Arbitration In IndiaCommercial Agreements & Contracts In IndiaSection 29A – Prospective or Retrospective?

DELHI HIGH COURT

ONGC Petro Additions Limited v. Ferns Construction Co. Inc.

OMP(MISC) (COMM) 256/2019 | 21st July 2020

FACTS

Disputes arose out of the Agreement entered between ONGC Petro Additions Limited (“Petitioner”), a company incorporated in India and FERNAS India Private Ltd, the Indian subsidiary of Ferns Construction Co. Inc. (“Respondent”) who is a company incorporated under the laws of Turkey.

Thereafter, arbitration clause was invoked and Arbitral Tribunal was constituted to adjudicate the dispute.

The Petitioner, during the course of arbitration approached High Court of Delhi for extension of the time limit under Section 29A of the Arbitration and Conciliation Act, 1996 (“the Act”). The Hon’ble Single Judge ordered for extension of the time limit for Arbitral Tribunal to complete the proceeding and provide award in 18 months.

However, during the pendency of the proceedings, Section 29A of the Act was amended by the 2019 Amendment. With respect to the amendment, the Arbitral Tribunal requested parties to seek clarification from the Court regarding its order.

ISSUE BEFORE THE HIGH COURT OF DELHI

The following issue were considered by the High Court of Delhi:

Whether the amendment to Section 29A (1) of the Act as notified on August 30, 2019 is applied retrospectively?

OBSERVATION

The Court before delving into the issue, referred the view of the decision of the two Coordinate Bench of the Court in the case of Shapoorji Pallonji and Co. Pvt. Ltd. vs. Jindal India Thermal Power Limited, O.M.P. (Misc.) (Comm.) 512/2019, decided on 23 January 2020 and MBL Infrastructure Ltd. vs. Rites Ltd., O.M.P. (Misc.) (Comm.) 56/2020, decided on 10 February 2020.

In Shapoorji Pallonji case, the Court had held that the amended Section 29 A (1) of the Act is a procedural law and thus will be applicable on the pending arbitration proceedings as on the date of the amendment.

Whereas, subsequently the Court in  case of MBL Infrastructure held that the amendment does not have a retrospective effect.

The Court observed that the two decisions are variant of each other. It was noted that the Court in its later decision in MBL Infrastructure did not consider its earlier order in Shapoorji Pallonji and thus was an order in per incuriam.

Further, the Court referred to Supreme Court decision in the case of BCCI v. Kochi Cricket Pvt. Ltd., (2018) 6 SCC 287, wherein the Court interpreted Section 26 of the 2015 Amendment Act and made a distinction between arbitration proceeding and Court proceeding with respect or in relation to the arbitration proceedings. The Supreme Court in BCCI Judgment held that the amendment of 2015 shall be applicable to all the pending proceedings and Court proceedings initiated after 23^rd October 2015, regardless of the fact that such Court proceedings stem out of arbitrations initiated before 23^rd October 2015.

However, the Section 87 of the Act inserted via the amendment of 2019, was an attempt towards disregarding the BCCI Judgment and provided for prospective approach of 2015 Amendment only to the Court and arbitration proceedings commenced after 23^rd October 2015. Section 87 was however stuck in the judgment of Hindustan Construction Company Ltd. V. Union of India & Ors., AIR 2020 SC 122 and revived the applicability of Section 26 as per the judgment in the BCCI case.

CONCLUSION

The Court concluded Section 29 A shall be applied to all pending arbitration proceedings seated in India as on 30 August 2019 and commenced after 23 October 2015 for the following reasons:

1. The Court relied on the Supreme Court judgement in the BCCI case and the principle that Section 29A is a procedural law and held that any amendment to the substantive law affecting the liabilities and rights of any party must to prospective in nature and any amendment to the provisions of the statute dealing with the matter of procedure must be retrospective in nature.

2. The decision of MBL Infrastructure is per incuriam and not binding on the Court whereas the decision of Shapoorji Pallonji is the binding precedent.

The Court concluded that as the amendment is procedural in nature the same shall apply to all pending arbitrations as on the date of Amendment including the present arbitration proceedings.

AMLEGALS REMARKS

Amended Section 29A of the Act enumerates that the time limit for completion of arbitration proceedings begin from the date of completion of the pleadings for a domestic arbitration. It is indeed going to be interesting to observes as to how the interpretation of “competition of pleadings” evolves. Nonetheless, this will lead to further delay in overall adjudication and furthermore issues to be resolved.

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