'India Cannot Become Hub Of Arbitration If You Go On Like This' : Justice Nariman Tells Centre On Sec 87 Of Arbitration Act

While hearing a petition challenging constitutionality of Section 87 inserted in the Arbitration and Conciliation Act by the 2019 amendment, Supreme Court judge Justice R F Nariman expressed his criticism about the provision.

"You have put the clock back", the judge told Solicitor General Tushar Mehta about the Section which nullified the effect of 2018 SC judgment deciding the prospective application of automatic stay provision in the Act.

The bench, also comprising Justice Ramasubramanian, was hearing the brought by Hindustan Construction Company Ltd.

Defending the provision, SG Mehta requested the bench to start with the presumption of constitutionality of the Act.

"We will start with presumption of unconstitutionality. You started this. World over this 2019 act is being criticized. We are all different branches of state. We all stand for national interest. India cannot become hub of arbitration if you go like this", retorted Justice Nariman.

The Supreme Court in the 2018 judgment in BCCI v. Kochi Cricket Private Limited had decided whether the amendments made to Section 36 of the Act were retrospective or prospective. It may be noted that the 2015 amendment made to Section 36 clarified that mere filing of appeal would not amount to stay of enforcement proceedings, and further introduced a provision that stay will be only conditional on furnishing security if the award relates to payment of money. Before the amendment, one could get a stay of enforcement of award by mere filing of appeal even without any security.

The bench comprising Justices Nariman and Navin Sinha held in Kochi Cricket Pvt Ltd case that the 2015 amendment to Section 36 will apply only to:

(a) arbitral proceedings commenced on or after October 23, 2015 (date of commencement of the Amendment Act); and

(b) arbitration-related court proceedings filed on or after October 23, 2015, even where the arbitral proceedings had been commenced before the amendments came into force.

Section 87 of the Act, inserted by 2019 Amendment Act, states that the 2015 Amendment will not apply to Court proceedings arising out of or in relation to arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015. To this extent, Section 87 goes against the Kochi Cricket Pvt Ltd judgment.

In fact, the judgment had criticized the the move of the Government to introduce Section 87 through Amendment. The judgment authored by Justice Nariman stated as follows :

"The Government will be well-advised in keeping the aforesaid Statement of Objects and Reasons in the forefront, if it proposes to enact Section 87 on the lines indicated in the Government's press release dated 7th March, 2018. The immediate effect of the proposed Section 87 would be to put all the important amendments made by the Amendment Act on a back-burner, such as the important amendments made to Sections 28 and 34 in particular, which, as has been stated by the Statement of Objects and Reasons, "...have resulted in delay of disposal of arbitration proceedings and increase in interference of courts in arbitration matters, which tend to defeat the object of the Act", and will now not be applicable to Section 34 petitions filed after 23rd October,2015, but will be applicable to Section 34 petitions filed in cases where arbitration proceedings have themselves commenced only after 23rd October, 2015. This would mean that in all matters which are in the pipeline, despite the fact that Section 34 proceedings have been initiated only after 23rd October, 2015, yet, the old law would continue to apply resulting in delay of disposal of arbitration proceedings by increased interference of Courts, which ultimately defeats the object of the 1996 Act. It would be important to remember that the 246th Law Commission Report has itself bifurcated proceedings into two parts, so that the Amendment Act can apply to Court proceedings commenced on or after 23rd October, 2015. It is this basic scheme which is adhered to by Section 26 of the Amendment Act, which ought not to be displaced as the very object of the enactment of the Amendment Act would otherwise be defeated".

After hearing the submissions made by Senior Advocate Dr Abhishek Manu Singhvi for the petitioner, Justice Nariman on Friday observed that Section 87 goes against the spirit of the Kochi Cricket Pvt Ltd judgment,t. The matter will be heard next on October 17.

Justice Nariman had recently aired his views against the changes brought by 2019 amendment while speaking at an event in New Delhi.

Several provisions of the amendment, including Section 87, were retrograde leading to absurdity, he said.