This article is written by Vividh Jain, from the Institute of Law, NIRMA University. In this article, the author discusses the impact of nullification of Section 87 of the Arbitration and Conciliation Act, 1996 by the Supreme Court on society.

Introduction

The Hon’ble Supreme Court of India, in November 2019, struck down Section 87 of the Arbitration and Conciliation (Amendment) Act, 2019 in the case of Hindustan Construction Company Ltd. and Anr. versus Union of India and Anr. as this section was manifestly arbitrary and violative to Article 14 of the Constitution of India. Section 87 of the Arbitration and Conciliation (Amendment) Act, 2019 laid down that the Arbitration and Conciliation (Amendment) Act, 2015 should apply only to those arbitral proceedings which have commenced on or after the enactment of the Arbitration and Conciliation (Amendment) Act, 2015 and also only to those court proceedings which has a relation with the arbitral proceedings. Before commencement of the Arbitration and Conciliation (Amendment) Act, 2015, Section 36 of the Arbitration and Conciliation Act, 1996 deals with the automatic stay on the enforcement of an arbitrary award with effect to a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996.    

Arbitration and Conciliation Act, 1996

On 16th August 1996 an act named the Arbitration and Conciliation Act,1996 came into enforcement to consolidate or to amend the laws related to the domestic arbitration, international commercial arbitration, and the enforcement of the foreign arbitral award. This act was enacted by the Parliament of India in the forty-seventh year of the Republic of India. This act deals with the laws and matters for conducting the conciliation proceedings. In 1985, the UNCITRAL (United Nations Commission on International Trade Law) adopted the Model Laws on the International Commercial Arbitration. Also, the United Nations’ General Assembly had suggested or recommended to all the countries listed with the United Nations that they all consider these Model Laws on the International Commercial Arbitration with due diligence and to ensure uniformity on the laws related to the arbitral procedures and International Commercial Arbitration practices. 

Objective and salient features

The main objective behind the enactment of this legislation is to maintain uniformity in arbitration practices throughout the country. This act has been enacted to provide an effective and efficient arbitration mechanism that deals with the domestic disputes as well as with the International Commercial dispute. Also, this act overcomes the loopholes found in the Arbitration (Protocol and Convention) Act, 1937, the Arbitration Act, 1940 and the Foreign Award (Recognition and Enforcement) Act, 1961. It was observed that these acts were less efficient and effective and did not provide an effective framework for domestic and international commercial disputes resolution. Some salient features of this legislation are as follows:

• This act emphasizes the importance of arbitration to resolve the disputes that arise between the parties and without which the arbitration proceedings can’t be set in a motion. An arbitration agreement is a clause in a contract or in an agreement between the parties which states that the disputes arising between the parties will be subject to arbitration proceedings.
• This act empowers the parties seeking arbitration to choose the place of arbitration or the seat of the arbitral tribunal. Along with this, the parties also empowers to choose the venue where the arbitration proceedings would be conducted by an arbitration tribunal.
• This act obliges the parties seeking arbitration that the arbitration clause or arbitration agreement must disclose the information related to the subject matter of dispute, timing of the dispute, reason for the dispute, jurisdiction, qualification of arbitrators, number of arbitrators and composition of the tribunal. 
• This act specifies the parties seeking arbitration that the arbitration clause or arbitration agreement must contain provisions related to the directives of the arbitration and also regarding the termination of those directives.
• This act empowers the parties seeking arbitration to choose the substantive laws which are going to apply by the arbitral tribunal, provided that the rule must be mentioned under the arbitration clause and arbitration agreement.
• This act empowers the parties seeking arbitration to choose the rules relating to the conduct of any arbitral tribunal, provided that the rule must comply with the arbitration clause and arbitration agreement. 

Section 87 of the Act

Section 87 of the Arbitration and Conciliation Act, 1996 has come into effect through the Arbitration and Conciliation (Amendment) Act, 2019 which was passed by the Indian Parliament. In the case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Anr., the Hon’ble Supreme Court of India ruled that Section 36 introduced by the Arbitration and Conciliation (Amendment) Act would only apply in these circumstances: 

1. When the arbitration proceedings commenced on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015;
2. When the arbitration-related court proceedings filed on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015, even where the arbitration proceedings had commenced before the date of the Arbitration and Conciliation (Amendment) Act, 2015 came into force. 

Section 87 of the act clearly opposed the Supreme Court judgment in the Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Anr. Section 87 of the Arbitration and Conciliation Act, 1996 had been inserted by the Arbitration and Conciliation (Amendment) Act, 2019, says that the Arbitration and Conciliation (Amendment) Act, 2015 will not be going to apply on the court proceedings concerning or arising out of arbitration proceedings irrespective of whether the arbitration proceedings commenced on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015.

Meaning to say, the new Section 36 which was introduced by the Arbitration and Conciliation (Amendment) Act, 2015 would be applied even to the arbitral awards in cases when the petition has been filed on or before the cut-off date under Section 34 of the Arbitration and Conciliation Act, 1996 which means this provision has a retrospective effect on applicability and by doing this they would grant the automatic stay on the enforcement of arbitral awards.  

The Arbitration and Conciliation (Amendment) Act, 2019

The Arbitration and Conciliation (Amendment) Act, 2019 introduced many important changes or amendments to the Arbitration and Conciliation Act, 1996 that have significantly changed the arbitration system in India. One of those major amendments was the introduction of Section 87 by the Arbitration and Conciliation (Amendment) Act, 2019 in the Arbitration and Conciliation Act, 1996. This newly enacted section says that the Arbitration and Conciliation (Amendment) Act, 2015 will not be going to apply on the court proceedings concerning or arising out of arbitration proceedings irrespective of whether the arbitration proceedings commenced on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015. In short, this new enactment provided that the Arbitration and Conciliation (Amendment) Act, 2015 would be applicable only to those arbitration proceedings which have commenced on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015. 

A logical reason behind the enactment of Section 87 in the Arbitration and Conciliation Act, 1996 was to nullify the Supreme Court verdict in case of Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Anr. and to restore the same position which was shown before the enactment of the Arbitration and Conciliation (Amendment) Act, 2015, i.e. an automatic stay on awards where a petition has been filed challenging arbitral awards under Section 34 of the Arbitration and Conciliation Act, 1996.  

Why was it nullified 

A writ petition had been filed under Article 32 of the Constitution of India, 1950 challenging the constitutional validity of the insertion of Section 87 of the Arbitration and Conciliation (Amendment) Act, 2019, as this provision is violative to Article 14, Article 19 (1)(g), Article 21 and Article 300A of the Constitution of India, 1950. The three-judge bench consists of Justice R.F. Nariman, Justice Surya Kant and Justice V. Ramasubramanian, struck down Section 87 of the Arbitration and Conciliation Act, 1996 in the case of Hindustan Construction Company Ltd. and Anr. versus Union of India and Anr. filed before the Hon’ble Supreme Court. 

The enactment of Section 87 in the Arbitration and Conciliation Act, 1996 is contrary to the main purpose and object of the Arbitration and Conciliation (Amendment) Act, 2015. Section 87 of the Arbitration and Conciliation Act,1996 makes Section 36 of the Arbitration and Conciliation Act, 1996 applicable only to those arbitration proceedings which have commenced on and after the date of commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and not on the arbitral awards in cases when the petition has been filed on or before the cut-off date under Section 34 of the Arbitration and Conciliation Act, 1996. The Supreme Court called the Arbitration and Conciliation (Amendment) Act, 2019 as ‘backburner’ because it destroys the main purpose and object of the enactment of the Arbitration and Conciliation (Amendment) Act, 2015. The apex court also observed that, after enacting Section 87 of the act, there was a substantial increase in refund applications filed before the tribunal in those cases where the payments were made on the basis of granting conditional stays on arbitral awards. For this aforesaid reason, the apex court struck down Section 87 of the Arbitration and Conciliation Act, 1996 on the grounds of constitutional invalidity and also the apex court found the provision violative to Article 14 of the Constitution of India.   

Impact of nullification of Section 87

This judgment rectified the arbitration regime in our country, as it grants automatic stay on the arbitral awards in cases when the petition has been filed on or before the cut-off date under Section 34 of the Arbitration and Conciliation Act, 1996 and bring back the true spirit of arbitration of solving disputes in the field of domestic as well as International Commercial Arbitration.

By striking off the Section 87 of the Arbitration and Conciliation Act, 1996, the Hon’ble Supreme Court reopened the file of a case famous as Board of Control for Cricket in India v. Kochi Cricket Pvt. Ltd. and Anr in which the apex court held that Section 36 of the Arbitration and Conciliation (Amendment) Act, 2015 would have retrospective effect on applicability and even if the status of a petition filed under Section 34 of the Arbitration and Conciliation Act, 1996 is pending, it would not be able to grant an automatic stay on the enforceability of such arbitral awards.

The ruling has correctly removed the obstructions from the automatic stay, which ultimately prevents the award holders from proceeding out of arbitration awards. Also, it seems that the judgment effectively fulfills the main purpose and object behind the enactment of the Arbitration and Conciliation (Amendment) Act, 2015. This ruling shortens the delay that occurred during arbitration proceedings and brings back the enforceability of such arbitral awards.

This judgment shows the positive consequences of the arbitration and conciliation regime in India. The amount would be realized faster which has been awarded to the arbitral award holders in accordance with the worldwide arbitration standards.

Conclusion

The Supreme Court of India struck down Section 87 of the Arbitration and Conciliation Act, 1996 which was inserted by the Arbitration and Conciliation (Amendment) Act, 2019. Firstly, the Arbitration and Conciliation (Amendment) Act, 2019 nullified the provisions of the Arbitration and Conciliation (Amendment) Act, 2015, but later on, the apex court itself strike off this new amendment act of 2019, which shows the lack of coordination between the legislative and judiciary department of our country. Their views on the interpretation of laws are quite different. The judiciary has stepped into the shoes of the legislature when the legislature department had not performed their duty effectively and was busy enacting laws without doing the proper interpretation. The judiciary came into the picture to fix or resolve the broken bone of the laws enacted by the legislative department by doing proper interpretation which has a positive impact on the arbitration and conciliation sector of India. 

References

• https://www.mondaq.com/india/trials-appeals-compensation/873536/the-supreme-court-strikes-down-section-87-of-the-arbitration-and-conciliation-act-1996–reinstates-bcci-v-kochi-cricket
• https://lawstreet.co/vantage-points/striking-down-section87-of-the-arbitration-and-conciliation-amendment-act 

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