CHALLENGE AGIANST THE CONSTITUTIONAL VALIDY OF SECTION 87 OF THE ARBITRATION AND CONCILATION ACT 1996.
The Supreme court of India on 27th November 2019 delivered a verdict which questioned the validity of section 87 of the act. This was in the case of Hindustan Construction Company Limited & Anr. v. Union of India & Ors. The background of the question of the validity of section 87 dates back to 1996. The issue then was a petition filed under section 34 for setting aside the award by an award debtor, meant an automatic stay against the enforcement of the award. So, an award holder could not realize the amounts under an award, until the setting aside petition was finally disposed.
In 2015 to rectify this dichotomy in 2015 amendment act under section 36(3) the award debtor was now required to make a specific application seeking a stay against the enforcement of the award. The said stay might be granted by the court subject to conditions including deposit of the award amount. In the later months companie’s which had received arbitral awards in their favour were unsure if the awards would suffer the fate of an automatic stay or were enforceable. Thus, section 26 of the 2015 Amendment Act, which addressed the applicability thereof came under judicial scrutiny in various courts across the country.
In 2017, Srikrishna Committee reported ambiguity. The report recommended that certainty should to be brought about by clarifying that the 2015 Amendment Act was prospective in nature. The Supreme Court's decision in BCCI. The SC in BCCI v. Kochi Cricket Private Limited (BCCI) clarified that the 2015 Amendment Act was prospective in nature before a legislative clarification on the applicability of the 2015 Amendment Act could be made. When BCCI was under consideration before the SC, the legislature proposed the change recommended by the Srikrishna Committee Report, i.e. to make the 2015 Amendment Act prospective. The SC being aware of such intended change, recommended that the legislature should not undo the object of the 2015 Amendment Act along the proposed lines.
Unfortunately, despite the observation of the SC in BCCI, the legislature, enacted the Arbitration and Conciliation (Amendment) Act, 2019, this amendment repealed section 26 of the 2015 Amendment Act and clarified that the 2015 Amendment Act was prospectively applicable only through section 87 This meant that those companies which had relied upon the BCCI decision to claim benefit of the section 36(3) of the Act and the enforcement provisions, were forced to re-evaluate their positions.
Now the issue before the court was when these companies moved to Supreme Court challenging the constitutionality of section 87 introduced by the 2019 Amendment Act, the repeal of section 26 of the 2015 Amendment.
The Supreme Court observed that on the basis of the recommendation in the Srikrishna Committee Report section 87 was introduced to remove uncertainty of the 2015 Amendment Act, the BCCI decision removed such uncertainty. The Supreme Court agreed with the Petitioner that the introduction of section 87 resurrects the mischief sought to be corrected by the 2015 Amendment Act and was therefore unconstitutional.
The Supreme Court concurred with the Petitioners that the consequence of section 87 leads to an absurd result that is the award holder becoming insolvent as it was unable to recover sums under arbitral awards. The Supreme Court hence found the repeal of section 26 of the 2015 Amendment Act and the introduction of section 87 to be violative of the Constitution of India Article 14.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.