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Readers may be aware that the President of India has promulgated a new Ordinance amending the Arbitration and Conciliation Act, 1996. For those who are coming across this news for the first time, please read this post. Many of the reforms of the Law Commission of India have been incorporated while many have not been retained in the Ordinance.
One such provision which has not been retained in Section 85A (Transitory Provisions). Section 85A as suggested by the Law Commission's 246th Report reads as below:
"Transitory provisions .—(1) Unless otherwise provided in the Arbitration and Conciliation (Amending) Act, 2014, the provisions of the instant Act (as amended) shall be prospective in operation and shall apply only to fresh arbitrations and fresh applications, except in the following situations -
(a) the provisions of section 6-A shall apply to all pending proceedings and arbitrations. 
Explanation: It is clarified that where the issue of costs has already been decided by the court/tribunal, the same shall not be opened to that extent.
(b) the provisions of section 16 sub-section (7) shall apply to all pending proceedings and arbitrations, except where the issue has been decided by the court/tribunal.
(c) the provisions of second proviso to section 24 shall apply to all pending arbitrations.
(2) For the purposes of the instant section,—
(a) "fresh arbitrations" mean arbitrations where there has been no request for appointment of arbitral tribunal; or application for appointment of arbitral tribunal; or appointment of the arbitral tribunal, prior to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014.
(b) "fresh applications" mean applications to a court or arbitral tribunal made subsequent to the date of enforcement of the Arbitration and Conciliation (Amending) Act, 2014."

Note that the aforesaid provision was clear in its retrospective operation. Hypothetically assuming Section 85A was inserted by Ordinance, if one were to pose a question whether the restricted ground of setting aside a domestic award not arising out of an international commercial arbitration would apply to pending proceedings, one would state that the Ordinance would apply only to fresh applications, that is those applications (including for setting aside such an award) which have been filed subsequent to 23 October 2015 (date of the ordinance).

Unfortunately, Section 85A has not been incorporated in the Ordinance. If so, what are the consequences? Would the restricted ground of setting aside a domestic award not arising out of an international commercial arbitration apply to pending applications?
This is really a hard case. Arguments in the affirmative and in the negative are equally convincing. But the following may be worth noting:
  • Section 1(2) of the Act states that the Ordinance shall come into force immediately. 
  • There are certain aspects which the Ordinance itself states it will not affect. For instance, arbitrators previously appointed (S. 9 of the Ordinance amending Section 12 of the Act). 
  • In respect of most other provisions there is no express mention. 
  • Considering the need for urgent reforms, one could reasonably argue that the provision is intended to apply to even to pending proceedings and applications, wherever the language of the Ordinance suggests. For instance, Section 18 of the Ordinance CLARIFIES that patent illegality would not be a ground for setting aside foreign awards. The language supports even pending applications (and possibly appeals against such applications?)
  • Similarly 18(II) eliminates error of law or of fact as a ground to set aside arbitral awards. There is no mention regarding prospectivity. Even in such cases, the courts would (should) apply the Ordinance even to pending applications. The policy argument is the need for reforms and the urgency with which the same has been promulgated especially without incorporating a provision akin to Section 85A. The logical corollary of this would be that in case the language of a provision does not support application to pending proceedings, then it cannot be (and should not be) extended. For instance, 18(III) inserts the requirement that an application shall be filed only after issuing prior notice. Obviously, the act of filing an application to set aside an award would have been an accomplished fact in pending applications.

Of course, there is this well established principle of statutory interpretation that unless an Act expressly/ clearly provides for retrospective operation, it is prospective in nature. 
This issue is likely to result in different views from different courts.  
Ideally, if the language of the Ordinance supports application of a provision to proceedings/ applications, it should apply notwithstanding the pendency unless it would result in manifest injustice. If the language does not support application to pending proceedings/ applications, it should apply prospectively. 
Original author: Badrinath Srinivasan
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