India: The Future Of Arbitration: Supreme Court Of India Strikes Down §87 Of The Arbitration & Conciliation Act In Hindustan Construction Company Limited v Union Of India

The Supreme Court in a pro-arbitration move has stuck down §87 of the Arbitration & Conciliation Act, 1996 (Act) in Hindustan Construction Company Limited v Union of India¹, which was inserted earlier this year by way of the Arbitration and Conciliation (Amendment) Act, 2019 (2019 Amendment), which clarified that all provisions of the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment) applied prospectively.

Background

The Act was amended by way of the 2015 Amendment which was applicable from 23 October 2015. Prior to the amendment, the filing of a challenge to an arbitral award under §34 of the Act resulted in an automatic stay on the award and the award could not be enforced until the challenge was decided. The 2015 amendment removed the application of automatic stay and the losing party now had to seek a specific stay on the operation of the award at the time of filing the challenge. There was much debate on the question of the retrospective application of the 2015 Amendment. The issue was finally resolved by the Supreme Court of India in BCCI v Kochi Cricket Pvt Ltd².

In BCCI, it was held that the 2015 Amendment will apply prospectively to arbitrations as well as court proceedings related to arbitration proceedings save §36 (Enforcement), which would apply retrospectively to court proceedings that were pending prior to the 2015 Amendment. This meant that even in arbitrations commenced before 23 October 2015, the party challenging an arbitration award would have to seek a specific stay on the award, otherwise execution of the arbitral award could continue. The Court could grant a stay after setting parties to terms, usually by asking the losing party to deposit 50% - 100 % of the awarded amount.

The 2019 Amendment, inserted §87 (notified on 30 August 2019) in relation to the applicability of the 2015 Amendment. §87 clarified that unless parties otherwise agreed, the amendments made to the Act by the 2015 Amendment will not apply to the arbitral proceedings or court proceedings arising out of arbitrations commenced before the enactment of the 2015 Amendment. In effect, the insertion of §87 nullified the position laid down by the Supreme Court in the BCCI judgment.

Position in relation to Challenge & Enforcement

With the striking down of §87, the position is now back to the BCCI judgment.

The Supreme Court has observed that the enactment of §87 without any reference to the BCCI judgment, even after the BCCI judgment had pointed out the pitfalls of introducing §87, was manifestly arbitrary, devoid of reason and contrary to public interest sought to be fulfilled by the Act.

The position as it has evolved in this regard, is tabulated below:

Footnotes

1. Writ Petition (Civil) No. 1074 of 2019 along with other writ petitions.

2. (2018) 6 SCC 287

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