Richa Chhabra
The article accounts in brief for the recent amendments and the judicial pronouncements made in the very context altering the mode and process of arbitration standards in India, particularly pertaining to the reading down the provision of “Section 87” with in focus how the dynamics have panned out and what does, in real terms, it does stand for today. The text explores the connected judgements with what essentially it intended to bring on the table and if that worked.
As part of measures to make the Indian arbitration procedure in sync with global arbitration-dispute resolution standards, the Government began the process of working on the infirmities brought into the regime by the original statute-The Arbitration and Conciliation Act, 1996 (“the Act”) with The Arbitration and Conciliation (Amendment) Act, 2015 (“the 2015 Amendment Act”) after a period of more than 19 years which was the first step taken in that direction and thus, amendment was made.
The most recent amendment came into effect on August 30, 2019 (“2019 Amendment Act”) in order to further strengthen and make the arbitration process user friendly.
It was this very amendment made through which the legislature introduced Section 87 to the Act along with several other key changes. The newly inserted provision (Section 87) in the Act by The Arbitration and Conciliation (Amendment) Act, 2019, read:
“87. Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall—
(a) not apply to––
(i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;
(ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;
(b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings.
Section 87 clearly put out that the 2015 Amendment Act would only apply to arbitral proceedings commenced on or after the effective date (i.e. October 23, 2015) of the Amendment Act and court proceedings initiated arising out of or in relation of such arbitral proceedings. It revived the application of “automatic stay” on the execution of an arbitral award.
The only way out introduced by the 2019 Amendment Act where Section 87 would not be applicable would be if parties have mutually agreed to have the 2015 Amendment applicable to the arbitration proceedings. Moreover, Section 15 of the 2019 Amendment also deleted Section 26 of the 2015 Amendment.
This above mentioned provision turned down the stand taken by the Apex Court in BCCI v. Kochi Cricket Private Limited[1], wherein the Apex Court held was that there would be no “automatic stay” of an award, unless a separate application was made for such a stay.
It stood the same in both instances (a) for petitions, filed under Section 34 of the Arbitration Act, on or after the date of commencement of the 2015 Amendment Act, in cases where related arbitral proceeding initiated even prior the date of the commencement of 2015 Amendment Act and (b) also for the challenge application filed prior the effective date, not taking into the account the date of commencement of related arbitration proceeding, for setting the enforcement of an arbitral award aside.
The 2019 Amendment Act, hence, had been a subject of much debate mainly- Insertion of Section 87, creating certain difficulties around the applicability of 2015 Amendment Act i.e. during the conduct of arbitration proceedings and the court proceedings arising under the 2015 Amendment Act.
Recently, in the writ petition filed under Article 32 of the Constitution of India, 1950, the insertion of Section 87 of the Arbitration Act along with deletion of Section 26 of the 2015 Amendmentwas challenged and a clarity was sought in the light of the decision laid down in BCCI v. Kochi Cricket by the Apex Court.
In the significant ruling, the three-judge bench of The 3-judge bench of Rohinton Fali Nariman, Surya Kant and V. Ramasubramanian, JJ on November 27, 2019 in Hindustan Construction Company v. Union of India[2] (“the judgement”) struck down Section 87 on the account of it being “manifestly arbitrary” and unconstitutional. It was said to be in violation of Article 14 of the Constitution of India.
The Court noticed that “the introduction of Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act.”
The Supreme Court’s decision in the judgement seem to be a corrective measure to put the clock back as it was prior to the introduction of section 87 which was contrary to the object and purposeof the 2015 Amendment Act sought to be achieved.
It preventsthe successful and bonafide award holders and their firms from getting into insolvency crisisand a step in furtheranceto provide them the proceeds of their award in the form of security consequently not depriving an award holder of due payment if a challenge to such award was filed under Section 34.
“The automatic stay provision denies an opportunity to companies to pay their creditors from the money received from arbitral awards in cases where there is no stay, or even in cases where conditional stays are granted.” as propounded by the Honourable Supreme Court.
In the present case, Supreme Court decisions in the cases of NALCO, National Buildings Construction Corporation Ltd. and Fiza Developers were opined to have laid down the law badly and ina incorrect mannerwhile misinterpreting the originally enacted section 36, as of being an implied construction and providing for automatic stays merely upon challenging the award under section 34, which as the Court said, is not inherent, thus cannot be read into in such manner.
It also held that the BCCI judgment will continue to apply so as to make applicable the positive changes made by the 2015 Amendment Act to all court proceedings initiated after 23-10-2015.
[1](2018) 6 SCC 287.
[2]Writ Petition (Civil) No. 1074 of 2019
Lawcutor 