Judgment Name: Hindustan Construction Company Limited and Ors. V. Union of India
Citation: Civil Appeal Nos. 2621-2625 / 2019
Coram: R. F Nariman, Surya Kant and V. Ramasubramanian
Date: 27th November 2019
This judgement looks at the constitutional validity of Section 87 of Arbitration and Conciliation Act, 1996.
The following case arose due to a petition challenging the constitutional validity of Section 87 of the Arbitration and Conciliation Act, 1996 which was brought into effect by the Arbitration and Conciliation (Amendment) Act, 2019. When the Act was passed by the legislature, a major issue that was coming up during the application of the Act was that an application for setting aside of an award under Section 34 meant an automatic stay on the enforcement of the award. This was becoming a problem because it was going against the very advantages of arbitration that is speedy and efficient recovery as the award could not be enforced unless the setting aside petition was disposed of. In order to resolve this mischief, the legislature enacted an amendment in 2015 which now stated that in order to get a stay on the enforcement of the award, the applicant will have to file under Section 36(3) of the Act. The decision would then be left on the discretion of the court to decide whether the stay would be granted or not. However, the amendment act did not state whether this amendment was prospectively or retrospectively applicable. The Supreme Court, in the case of BCCI v. Kochi Cricket Private Limited[i], stated that this amendment will be applicable retrospectively that is it will be applicable for cases and awards being given before 23rd October 2015. This decision was given before the legislature gave any clarification on the application of the amended provision. The legislature then, through 2019 amendment act clarified the amendment to state that its application will be prospectively. This forced the companies to revaluate their positions who were hoping for the enforcement of the awards based on the BCCI decision. The petition has therefore been filed.
Whether newly inserted Section 87 of the Arbitration and Conciliation Act, 1996 constitutionally valid.
The SC read section 35 (which deals with finality of an award) along with section 34 and 36 to state that it was never intended that a setting aside petition would automatically stay enforcement.
The SC also relied upon section 9, which enables a party to apply for interim reliefs after making of the award but before it is enforced, in support of the conclusion that the award is enforceable and there is no automatic stay against enforcement upon the filing of a setting aside petition. The SC clarified that even under the Act, there was never any automatic stay intended and that the 2015 Amendment Act was merely clarificatory in this regard. By extension, the SC implied that the 2015 Amendment Act was therefore retrospectively applicable.
The SC clarified that having held that there was no automatic stay under the unamended Act, the 2015 Amendment Act was only introduced to clarify such position. Therefore, section 87 was contrary to the object sought to be achieved by the 2015 Amendment Act as it sought to make the 2015 Amendment Act only applicable from 23 October 2015. Further, the legislature without referring to the BCCI decision which had pointed out the pitfalls of introducing such a provision, had brought into play a provision that was manifestly arbitrary, without adequately determining principle, and contrary to public interest
This judgment therefore states that Section 87 of the Arbitration and Conciliation Act, 1996 is constitutionally invalid and that the application of the 2015 amendment will be done retrospectively as that is the most sane analysis of the amendment in light with the purpose and objective of the statute as well as other provisions of the statute. Hence the position stated in the BCCI case has been upheld.
[i] BCCI v. Kochi Cricket Private Limited, (2018) 6 SCC 287