In a culmination of the continuing back and forth between the Indian Supreme Court and the legislature regarding the applicability of the 2015 amendments to the Indian Arbitration Act, the Supreme Court found certain sections of the latest 2019 amendments to be unconstitutional in its decision in Hindustan Construction Company Ltd. v. Union of India.[1]

Background of events

The Indian Arbitration and Conciliation Act, 1996 ( Act) was amended in 2015 by way of the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment).

Among other things, the 2015 Amendment made it clear that the enforcement of an award (Section 36 of the Act) would not be automatically stayed by the filing of an application for set aside under Section 34 of the Act (which was the previous position whereby awards were automatically stayed).

Therefore, after the 2015 Amendments, a party would have to seek a specific stay of the operation of an award while it sought annulment.

Section 26 of the 2015 Amendments dealt with the applicability of the amendments. However, it was unclear as to how the amendments applied to court proceedings where the arbitrations had been commenced prior to the promulgation of the 2015 Amendments. This lack of clarity resulted in several differing decisions from various High Courts in India.

The issue was laid to rest by the Supreme Court in its decision in BCCI v. Kochi[2], where it was held that the 2015 Amendments would apply to:

  • Arbitrations commenced on or after the 2015 Amendments
  • Court proceedings commenced on or after the 2015 Amendments.

Importantly, in its decision, the Supreme Court held that as far as Section 36 was concerned, the amendment requiring a specific application for stay would apply retrospectively to all pending proceedings.

Earlier this year, by way of an amendment ( 2019 Amendments), the Indian parliament repealed Section 26 of the 2015 amendments and introduced Section 87 into the Act. Section 87 stated that the 2015 amendments would now apply to:

  • Arbitrations commenced on or after the 2015 amendments
  • Court proceedings in relation to arbitrations commenced on or after the 2015 amendments (and not any court proceeding commenced on or after the 2015 amendment as ruled by the Supreme Court previously).

These fresh amendments also meant that the amendments to Section 36 would now apply prospectively and effectively, BCCI v. Kochi was inapplicable.

The Supreme Court's decision and key takeaways

The Court held that Section 87 of the 2019 Amendments was manifestly arbitrary, unreasonable and contrary to the public interest to be served by the Act. On this basis, the Court concluded that Section 87 of the 2019 Amendments was unconstitutional and deserved to be struck down.

After years of confusion regarding the applicability of the 2015 Amendments, it appears that matters have finally been laid to rest and the position on this issue has now reverted to the one as laid down in BCCI v. Kochi. This decision is yet another piece of positive news for foreign investors in India since it will be easier to enforce awards without the looming threat of an automatic stay.