Section 87 relief for private companies

In a significant move, the Supreme Court, in Hindustan Construction Company Ltd v Union of India, granted a huge relief to several debt-ridden private sector companies (which are acting as contractors of the government) by striking down section 87 of the Arbitration and Conciliation Act, 1996. The section was introduced via the Arbitration and Conciliation (Amendment) Act, 2019, which mandates the automatic stay of the enforcement of the arbitral award that arises from arbitration proceedings initiated prior to 23 October 2015.

The court’s decision to strike down section 87 is crucial, as private companies such as Hindustan Construction Company, Gammon Engineers and Contractors and other construction companies are required to receive nearly ₹70 billion (US$983 million) in the form of an arbitral award from government entities. The arbitral award was passed in favour of the private companies, but due to the introduction of section 87, i.e., when a suit is filed under section 34 of the act, it automatically stays the enforcement of the arbitral award, leading the private entities into a financial mess that may ultimately push them into insolvency and bankruptcy.