A bench comprising of Supreme Court Justices Rohinton F Nariman, Surya Kant and V. Ramasubramanian struck down section 87 of the Arbitration and Conciliation Act, 1996 (Act) holding that the provision is “manifestly arbitrary” and violative of Article 14 of the Constitution of India in the recent judgment of Hindustan Construction Company Ltd. V. Union of India.
The provision sought to nullify the effect of 2018 judgment of the Supreme Court in BCCI v Kochi Cricket Private Ltd case which decided the prospective application of automatic stay provision in the Act. In this case, the Supreme Court had decided as to whether the 2015 amendments made to Section 36 of the Act were retrospective or prospective.
The section 87 had been inserted through the 2019 amendment to the Arbitration and Conciliation Act, 1996 passed by the Parliament in the last monsoon session.
The Supreme Court bench in Kochi Cricket Pvt. Ltd. case had ruled that the 2015 amendment to Section 36 will apply only to:
(a) arbitral proceedings commenced on or after October 23, 2015 (date of commencement of the Amendment Act); and
(b) arbitration-related court proceedings filed on or after October 23, 2015, even where the arbitral proceedings had been commenced before the amendments came into force.
Section 87 of the Act, inserted by 2019 Amendment Act, states that the 2015 Amendment will not apply to Court proceedings arising out of or in relation to arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015. To this extent, Section 87 is opposed to the Kochi Cricket Pvt. Ltd. judgment.
The Supreme Court of India had earlier reserved its judgment after hearing petitions challenging the amendments introduced in Arbitration and Conciliation Act, 1996.
The main contention before the Apex Court bench was Section 87 of the Act, which puts on automatic stay on all arbitral awards in which arbitral proceedings commenced before October 23, 2015. The stay comes in effect as soon as the arbitral awards are challenged in a High Court under provisions of the Arbitration Act. This led to infrastructure companies such Hindustan Construction Company Ltd. challenging the provisions in the Supreme Court.
During the hearing of the challenge against section 87 Justice Nariman had told the Solicitor General that the proviso had “put the clock back.”
Therefore, the crux pf the matter as concluded by the Apex Court is that it stuck down Section 87 of the Arbitration and Conciliation Act which was inserted through the 2019 Amendment.