In Hindustan Construction Company Limited and others v. Union of India and others, a three-judge bench of the Supreme Court of India struck down Sections 13 and 15 of the Arbitration and Conciliation (Amendment) Act, 2019. Section 87 of the Arbitration and Conciliation Act of 1996 was amended by these sections (Act).
When doing so, the Supreme Court explicitly overruled its previous rulings in NALCO v. Pressteel & Fabrications (P) Ltd, NBCC Ltd. v. Lloyds Insulation India Ltd, and Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd, holding that an appeal to an arbitral award would not simply stay its execution. An award debtor will have to secure a formal stay on the execution of the award, and courts could order the award debtor to provide appropriate protection to the award recipient to the awarded sum when granting such a stay.
In NALCO and subsequent cases, the Court held an implicit ban on the arbitral award's enforcement before the Section 34 application was resolved.
The mere submission of an application under Section 34 to set aside an arbitral award would immediately stay the award's operation. Despite having an award in its favour, an award holder will be unable to reclaim the awarded amount or even a portion of it unless the claim under Section 34 was dismissed/rejected, causing considerable difficulty.
They made certain amendments to the Act to address this condition, stating that the mere submission of an appeal under Section 34 of the Act would not make the arbitral award unenforceable. Section 34 can only issue a stay of the arbitral award's action if a new appeal to the court where the application for setting aside was lodged.
On the applicability of the 2015 Amendment, there was uncertainty and a difference of opinion among Indian High Courts. Since the 2015 Amendment Act took effect on October 23, 2015, several High Courts held that the revised Section 36 should not be enforced retroactively and that the 2015 Amendment Act can only extend to arbitral proceedings that began after the 2015 Amendment Act took effect, as well as any court proceedings that arose from them. On the other hand, others ruled that the revised Section 36 must refer to Section 34 applications submitted until the 2015 Amendment Act took effect.
Finally, the Supreme Court held in BCCI that the revised provisions of Section 36 of the Act must extend to all existing arbitral proceedings instituted under Section 34 of the Act, regardless of the date of the arbitral proceedings' commencement.
Following that, Parliament passed the 2019 Amendment Act, which included Section 87. The 2015 Amendment was only applicable to judicial cases arising out of arbitral proceedings that began after October 23, 2015. As a result, in situations where the arbitral hearings had started before this date and the arbitral award was contested in a court of competent jurisdiction under Section 34 of the Act, the arbitral award will immediately stay.
In this context, the Supreme Court was asked to rule on the constitutionality of the 2019 Amendment Act. The petitioners' grievance, which included some of India's most significant infrastructure companies who had been debt-ridden due to their failure to recover sums due to arbitral awards made in their favour, was as follows:
(a) On the one side, owing to the 'automatic hold' on the implementation of arbitral awards, the complainant could not recover the revenue. On the other side, any outstanding debt of over Rs. One hundred thousand owing to a financial or operating creditor may theoretically contribute to insolvency for these businesses.
(b) Section 87 was claimed to be contrary to the Act's basic scheme and in breach of Articles 14, 19, 21, and 300-A of the Indian Constitution.
The Supreme Court's unanimous judgment reaffirmed that Indian courts are increasingly pro-arbitration, and it could go a long way toward establishing India as an arbitration-friendly jurisdiction.
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