NEW DELHI: In a significant ruling, the Supreme Court on Wednesday struck down Section 87 of the Arbitration and Conciliation Act, saying its retrospective effect was manifestly arbitrary.
A bench headed by Justice Rohinton Fali Nariman was hearing a petition by Hindustan Construction Company (HCC), which said because of non-payment of dues, it was facing a financial crisis that could destroy its shareholders’ value and force the company to face insolvency proceedings.
Introduced as an amendment Act this year, Section 87 had allowed automatic stay on all arbitral awards. The bench criticised the provision saying it turned the clock back and pushed firms into insolvency.
“The automatic stay provision denies an opportunity to companies to pay their creditors from the money received from arbitral awards in cases where there is no stay, or even in cases where conditional stays are granted,” the bench observed.
As against Rs 6,070 crore arbitral award dues to HCC, the loans taken by it totalled Rs 3,948 crore, the firm had told the SC during the hearing.