Domestic Arbitration after the Jammu and Kashmir (Reorganisation) Act 2019

This guest-post is authored by Pareekshit Bishnoi. Pareekshit is an advocate practicing before courts and tribunals at Delhi. He graduated from the National Law University, Odisha.

We would also like to thank our guest editor Harish Adwant for his review of and his insights on this piece. Mr Adwant is an advocate practising before the Bombay High Court.

Domestic Arbitration after the Jammu and Kashmir (Reorganisation) Act 2019

Before the enactment of the Jammu and Kashmir Reorganisation Act, 2019 (Reorganisation Act, 2019), the State of Jammu and Kashmir shared a unique relationship with the Arbitration and Conciliation Act, 1996 (Arbitration Act 1996).

Pursuant to Section 1(2)[1], the Arbitration Act 1996 was made applicable to the whole of India, including the State of Jammu and Kashmir with certain limitations. Unlike in other territories of India, the provisions Part I, III, and IV of the Arbitration Act 1996 were applicable to the J&K only to the extent of their applicability on the international commercial arbitration or conciliation.

An arbitration seated in the State of Jammu and Kashmir was primarily governed by the Jammu and Kashmir Arbitration and Conciliation Act, 1997 (J&K Arbitration Act). The High Court of Delhi appositely noted in Marriott International Inc. v. Ansal Hotels Ltd. as follows:

“Section 1(2) of the Act makes it clear that it extends to the whole of India. Jammu and Kashmir being a Part of India, the Act will also apply to the State of Jammu and Kashmir. However, in terms of the proviso to sub-section 2 of Section 1 of the Act, parts I, III and IV shall extend to the State of Jammu and Kashmir only insofar as they relate to international commercial arbitration.

…..

The applicability of parts I, III and IV to the State of Jammu and Kashmir only in relation to an international commercial arbitration means that an arbitration which is not an international commercial arbitration will not be governed by the provisions of Parts 1, 3 and 4. It shows that the domestic arbitration in the State of Jammu and Kashmir will be governed by the laws which may be exclusively applicable to that State.”                (para. 21)

In BALCO vs Kaiser Aluminium[2] (BALCO), the Supreme Court observed that on a plain reading of Section 1, it appears that the Arbitration Act 1996 extends to whole of India, but the provisions relating to domestic arbitrations, contained in Part I, are not extended to the State of Jammu and Kashmir. The Court further noted that the proviso to Section 1 (2) was added for the following purpose:

firstly, due to the special status of the State of Jammu & Kashmir, secondly, to update the Jammu and Kashmir Act, 1945, the proviso has been added to incorporate the provisions relating to International Commercial Arbitration

The Arbitration Act, 1996 would not apply to purely domestic arbitrations which were earlier covered by the Jammu and Kashmir Act, 1945 and now by the Jammu & Kashmir Arbitration and Conciliation Act, 1997

Thus, except for section 9, 27(1)(b), and 37(3) of the Arbitration Act 1996, the arbitrations seated in Jammu and Kashmir were to be governed by the J&K Arbitration Act.

Ambiguity in execution 

There could be a scenario where an arbitral award made in J&K is sought to be enforced in another State of India, where the award debtor’s assets are located. For an arbitral award made in any other place in India, the award would be treated as a domestic award. It would be enforceable as a decree of the court. However, Section 36 is not applicable to J&K-seated arbitrations.

Since Part I of the Arbitration Act was not applicable, it could perhaps have been argued that an award made in J&K would not be treated as a ‘domestic’ award. Could it, however, be treated as a foreign award? Would it mean that Part II would be applicable? Albeit seemingly obvious, the answer to both questions is in the negative.

Firstly, Part II is applicable only to States who have signed and ratified the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (NY Convention). Since J&K is neither an independent State (read country) nor is it a signatory to the NY Convention in any other capacity, there is no question for a J&K based arbitral award to be governed by Part II of the Arbitration Act.

Secondly, execution of an arbitral award in J&K was governed by the (Jammu and Kashmir) Code of Civil Procedure Samvat, 1977 (Samvat). Sections 38, 39, and 44 of the Samvat empower a J&K court to transfer an arbitral award for execution to any other State in India.

Therefore, even though Part I was not applicable to a J&K arbitration, an arbitral award made in J&K would not be treated as a foreign award.

Post reorganisation

With the enactment of the Reorganisation Act 2019, the special status granted to the State of Jammu and Kashmir under Article 370 of the Constitution has been withdrawn.[3] The State has been divided into (i) Union Territory of Jammu and Kashmir; and (ii) Union Territory of Ladakh.

Insofar as arbitration is concerned, the J&K Arbitration Act has been repealed under the Reorganisation Act.[4] Proviso to Section 1(2) of the Arbitration Act has been omitted[5] and, resultantly, the Arbitration Act 1996 in its entirety is now applicable to both the Union Territories along with section 36 for execution of the awards in terms of Civil Procedure Code, 1908, instead of Samvat, 1977.

Pursuant to Section 96 of the Reorganisation Act, the Cabinet has also issued the Jammu and Kashmir Reorganisation (Adaptation of Central Laws) Order, 2020 (the Order) for adoption and modification of 37 Central laws in the Union Territory of the Jammu and Kashmir. This is aimed at removing ‘ambiguity in implementation of these laws in line with the Constitution of India”. The list of 37 Central Laws include the Arbitration Act 1996 and the Civil Procedure Code, 1908.

Given these legislative and executive changes, arbitrations seated in both newly created Union Territories will now be governed by Part I of the Arbitration Act 1996 including section 36 of the Arbitration Act 1996.

[1] Section 1

(2) It extends to the whole of India

Provided that Parts I, III and IV shall extend to the State of Jammu and Kashmir only in so far as they relate to international commercial arbitration or, as the case may be, international commercial conciliation.

[2] (2012) 9 SCC 552, para. 55.

[3] It is clarified that this article does not seek to comment on the correctness of this decision.

[4] See, Item 8, Table 3, State laws including Governor’s Acts which are repealed in Union Territory of Jammu and Kashmir; and Union Territory of Ladakh.

[5] Section 95 of the Reorganisation Act read with Item 5, Table 1 of the Fifth Schedule.

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