03 December 2019

Arbitration – No automatic stay on challenge to arbitral award – SC strikes down Section 87

Larger Bench of the Supreme Court has struck down the deletion of Section 26 of the 2015 Arbitration Amendment Act, together with the insertion of Section 87 into the Arbitration and Conciliation Act, 1996 by the 2019 Amendment Act, as being manifestly arbitrary under Article 14 of the Constitution of India. Section 87 provided that unless the parties agreed otherwise, the 2015 Amendments would apply prospectively to all arbitral and court proceedings.

Observing that Section 36, even as originally enacted, is not meant to do away with Article 36(2) of the UNCITRAL Model Law, the Apex Court in its judgment dated 27-11-2019 held that the amended Section 36 (as amended in 2015) is clarificatory in nature.

It noted that an arbitral award, just because it has been challenged under Section 34, does not become unexecutable merely by virtue of such challenge being made. The Court was of the view that to read unamended Section 36 of the Arbitration Act (before 2015) as inferring something negative, namely, that where the time for making an application under Section 34 has not expired and therefore, on such application being made within time, an automatic-stay ensues, is to read something into Section 36 which is not there at all.

Supreme Court decisions in the cases of NALCO, National Buildings Construction Corporation Ltd. and Fiza Developers were held to have laid down the law incorrectly.

The Court also held that the BCCI judgment will continue to apply so as to make applicable the salutary amendments made by the 2015 Amendment Act to all court proceedings initiated after 23-10-2015.

The Court in this case of Hindustan Construction Company Limited v. Union of India also noted that retrospective resurrection of an automatic-stay of arbitral awards in case of challenge 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.