Dr. K.S.Subhash and Others v. K.S.Sanjeev and Others (OP(C) Nos.2398 of 2016 & 2400 of 2016)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: OP(C).No. 2398 of 2016 AGAINST ORDER DATED 30.08.2016 IN IA NO.332/2016 IN OP(ARBITRATION) NO.4/2016 OF PRINCIPAL DISTRICT COURT, ALAPPUZHA ## PETITIONERS 1 DR. K.S.SUBHASH, AGED 58, S/O.LATE C.V.SUSEELAN, KONCHERRY HOUSE, (NOW RESIDING AT SREE VALSAM), MAYITHARA P.O., CHERTHALA, MANAGING PARTNER OF PARTNERSHIP FIRM, M/S.KONCHERRY COIR FACTORIES, MAYITHARA P.O., CHERTHALA, ALAPPUZHA. 2 IMPERIAL COIR YARN TRADING COMPANY MAYITHARA P.O., CHERTHALA, REPRESENTED BY ITS MANAGING PARTNER DR.K.S.SUBHASH. 3 KONCHERRY INTERNATIONAL MAYITHARA P.O., CHERTHALA, REPRESENTED BY ITS MANAGING PARTNER DR.K.S.SUBHASH. BY ADVS.SRI.K.C.ELDHO SRI.JIJO THOMAS SRI.MALLENATHAN.M. SRI.ANEESH JAMES SRI.KANDAMPULLY VIKRAM SMT.KRISHNA SANTHOSH ## RESPONDENTS 1. K.S.SANJEEV, AGED 52 YEARS, S/O.LATE C.V.SUSEELAN, RESIDING AT KONCHERRY HOUSE, MAYITHARA P.O., CHERTHALA-680324. 2. K.S.SHIBU, AGED 48 YEARS, S/O.C.V.SUSEELAN, RESIDING AT KONCHERRY HOUSE, MAYITHARA P.O., CHERTHALA-680324, PARTNER OF PARTNERSHIP FIRM, M/S.KONCHERRY COIR FACTORIES, MAYITHARA P.O., CHERTHALA. 3. K.S.SUSHAMA DEVI, AGED 56 YEARS, D/O.LATE C.V.SUSEELAN, RESIDING AT MULAMOOTTIL HOUSE, CHARAAMANGALAM, KANJIKUZHI,CHERTHALA, MAYITHARA P.O., CHERTHALA PARTNER OF PARTNERSHIP FIRM, M/S.KONCHERRY COIR FACTORIES, MAYITHARA P.O., CHERTHALA-680324. 4. K.S.SHEELA, AGED 53 YEARS, D/O.LATE C.V.SUSEELAN, RESIDING AT CHARANGATTU BUNGALOW, CHERTHALA, PARTNER OF PARTNERSHIP FIRM, M/S.KONCHERRY COIR FACTORIES, MAYITHARA P.O., CHERTHALA, ALAPPUZHA-680324. 5. K.S.SHYLA PRADEEP, AGED 42 YEARS, - D/O.LATE C.V.SUSEELAN, RESIDING AT PONATH HOUSE, ARTHINKAL P.O., CHERTHALA-680324. OP(C).No. 2398 of 2016 2 6. K.S.SHYNI SABU, AGED 38 YEARS, D/O.LATE C.V.SUSEELAN, RESIDING AT SOULEKHA, T.C.NO.13/1519, BERMA ROAD, KUMARAPURAM, THIRUVANANTHAPURAM-695026. BY ADV. SRI.G.SREEKUMAR (CHELUR) THIS OP (CIVIL) HAVING BEEN FINALLY HEARD ON 06.06.2018 ALONG WITH O.P.(C) NO.2400 OF 2016, THE COURT ON 19-06-2018 DELIVERED THE FOLLOWING: OP(C).No. 2398 of 2016 (O) ## PETITIONER(S)' EXHIBITS - EXT.P1. A TRUE COPY OF THE ARBITRATION AND CONCILIATION (AMENDMENT ACT) 2015. - EXT.P2. A TRUE COPY OF OP (ARB) NO.128/2015 FILED BY THE RESPONDENT HEREIN BEFORE THE DISTRICT COURT, ALAPUZHA. EXT.P3. A TRUE COPY OF THE IA NO.2/2016 FILED IN THE DISTRICT COURT, ALAPUZHA. EXT.P4. A TRUE COPY OF THE OP (ARBITRATION) NO.4/2016 ON THE FILE OF THE DISTRICT COURT, ALAPUZHA. EXT.P5. A TRUE COPY OF THE IA NO.332/2016 OP (ARBITRATION) NO.4/2016 ON THE FILE OF THE DISTRICT COURT, ALAPUZHA. EXT.P6. A TRUE COPY OF THE ORDER DATED 30/8/2016 IA NO.332/2016 OP (ARBITRATION) NO.4/2016 ON THE FILE OF THE DISTRICT COURT, ALAPUZHA. RESPONDENTS' EXHIBITS: NIL //TRUE COPY// ## **A.HARIPRASAD, J.** **-------------------------------------O.P.(C) Nos.2398 & 2400 of 2016 -------------------------------------Dated this the 19[th] day of June, 2018** ## **COMMON JUDGMENT** Identical orders passed by the District Judge, Alappuzha on interlocutory applications filed in two original petitions under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter mentioned as “the Act”) are under challenge in these original petitions. Those interlocutory applications were filed by the petitioners herein, who are the respondents in the original petitions under Section 34 of the Act, seeking an adjudication on their maintainability. Learned District Judge, in both these matters, found that the petitions under Section 34 of the Act are maintainable in the presented form. The applications filed by the petitioners were hence dismissed. Feeling aggrieved, they have come up before this Court. 2. As the facts and legal questions are identical in both these matters, they are heard together and disposed of by this common judgment. 3. Heard the learned counsel for the petitioners and the contesting respondents. 4. It is a common knowledge that the Act underwent drastic O.P.(C) Nos.2398 & 2400 of 2016 2 amendments through the Arbitration and Conciliation (Amendment) Act, 2015 (hereinafter mentioned as “the Amendment Act”). Section 34 of the parent Act was amended by the aforementioned Amendment Act. Two Explanations have been added to Section 34(2) of the Act. The expression “public policy of India” occurring in Section 34(2)(b)(ii) of the Act has been explained by adding Explanation 1. By adding Explanation 2, it has been clarified that whether there is a contravention with the fundamental policy of Indian law, an expression occurring in Explanation 2, shall not entail in a review on merits of the dispute. 5. Newly added Sub-section (2A) may not be relevant for our purpose as it relates to international commercial arbitrations. 6. The moot point is regarding interpretation of Section 26 of the Amendment Act. It reads as follows: _“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.”_ 7. Before dwelling on Section 26 of the Amendment Act, it will be apposite to consider Section 21 of the Act which deals with O.P.(C) Nos.2398 & 2400 of 2016 3 commencement of the arbitration proceedings. The Section says that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. An arbitration proceedings commenced in accordance with Section 21 of the Act comes to an end as provided in Section 32 of the Act. It says that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral Tribunal under Sub-section (2) thereof. It is also to be noted that none of the conditions in Sub-section (2) to Section 32 of the Act does exist in this case. 8. On a reading of Section 26 of the Amendment Act, it will be clear from the first limb that the provisions in the Act, as amended by the Amendment Act, will not apply to arbitral proceedings commenced, in accordance with the provisions of Section 21 of the Act, before the commencement of the Amendment Act. A rider is provided that the parties can otherwise agree to be governed by the amended Act. If the parties do not agree to go under the amended Act, the unamended Act will govern the field. 9. Latter part of the Section shows that the amended Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the Amendment Act. Both sides have advanced O.P.(C) Nos.2398 & 2400 of 2016 4 arguments in relation to the possible interpretations to Section 26 of the Amendment Act. Before dealing with the legal issues, certain facts are to be noticed. Section 34 of the Act in its amended form came into effect on 23.10.2015. The awards in these cases were passed on 10.11.2015. On 20.11.2015 applications were filed by the respondents herein under Section 34 of the Act challenging correctness of the awards. In those matters, the petitioners herein filed Ext.P5 applications contending that the applications under Section 34 of the Act should be dismissed since they were not in consonance with the amended provisions in Section 34 of the Act. Accepting the contentions raised by the petitioners herein, the contesting respondents withdrew their applications. Later, the contesting respondents filed fresh applications under Section 34 of the Act on 05.01.2016. Learned counsel for the petitioners argued that the respondents are estopped from contending that they did not submit to the jurisdiction of the court for deciding their rights under the amended Section 34 of the Act. It is the case of the petitioners that the present petitions filed by the respondents, admitting that they are bound to seek remedy as per amended Section 34 of the Act, fall short of the required legal standards and therefore they are per se not maintainable. It is the complaint of the petitioners that their contentions were not properly considered by the court below as a preliminary point. 5 O.P.(C) Nos.2398 & 2400 of 2016 10. Per contra, learned counsel for the contesting respondents (petitioners in Section 34 applications) would contend that the point now raised by the petitioners are questions of fact and law, which cannot be decided as a preliminary point. Secondly, on a reading of Section 26 of the Amendment Act, it will be clear that the provisions in Section 34 of the Act, as it stood before the amendment, applied to this case. It is also contended that merely for the reason that the respondents renewed their request under Section 34 of the Act with a new petition, they cannot be said to have estopped from questioning the petitioners’ contentions. 11. The issue revolves around the interpretation of Section 26 of the Amendment Act. Learned counsel for the petitioners strongly relied on a decision rendered by the Supreme Court in **Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. (2018 (4) SCALE 502)** . The question directly considered by the Supreme Court was as to the construction of Section 26 of the Amendment Act. It can be seen from the judgment that a dispute was brought before a sole arbitrator, who delivered two arbitral awards on 22.06.2015. On 16.09.2015, the appellants filed an application under Section 34 of the Act before the Bombay High Court challenging the awards. On 26.11.2015, the respondents filed two execution applications in the High Court for payment of amounts awarded in the two awards pending enforcement of such awards. These O.P.(C) Nos.2398 & 2400 of 2016 6 applications were resisted by the appellants on the ground that to the case on hand, old Section 36 of the Act would be applicable and therefore there will be an automatic stay of the awards until Section 34 proceedings had been decided. It is pertinent to note that pursuant to the aforementioned Amendment Act, Section 36 of the Act was also extensively amended clarifying that there will be no automatic stay of enforcement of the award merely on account of filing an application under Section 34 of the Act. 12. The Supreme Court after hearing the arguments of the learned counsel appearing for the contesting parties, entered a finding that Section 26 of the Amendment Act has two parts. First part refers to the Amendment Act not applying to certain proceedings, whereas the second part affirmatively makes applicable to the Amendment Act to certain proceedings. Further, it was observed that the two parts are separated by the word ‘but’ which also shows that the two parts are separate and distinct (see paragraph 23). In paragraph 24 of the judgment the following observations are made: _“24. What will be noticed, so far as the first part is concerned, which states, “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_ O.P.(C) Nos.2398 & 2400 of 2016 7 _otherwise agree.....” is that: (1) “the arbitral proceedings” and their commencement is mentioned in the context of Section 21 of the principal Act; (2) the expression used is “to” and not “in relation to”; and (3) parties may otherwise agree. So far as the second part of Section 26 is concerned, namely, the part which reads, “.....but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act” makes it clear that the expression “in relation to” is used; and the expression “the “ arbitral proceedings and “in accordance with the provisions of Section 21 of the principal Act” is conspicuous by its absence.”_ 13. The Supreme Court in paragraph 25 of the judgment noticed the stark distinction between the expression “to the arbitral proceedings” occurring in first part of Sec.26 of the Amendment Act and “in relation to arbitral proceedings” occurring in the second part. Following are the finding on that aspect: _“........... What is also important to notice I that these proceedings alone are referred to, the expression “to” as contrasted with the expression “in relation to” making this clear. Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also_ 8 O.P.(C) Nos.2398 & 2400 of 2016 _make it clear that it is these proceedings, and no others, that form the subject matter of the first part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may “otherwise agree” and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force. 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. What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 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, as the words “in relation to the arbitral proceedings” in the second part are not controlled by the application of Section 21 of the 1996 Act, Section 26, therefore, bifurcates proceedings, as has been stated above, with a great degree of clarity, into two sets of proceedingsarbitral proceedings themselves, and Court proceedings in relation thereto. The reason why the first part of Section 26 is couched in negative form is only to state that the Amendment Act will apply even to arbitral_ 9 O.P.(C) Nos.2398 & 2400 of 2016 _proceedings commenced before the amendment if parties otherwise agree. If the first part of Section 26 were couched in positive language (like the second part), it would have been necessary to add a proviso stating that the Amendment Act would apply even to arbitral proceedings commenced before the amendment if the parties agree. In either case, the intention of the legislature remains the same, the negative form conveying exactly what could have been stated positively, with the necessary proviso. 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 scheme of Section 26 is thus clear: that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to Court proceedings which have commenced on or after the Amendment Act came into force.”_ 14. In paragraph 39, the Supreme Court has stated that on the basis of the interpretation placed on Section 26 of the Amendment Act, it will be clear that in all cases where an application under Section 34 of the Act is filed after commencement of the Amendment Act and an application for stay having been made under Section 36 of the Act, it will be governed 10 O.P.(C) Nos.2398 & 2400 of 2016 10 by Section 34 as amended and Section 36 as substituted. 15. It is to be borne in mind that the facts in the present case would show that the applications under Section 34 of the Act by the respondents, pending before the court below, were filed subsequent to the Amendment Act. Going by the principles in **BCCI** ’s decision it can only be found that the applications under Section 34 of the Act should conform to the standards prescribed in the amended Section 34 of the Act, if they were filed subsequent to 23.10.2015. 16. Learned counsel for the contesting respondents contended that the Supreme Court was considering the scope of Section 26 of the Amendment Act vis-a-vis the provisions in Section 36 of the Act. It is therefore argued that the same interpretation of Section 26 of the Amendment Act cannot be placed in relation to an application under Section 34 of the Act. I am afraid, this argument cannot be accepted in the light of the vast consideration made by the Supreme Court of the scope of Section 26 of the Amendment Act in relation to Sections 34 and 36 of the Act. 17. The contention raised by the learned counsel for the respondents that the fields of operation of Sections 34 and 36 of the Act are different cannot be disputed. But that was considered by the Supreme Court in the above decision and only thereafter the pronouncement was 11 O.P.(C) Nos.2398 & 2400 of 2016 made. 18. The contention raised by the learned counsel for the respondents, that the phrase “arbitral proceedings” occurring in first and second parts of Section 26 of the Amendment Act should be given the same meaning and in the second part it cannot be treated as court proceedings, also cannot hold good in the light of the binding pronouncement in **BCCI** ’s case. 19. Yet another contention raised by the learned counsel for the respondents that the question of maintainability of the applications under Section 34 of the Act cannot be treated as a preliminary point under Order XIV Rule 2 of the Code of Civil Procedure, 1908 is a meritorious one. Such contentions cannot be treated as pure questions of law. At any rate, they can only be regarded as vexed questions of fact and law, not permitting the court to take a decision without probing further. Having regard to the facts and circumstances revealed from records and the arguments advanced, I am of the view that the impugned orders need to be clarified. Finding by the court below in both the matters that the arbitral proceedings were commenced in accordance with the provisions in Section 21 of the principal Act before commencement of the Amendment Act and therefore the applications under Section 34 of the Act need not be considered under the above provision as amended by the O.P.(C) Nos.2398 & 2400 of 2016 12 Amendment Act is erroneous. In otherwords, going by the decision in **BCCI** ’s case what is crucial is not the date of commencement of the arbitral proceedings or the date of passing the award, but whether an application under Section 34 of the Act was filed after the date of commencement of the amendment; viz., 23.10.2015. This finding by the court below in both the cases are hereby vacated. At the same time the finding that the issue now raised by the petitioners cannot be decided as a preliminary issue is hereby confirmed. Court below is hereby directed to dispose of the petitions in accordance with the provisions under Section 34 of the Act as amended by the Arbitration and Conciliation (Amendment) Act, 2015. The parties shall appear before the court below on 02.07.2018. Original petitions are disposed of as above. ## **A. HARIPRASAD, JUDGE.** **cks**