Date: 13 December, 2020
by Divya Menon, UILS, Panjab University
CITATION: 2019 (6) ARBLR 171 (SC), 2019 (16) SC ALE 823
DECIDED ON: November 27, 2019
BENCH: Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian
The constitutional validity of section 87 of the Arbitration and Conciliation Act,1996 was challenged in the present petition.
RELEVANT FACTS OF THE PETITION:
The present petition was filed in order to challenge Section 87 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) brought in by Section 13 of Arbitration and Conciliation (Amendment) Act, 2019 (hereinafter referred to as ‘the 2019 Act’) and repeal of Section 26 of the Act via Section 15 of the 2019 Act.
The petitioner(s) argued that the unamended Act has deviated from the UNCITRAL Model by not allowing two bites at the cherry to an award debtor, i.e., one during setting aside proceedings under section 34 and one during enforcement proceedings under section 36.
It was argued that it was inconceivable that while in civil appeals there is no automatic-stay of a money decree, there should be an automatic stay against the arbitral award when a setting aside application is filed
It was also argued that the 2019 Amendment violates the objective of arbitration that is to ensure a speedy legal remedy in the form of enforceable and binding arbitral awards. It was argued to be violative of Article14,19(1)(g),21 and 300-A of the Constitution.
CONTENTIONS FROM THE RESPONDENTS:
It was contended that there was no substance to the challenge that the cut-off date of 23 October 2015 for prospective applicability was arbitrary.
It was also submitted that courts should not intervene unless the cut-off date is blatantly discriminatory.
Regarding the deviance from the UNCITRAL model, the Court said there is a conscious deviation from the UNCITRAL Model Law by not allowing two bites at the cherry to an award debtor.
The SC read section 35 (which deals with finality of an award) along with section 34 and 36 to state that it was never intended that a setting aside petition would automatically stay enforcement.
The SC observed that section 87 was introduced merely on the basis of the recommendation in the Srikrishna Committee Report to remove uncertainty around the prospective applicability of the 2015 Amendment Act.
The SC clarified that having held that there was no automatic stay under the unamended Act, the 2015 Amendment Act was only introduced to clarify such position. Therefore, section 87 was contrary to the object sought to be achieved by the 2015 Amendment Act as it sought to make the 2015 Amendment Act only applicable from 23 October 2015.
The SC 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.