Striking down of Section 87 of the Arbitration and Conciliation Act, 1996

The Arbitration and Conciliation Act, 1996 along with the Indian arbitration world in general has been subjected to frequent changes over the course of last few years. The principle Act was last amended in the year 2015 in order to make arbitration a preferred mode of arbitration and preparing India to become a global arbitration hub. Section 87 of the Arbitration and Conciliation Act, 1996 states that the amendments made to the principle Act through the Arbitration and Conciliation Amendment Act, 2015 shall only applicable to arbitral proceedings which commenced on or after the commencement of the Amendment Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings. The said provision came into place after the deletion of Section 26 of the Act which stated that 2015 Act shall only be applicable to the arbitral proceedings in accordance with Section 21 of the principle Act with the agreement of the parties, but the 2015 Act shall be applicable irrespective of the proceedings being commenced before or after the commencement of the Act. The Hon’ble Supreme Court held that the deletion of Section 26 followed by the introduction of Section 87 is manifestly arbitrary under Article 14 of the Indian Constitution.[1] The 3-judge bench comprising of RF Nariman, Surya Kant and V. Ramasubramaniam, JJ held that Section 87 must thus, be struck down. The Hon’ble Court further stated that the deletion of Section 26 defeats the basis of the judgment laid down in the case of BCCI vs. Kochi Cricket Pvt. Ltd. which held that the 2015 Amendment to Section 36 of the Act shall be applicable to the arbitral proceedings commenced on or after October 23, 2015 (the date of commencement of the Amendment Act, 2015 and  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.[2]

Further, the court observed that Section 87 had the potential of pushing the companies towards insolvency by allowing an automatic stay on all arbitral awards declared in the proceedings commenced before October 23, 2015 and not giving a chance to the companies to make payments to their creditor. The insertion of Section 87 has only been one of the areas of criticism of the already debatable Arbitration and Conciliation (Amendment) Act, 2019. It is important to understand these frequent variations without a consistent policy analysis reflect negatively on the image of the Indian Arbitration mechanism in the international space as well. Thus, the judgment given by the Hon’ble Supreme Court in the case of Hindustan Construction Company Ltd. v. Union of India[3] paves the way for timely payment of the amounts granted under the arbitral awards. Thus, the judgment hold great significance it is acts as step towards the alignment of Indian arbitration standards with the internal arbitration mechanism.

[1] 2019 SCC SC 1520.

[2] 2018 6 SCC 287.

[3] 2019 SCC SC 1520