Arbitration is a dispute resolution mechanism that essentially aims to achieve a personal and speedy decision. The law of arbitration in India is the Arbitration and Conciliation Act that was enacted in 1996. The latest amendment to this Act was in the year 2019 that included an 87th section that created a huge stir as it nullified the application of the 2015 Amendment Act to the arbitral proceeding and its related court proceeding before the amendment and paved the way for only prospective application. The Supreme Court struck down the same Section in Hindustan Construction Company Limited and Ors. Vs. Union of India (UOI) and Ors. in November 2019.
Pre 2015 Amendment, the enforceability of award by the party under Section 36 the Act, posted the expiry of the challenge period or refusal by the Court of such challenge, leading to an issue of the standstill of the award to such period till the Court decided on the same. Such was called an “Automatic stay of the arbitral award”. The 2015 Amendment was a strong move to do away with such irregularity as it contained an amendment to the 36th Section requiring the Judgement debtor to file a separate application under Section 36(3) of the Act to stay the operation of the arbitral award. This made it necessary for the party filing for a stay to submit partly or fully the sum awarded to the Court or to provide security. The Court was required to put on record the reasons for stay and provision of the Civil Procedure Code was made applicable.
There was also an issue with Section 26 of the Amendment Act which stated that the amendment did not apply to an arbitral proceeding before the amendment date. This created a question concerning the applicability of proceedings prior to the Act. Such a dilemma was addressed by the Supreme Court in the case of Board of Control for Cricket in India vs Kochi Cricket Pvt. Ltd where it was clarified that the provisions of Section 36 that stood amended would have its force towards all cases that had been filed under Section 34 regardless of the date of initiation of the arbitral proceeding. It is to be noted that the judgement was passed in 2018.
In 2019 The Amendment Act came in that introduced Section 87, allowing the only prospective application of the 2015 amendment and barring such to the prior arbitral proceeding and court proceeding in relation to the same. In addition to that, it deleted the Twenty-Sixth Section of the 2015 amendment. The Union put forth the new amendment by considering the recommendation from a “Shrikrishna Committee Report” which was handed over in 2017.
The deletion of the twenty-sixth Section of the 2015 amendment questioned the whole decision laid down by the BCCI case. The validity of the recent amendment came up in question before the Apex Court in the case of Hindustan Construction Company Limited and Ors. Vs. Union of India (UOI) and Ors.
The Apex Court struck down Section 87 of the Act and the deletion of Section 26 of the 2015 amendment act for it being manifestly arbitrary under Article 14 of Constitution of India and also stated the following:
“Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act. (ii) Also, as had been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. v. NHAI, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits. The anomaly, therefore, of Order 41 Rule 5 of the Code of Civil Procedure applying in the case of full-blown appeals, and not being applicable by reason of Section 36 of the Arbitration Act, 1996 when it comes to reviewing of arbitral awards.
The retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the Arbitration Act, 1996 and the 2015 Amendment Act but also results in payments already made under the amended Section 36 to award-holders in a situation of no-stay or conditional-stay now being reversed.”
The judgement puts the petitioners on a favourable position now as compared to before, because the automatic stay of the case would lead them to prolonged litigation and non-enforceability of awards until a judgement was made. In some cases, it would push them to insolvency had the value unpaid to the creditor would be beyond Rs. 100000.
The decision has now aided for speedy disposal of cases and avoided unreasonable stay orders due to the challenge of an arbitral proceeding resulting in an efficient legal framework for arbitration in India.
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