact that the Railway had not complied with the provisions contained in Section 34(5) of the Act will not affect the maintainability of the application filed by it under Section 34(1) of the Act. Consequently, we allow the appeal and set aside the impugned order passed by the court below. The case O.P.(Arb) 16 of 2017 is remanded to the court below for fresh consideration. The parties shall appear before that court on 03.01.2019. The court below shall dispose of the case within a period of three months from the aforesaid date. No costs in the appeal.