HINDUSTAN CONSTRUCTION COMPANY LIMITED & ANR.DIA & ORS. versus UNION OF INDIA on 27 November 2019

HINDUSTAN CONSTRUCTION COMPANY LIMITED & ANR.

v.

UNION OF INDIA & ORS.

(Writ Petition (Civil) No. 1074 of 2019)

NOVEMBER 27, 2019

[R. F. NARIMAN, SURYA KANT AND

V. RAMASUBRAMANIAN, JJ.]

Arbitration and Conciliation Act, 1996: ss.34 to 36 –Automatic stay of award – Held: s.36 when read with s.35 statesthat enforcement of a final award will be under the CPC, and inthe same manner as if it were a decree of the Court – The raisond’etre for s.36 is only to make it clear that when an arbitral awardis not susceptible to challenge, either because the time for makingan application to set it aside has expired, or such applicationhaving been made is refused, the award, being final and binding,shall be enforced under the CPC, as if it were a decree of the court– To read s.36 as inferring something negative, namely, that wherethe time for making an application under s.34 has not expired and,therefore, on such application being made within time, anautomatic-stay ensues, is to read something into s.36 which is notthere at all – Automatic stay of award is, therefore, not a rule –Also, this construction omits to consider the rest of s.36, whichdeals with applications under s.34 that have been dismissed, whichleads to an award being final and binding when read with s.35which then becomes enforceable under the CPC, the award beingtreated as a decree for this purpose – This is also supported bythe language of s.9 of the Arbitration Act, 1996, which specificallyenables a party to apply to a Court for reliefs “…after the makingof the arbitration award but before it is enforced in accordancewith s.36.” – These words in s.9 have not undergone any changeby reason of the 2015 or 2019 Amendment Acts – Further, s.36,even as originally enacted, was not meant to do away withArt.36(2) of the UNCITRAL Model Law, but is really meant to doaway with the two bites at the cherry doctrine in the context ofawards made in India, and the fact that enforcement of a finalaward, when read with s.35, is to be under the CPC, treating theaward as if it were a decree of the court – The amended s.36, being

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Aclarificatory in nature, merely restates the position that theunamended s.36 does not stand in the way of the law as to grantof stay of a money decree under the provisions of the CPC.

Arbitration and Conciliation (Amendment) Act, 2019: s.13 –Removal of basis of *BCCI judgment by Amendment Act, 2019 –BWhether 2019 Amendment Act removes the basis of *BCCIjudgment of Supreme Court – Held: Argument that the question ofremoving the basis of a judgment cannot arise unless and until thejudgment is present in the mind of the legislature and expresslyreferred to in the concerned Statement of Objects and Reasons isrejected – What is important is to see whether in substance, theCbasis of a particular judgment is in fact removed, and not whetherthat judgment is referred to in the Statement of Objects and Reasonsof the amending act which seeks to remove its basis – Furtherargument that s.87 is nothing but a rehash of s.26 is also rejected– The scheme of s.87 is different from that of s.26, and is explicitDin stating that court proceedings are merely parasitical on arbitralproceedings – It is, therefore, clear that only arbitral proceedingshave to be looked at to see whether the 2015 Amendment Act kicksin – Argument that in the instant case there was a direct assaulton a judgment of this Court without first removing its basis is,therefore, rejected – Legislative competence – Arbitration andEConciliation Act, 1996.

Arbitration and Conciliation Act, 1996: s.87 – Constitutionalvalidity of introduction of s.87 into the Arbitration Act, 1996, anddeletion of s.26 of the 2015 Amendment Act by the 2019 AmendmentAct – Held: The law on s.26 of the 2015 Amendment Act was laidFdown in *BCCI with great clarity – After construing s.26, the Courtcautioned the Government that the immediate effect of enacting theproposed s.87 would be directly contrary to the Statement andObjects and Reasons of the 2015 Amendment Act, which made itclear that the law prior to the 2015 Amendment Act resulted inGdelay of disposal of arbitral proceedings and an increase ininterference by courts in arbitration matters which tends to defeata primary object of the Arbitration Act, 1996 – To thereafter deletethis salutary provision and introduce s.87 in its place would bewholly without justification and contrary to the object sought tobe achieved by the 2015 Amendment Act, which was enactedHpursuant to a detailed Law Commission Report which found various infirmities in the working of the original 1996 statute – Theintroduction of s.87 and deletion of s.26 of the 2015 AmendmentAct was thus manifestly arbitrary having been enactedunreasonably, without adequate determining principle and contraryto the public interest sought to be subserved by the Arbitration Act,1996 and the 2015 Amendment Act – Arbitration and Conciliation(Amendment) Act, 2015 – s.26.

Arbitration and Conciliation Act, 1996: s.34 – It is wellsettled law that an application under s.34 of the Act, 1996 is asummary proceeding not in the nature of a regular suit – As aresult, a court reviewing an arbitral award under s.34 does not sitin appeal over the award, and if the view taken by the arbitratoris possible, no interference is called for.

Insolvency and Bankruptcy Code, 2016: s.3(7) –Interpretation of term ‘Corporate person’ – Plea that for recoveryof money from Government Companies, the definition of ‘corporateperson’ contained in s.3(7) of the Insolvency Code should eitherbe read without the words “with limited liability” contained in thethird part of the definition or have s.3(23)(g) of the InsolvencyCode, which is the definition of ‘person’ read into the said provision– Held: A statutory body which functions as an extended limb ofthe Central Government, and performs governmental functionscannot be taken over by a resolution professional under theInsolvency Code, or by any other corporate body – Nor can suchAuthority ultimately be wound-up under the Insolvency Code – Forsuch reasons, it is not possible to either read in, or read down,the definition of ‘corporate person’ in s.3(7) of the InsolvencyCode.

Insolvency and Bankruptcy Code, 2016: Object of – Held:The Insolvency Code is not meant to be a recovery mechanism, theidea of the Code being a mechanism which is triggered in orderthat resolution of stressed assets then takes place.

Insolvency and Bankruptcy Code, 2016: s.5(6) – Definitionof ‘dispute’ – Held: The definition of ‘dispute’ in s.5(6) of theInsolvency Code deals with a suit or arbitration proceedingsrelating to one of three things - (a) the existence of the amount ofdebt; (b) the quality of goods or service; or (c) the breach of arepresentation or warranty – Insofar as (a) is concerned, the AB

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Adefinition of the word ‘debt’ contained in s.3(11) of the InsolvencyCode, refers to a liability or obligation in respect of a claim whichis due from any person – This necessarily postulates the existenceof a contractual or other relationship, which gives rise to a liabilityor obligation between parties in law – The same goes for (c), as abreach of a representation or warranty can only be by oneBcontracting party to another – Also, when the quality of goods orservice is referred to in (b), this again postulates some contractualor other relationship in law by which one party may sue the other– Therefore, a dispute must be between the parties as understoodunder the Insolvency Code, which does not contain an Or.VIII-ACCPC type mechanism – Code of Civil Procedure, 1908 – Or.VIII-A.

Conclusion

Constitution of India: Art.32 – Writ jurisdiction, invocationof – Factual disputes between parties relating to exact quantumof arbitral awards in favour of petitioner company – Held: It isDsettled law that when exercising its jurisdiction under Art.32 of theConstitution, Supreme Court cannot embark on a detailedinvestigation of disputed facts – In the instant case, there wasfactual dispute between the parties relating to: (i) the exactquantum of the arbitral awards in favour of the Petitioner companydue from the Respondent PSUs; (ii) the amounts which may haveEalready been paid and/or deposited by the Respondent PSUs infavour of the Petitioner company under the said arbitral awards;and (iii) whether stay orders of competent Courts were passed inrespect of these arbitral awards, and if so, whether they were underthe automatic-stay mode or not – This Court cannot, therefore, in Fexercise of its jurisdiction under Art.32 undertake a detailedinvestigation to determine the status of monies paid/depositedpursuant to arbitral-awards in favour of the Petitioner company– Consequently, no directions in respect thereof can be made inthese proceedings.GDisposing the writ petitions, the Court HELD: 1.1 It was argued on behalf of Petitioner thatunder the UNCITRAL Model Law, in case an award were to bepassed, whether domestic or international, in the same country,two bites at the cherry would be available: one at the time ofHsetting aside the award and one at the time of recognition and enforcement; and that the Arbitration Act, 1996 has not followedthis model and has a far more robust enforcement regime asSection 36 of the Arbitration Act, 1996 mandates that once anaward can be said to be final, it can be executed in the mannerprovided by the CPC. It is correct to state that Section 36 ofthe Arbitration Act, 1996 does not follow the two bites at thecherry doctrine, for the reason that when an award made in Indiabecomes final and binding, it shall straightaway be enforcedunder the CPC, and in the same manner as if it were a decreeof the Court, there being no recourse to the self-same groundswhen it comes to recognition and enforcement. In point of fact,the raison d’etre for Section 36 is only to make it clear that whenan arbitral award is not susceptible to challenge, either becausethe time for making an application to set it aside has expired,or such application having been made is refused, the award,being final and binding, shall be enforced under the CPC as if itwere a decree of the court. This becomes clear when Section36 and 35 of the Arbitration Act, 1996 are read together. [Para13, 22] [351-A-B; 356-D-F]

National Aluminum Company Ltd. (NALCO) v. Pressteel& Fabrications (P) Ltd. and Anr. (2004) 1 SCC 540 ;Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI

(India) Pvt. Ltd. and Anr. (2009) 17 SCC 796 : [2009]12 SCR 1 – per incurium.

National Buildings Construction Corporation Ltd. v.Lloyds Insulation India Ltd. (2005) 2 SCC 367 – notcorrect law.

1.2 To state that an award when challenged under Section34 becomes unexecutable merely by virtue of such challengebeing made because of the language of Section 36 is plainlyincorrect. Section 36 was enacted for a different purpose. Whenread with Section 35, all that Section 36 states is thatenforcement of a final award will be under the CPC, and in thesame manner as if it were a decree of the Court. To read Section36 as inferring something negative, namely, that where the timefor making an application under Section 34 has not expired andtherefore, on such application being made within time, anautomatic-stay ensues, is to read something into Section 36 which AB

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Ais not there at all. Also, this construction omits to consider therest of Section 36, which deals with applications under Section34 that have been dismissed, which leads to an award being finaland binding (when read with Section 35 of the Arbitration Act,1996) which then becomes enforceable under the CPC, theaward being treated as a decree for this purpose. This also findsBsupport from the language of Section 9 of the Arbitration Act,1996, which specifically enables a party to apply to a Court forreliefs “…after the making of the arbitration award but before itis enforced in accordance with Section 36.” [Paras 25-27] [358-B-C, E-G]CLeela Hotels Ltd. v. Housing and Urban DevelopmentCorporation Ltd. (2012) 1 SCC 302 : [2011] 13 SCR156 – relied on.

Dirk India Pvt. Ltd. v. Maharashtra State PowerGeneration Company Ltd. 2013 SCC Online Bom 481D– referred to.

1.3 The automatic stay of an award is incorrect. Section36 - even as originally enacted - is not meant to do away withArticle 36(2) of the UNCITRAL Model Law, but is really meantto do away with the two bites at the cherry doctrine in theEcontext of awards made in India, and the fact that enforcementof a final award, when read with Section 35, is to be under theCPC, treating the award as if it were a decree of the court. [Para30] [360-B-C]

REMOVAL OF THE BASIS OF THE BCCI JUDGMENTFBY THE 2019 AMENDMENT ACT

2.1 The argument is made that in all the major cases inwhich a judgment of a court is nullified by removing its basis,the judgment in question has been expressly referred to in theconcerned Statement of Objects and Reasons. This argument isGrejected. What is important is to see whether in substance, thebasis of a particular judgment is in fact removed, whether or notthat judgment is referred to in the Statement of Objects andReasons of the amending act which seeks to remove its basis.Section 15 of the 2019 Amendment Act removes the basis ofHBCCI by omitting from the very start Section 26 of the 2015

Amendment Act. Since this is the provision that has beenconstrued in the BCCI judgment, there can be no doubtwhatsoever that one fundamental prop of the said judgment hasbeen removed by retrospectively omitting Section 26 altogetherfrom the very day when it came into force. [Paras 41, 45] [370-C-D; 372-B-C]

Shri Prithvi Cotton Mills Ltd. and Anr. v. BroadBorough Municipality and Ors. (1969) 2 SCC 283 :[1970] 1 SCR 388 ; State of Tamil Nadu v. ArooranSugars Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl. SCR193 ; Goa Foundation v. State of Goa (2016) 6 SCC602 : [2016] 1 SCR 1025 ; *BCCI v. Kochi CricketPvt. Ltd. (2018) 6 SCC 287: [2018] 2 SCR 829 –relied on.

2.2 Equally, the argument that Section 87 is nothing but are-hash of Section 26, and therefore in substance there is adirect encroachment on a judgment of this Court, must also berejected. When contrasted with Section 26, Section 87 is in twoparts: Section 87(a) negatively stating that the 2015 AmendmentAct shall not apply to Court proceedings arising out of arbitralproceedings irrespective of whether such court proceedings arecommenced before or after the commencement of the 2015Amendment Act; and positively applying only to courtproceedings in case they arise out of arbitral proceedings thatare commenced on or after the commencement of the 2015Amendment Act. It can thus be seen that the scheme of Section87 is different from that of Section 26, and is explicit in statingthat court proceedings are merely parasitical on arbitralproceedings. It is therefore clear that only arbitral proceedingshave to be looked at to see whether the 2015 Amendment Actkicks in. [Para 46] [372-D-F]

3. Constitutional Challenge to the 2019 Amendment Act 3.1 The Srikrishna Committee Report recommended theintroduction of Section 87 owing to the fact that there wereconflicting High Court judgments on the reach of the 2015Amendment Act at the time when the Committee deliberatedon this subject. The Srikrishna Committee Report is dated A

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A30.07.2017, which is long before this Court’s judgment in theBCCI case. Whatever uncertainty there may have been becauseof the interpretation by different High Courts has disappearedas a result of the BCCI judgment, the law on Section 26 of the2015 Amendment Act being laid down with great clarity. Tothereafter delete this salutary provision and introduce SectionB87 in its place, would be wholly without justification and contraryto the object sought to be achieved by the 2015 Amendment Act,which was enacted pursuant to a detailed Law Commissionreport which found various infirmities in the working of theoriginal 1996 statute. Also, it is not understood as to howC“uncertainty and prejudice would be caused, as they may haveto be heard again”, resulting in an ‘inconsistent position’. Theamended law would be applied to pending court proceedings,which would then have to be disposed of in accordancetherewith, resulting in the benefits of the 2015 Amendment Act now being applied. To refer to the Srikrishna Committee ReportD(without at all referring to this Court’s judgment) even afterthejudgment has pointed out the pitfalls of following such provision,would render Section 87 and the deletion of Section 26 of the2015 Amendment Act manifestly arbitrary, having been enactedunreasonably, without adequate determining principle, andEcontrary to the public interest sought to be subserved by theArbitration Act, 1996 and the 2015 Amendment Act. This is forthe reason that a key finding of the BCCI judgment is that theintroduction of Section 87 would result in a delay of disposal ofarbitration proceedings, and an increase in the interference ofcourts in arbitration matters, which defeats the very object ofFthe Arbitration Act, 1996, which was strengthened by the 2015Amendment Act. Further, this Court has repeatedly held thatan application under Section 34 of the Arbitration Act, 1996 is asummary proceeding not in the nature of a regular suit. As aresult, a court reviewing an arbitral award under Section 34 doesGnot sit in appeal over the award, and if the view taken by thearbitrator is possible, no interference is called for. [Paras 47-49] [372-H; 373-A; 374-C-H; 375-A-B]

Canara Nidhi Ltd. v. M. Shashikala 2019 SCC OnlineSC 1244 ; Associated Construction v. PawanhansHHelicopters Ltd. (2008) 16 SCC 128 – relied on.

3.2 It has been held in *Sangyong Engineering that afterthe 2015 Amendment Act, this Court cannot interfere with anarbitral award on merits. The anomaly, therefore, of Order XLIRule 5 of the CPC applying in the case of full-blown appeals,and not being applicable by reason of Section 36 of theArbitration Act, 1996 when it comes to review of arbitral awards,(where an appeal is in the nature of a rehearing of the originalproceeding, where the chance of succeeding is far greater thanin a restricted review of arbitral awards under Section 34), isitself a circumstance which militates against the enactment ofSection 87, placing the amendments made in the 2015Amendment Act, in particular Section 36, on a backburner. Forthis reason also, Section 87 must be struck down as manifestlyarbitrary under Article 14. The petitioners are also correct instating that when the mischief of the misconstruction of Section36 was corrected after a period of more than 19 years bylegislative intervention in 2015, to now work in the reversedirection and bring back the aforesaid mischief itself results inmanifest arbitrariness. The retrospective resurrection of anautomatic-stay not only turns the clock backwards contrary tothe object of the Arbitration Act, 1996 and the 2015 AmendmentAct, but also results in payments already made under theamended Section 36 to award-holders in a situation of no-stayor conditional-stay now being reversed. In fact, refundapplications have been filed in some of the cases before us,praying that monies that have been released for payment as aresult of conditional stay orders be returned to the judgment-debtor. [Para 50] [375-C-G]

*Sangyong Engineering & Construction Co. Ltd. v.

NHAI (2019) SCC Online 677 – relied on.

3.3 Also, it is important to notice that the SrikrishnaCommittee Report did not refer to the provisions of theInsolvency Code. After the advent of the Insolvency Code on01.12.2016, the consequence of applying Section 87 is that dueto the automatic-stay doctrine laid down by judgments of thisCourt - which have only been reversed by the present judgment- the award-holder may become insolvent by defaulting on itspayment to its suppliers, when such payments would beforthcoming from arbitral awards in cases where there is no stay, AB

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Aor even in cases where conditional stays are granted. Also, anarbitral award-holder is deprived of the fruits of its award - whichis usually obtained after several years of litigating - as a resultof the automatic-stay, whereas it would be faced with immediatepayment to its operational creditors, which payments may notbe forthcoming due to monies not being released on account ofBautomatic-stays of arbitral awards, exposing such award-holdersto the rigors of the Insolvency Code. For all these reasons, thedeletion of Section 26 of the 2015 Amendment Act, together withthe insertion of Section 87 into the Arbitration Act, 1996 by the2019 Amendment Act, is struck down as being manifestlyCarbitrary under Article 14 of the Constitution. [Para 51] [375-H; 376-A-C]

UOI v. Parameswaran Match Works (1975) 1 SCC305 : [1975] 2 SCR 573 ; Govt. of A.P. v. N.Subbarayudu (2008) 14 SCC 702 : [2008] 5 SCR 522D– held inapplicable.

3.4 The BCCI judgment will continue to apply so as tomake applicable the salutary amendments made by the 2015Amendment Act to all court proceedings initiated after23.10.2015. [Para 54] [377-A]

ECONSTITUTIONAL CHALLENGE TO THEINSOLVENCY CODE

4.1 The first part of ‘corporate person’, as defined inSection 3(7) of the Insolvency Code, means a company asdefined in Clause 20 of Section 2 of the Companies Act 2013.FSections 2(20) and 2(45) of the Companies Act, 2013 define‘company’ and ‘Government Company’. The three entities whoowe monies under arbitral awards to the Petitioner No.1, beingGovernment companies, would be subsumed within the first partof the definition. However, so far as NHAI is concerned,Gpetitioner’s argument of either deleting certain words in Section3(7) of the Insolvency Code, or adding certain words in Section3(23)(g) of the Insolvency Code into Section 3(7) cannot beaccepted. [Paras 57, 58] [378-D-E-G-H; 379-A]

4.2 It is clear from a reading of the Statement of ObjectsHand Reasons of the NHAI Act, that the development and maintenance of national highways is a government function thatfalls within Entry 23 of List I of the Seventh Schedule to theConstitution of India. Further, under Section 5 of the NationalHighways Act, 1956, the Central Government may direct thatany function in relation to the development or maintenance ofnational highways shall also be exercisable by any officer orauthority subordinate to the Central Government. Under thisprovision, the function of execution of activities relatable tonational highways was earlier delegated to the StateGovernments under an “agency system”. Though the systemworked through the State Public Works Departments for a periodof 40 years, as difficulties were experienced, the Centre itselfdecided to take over development and maintenance of thenational highways system through the creation of a nationalhighways authority. [Para 59] [379-B-C]

4.3 NHAI is a statutory body which functions as anextended limb of the Central Government, and performsgovernmental functions which obviously cannot be taken overby a resolution professional under the Insolvency Code, or byany other corporate body. Nor can such Authority ultimately bewound-up under the Insolvency Code. For all these reasons, itis not possible to either read in, or read down, the definition of‘corporate person’ in Section 3(7) of the Insolvency Code. Themoment challenges are made to the arbitral awards, the amountsaid to be due by an operational debtor would become disputed,and therefore be outside the clutches of the Insolvency Code.Looked at from any point of view, therefore, proceeding againstthe NHAI under the Insolvency code by the Petitioner No.1 isnot possible. [Paras 63, 65] [386-E-F; 387-F]

Pioneer Urban Land and Infrastructure Limited andAnr. v. Union of India and Ors. (2019) 8 SCC 416 ;Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC17 : [2019] 3 SCR 535 – referred to.

4.4 The argument that the definition of ‘dispute’ underSection 5(6) of the Insolvency Code does not speak of the‘parties’ to a dispute, and can therefore be interpreted to includea dispute between a sub-contractor and the principal employerwith whom the sub-contractor may have no privity of contract, AB

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342SUPREME COURT REPORTS

Aalso not accepted. The definition of ‘dispute’ in Section 5(6) ofthe Insolvency Code deals with a suit or arbitration proceedingsrelating to one of three things - (a) the existence of the amountof debt; (b) the quality of goods or service; or (c) the breach ofa representation or warranty. Insofar as (a) is concerned, thedefinition of the word ‘debt’ contained in Section 3(11) of theBInsolvency Code, refers to a liability or obligation in respect ofa claim which is due from any person. This necessarily postulatesthe existence of a contractual or other relationship, which givesrise to a liability or obligation between parties in law. The samegoes for (c), as a breach of a representation or warranty can onlyCbe by one contracting party to another. Also, when the qualityof goods or service is referred to in (b), this again postulatessome contractual or other relationship in law by which one partymay sue the other. It is clear therefore that a dispute must bebetween the partiesas understood under the Insolvency Code, which does not contain an Order VIII-A CPC type mechanism.D[Paras 68, 69, 71] [388-E-H; 389-E]

6. A perusal of the rival contentions makes it clear thatthere is a factual dispute between the parties relating to: (I) theexact quantum of the arbitral-awards in favour of the Petitionercompany due from the Respondent PSUs; (II) the amountsEwhich may have already been paid and/or deposited by theRespondent PSUs in favour of the Petitioner company under thesaid arbitral awards; and (III) whether stay orders of competentCourts were passed in respect of these arbitral awards, and ifso, whether they were under the automatic-stay mode or not.FThis Court cannot in exercise of its jurisdiction under Article32 of the Constitution undertake a detailed investigation todetermine the status of monies paid/deposited pursuant toarbitral-awards in favour of Petitioner company. Consequently,no directions in respect thereof are made in these proceedings.[Paras 78, 79, 82] [392-F-G; 394-D-E]G

Gulabdas & Co. v. Asstt. Collector of Customs AIR1957 SC 733 – followed.

Surendra Prasad Khugsal v. Chairman, MMTC. (1994)Supp. 1 SCC 87 ; Sumedha Nagpal v. State of DelhiH(2000) 9 SCC 745 – relied on.

HINDUSTAN CONSTRUCTION COMPANY LIMITED v.UNION OF INDIA & ORS.

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt.Ltd. (2018) 1 SCC 353 : [2017] 10 SCR 1006 ;K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2018)17 SCC 662 : [2018] 10 SCR 959 ; Chloro Controls(I) Pvt. Ltd. v. Seven Trent Water Purification Inc.(2013) 1 SCC 641 : [2012] 13 SCR 402 – referredto.

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Case Law Reference

344SUPREME COURT REPORTS

ACIVIL ORIGINAL/APPELLATE JURISDICTION : WritPetition (Civil) No. 1074 of 2019.

[Under Article 32 of The Constitution of India]

With

BWrit Petition (Civil) Nos. 1276, 1310 of 2019, M.A. Nos. 2140-2144 of 2019 in Civil Appeal Nos. 2621-2625 of 2019.

K. K. Venugopal, AG, Tushar Mehta, SG, Ms. Pinky Anand,Maninder Acharya, ASGs, Dr. A. M. Singhvi, Mukul Rohatgi, NeerajKishan Kaul, Nakul Diwan, Ritin Rai, C. A. Sundaram, Sr. Advs.,CMahesh Agarwal, Rishi Agarwala, Ankur Saigal, Ms. Madhavi Khanna,Ms. Devika Mohan, Samar Kachwaha, Ms. Chanan Parwani,Ms. Namisha Chadha, Ms. Shruti Arora, E. C. Agrawala, C. M. Patel,Ms. Awantika Manohar, Ms. Nooreen Sarna, Prashant Kumar, JosephPookkatt, Ms. Gunjan Mathur, Mridul Godha, M/s. AP & J Chambers,Ashwani Kumar, Jay Kumar, Ms. Peeha Verma, Ms. ChinmayeeDChandra, Rajat Nair, Kanu Agrawal, Ankur Talwar, Sumit Teterwal,Ms. Snidha Mehra, Chakitan Papta, Mrs. Anil Katiyar, Arvind KumarSharma, Shailesh Madiyal, Sudhanshu Prakash, Kartik Anand,Ms. Madhu Sweta, Ms. Kanika Tandon, Ms. Subashree Mohapatra,Siddharth R. Agarwal, Ms. Astha Tyagi, Piyush Sharma, Gauhar Mirza,EMs. Amee Rana, Nishant Doshi, Manavendra Gupta, S. S. Shroff, ShailKumar Dwivedi, Siddharth Krishna Dwivedi, Ms. Vibha Dwivedi,Ms. Nidhi Dwivedi, Ashish Bhan, Mohit Rohatgi, Ketan Gaur, AyushMitruka, Rajendra Dangwal, Syed Jafar Alam, Abhishek Gupta, ZafarInayat, Ms. Rohini Musa, Tarun Johri, Ankur Gupta, Ravindra Lokhande,Satayam Singh, Advs. for the appearing parties.F

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

1. This set of Writ Petitions seek to challenge the constitutionalvalidity of Section 87 of the Arbitration and Conciliation Act, 1996G(hereinafter referred to as the “Arbitration Act, 1996”) as inserted bySection 13 of the Arbitration and Conciliation (Amendment) Act, 2019(hereinafter referred to as the “2019 Amendment Act”) and broughtinto force with effect from 30.08.2019. They also seek to challengethe repeal (with effect from 23.10.2015) of Section 26 of the ArbitrationHand Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “2015 Amendment Act”) by Section 15 of the 2019 Amendment Act.Apart from the aforesaid challenge, a challenge is also made to variousprovisions of the Insolvency and Bankruptcy Code, 2016 (hereinafterreferred to as the “Insolvency Code”) which, as stated by thePetitioners, result in discriminatory treatment being meted out to them.

2. The facts relevant for the determination of these matters maybe gleaned from Writ Petition (Civil) No.1074 of 2019. The PetitionerNo.1 therein, i.e. Hindustan Construction Company Limited, is aninfrastructure construction company involved in the business ofconstruction of public-utilities and projects like roads, bridges,hydropower and nuclear plants, tunnels and rail facilities. The Petitionercompany, inter alia, undertakes these building projects as a contractorfor government bodies such as the National Highways Authority of India(“NHAI”, i.e. Respondent No.5 in the Writ Petition), NHPC Ltd.(“NHPC”, i.e. Respondent No.6), NTPC Ltd. (“NTPC”, i.e.Respondent No.8), IRCON International Ltd. (“IRCON”, i.e.Respondent No.7) and the Public Works Department (“PWD”). Suchprojects are allotted to the Petitioner through the public tendering system.As Government bodies are owners and beneficiaries of such projects,cost overrun is almost invariably disputed by these bodies, leading tohuge delays in the recovery of the legitimate dues of the petitioners.Also, these dues can only be recovered through civil proceedings orthrough arbitrations.

3. Arbitration awards that are in favour of the Petitioner companyare invariably challenged under Sections 34 and 37 of the ArbitrationAct, 1996, and on average, more than 6 years are spent in defendingthese challenges. The major problem in the way of the Petitioners isthat the moment a challenge is made under Section 34, there is an‘automatic-stay’ of such awards under the Arbitration Act, 1996.

4. The Petitioners are then subjected to a double-whammy.Government bodies other than Government companies are exempt fromthe Insolvency Code because they are statutory authorities orgovernment departments. Even if they can be said to be operationaldebtors - which is not the case - the moment a challenge is filed to anaward under Section 34 and/or Section 37 of the Arbitration Act, 1996,such debt becomes a ‘disputed debt’ under the judgments of this Court,and proceedings initiated under the Insolvency Code at the behest ofthe Petitioner company, not being maintainable in any case, would be A

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Adismissed at the threshold. Huge sums of money are therefore due fromall these companies/government/government bodies to the Petitioners.

5. On the other hand, in order that the Petitioner companycontinue to operate, the Petitioner owes large sums to operationalcreditors for supplying men, machinery and material for the projects.BIt is stated in the Writ Petition No.1074 of 2019 that Demand Noticeshave been issued to the Petitioner by a large number of operationalcreditors for sums amounting to over a hundred crores.

6. Dr. Abhishek Manu Singhvi, learned Senior Advocateappearing on behalf of the Petitioner No.1 in Writ Petition No.1074 ofC2019, has argued that the Arbitration Act, 1996 is based upon theUNCITRAL Model Law on International Commercial Arbitration (asadopted by the United Nations Commission on International Trade Lawon 21 June 1985) (hereinafter referred to as the “UNCITRAL ModelLaw”), Article 36(2) of which specifically refers to applications forsetting aside or suspension of an award, in which the other party mayDprovide appropriate security. Contrary to Article 36 of the UNCITRALModel Law, Section 36 of the Arbitration Act, 1996 has been construedby judgments of this Court as granting an ‘automatic-stay’ the momenta Section 34 application is filed within time. According to the learnedSenior Advocate, from the plain language of Section 36, automatic-stayEdoes not follow, and the judgments of this Court which have so heldwould require a revisit by this larger bench. In any case, the 246[th] Reportof the Law Commission of India titled, ‘Amendments to the Arbitrationand Conciliation Act, 1996’ (August, 2014) (hereinafter referred to asthe “246[th] Law Commission Report”) recommended that Section 36 beamended, which was in fact done by the 2015 Amendment Act, so thatFautomatic-stays are now things of the past. However, despite the factthat the 2015 Amendment Act made large-scale changes to theArbitration Act, 1996, keeping in view the objects of the Arbitration Act,1996 of minimum judicial intervention, speedy determination andrecovery of amounts contained in arbitral awards, yet, another ‘High-Level Committee to Review the Institutionalisation of ArbitrationGMechanism in India’ headed by Retd. Justice B.N. Srikrishna by itsreport dated 30.07.2017 (hereinafter referred to as the “SrikrishnaCommittee Report”) opined that the 2015 Amendment Act should notapply to pending court proceedings which have commenced after23.10.2015 (i.e. the date of the 2015 Amendment Act coming into force),Hbut should only apply in case arbitral proceedings have themselves been

commenced post 23.10.2015, which would include court proceedingsrelating thereto. He argued that the Government of India issued a PressRelease on 07.03.2018 to enact a new Section 87 in accord with whatthe Srikrishna Committee Report had opined, which was pointed out tothis Court before it decided the case of BCCI v. Kochi Cricket Pvt.Ltd. (2018) 6 SCC 287 (which was decided on 15.03.2018). Despitethe fact that this Court specifically opined in the said judgment that theaforesaid provision would be contrary to the object of the 2015Amendment Act, and despite the fact that the judgment was specificallysent to the Ministry of Law and Justice and to the learned AttorneyGeneral for India, Section 87 was enacted, reference being made onlyto the Srikrishna Committee Report, without even a mention of theaforesaid judgment of this Court in BCCI (supra). Consequently, thelearned Senior Advocate argued that since the basis of a judgment ofthe Supreme Court can only be removed if there is a pointed referenceto the said judgment, obviously the judgment of this Court has beensought to be directly overturned without removing its basis. Further,Section 87 flies in the face of not only the object of the Arbitration Act,1996 as a whole and the objects for enacting the 2015 Amendment Act,but is also contrary to Section 35 of the Arbitration Act, 1996. He hasstated that it is amazing that in a Civil Court where a full-blooded appealis filed, Order XLI Rule 5 of the Code of Civil Procedure, 1908(hereinafter referred to as the “CPC”) is to apply, there being noautomatic-stay of a money decree; whereas in a summary proceedingunder Section 34 of the Arbitration Act, 1996, where the court doesnot sit in appeal over the award – and if the view of the arbitrator is apossible view, it passes muster – there is an automatic-stay of an arbitralaward on the mere filing of Section 34 application, which in turn takesyears for final disposal.

7. Dr. Singhvi then trained his guns against Section 87, statingthat it is violative of Articles 14, 19(1)(g), 21 and 300-A of theConstitution of India, as it is contrary to the object of the principalArbitration Act, 1996 itself; takes away the vested right of enforcementand binding nature of an arbitral award; and without removing the basisof the BCCI judgment (supra), acts in the teeth of the said judgment,making the said section unreasonable, excessive, disproportionate as wellas arbitrary. He then argued that in effect, the 2019 Amendment Actreverses the beneficial effects of the 2015 Amendment Act whichremedied the original mischief contained in the Arbitration Act, 1996, AB

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Athat too after a period of more than 19 years. To bring back this mischiefof automatic-stays would result in manifest arbitrariness, rendering theprovision constitutionally infirm. He argued that the SrikrishnaCommittee Report also did not take into account the enforcement ofthe Insolvency Code. On the one hand, arbitral awards for crores ofrupees will get automatically stayed through the application of SectionB87, and on the other hand, non-payment of any amount beyond INRone lakh by the Petitioner to its operational creditors would render itopen to being declared insolvent. The absurd consequence of this isthat the fruits of an award are denied to the Petitioner, resulting infinancial hardship, which in turn results in applications being filed againstCthe Petitioner under the Insolvency Code for lesser amounts than whatis due to it as an award-holder. Further, the retrospective resurrectionof the automatic-stay provision allows award-debtors who havechallenged arbitral awards before the Courts, and who have in fact madepayments to award-holders, to now claim the aforesaid sums back fromsuch award-holders. For all these reasons, it is contended that SectionD87 is constitutionally infirm. Also, according to Dr. Singhvi, since almostall the arbitration clauses with Government/Government Bodies statethat the Arbitration Act, 1996 together with its amendments shall apply,this would make the 2019 Amendment Act applicable to its pendingarbitral awards, resulting in wholly arbitrary consequences.

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8. So far as the challenge to the Insolvency Code is concerned,Dr. Singhvi exhorted us to read ‘corporate person’, as defined by Section3(7) of the Insolvency Code, to include Government Bodies other thanGovernment Companies (which are already included). This was basedon the argument that qua the object sought to be achieved by theFInsolvency Code, it makes no difference as to whether the person suedas a corporate person is a government company or a body corporateset up under a statute. He exhorted us to either delete the words ‘limitedliability’ contained in Section 3(7) of the Code, or read Section 3(23)(g)of the Code into Section 3(7), and relied upon judgments which stressedthe ‘positive’ aspect of Article 14 of the Constitution of India, whichGpermit such interpretation. He then pointed out that whereas ‘financialposition’ (as defined under Section 5(9) of the Insolvency Code)mandates taking into consideration the financial information and balancesheets, such financial position is irrelevant at the stage of triggering theInsolvency Code, and only becomes relevant at the stage of declaringHsuch position to prospective resolution applicants, which itself makes

the provision manifestly arbitrary. He then argued as to the omissionof initiation of the resolution process by a creditor in Section 6 of theInsolvency Code, together with the absence of a mechanism for forcingdebtors of a corporate debtor to make payments to avoid insolvencyof such corporate debtors. He then referred to the principle of ‘casusomissus’ and how the modern view is that such casus omissus can besupplied by the Courts, so as to save the provisions of the InsolvencyCode from the vice of manifest arbitrariness. He also argued that thereis no level playing field so far as his client is concerned, as a statutoryauthority can initiate the resolution process against persons like his client,but not vice-versa. He then made an impassioned plea that, in any event,this Court ought to follow its earlier judgments and restate the principlethat payment of a money-decree under an award, even when underchallenge, is the rule - stay being the exception. Also in cases like thepresent, even if deposits are made as a condition of stay of money-decrees, withdrawal ought to be permitted - not on onerous conditionssuch as bank guarantees - but on other conditions such as corporateguarantees and the like, so that such monies are available for paymentto other creditors, including operational creditors, who are free to invokethe Insolvency Code against the Petitioner.

9. Dr. Singhvi then argued that his client was forced to avail ofthe NITI Aayog’s Office Memorandum No.14070/14/2016-PPPAUdated 05.09.2016 (hereinafter referred to as the “NITI Aayog Scheme”)given the fact that the moment arbitral awards were passed in his client’sfavour, they were challenged under Section 34 of the Arbitration Act,1996 as a result of which, there was an automatic-stay. Thus, underthe said NITI Aayog Scheme, his client in order to retrieve amountspayable under such awards, was able to get 75% of a “pay-out amount”,which is the amount for which the award has been announced, pluspayment of interest. This can only be done against a bank guaranteeof the equivalent amount. However, apart from such bank guarantee,an additional bank guarantee of 10% per year on the pay-out amountwould also have to be given, which is then compounded annually.According to him, given the fact that 75% of such pay-out amount canonly be released on the bank guarantee of the equivalent amount, askingfor anything over and above this would amount to an arbitrary exerciseof power, which is liable to be struck down. Dr. Singhvi contended thatthis extra amount of 10% per annum, being severable, can be struckdown without otherwise impacting the NITI Aayog Scheme.

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A10. Shri Neeraj Kishan Kaul, also appearing for HindustanConstruction Company, reiterated some of the submissions of Dr.Singhvi and argued, based on a reading of Section 87 as introduced bythe 2019 Amendment Act and Section 26 of the 2015 Amendment Act,that Section 87 is nothing but a re-hash of Section 26 and this being so,Bis therefore a direct attack on the judgment of this Court in BCCI(supra), without removing its basis. He also added that since there isno set-off mechanism provided by the Insolvency Code, the provisionsof the Insolvency Code will have to be held to be manifestly arbitraryso far as his client is concerned, to this extent.

C11. Shri C.A. Sundaram, learned Senior Advocate appearing forM/s Patel Engineering Ltd. in I.A. No. 157742 of 2019 in W.P (C) No.1074 of 2019, reiterated the submissions that Section 87, being directlycontrary to this Court’s judgment in BCCI (supra), needs to be set aside.He also argued that it retrospectively removes a vested right in theDpetitioner, as is reflected in paragraph 62 and 63 of the BCCI judgment(supra).

12. Shri Ritin Rai, learned Senior Advocate appearing for M/sGammon Engineers and Contractors Private Limited, i.e. the PetitionerNo.1 in W.P.(C) 1276 of 2019, pointed out various paragraphs of theECounter-Affidavit of the Union of India to show that there is no realanswer to the submission that Section 87 directly interferes with thejudgment of this Court in BCCI (supra), and that the introduction ofSection 87 is manifestly arbitrary. In any case, he relied upon Section6 of the General Clauses Act, 1897 to save the application of Section36 as amended by the 2015 Amendment Act. When it came to theFprovisions of the Insolvency Code, he referred to this Court’s judgmentin Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.(2018) 1 SCC 353 and stated that Section 5(6) of the Insolvency Code,which defines ‘disputes’, read with Section 8(2) of the Insolvency Code,would make it clear that there is no bar to applying an Order VIII-AGof the CPC type procedure to proceedings under the Insolvency Code,so that when his client’s sub-contractor triggers the Insolvency Codeagainst his client, his client in-turn should be able to make its principalemployer a party to such proceedings, so that the sub-contractor maythen recover these amounts from the principal employer directly, therebyHabsolving his client from the clutches of the Insolvency Code.

13. Shri Nakul Dewan, learned Senior Advocate appearing onbehalf of M/s Gangotri Enterprises Limited, i.e. the Petitioner No.1 inW.P. (C) No. 1310 of 2019, referred copiously to the UNCITRALModel Law and stated that under the UNCITRAL Model Law, in casean award were to be passed, whether domestic or international, in thesame country, two bites at the cherry would be available: one at thetime of setting aside the award, and one at the time of recognition andenforcement. The Arbitration Act, 1996 has not followed this model andhas a far more robust enforcement regime, as Section 36 of theArbitration Act, 1996 mandates that once an award can be said to befinal, it can be executed in the manner provided by the CPC.

14. Mr. Dewan then went on to state that Section 87 destroyeda level playing field in relation to enforcement of arbitral awards, byre-imposing an arbitrary cut-off date qua application of the amendedSection 36. He then argued that even though Section 15 of the 2019Amendment Act has deleted Section 26 of the 2015 Amendment Act,this has not changed the basis on which the judgment in BCCI (supra)was delivered, as there is no vested right to resist the enforcement ofan arbitral award, and that arbitration proceedings and court proceedingsare distinct sets of proceedings as recognized by Section 87 itself.Further, classification of parties on the basis of this cut-off date has norational nexus to the object sought to be achieved by the ArbitrationAct, 1996. Finally, he urged that the Counter-Affidavit filed by the Unionof India, after referring to this Court’s judgment, then mouthed the samereasons for introducing Section 87 as were in the Srikrishna CommitteeReport, which was prior to, and could not have taken into account, thisCourt’s judgment in BCCI (supra). Therefore, to state that even afterthis Court settled the law in BCCI (supra) there would still be‘uncertainty’ would itself show that the provision contained in Section87 would be manifestly arbitrary. He then argued, based on a treatiseby Ian F. Fletcher on the law of insolvency, that a distinction is madein insolvency law between refusal to pay, and inability to pay. Sincethe automatic-stay provision would render persons like his client unableto pay debts, his client, though otherwise financially healthy, wouldsuddenly become vulnerable to being declared insolvent under theInsolvency Code.

15. The learned Attorney General for India, Shri K.K. Venugopal,defended the repeal of Section 26 of the 2015 Arbitration Amendment AB

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Aand the insertion of Section 87 into the Arbitration Act, 1996 by the2019 Amendment Act. He argued that in BCCI’s case (supra), theinterpretation of Section 26 of the 2015 Amendment Act is onlydeclaratory in nature. Since the said judgment neither sets aside anyexecutive action, nor any provision of a statute, it does not require avalidating act to neutralise its effect. It is open to Parliament, if it findsBthat a view expressed by the Apex Court does not reflect its originalintent, to clarify its original intent through amendment. This is in factwhat was done by deleting Section 26 of the 2015 Amendment Act,and inserting Section 87 into the Arbitration Act, 1996. He relied on

the clarificatory aspect of the amendment by referring to paragraphC6(vi) of the Statement of Objects and Reasons to the Arbitration andConciliation (Amendment) Bill, 2019. In any event, even if the principlesgoverning validating acts are applied, the deletion of Section 26retrospectively removes the basis of the judgment in the BCCI case(supra). Further, there is no substance to the challenge to Section 87on the ground of the date being fixed as 23.10.2015, as cut-off datesDhave been upheld in a plethora of cases as being within the exclusivedomain of Parliament, and the courts should not normally interfere withthe fixation of such cut-off date, unless blatantly arbitrary ordiscriminatory. He referred to some of our judgments in support of thisproposition.E16. Shri Tushar Mehta, learned Solicitor General of India,defending the constitutional challenge to the provisions of the InsolvencyCode, argued that a Writ Petition filed under Article 32 of theConstitution of India cannot be converted into a recovery proceedingby the Petitioners. According to Shri Mehta, the conduct of theFPetitioner No.1 in W.P. (C) 1074 of 2019 is such that the Writ Petitionought to be dismissed at the threshold itself. First and foremost, it wascontended that the petitioner has mislead this Court by stating that asum of INR 6070 crores is liable to be paid by the Government entitiesmentioned therein, as such sums amount to awards that have not beenstayed by any Court. He referred to and relied upon a chart appendedGto the Counter-Affidavit of the Union of India dated 21.10.2019, inwhich he was at pains to point out that in each of the awards in favourof the Petitioner No.1 in Writ Petition No.1074 of 2019, the contractvalue was much less than the actual amount paid on completion of work,in addition to which, deposit orders have been passed by courts in allHthese cases, which have not been appealed against. He further argued

that there was a gross suppression of facts and figures by PetitionerNo.1, as a result of which the Writ Petition ought to be dismissed atthe threshold. He contended that what was deliberately hidden by thePetitioner No.1 was the fact that the Respondent Public SectorUndertakings (hereinafter referred to as “PSUs”) have deposited/paidsubstantial amounts that are due against them under arbitral awards,amounting percentage wise to 83.3%. He also pointed out that insofaras IRCON is concerned, in relation to one particular arbitral award,IRCON has accused the Petitioner No.1 of trying to influence thearbitrator by providing unsolicited facilities to the arbitrator, and actuallygetting orders drafted on behalf of the arbitrator by the lawyer of thePetitioners and otherwise providing undue favours to the arbitrator; allof which is the subject matter of adjudication pending in the Delhi HighCourt. When it came to the challenge to the Insolvency Code, he arguedthat except for the sums owing under some arbitral awards, none ofthe PSUs have any other dues that are owing to the Petitioner No.1.He also pointed out that whether a person is an operational creditorhas to be decided based upon the fact situation in each case. The veryfundamental basis of the Petitioner’s argument that the Insolvency Codeis unconstitutional because it does not give the Petitioners a right torecover monies from their debtors - and that the same Insolvency Codegives the debtor a right to recover from the Petitioner No.1 - is flawed,because the Insolvency Code is not a statute for recovery of debts,but is a statute for reorganisation of corporate persons and resolutionof stressed assets of corporate persons. According to him, three of thefive entities who have arbitral awards against them, namely NTPC,NHPC and IRCON, are Government Companies, which certainly fallwithin the definition of ‘corporate person’ and ‘corporate debtor’ underSection 3(7) and 3(8) of the Insolvency Code. So far as the NHAI isconcerned, he referred to the Statement of Objects and Reasons ofthe National Highways Authority of India Act, 1988 (hereinafter referredto as the “NHAI Act”) and some sections of the said Act to show thatNHAI is a statutory body which functions as an extended limb of theCentral Government, and which is to carry out the sovereign functionof laying down national highways. Obviously, the Insolvency Codecannot be used against such a statutory body, because no resolutionprofessional or private individual can take over the management of suchbody, as it performs sovereign functions, nor can such body be drivento insolvency under an Insolvency Code. He also referred to the AB

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Adefinitions contained in Section 3(7) and 3(23) of the Insolvency Code,and stated that they are separate and independent of each other, Section3(7) lifting only two out of seven entities mentioned in Section 3(23).Thus, being mutually exclusive, nothing from Section 3(23) which defines‘person’ can possibly be imported into Section 3(7) which defines‘corporate person’. He further argued that this Court’s judgment in K.BKishan v. Vijay Nirman Company Pvt. Ltd. (2018) 17 SCC 662made it clear that arbitral awards that are pending adjudication underSection 34 would show that a pre-existing dispute exists in such cases,and therefore would in any case be outside the strong arm of the lawcontained in the Insolvency Code.C

17. Ms. Pinky Anand, learned Additional Solicitor General,supported the submissions of both the learned Attorney General andthe Solicitor General. She further argued, based on a copious readingof the Counter-Affidavit filed on behalf of the Union of India, that noinroads have been made into the objects sought to be achieved by theD2015 Amendment Act by merely following a particular cut-off date. Inany case, the fixing of such cut-off date, being the sole prerogative ofthe Parliament, cannot be interfered with by the courts as this pertainsto policy matters. She also cited some judgments of this Court to buttressher submissions.EInterpretation of Section 36 of the Arbitration Act, 1996

18. At the outset, it is important to advert to Section 36 of theArbitration Act, 1996 and the judgments interpreting it. Section 36 (priorto the 2015 Amendment Act) stated as follows:

“36. Enforcement.—Where the time for making an applicationFto set aside the arbitral award under section 34 has expired, orsuch application having been made, it has been refused, the awardshall be enforced under the Code of Civil Procedure, 1908 (5 of1908) in the same manner as if it were a decree of the Court.”

19. The UNCITRAL Model Law is important in understandingthe provisions of the Arbitration Act, 1996 as the said Act is explicitlyGbased upon it. The preamble of the Arbitration Act, 1996 specificallystates as follows:

“Preamble. — WHEREAS the United Nations Commission onInternational Trade Law (UNCITRAL) has adopted theUNCITRAL Model Law on International Commercial ArbitrationHin 1985; AND

WHEREAS the General Assembly of the United Nations hasrecommended that all countries give due consideration to the saidModel Law, in view of the desirability of uniformity of the lawof arbitral procedures and the specific needs of internationalcommercial arbitration practice; AND WHEREAS the UNCITRAL has adopted the UNCITRALConciliation Rules in 1980; AND

WHEREAS the General Assembly of the United Nations hasrecommended the use of the said Rules in cases where a disputearises in the context of international commercial relations and theparties seek an amicable settlement of that dispute by recourseto conciliation; AND WHEREAS the said Model Law and Rules makesignificant contribution to the establishment of a unified legalframework for the fair and efficient settlement of disputes arisingin international commercial relations; AND WHEREAS it is expedient to make law respectingarbitration and conciliation, taking into account the aforesaidModel Law and Rules.”

20. As a matter of fact, the judgment in Chloro Controls (I)Pvt. Ltd. v. Seven Trent Water Purification Inc. (2013) 1 SCC 641says as much in paragraph 93 thereof, which reads as under:

“93. As noticed above, the legislative intent and essence of the1996 Act was to bring domestic as well as internationalcommercial arbitration in consonance with the UNCITRAL ModelRules, the New York Convention and the Geneva Convention.The New York Convention was physically before the legislatureand available for its consideration when it enacted the 1996 Act.Article II of the Convention provides that each contracting Stateshall recognise an agreement and submit to arbitration all or anydifferences which have arisen or which may arise between themin respect of a defined legal relationship, whether contractual ornot concerning a subject-matter capable of settlement byarbitration. Once the agreement is there and the court is seizedof an action in relation to such subject-matter, then on the requestof one of the parties, it would refer the parties to arbitrationunless the agreement is null and void, inoperative or incapableof performance.”

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A21. What is important so far as the UNCITRAL Model Law isconcerned is Article 36(2) thereof, which states as follows:

“Article 36. Grounds for refusing recognition or enforcement- xxx xxx xxx

(2) If an application for setting aside or suspension of an awardBhas been made to a court referred to in paragraph (1)(a)(v) ofthis article, the court where recognition or enforcement is soughtmay, if it considers it proper, adjourn its decision and may also,on the application of the party claiming recognition orenforcement of the award, order the other party to provideCappropriate security.”

22. Shri Dewan has argued that under the UNCITRAL ModelLaw, Articles 34 and 35 provide for two bites at the cherry: (i) in casesin which an award is sought to be set aside, and (ii) thereafter whennot set aside, sought to be recognised and enforced in the same countryin which it has been made. He is right in stating that Section 36 of theDArbitration Act, 1996 does not follow the two bites at the cherrydoctrine, for the reason that when an award made in India becomesfinal and binding, it shall straightaway be enforced under the CPC, andin the same manner as if it were a decree of the Court, there being norecourse to the self-same grounds when it comes to recognition andEenforcement. In point of fact, the raison d’etre for Section 36 is onlyto make it clear that when an arbitral award is not susceptible tochallenge, either because the time for making an application to set itaside has expired, or such application having been made is refused, theaward, being final and binding, shall be enforced under the CPC as ifit were a decree of the court. This becomes clear when Section 36Fand 35 of the Arbitration Act, 1996 are read together. Section 35 ofthe Arbitration Act, 1996 reads as follows:

“35. Finality of arbitral awards.- Subject to this Part an arbitralaward shall be final and binding on the parties and personsclaiming under them respectively.”

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23. However, in National Aluminum Company Ltd.(NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. 2004 1SCC 540, this Court held:

“10…At one point of time, considering the award as a moneydecree, we were inclined to direct the party to deposit theHawarded amount in the court below so that the applicant can withdraw it, on such terms and conditions as the said court mightpermit it to do as an interim measure. But then we noticed fromthe mandatory language of Section 34 of the 1996 Act, that anaward, when challenged under Section 34 within the timestipulated therein, becomes unexecutable. There is no discretionleft with the court to pass any interlocutory order in regard tothe said award except to adjudicate on the correctness of theclaim made by the applicant therein. Therefore, that being thelegislative intent, any direction from us contrary to that, alsobecomes impermissible. On facts of this case, there being noexceptional situation which would compel us to ignore suchstatutory provision, and to use our jurisdiction under Article 142,we restrain ourselves from passing any such order, as prayedfor by the applicant.

11. However, we do notice that this automatic suspension of theexecution of the award, the moment an application challengingthe said award is filed under Section 34 of the Act leaving nodiscretion in the court to put the parties on terms, in our opinion,defeats the very objective of the alternate dispute resolutionsystem to which arbitration belongs. We do find that there is arecommendation made by the Ministry concerned to Parliamentto amend Section 34 with a proposal to empower the civil courtto pass suitable interim orders in such cases. In view of theurgency of such amendment, we sincerely hope that necessarysteps would be taken by the authorities concerned at the earliestto bring about the required change in law.”

24. When this court speaks of “the mandatory language ofSection 34” of the Arbitration Act, 1996 obviously what is meant is thelanguage of Section 36 of the Arbitration Act, 1996, as noted byNational Buildings Construction Corporation Ltd. v. LloydsInsulation India Ltd. (2005) 2 SCC 367 (in paragraph 6). In FizaDevelopers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd.and Anr. (2009) 17 SCC 796, this Court held:

“20. Section 36 provides that an award shall be enforced in thesame manner as if it were a decree of the court, but only on theexpiry of the time for making an application to set aside thearbitral award under Section 34, or such application having beenmade, only after it has been refused. Thus, until the disposal ofthe application under Section 34 of the Act, there is an implied AB

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Aprohibition of enforcement of the arbitral award. The very filingand pendency of an application under Section 34, in effect,operates as a stay of the enforcement of the award.”

25. To state that an award when challenged under Section 34becomes unexecutable merely by virtue of such challenge being madeBbecause of the language of Section 36 is plainly incorrect. As has beenpointed out hereinabove, Section 36 was enacted for a different purpose.When read with Section 35, all that Section 36 states is that enforcementof a final award will be under the CPC, and in the same manner as ifit were a decree of the Court. In fact, this is how Section 36 has beenread by a three-judge bench in Leela Hotels Ltd. V. Housing andCUrban Development Corporation Ltd. (2012) 1 SCC 302 as follows:

“45. Regarding the question as to whether the award of thelearned arbitrator tantamounts to a decree or not, the languageused in Section 36 of the Arbitration and Conciliation Act, 1996,makes it very clear that such an award has to be enforced underDthe Code of Civil Procedure in the same manner as it were adecree of the court. The said language leaves no room for doubtas to the manner in which the award of the learned arbitratorwas to be accepted.”

26. To read Section 36 as inferring something negative, namely,Ethat where the time for making an application under Section 34 hasnot expired and therefore, on such application being made within time,an automatic-stay ensues, is to read something into Section 36 whichis not there at all. Also, this construction omits to consider the rest ofSection 36, which deals with applications under Section 34 that havebeen dismissed, which leads to an award being final and binding (whenFread with Section 35 of the Arbitration Act, 1996) which then becomesenforceable under the CPC, the award being treated as a decree forthis purpose.

27. This also finds support from the language of Section 9 ofthe Arbitration Act, 1996, which specifically enables a party to applyGto a Court for reliefs “…after the making of the arbitration awardbut before it is enforced in accordance with Section 36.” Thedecisions in NALCO (supra) and Fiza Developers and Intra-tradePvt. Ltd. (supra) overlook this statutory position. These words inSection 9 have not undergone any change by reason of the 2015 orH2019 Amendment Acts.

28. Interpreting Section 9 of the Arbitration Act, 1996, a DivisionBench of the Bombay High Court in Dirk India Pvt. Ltd. v.Maharashtra State Power Generation Company Ltd. 2013 SCCOnline Bom 481 held that:

“13….The second facet of Section 9 is the proximate nexusbetween the orders that are sought and the arbitral proceedings.When an interim measure of protection is sought before or duringarbitral proceedings, such a measure is a step in aid to the fruitionof the arbitral proceedings. When sought after an arbitral awardis made but before it is enforced, the measure of protection isintended to safeguard the fruit of the proceedings until theeventual enforcement of the award. Here again the measure ofprotection is a step in aid of enforcement. It is intended to ensurethat enforcement of the award results in a realisable claim andthat the award is not rendered illusory by dealings that wouldput the subject of the award beyond the pale of enforcement.”

29. This being the legislative intent, the observation in NALCO(supra) that once a Section 34 application is filed, “there is nodiscretion left with the Court to pass any interlocutory order inregard to the said Award…” flies in the face of the opening words ofSection 9 of the Arbitration Act, 1996, extracted above.

30. Thus, the reasoning of the judgments in NALCO (supra),and Fiza Developers and Intra-trade Pvt. Ltd. (supra) being perincuriam in not noticing Sections 9, 35 and the second part of Section36 of the Arbitration Act, 1996, do not commend themselves to us anddo not state the law correctly.[1] The fact that NALCO (supra) has been 1 In NALCO (supra), this Court was concerned with two questions – the secondquestion being whether the appropriate Court, for the purpose of challenging orseeking modification of an award, was the Supreme Court, or the principal Civil Courtof original jurisdiction under Section 2(e) of the Arbitration Act, 1996. This Courtheld, distinguishing State of M.P. v. Saith and Skeleton (P) Ltd. (1972) 1 SCC 702and Guru Nanak Foundation v. Rattan Singh and Sons. (1981) 4 SCC 634, thatthe Court which had jurisdiction to modify and/or set aside the award was not theSupreme Court. On this point, NALCO (supra) has subsequently been followed bya number of judgments and continues to be good law. Also, the ratio of the judgmentin Fiza Developers and Intra-trade Pvt. Ltd. (supra) on the construction of Section34 of the Arbitration Act, 1996 relating to the framing of issues and pleadings andproof required in Section 34 proceedings remains untouched by the presentjudgment.

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360SUPREME COURT REPORTS

Afollowed in National Buildings Construction Corporation Ltd. v.Lloyds Insulation India Ltd. (supra) does not take us any further,as National Buildings Construction Corporation Ltd. (supra) infollowing NALCO (supra), a per incuriam judgement, also does notstate the law correctly. Thus, it is clear that the automatic-stay of anaward, as laid down by these decisions, is incorrect. The resultantBposition is that Section 36 - even as originally enacted - is not meant todo away with Article 36(2) of the UNCITRAL Model Law, but is reallymeant to do away with the two bites at the cherry doctrine in the contextof awards made in India, and the fact that enforcement of a finalaward, when read with Section 35, is to be under the CPC, treatingCthe award as if it were a decree of the court.31. In any event, on this aspect of the case, the BCCI judgment(supra) referred, in paragraph 25 thereof, to the 246[th] Law CommissionReport on Section 36 as follows:

“25. At this point, it is instructive to refer to the 246th LawDCommission Report which led to the Amendment Act. ThisReport, which was handed over to the Government in August2014, had this to state on why it was proposing to replace Section36 of the 1996 Act:

“AUTOMATIC STAY OF ENFORCEMENT OF THEEAWARD UPON ADMISSION OF CHALLENGE

“43. Section 36 of the Act makes it clear that an arbitral awardbecomes enforceable as a decree only after the time for filing apetition under Section 34 has expired or after the Section 34petition has been dismissed. In other words, the pendency of aFSection 34 petition renders an arbitral award unenforceable. TheSupreme Court, in National Aluminium Co. Ltd. v. Pressteel& Fabrications (P) Ltd. [National Aluminium Co. Ltd. v.Pressteel & Fabrications (P) Ltd., (2004) 1 SCC 540] held thatby virtue of Section 36, it was impermissible to pass an orderGdirecting the losing party to deposit any part of the award intoCourt. While this decision was in relation to the powers of theSupreme Court to pass such an order under Section 42, theBombay High Court in Afcons Infrastructure Ltd. v. Port ofMumbai [Afcons Infrastructure Ltd. v. Port of Mumbai, (2014)1 Arb LR 512 (Bom)] applied the same principle to the powersHof a court under Section 9 of the Act as well. Admission of a Section 34 petition, therefore, virtually paralyses the process forthe winning party/award creditor.

44. The Supreme Court, in National Aluminium [NationalAluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd., (2004)1 SCC 540] , has criticised the present situation in the followingwords: (SCC p. 546, para 11)

‘11. However, we do notice that this automatic suspension ofthe execution of the award, the moment an application challengingthe said award is filed under Section 34 of the Act leaving nodiscretion in the court to put the parties on terms, in our opinion,defeats the very objective of the alternate dispute resolutionsystem to which arbitration belongs. We do find that there is arecommendation made by the Ministry concerned to Parliamentto amend Section 34 with a proposal to empower the civil courtto pass suitable interim orders in such cases. In view of theurgency of such amendment, we sincerely hope that necessarysteps would be taken by the authorities concerned at the earliestto bring about the required change in law.’

45. In order to rectify this mischief, certain amendments havebeen suggested by the Commission to Section 36 of the Act,which provide that the award will not become unenforceablemerely upon the making of an application under Section 34.”

It then further went on to state:

“62…Since it is clear that execution of a decree pertains to therealm of procedure, and that there is no substantive vested rightin a judgment-debtor to resist execution, Section 36, as substituted,would apply even to pending Section 34 applications on the dateof commencement of the Amendment Act.”

The Court then commented on this Court’s judgment in NALCO(supra) as follows:

“67. In 2004, this Court’s judgment in National Aluminium Co.[National Aluminium Co. Ltd. v. Pressteel & Fabrications (P)Ltd., (2004) 1 SCC 540] had recommended that Section 36 besubstituted, as it defeats the very objective of the alternativedispute resolution system, and that the section should be amendedat the earliest to bring about the required change in law. It would A

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be clear that looking at the practical aspect and the nature ofrights presently involved, and the sheer unfairness of theunamended provision, which granted an automatic stay toexecution of an award before the enforcement process of Section34 was over (and which stay could last for a number of years)without having to look at the facts of each case, it is clear thatSection 36 as amended should apply to Section 34 applicationsfiled before the commencement of the Amendment Act also forthe aforesaid reasons.”

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32. Section 36, as amended by the 2015 Amendment Act, nowreads as follows:

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“36. Enforcement —(1) Where the time for making anapplication to set aside the arbitral award under section 34 hasexpired, then, subject to the provisions of sub-section (2), suchDaward shall be enforced in accordance with the provisions of theCode of Civil Procedure, 1908 (5 of 1908), in the same manneras if it were a decree of the court.

(2) Where an application to set aside the arbitral award has beenunder section 34, the filing of such an application shall not byitself render that award unenforceable, unless the Court grantsan order of stay of the operation of the said arbitral award inaccordance with the provisions of sub-section (3), on a separateapplication made for that purpose.

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(3) Upon filing of an application under sub-section (2) for stayof the operation of the arbitral award, the Court may, subject tosuch conditions as it may deem fit, grant stay of the operationof such award for reasons to be recorded in writing:

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Provided that the Court shall, while considering the applicationfor grant of stay in the case of an arbitral award for payment ofmoney, have due regard to the provisions for grant of stay of amoney decree under the provisions of the Code of CivilProcedure, 1908 (5 of 1908).”

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Given the fact that we have declared that the judgments inNALCO (supra), National Buildings Construction CorporationHLtd. (supra) and Fiza Developers (supra) have laid down the law incorrectly, it is also clear that the amended Section 36, being clarificatoryin nature, merely restates the position that the unamended Section 36does not stand in the way of the law as to grant of stay of a moneydecree under the provisions of the CPC.

Removal of the basis of the BCCI judgment by the 2019Amendment Act

33. It now falls to be determined as to whether the 2019Amendment Act removes the basis of the BCCI judgment (supra) ofthis Court.

34. For this purpose, it is necessary to set out the relevantprovisions of the 2019 Amendment Act. Section 87 as introduced bySection 13 of the 2019 Amendment Act reads as follows:

“87. Unless the parties otherwise agree, the amendments madeto this Act by the Arbitration and Conciliation (Amendment) Act,2015 shall–

(a) not apply to-

(i) arbitral proceedings commenced before thecommencement of the Arbitration and Conciliation(Amendment) Act, 2015;

(ii) court proceedings arising out of or in relation to sucharbitral proceedings irrespective of whether such courtproceedings are commenced prior to or after thecommencement of the Arbitration and Conciliation(Amendment) Act, 2015; (b) apply only to arbitral proceedings commenced on or after thecommencement of the Arbitration and Conciliation (Amendment)Act, 2015 and to court proceedings arising out of or in relationto such arbitral proceedings.”

By Section 15 of the same Amendment Act, Section 26 of the2015 Amendment Act was omitted as follows:

“15. Section 26 of the Arbitration and Conciliation (Amendment)Act, 2015 shall be omitted and shall be deemed to have beenomitted with effect from the 23[rd] October, 2015.”

Section 26 of the 2015 Amendment Act reads as follows:

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“26. Nothing contained in this Act shall apply to the arbitralproceedings commenced, in accordance with the provisions ofSection 21 of the principal Act, before the commencement ofthis Act unless the parties otherwise agree but this Act shall applyin relation to arbitral proceedings commenced on or after the dateof commencement of this Act.”

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35. This Court’s judgment in BCCI (supra) had occasion to dealwith the important question as to the true interpretation of Section 26of the 2015 Amendment Act. This Court, in paragraph 28, referred tothe transitory provision contained in Section 85-A as proposed in the246[th] Law Commission Report, and thereafter in paragraphs 29 to 31,Creferred to the debates on the floor of the House. In paragraph 32,this Court referred to the differences between Section 26 and Section85-A as proposed, and then held:

“33. What can be seen from the above is that Section 26 has,Dwhile retaining the bifurcation of proceedings into arbitration andcourt proceedings, departed somewhat from Section 85-A asproposed by the Law Commission.”

36. Section 26 was then stated to have bifurcated proceedingswith a great degree of clarity into two sets of proceedings – arbitralEproceedings themselves, and court proceedings in relation thereto.Paragraph 39 of the judgment refers to this and states as follows:

“39. Section 26, therefore, bifurcates proceedings, as has beenstated above, with a great degree of clarity, into two sets ofproceedings — arbitral proceedings themselves, and courtFproceedings in relation thereto. The reason why the first part ofSection 26 is couched in negative form is only to state that theAmendment Act will apply even to arbitral proceedingscommenced before the amendment if parties otherwise agree.If the first part of Section 26 were couched in positive language(like the second part), it would have been necessary to add aGproviso stating that the Amendment Act would apply even toarbitral proceedings commenced before the amendment if theparties agree. In either case, the intention of the legislatureremains the same, the negative form conveying exactly whatcould have been stated positively, with the necessary proviso.HObviously, “arbitral proceedings” having been subsumed in the H

first part cannot re-appear in the second part, and the expression“in relation to arbitral proceedings” would, therefore, apply onlyto court proceedings which relate to the arbitral proceedings. Thescheme of Section 26 is thus clear: that the Amendment Act isprospective in nature, and will apply to those arbitral proceedingsthat are commenced, as understood by Section 21 of the principalAct, on or after the Amendment Act, and to court proceedingswhich have commenced on or after the Amendment Act cameinto force.”

37. The Court was alive to the Srikrishna Committee Report’srecommendation of a proposed Section 87, as is clear from footnote23 appended to paragraph 44 of the judgment. The Court then made areference to the Statement of Objects and Reasons for the 2015Amendment Act and stated as follows:

“77. However, it is important to remember that the AmendmentAct was enacted for the following reasons, as the Statement ofObjects and Reasons for the Amendment Act states:

“2. The Act was enacted to provide for speedy disposal of casesrelating to arbitration with least court intervention. With thepassage of time, some difficulties in the applicability of the Acthave been noticed. Interpretation of the provisions of the Actby courts in some cases have resulted in delay of disposalof arbitration proceedings and increase in interference ofcourts in arbitration matters, which tend to defeat the objectof the Act. With a view to overcome the difficulties, the matterwas referred to the Law Commission of India, which examinedthe issue in detail and submitted its 176th Report. On the basisof the said Report, the Arbitration and Conciliation (Amendment)Bill, 2003 was introduced in the Rajya Sabha on 22-12-2003. Thesaid Bill was referred to the Department-related ParliamentaryStanding Committee on Personnel, Public Grievances, Law andJustice for examination and report. The said Committee,submitted its Report to Parliament on 4-8-2005, wherein theCommittee recommended that since many provisions of the saidBill were contentious, the Bill may be withdrawn and a freshlegislation may be brought after considering its recommendations.Accordingly, the said Bill was withdrawn from the Rajya Sabha.

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3. On a reference made again in pursuance of the above, theLaw Commission examined and submitted its 246th Report on“Amendments to the Arbitration and Conciliation Act, 1996” inAugust 2014 and recommended various amendments in the Act.The proposed amendments to the Act would facilitate andencourage Alternative Dispute Mechanism, especially arbitration,for settlement of disputes in a more user-friendly, cost-effectiveand expeditious disposal of cases since India is committed toimprove its legal framework to obviate in disposal of cases.

4. As India has been ranked at 178 out of 189 nations in the worldin contract enforcement, it is high time that urgent steps are takento facilitate quick enforcement of contracts, easy recovery ofmonetary claims and award of just compensation for damagessuffered and reduce the pendency of cases in courts and hastenthe process of dispute resolution through arbitration, so as toencourage investment and economic activity.

5. As Parliament was not in session and immediate steps wererequired to be taken to make necessary amendments to theArbitration and Conciliation Act, 1996 to attract foreign investmentby projecting India as an investor friendly country having a soundlegal framework, the President was pleased to promulgate theArbitration and Conciliation (Amendment) Ordinance, 2015.

6. It is proposed to introduce the Arbitration and Conciliation(Amendment) Bill, 2015, to replace the Arbitration andConciliation (Amendment) Ordinance, 2015, which inter alia,provides for the following, namely—

(i) to amend the definition of “Court” to provide that in thecase of international commercial arbitrations, the Courtshould be the High Court;

(ii) to ensure that an Indian court can exercise jurisdictionto grant interim measures, etc., even where the seat ofthe arbitration is outside India;

(iii) an application for appointment of an arbitrator shall bedisposed of by the High Court or Supreme Court, as thecase may be, as expeditiously as possible and anendeavour should be made to dispose of the matterwithin a period of sixty days;

(iv) to provide that while considering any application forappointment of arbitrator, the High Court or the SupremeCourt shall examine the existence of a prima faciearbitration agreement and not other issues;

(v) to provide that the Arbitral Tribunal shall make its awardwithin a period of twelve months from the date it entersupon the reference and that the parties may, however,extend such period up to six months, beyond which periodany extension can only be granted by the Court, onsufficient cause;

(vi) to provide for a model fee schedule on the basis ofwhich High Courts may frame rules for the purpose ofdetermination of fees of Arbitral Tribunal, where a HighCourt appoints arbitrator in terms of Section 11 of theAct;

(vii) to provide that the parties to dispute may at any stageagree in writing that their dispute be resolved throughfast-track procedure and the award in such cases shallbe made within a period of six months;

(viii) to provide for neutrality of arbitrators, when a personis approached in connection with possible appointmentas an arbitrator;

(ix) to provide that application to challenge the award is tobe disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitrationprocess becomes more user-friendly, cost-effective and lead toexpeditious disposal of cases.”

78. The Government will be well-advised in keeping the aforesaidStatement of Objects and Reasons in the forefront, if it proposesto enact Section 87 on the lines indicated in the Government’sPress Release dated 7-3-2018. The immediate effect of theproposed Section 87 would be to put all the important amendments-made by the Amendment Act on a backburner, such as theimportant amendments made to Sections 28 and 34 in particular,which, as has been stated by the Statement of Objects andReasons, A

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“… have resulted in delay of disposal of arbitration proceedingsand 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 after23-10-2015, but will be applicable to Section 34 petitions filed incases where arbitration proceedings have themselves commencedonly after 23-10-2015. This would mean that in all matters whichare in the pipeline, despite the fact that Section 34 proceedingshave been initiated only after 23-10-2015, yet, the old law wouldcontinue to apply resulting in delay of disposal of arbitrationproceedings by increased interference of courts, which ultimatelydefeats the object of the 1996 Act.[These amendments havethe effect, as stated in HRD Corpn. v. GAIL (India) Ltd., (2018)12 SCC 471 of limiting the grounds of challenge to awards asfollows: (SCC p. 493, para 18)”18. In fact, the same LawCommission Report has amended Sections 28 and 34 so as tonarrow grounds of challenge available under the Act. Thejudgment in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705has been expressly done away with. So has the judgment inONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC263. Both Sections 34 and 48 have been brought back to theposition of law contained in Renusagar Power Plant Co. Ltd.v. General Electric Company, 1994 Supp (1) SCC 644, where“public policy” will now include only two of the three things setout therein viz. “fundamental policy of Indian law” and “justiceor morality”. The ground relating to “the interest of India” nolonger obtains. “Fundamental policy of Indian law” is now to beunderstood as laid down in Renusagar, 1994 Supp (1) SCC 644.“Justice or morality” has been tightened and is now to beunderstood as meaning only basic notions of justice and moralityi.e. such notions as would shock the conscience of the Court asunderstood in Associate Builders v. DDA, (2015) 3 SCC 49 :(2015) 2 SCC (Civ) 204. Section 28(3) has also been amendedto bring it in line with the judgment of this Court in AssociateBuilders, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, making itclear that the construction of the terms of the contract is primarilyfor the arbitrator to decide unless it is found that such aconstruction is not a possible one.”] It would be important toremember 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 2310-2015. It is this basic scheme which is adhered to by Section26 of the Amendment Act, which ought not to be displaced asthe very object of the enactment of the Amendment Act wouldotherwise be defeated.”

In paragraph 83, the Court then concluded:

“83. In view of the above, the present batch of appeals isdismissed. A copy of the judgment is to be sent to the Ministryof Law and Justice and the learned Attorney General for Indiain view of what is stated in paras 77 and 78 supra.”

38. After construing Section 26 in the manner stated in thejudgment, this Court cautioned the Government by stating that theimmediate effect of enacting the proposed Section 87 would be directlycontrary to the Statement of Objects and Reasons of the 2015Amendment Act, which made it clear that the law prior to the 2015Amendment Act resulted in delay of disposal of arbitral proceedings,and an increase in interference by courts in arbitration matters, whichtends to defeat a primary object of the Arbitration Act, 1996 itself. Itwas therefore stated that all the amendments made by the 2015Amendment Act, and important amendments in particular that weremade to Sections 28 and 34, would now be put on a backburner, whichwould be contrary not only to what the 246[th] Law Commission had inmind, but also directly contrary to the salutary provisions that were madeto correct defects that were found in the working of the ArbitrationAct, 1996.

39. At this point it is important to refer to the relevant paragraphsof the Statement of Objects and Reasons of the 2019 Amendment Actwhich introduced Section 87. In paragraphs 2 to 6 of the Statement ofObjects and Reasons, the Srikrishna Committee Report alone is referredto, and paragraph 6(vi) in particular states as follows:

“6. The salient features of the Arbitration and Conciliation(Amendment) Bill, 2019, inter alia, are as follows:- xxx xxx xxx A

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A(vi) to clarify that Section 26 of the Arbitration and Conciliation(Amendment) Act, 2015 is applicable only to the arbitralproceedings which commenced on or after 23[rd] October, 2015and to such court proceedings which emanate from such arbitralproceedings.”

B40. Interestingly, no such clarification was made by the 2019Amendment Act. Instead, Section 26 was omitted with effect from23.10.2015 and Section 87 introduced.

41. Dr. Singhvi has argued, based on a number of judgments ofthis Court, that the question of removing the basis of a judgment cannotCarise unless and until the judgment is present to the mind of thelegislature. He stated that in all the major cases in which a judgmentof a court is nullified by removing its basis, the judgment in questionhas been expressly referred to in the concerned Statement of Objectsand Reasons. We are afraid that we cannot agree with this line ofargument. What is important is to see whether, in substance, the basisDof a particular judgment is in fact removed, whether or not that judgmentis referred to in the Statement of Objects and Reasons of the amendingact which seeks to remove its basis.

42. In Shri Prithvi Cotton Mills Ltd. and Anr. v. BroadBorough Municipality and Ors. (1969) 2 SCC 283, this Court held:E

“4….Granted legislative competence, it is not sufficient to declaremerely that the decision of the Court shall not bind for that istantamount to reversing the decision in exercise of judicial powerwhich the Legislature does not possess or exercise. A court’sdecision must always bind unless the conditions on which it isFbased are so fundamentally altered that the decision could nothave been given in the altered circumstances.”

43. In State of Tamil Nadu v. Arooran Sugars Ltd. (1997) 1SCC 326, this Court after setting out what was held in Shri PrithviCotton Mills (supra) stated:G“

“16…The same view was reiterated in the cases of WestRamnad Electric Distribution Co. Ltd. v. State of Madras[(1963) 2 SCR 747 : AIR 1962 SC 1753] ; Udai Ram Sharmav. Union of India [(1968) 3 SCR 41 : AIR 1968 SC 1138] ;Tirath Ram Rajindra Nath v. State of U.P. [(1973) 3 SCC 585H: 1973 SCC (Tax) 300] ; Krishna Chandra Gangopadhyaya

v. Union of India [(1975) 2 SCC 302] ; Hindustan Gum &Chemicals Ltd. v. State of Haryana [(1985) 4 SCC 124] ; UtkalContractors and Joinery (P) Ltd. v. State of Orissa [1987 SuppSCC 751] ; D. Cawasji & Co v. State of Mysore [1984 SuppSCC 490 : 1985 SCC (Tax) 63] and Bhubaneshwar Singh v.Union of India [(1994) 6 SCC 77] . It is open to the legislatureto remove the defect pointed out by the court or to amend thedefinition or any other provision of the Act in questionretrospectively. In this process it cannot be said that there hasbeen an encroachment by the legislature over the power of thejudiciary. A court’s directive must always bind unless theconditions on which it is based are so fundamentally altered thatunder altered circumstances such decisions could not have beengiven. This will include removal of the defect in a statute pointedout in the judgment in question, as well as alteration or substitutionof provisions of the enactment on which such judgment is based,with retrospective effect.”.

44. Likewise, in Goa Foundation v. State of Goa (2016) 6 SCC602, this Court held:

“24…The power to invalidate a legislative or executive act lieswith the Court. A judicial pronouncement, either declaratory orconferring rights on the citizens cannot be set at naught by asubsequent legislative act for that would amount to anencroachment on the judicial powers. However, the legislaturewould be competent to pass an amending or a validating act, ifdeemed fit, with retrospective effect removing the basis of thedecision of the Court. Even in such a situation the courts maynot approve a retrospective deprivation of accrued rights arisingfrom a judgment by means of a subsequent legislation (MadanMohan Pathak v. Union of India [Madan Mohan Pathak v.Union of India, (1978) 2 SCC 50 : 1978 SCC (L&S) 103] ).However, where the Court’s judgment is purely declaratory, thecourts will lean in support of the legislative power to remove thebasis of a court judgment even retrospectively, paving the wayfor a restoration of the status quo ante. Though the consequencemay appear to be an exercise to overcome the judicialpronouncement it is so only at first blush; a closer scrutiny wouldconfer legitimacy on such an exercise as the same is a normaladjunct of the legislative power. The whole exercise is one of AB

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Aviewing the different spheres of jurisdiction exercised by the twobodies i.e. the judiciary and the legislature. The balancing act,delicate as it is, to the constitutional scheme is guided by the well-defined values which have found succinct manifestation in theviews of this Court in Bakhtawar Trust [Bakhtawar Trust v.M.D. Narayan, (2003) 5 SCC 298].”B

45. Given the aforesaid judgments, Section 15 of the 2019Amendment Act removes the basis of BCCI (supra) by omitting fromthe very start Section 26 of the 2015 Amendment Act. Since this is theprovision that has been construed in the BCCI judgment (supra), therecan be no doubt whatsoever that one fundamental prop of the saidCjudgment has been removed by retrospectively omitting Section 26altogether from the very day when it came into force. This argumentmust therefore be rejected.

46. Equally, Shri Neeraj Kishan Kaul’s argument that Section 87is nothing but a re-hash of Section 26, and therefore in substance thereDis a direct encroachment on a judgment of this Court, must also berejected. When contrasted with Section 26, Section 87 is in two parts:Section 87(a) negatively stating that the 2015 Amendment Act shall notapply to Court proceedings arising out of arbitral proceedings irrespectiveof whether such court proceedings are commenced before or after theEcommencement of the 2015 Amendment Act; and positively applyingonly to court proceedings in case they arise out of arbitral proceedingsthat are commenced on or after the commencement of the 2015Amendment Act. It can thus be seen that the scheme of Section 87 isdifferent from that of Section 26, and is explicit in stating that courtproceedings are merely parasitical on arbitral proceedings. It isFtherefore clear that only arbitral proceedings have to be looked at tosee whether the 2015 Amendment Act kicks in. It is therefore notpossible to accept Shri Kaul’s argument that in the present case thereis a direct assault on a judgment of this Court without first removingits basis.GConstitutional Challenge to the 2019 Amendment Act

47. This now sets the stage for the examination of theconstitutional validity of the introduction of Section 87 into the ArbitrationAct, 1996, and deletion of Section 26 of the 2015 Amendment Act bythe 2019 Amendment Act against Articles 14, 19(1)(g), 21 and ArticleH300-A of the Constitution of India. The Srikrishna Committee Report recommended the introduction of Section 87 owing to the fact that therewere conflicting High Court judgments on the reach of the 2015Amendment Act at the time when the Committee deliberated on thissubject. This was stated as follows in the Srikrishna Committee Report:

“However, section 26 has remained silent on the applicability ofthe 2015 amendment Act to court proceedings, both pending andnewly initiated in case of arbitrations commenced prior to 23October 2015. Different High Courts in India have taken divergentviews on the applicability of the 2015 Amendment Act to suchcourt proceedings. Broadly, there are three sets of views assummarised below:

(a) The 2015 Amendment Act is not applicable to courtproceedings (fresh and pending) where the arbitralproceedings to which they relate commenced before 23October 2015.

(b) The first part of section 26 is narrower than the secondand only excludes arbitral proceedings commenced priorto 23 October 2015 from the application of the 2015Amendment Act. The 2015 Amendment Act would,however, apply to fresh or pending court proceedingsin relation to arbitral proceedings commenced prior to23 October 2015.

(c) The wording “arbitral proceedings” in section 26 cannotbe construed to include related court proceedings.Accordingly, the 2015 Amendment Act applied to allarbitrations commenced on or after 23 October 2015.As far as court proceedings are concerned, the 2015Amendment Act would apply to all court proceedingsfrom 23October 2015, including fresh or pending courtproceedings in relation to arbitration commenced before,on or after 23 October 2015.

Thus, it is evident that there is considerable confusion regardingthe applicability of the 2015 Amendment Act to related courtproceedings in arbitration commenced before 23 October2015.The Committee is of the view that a suitable legislativeamendment is required to address this issue.

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AThe committee feels that permitting the 2015 Amendment Actto apply to pending court proceedings related to arbitrationscommenced prior to 23 October 2015 would result in uncertaintyand prejudice to parties, as they may have to be heard again. Itmay also not be advisable to make the 2015 Amendment Actapplicable to fresh court proceedings in relation to suchBarbitrations, as it may result in an inconsistent position. Therefore,it is felt that it may be desirable to limit the applicability of the2015 Amendment Act to arbitrations commenced on or after 23October 2015 and related court proceedings.”

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48. The Srikrishna Committee Report is dated 30.07.2017, whichis long before this Court’s judgment in the BCCI case (supra).Whatever uncertainty there may have been because of the interpretationby different High Courts has disappeared as a result of the BCCIjudgment (supra), the law on Section 26 of the 2015 Amendment ActDbeing laid down with great clarity. To thereafter delete this salutaryprovision and introduce Section 87 in its place, would be wholly withoutjustification and contrary to the object sought to be achieved by the2015 Amendment Act, which was enacted pursuant to a detailed LawCommission report which found various infirmities in the working ofEthe original 1996 statute. Also, it is not understood as to how “uncertaintyand prejudice would be caused, as they may have to be heard again”,resulting in an ‘inconsistent position’. The amended law would beapplied to pending court proceedings, which would then have to bedisposed of in accordance therewith, resulting in the benefits of the 2015Amendment Act now being applied. To refer to the SrikrishnaFCommittee Report (without at all referring to this Court’s judgment)even afterthe judgment has pointed out the pitfalls of following suchprovision, would render Section 87 and the deletion of Section 26 ofthe 2015 Amendment Act manifestly arbitrary, having been enactedunreasonably, without adequate determining principle, and contrary to

the public interest sought to be subserved by the Arbitration Act, 1996Gand the 2015 Amendment Act. This is for the reason that a key findingof the BCCI judgment (supra) is that the introduction of Section 87would result in a delay of disposal of arbitration proceedings, and anincrease in the interference of courts in arbitration matters, which defeatsthe very object of the Arbitration Act, 1996, which was strengthenedHby the 2015 Amendment Act.

49. Further, this Court has repeatedly held that an applicationunder Section 34 of the Arbitration Act, 1996 is a summary proceedingnot in the nature of a regular suit – see Canara Nidhi Ltd. v. M.Shashikala 2019 SCC Online SC 1244 at paragraph 20. As a result,a court reviewing an arbitral award under Section 34 does not sit inappeal over the award, and if the view taken by the arbitrator is possible,no interference is called for – see Associated Construction v.Pawanhans Helicopters Ltd. (2008) 16 SCC 128 at paragraph 17.

50. Also, as has been held in the recent decision SsangyongEngineering & Construction Co. Ltd. v. NHAI 2019 SCC Online677, after the 2015 Amendment Act, this Court cannot interfere withan arbitral award on merits (see paragraph 28 and 76 therein). Theanomaly, therefore, of Order XLI Rule 5 of the CPC applying in thecase of full-blown appeals, and not being applicable by reason of Section36 of the Arbitration Act, 1996 when it comes to review of arbitralawards, (where an appeal is in the nature of a rehearing of the originalproceeding, where the chance of succeeding is far greater than in arestricted review of arbitral awards under Section 34), is itself acircumstance which militates against the enactment of Section 87,placing the amendments made in the 2015 Amendment Act, in particularSection 36, on a backburner. For this reason also, Section 87 must bestruck down as manifestly arbitrary under Article 14. The petitionersare also correct in stating that when the mischief of the misconstructionof Section 36 was corrected after a period of more than 19 years bylegislative intervention in 2015, to now work in the reverse directionand bring back the aforesaid mischief itself results in manifestarbitrariness. The retrospective resurrection of an automatic-stay notonly turns the clock backwards contrary to the object of the ArbitrationAct, 1996 and the 2015 Amendment Act, but also results in paymentsalready made under the amended Section 36 to award-holders in asituation of no-stay or conditional-stay now being reversed. In fact,refund applications have been filed in some of the cases before us,praying that monies that have been released for payment as a result ofconditional stay orders be returned to the judgment-debtor.

51. Also, it is important to notice that the Srikrishna CommitteeReport did not refer to the provisions of the Insolvency Code. Afterthe advent of the Insolvency Code on 01.12.2016, the consequence ofapplying Section 87 is that due to the automatic-stay doctrine laid downby judgments of this Court - which have only been reversed today by AB

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Athe present judgment - the award-holder may become insolvent bydefaulting on its payment to its suppliers, when such payments wouldbe forthcoming from arbitral awards in cases where there is no stay,or even in cases where conditional stays are granted. Also, an arbitralaward-holder is deprived of the fruits of its award - which is usuallyobtained after several years of litigating - as a result of the automatic-Bstay, whereas it would be faced with immediate payment to itsoperational creditors, which payments may not be forthcoming due tomonies not being released on account of automatic-stays of arbitralawards, exposing such award-holders to the rigors of the InsolvencyCode. For all these reasons, the deletion of Section 26 of the 2015CAmendment Act, together with the insertion of Section 87 into theArbitration Act, 1996 by the 2019 Amendment Act, is struck down asbeing manifestly arbitrary under Article 14 of the Constitution of India.

52. However, the learned Attorney General cited a number ofjudgments which state that the court should not ordinarily interfere withDthe fixation of cut-off dates, unless such fixation appears to be arbitraryor discriminatory (see for e.g., UOI v. Parameswaran Match Works(1975) 1 SCC 305 at paragraph 10[2] and Govt. of A.P. v. N.Subbarayudu (2008) 14 SCC 702 at paragraphs 5 to 9[3]).

53. In the present case, the challenge is not to the fixing ofE23.10.2015 as a cut-off date, as the aforesaid date is the date on whichthe 2015 Amendment Act came into force. For this reason, the aforesaidjudgments have no application. Instead, what has been found to bemanifestly arbitrary is the non-bifurcation of court proceedings andarbitration proceedings with reference to the aforesaid date, resultingin improvements in the working of the Arbitration Act, 1996 being putFon a backburner. This argument of the learned Attorney General forIndia also therefore must be rejected.

2 “10….The choice of a date as a basis for classification cannot be always be dubbedas arbitrary even if no particular reason is forthcoming for the choice unless it isshown to be capricious or whimsical in the circumstances. Where it is seen that a lineGor point there must be, and there is no mathematical or logical way of fixing itprecisely, the decision of the legislature or its delegate must be accepted unless wecan say that it is very wide of the reasonable mark.”

3 “5….This Court is also of the view that fixing cut-off dates is within the domain ofthe executive authority and the court should not normally interfere with the fixationof a cut-off date by the executive authority unless such Court order appears to be onHthe face of it blatantly discriminatory and arbitrary.”

54. The result is that the BCCI judgment (supra) will thereforecontinue to apply so as to make applicable the salutary amendmentsmade by the 2015 Amendment Act to all court proceedings initiatedafter 23.10.2015.

55. In this view of the matter, it is unnecessary to examine theconstitutional challenge to the 2019 Amendment Act based on Articles19(1)(g), 21 and 300-A of the Constitution of India.

Constitutional Challenge to the Insolvency Code

56. It now falls on us to decide the second part of the challengesmade in the present Writ Petitions, i.e. the challenge to theconstitutionality of the Insolvency Code. As mentioned above, Dr.Singhvi has argued that the provisions of the Insolvency Code wouldoperate arbitrarily on his client inasmuch as, on the one hand, anautomatic-stay of arbitral awards in his favour would be granted underthe Arbitration Act, 1996 as a result of which those monies cannot beused to pay-off the debts of his client’s creditors. On the other hand,any debt of over INR one lakh owed to a financial or operational creditorwhich remains unpaid, would attract the provisions of the InsolvencyCode against the Petitioner No.1 - making these provisions arbitrary,discriminatory and violative of Articles 14 and 19(1)(g) of the Constitutionof India. As a result, he has suggested that in order for his client, inturn, to recover monies from Government Companies and NHAI, thedefinition of ‘corporate person’ contained in Section 3(7) of theInsolvency Code should either be read without the words “with limitedliability” contained in the third part of the definition, or have Section3(23)(g) of the Insolvency Code, which is the definition of ‘person’,read into the aforesaid provision. In order to appreciate this contentionit is necessary to set out these definitions:

“Definitions

3. In this Code, unless the context otherwise requires,- xxx xxx xxx

(7) “corporate person” means a company as defined in clause(20) of section 2 of the Companies Act, 2013 (18 of 2013), alimited liability partnership, as defined in clause (n) of sub-section(1) of section 2 of the Limited Liability Partnership Act, 2008 (6of 2009), or any other person incorporated with limited liability A

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Aunder any law for the time being in force but shall not includeany financial service provider;

(8) “corporate debtor” means a corporate person who owes adebt to any person;

(23) “person” includes-

B

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

(d) a trust;

C

(e) a partnership;

(f) a limited liability partnership;

(g) any other entity established under a statute; D

and includes a person resident outside India.”

57. As correctly argued by the learned Solicitor General, ShriTushar Mehta, the first part of ‘corporate person’, as defined in Section3(7) of the Insolvency Code, means a company as defined in Clause20 of Section 2 of the Companies Act 2013. Sections 2(20) and 2(45)Eof the Companies Act, 2013, which define ‘company’ and ‘Governmentcompany’ respectively, are set out hereinbelow:

“2(20). “company” means a company incorporated under this Actor under any previous company law;”

“2(45). “Government company” means any company in whichnot less than fifty-one per cent of the paid-up share capital isheld by the Central Government, or by any State Governmentor Governments, or partly by the Central Government and partlyby one or more State Governments, and includes a companywhich is a subsidiary company of such a Government company.”

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58. From a reading of the aforesaid definition, Shri Tushar Mehtais clearly right in stating that the three entities who owe monies underarbitral awards to the Petitioner No.1, being Government companies,would be subsumed within the first part of the definition. However, sofar as NHAI is concerned, Dr. Singhvi’s argument of either deletingHcertain words in Section 3(7) of the Insolvency Code, or adding certain words in Section 3(23)(g) of the Insolvency Code into Section 3(7)cannot be accepted.

59. It is clear from a reading of the Statement of Objects andReasons of the NHAI Act, that the development and maintenance ofnational highways is a government function that falls within Entry 23of List I of the Seventh Schedule to the Constitution of India. Further,under Section 5 of the National Highways Act, 1956, the CentralGovernment may direct that any function in relation to the developmentor maintenance of national highways shall also be exercisable by anyofficer or authority subordinate to the Central Government. Under thisprovision, the function of execution of activities relatable to nationalhighways was earlier delegated to the State Governments under an“agency system”. Though the system worked through the State PublicWorks Departments for a period of 40 years, as difficulties wereexperienced, the Centre itself decided to take over development andmaintenance of the national highways system through the creation ofa national highways authority.

60. The following provisions of the NHAI Act are relevant andare set out hereinbelow:

“3. Constitution of the Authority.—

(1) With effect from such date as the Central Government may,by notification in the Official Gazette, appoint in this behalf, thereshall be constituted for the purposes of this Act an Authority tobe called the National Highways Authority of India.

(2) The Authority shall be a body corporate by the name aforesaidhaving perpetual succession and a common seal, with power,subject to the provisions of this Act, to acquire, hold and disposeof property, both movable and immovable, and to contract andshall by the said name sue and be sued.

[(3) The Authority shall consist of—

(a) a Chairman;

(b) not more than six full-time members; and

(c) not more than six part-time members, to be appointed

by the Central Government by notification in the OfficialGazette:

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BC

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Provided that the Central Government shall, while appointing thepart-time members, ensure that at least two of them are non-Government professionals having knowledge or experience infinancial management, transportation planning or any otherrelevant discipline.]

xxx xxx xxx

12. Transfer of assets and liabilities of the CentralGovernment to the Authority—

(1) On and from the date of publication of the notification undersection 11.—

(a) all debts, obligations and liabilities incurred, all contractsentered into and all matters and things engaged to bedone by, with, or for, the Central Government,immediately before such date for or in connection withthe purposes of any national highway or any stretchthereof vested in, or entrusted to, the Authority underthat section, shall be deemed to have been incurred,entered into and engaged to be done by, with, or for,the Authority; (b) all non-recurring expenditure incurred by or for theCentral Government for or in connection with thepurposes of any national highway or any stretch thereof,so vested in, or entrusted to, the Authority, up to suchdate and declared to be capital expenditure by theCentral Government shall, subject to such terms andconditions as may be prescribed, be treated as capitalprovided by the Central Government to the Authority;

(c) all sums of money due to the Central Government inrelation to any national highway or any stretch thereof,so vested in, or entrusted to, the Authority immediatelybefore such date shall be deemed to be due to theAuthority; (d) all suits and other legal proceedings instituted or whichcould have been instituted by or against the CentralGovernment immediately before such date for anymatter in relation to such national highway or any stretch thereof may be continued or instituted by or against theAuthority.

(2) If any dispute arises as to which of the assets, rights orliabilities of the Central Government have been transferred to theAuthority, such dispute shall be decided by the CentralGovernment.

xxx xxx xxx

14. Contracts by the Authority.—

Subject to the provisions of section 15, the Authority shall becompetent to enter into and perform any contract necessary forthe discharge of its functions under this Act.

15. Mode of executing contracts on behalf of theAuthority.—

(1) Every contract shall, on behalf of the Authority, be made bythe Chairman or such other member or such officer of theAuthority as may be generally or specially empowered in thisbehalf by the Authority and such contracts or classes of contractsas may be specified in the regulations shall be sealed with thecommon seal of the Authority:

Provided that no contract exceeding such value or amount asthe Central Government may prescribe in this behalf shall bemade unless it has been previously approved by that Government:

Provided further that no contract for the acquisition or sale ofimmovable property or for the lease of any such property for aterm exceeding thirty years and no other contract exceeding suchvalue or amount as the Central Government may prescribe inthis behalf shall be made unless it has been previously approvedby that Government.

(2) Subject to the provisions of sub-section (1), the form andmanner in which any contract shall be made under this Act shallbe such as may be provided by regulations.

(3) No contract which is not in accordance with the provisionsof this Act and the regulations shall be binding on the Authority.

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16. Functions of the Authority.—

(1) Subject to the rules made by the Central Government in thisbehalf, it shall be the function of the Authority to develop,maintain and manage the national highways and any otherhighways vested in, or entrusted to, it by the Government.

(2) Without prejudice to the generality of the provisions containedin sub-section (1), the Authority may, for the discharge of itsfunctions—

(a) survey, develop, maintain and manage highways vestedin, or entrusted to, it; (b) construct offices or workshops and establish andmaintain hotels, motels, restaurants and rest-rooms ator near the highways vested in, or entrusted to, it;

(c) construct residential buildings and townships for itsemployees; (d) regulate and control the plying of vehicles on thehighways vested in, or entrusted to, it for the propermanagement thereof; (e) develop and provide consultancy and constructionservices in India and abroad and carry on researchactivities in relation to the development, maintenance andmanagement of highways or any facilities thereat; (f) provide such facilities and amenities for the users of thehighways vested in, or entrusted to, it as are, in theopinion of the Authority, necessary for the smooth flowof traffic on such highways; (g) form one or more companies under the Companies Act,1956 to further the efficient discharge of the functionsimposed on it by this Act; [(h) engage, or entrust any of its functions to, any personon such terms and conditions as may be prescribed;]

(i) advise the Central Government on matters relating tohighways; (j) assist, on such terms and conditions as may be mutuallyagreed upon, any State Government in the formulationand implementation of schemes for highwaydevelopment; (k) collect fees on behalf of the Central Government forservices or benefits rendered under section 7 of theNational Highways Act, 1956, as amended from timeto time, and such other fees on behalf of the StateGovernments on such terms and conditions as may bespecified by such State Governments; and

(l) take all such steps as may be necessary or convenientfor, or may be incidental to, the exercise of any poweror the discharge of any function conferred or imposedon it by this Act.

(3) Nothing contained in this section shall be construed as—

(a) authorising the disregard by the Authority of any lawfor the time being in force; or (b) authorising any person to institute any proceeding inrespect of a duty or liability to which the Authority orits officers or other employees would not otherwise besubject under this Act.

17. Additional capital and grants to the Authority by theCentral Government.—

The Central Government may, after due appropriation made byParliament, by law in this behalf,—

(a) provide any capital that may be required by the Authorityfor the discharge of its functions under this Act or forany purpose connected therewith on such terms andconditions as that Government may determine; (b) pay to the Authority, on such terms and conditions asthe Central Government may determine, by way of loansor grants such sums of money as that Government mayconsider necessary for the efficient discharge by theAuthority of its functions under this Act.

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A18. Funds of the Authority.— (1) There shall be constituted aFund to be called the National Highways Authority of India Fundand there shall be credited thereto—

(a) any grant or aid received by the Authority; (b) any loan taken by the Authority or any borrowings madeby it; B

(c) any other sums received by the Authority.

(2) The Fund shall be utilised for meeting—

(a) expenses of the Authority in the discharge of itsfunctions having regard to the purposes for which suchgrants, loans or borrowings are received and for mattersconnected therewith or incidental thereto; C

(b) salary, allowances, other remuneration and facilitiesprovided to the members, officers and other employeesof the Authority; D

(c) expenses on objects and for purposes authorised by thisAct.

19. Budget.—The Authority shall prepare, in such form and atsuch time in each financial year as may be prescribed, its budgetfor the next financial year, showing the estimated receipts andexpenditure of the Authority and forward the same to the CentralGovernment.

E

20. Investment of funds.—-The Authority may invest its funds(including any reserve fund) in the securities of the CentralGovernment or in such other manner as may be prescribed.

F

21. Borrowing powers of the Authority.—

(1) The Authority may, with the consent of the CentralGovernment or in accordance with the terms of anygeneral or special authority given to it by the CentralGovernment, borrow money from any source by theissue of bonds, debentures or such other instruments asit may deem fit for discharging all or any of its functionsunder this Act.

G

H

(2) Subject to such limits as the Central Government may,from time to time, lay down, the Authority may borrowtemporarily by way of overdraft or otherwise, suchamounts as it may require for discharging its functionsunder this Act.

(3) The Central Government may guarantee in such manneras it thinks fit the repayment of the principal and thepayment of interest thereon with respect to theborrowings made by the Authority under sub-section (1).

22. Annual report.—-The Authority shall prepare, in such formand at such time in each financial year as may be prescribed, itsannual report, giving a full account of its activities during theprevious financial year, and submit a copy thereof to the CentralGovernment.

23. Accounts and audit.—-The accounts of the Authority shallbe maintained and audited in such manner as may, in consultationwith the Comptroller and Auditor-General of India, be prescribedand the Authority shall furnish, to the Central Government beforesuch date as may be prescribed, its audited copy of accountstogether with the auditors report thereon.

24. Annual report and auditor’s report to be laid beforeParliament.— The Central Government shall cause the annualreport and auditor’s report to be laid, as soon as may be afterthey are received, before each House of Parliament.

xxxxxxxxx

33. Power of the Central Government to issue directions.-

(1) Without prejudice to the other provisions of this Act, theAuthority shall, in the discharge of its functions and duties underthis Act, be bound by such directions on questions of policy asthe Central Government may give in writing from time to time.

(2) The decision of the Central Government whether a questionis one of policy or not shall be final.”

61. Under Section 3 of the aforementioned Act, the Authorityshall be a body corporate which shall consist of a Chairman and sixfull-time members, together with six part-time members, all appointed A

B

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D

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Aby the Central Government. The assets and liabilities of the CentralGovernment in relation to national highways are then transferred to theAuthority under Section 12. Under Sections 14 and 15, contracts thatcan be made on behalf of the Authority can only be made, if they exceeda certain value, after previous approval by the Government. Section16 deals with the functions of the Authority, which makes it clear thatBthese are governmental functions to be carried out only by theGovernment or by its agent appointed in this behalf.

62. Under Section 19, the budget prepared for the Authority hasto be sent to the Central Government, capital and grants to the authoritybeing made by the Central Government into the fund of the AuthorityC(see Sections 17 and 18 of the NHAI Act supra). Likewise, an annualreport is to be given to the Central Government under Section 22.Accounts and audit have to be made in consultation with the Comptrollerand Auditor General of India, and furnished to the Central Government,which have then to be laid before the Parliament [see Sections 22 toD24 of the NHAI Act (supra)]. Under Section 33, the CentralGovernment can issue directions on questions of policy, which wouldthen be binding on the Authority.

63. From a conspectus of the above provisions, what is clear isthat NHAI is a statutory body which functions as an extended limb ofEthe Central Government, and performs governmental functions whichobviously cannot be taken over by a resolution professional under theInsolvency Code, or by any other corporate body. Nor can suchAuthority ultimately be wound-up under the Insolvency Code. For allthese reasons, it is not possible to accede to Dr. Singhvi’s argument toeither read in, or read down, the definition of ‘corporate person’ inFSection 3(7) of the Insolvency Code.

64. Even otherwise, on the footing that the NHAI can be ropedin under the Insolvency Code, this Court in K. Kishan (supra) has held:

“22. Following this judgment, it becomes clear that operationalGcreditors cannot use the Insolvency Code either prematurely orfor extraneous considerations or as a substitute for debtenforcement procedures. The alarming result of an operationaldebt contained in an arbitral award for a small amount of say,two lakhs of rupees, cannot possibly jeopardise an otherwisesolvent company worth several crores of rupees. Such aHcompany would be well within its rights to state that it is challenging the arbitral award passed against it, and the merefactum of challenge would be sufficient to state that it disputesthe award. Such a case would clearly come within para 38 ofMobilox Innovations [Mobilox Innovations (P) Ltd. v. KirusaSoftware (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311], being a case of a pre-existing ongoing dispute between theparties. The Code cannot be used in terrorem to extract this sumof money of rupees two lakhs even though it may not be finallypayable as adjudication proceedings in respect thereto are stillpending. We repeat that the object of the Code, at least insofaras operational creditors are concerned, is to put the insolvencyprocess against a corporate debtor only in clear cases where areal dispute between the parties as to the debt owed does notexist.

xxx

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27. We repeat with emphasis that under our Code, insofar asan operational debt is concerned, all that has to be seen iswhether the said debt can be said to be disputed, and we haveno doubt in stating that the filing of a Section 34 petition againstan arbitral award shows that a pre-existing dispute whichculminates at the first stage of the proceedings in an award,continues even after the award, at least till the final adjudicatoryprocess under Sections 34 and 37 has taken place.”

65. In this view of the matter, the moment challenges are madeto the arbitral awards, the amount said to be due by an operationaldebtor would become disputed, and therefore be outside the clutchesof the Insolvency Code. Looked at from any point of view, therefore,proceeding against the NHAI under the Insolvency code by thePetitioner No.1 is not possible.

66. Dr. Singhvi then argued that under Section 5(9) of theInsolvency Code, ‘financial position’ is defined, which is only taken intoaccount after a resolution professional is appointed, and is not takeninto account when adjudicating ‘default’ under Section 3(12) of theInsolvency Code. This does not in any manner lead to the position thatsuch provision is manifestly arbitrary. As has been held by our judgmentin Pioneer Urban Land and Infrastructure Limited and Anr. v.Union of India and Ors. (2019) 8 SCC 416, the Insolvency Code isnot meant to be a recovery mechanism (see paragraph 41 thereof) - A

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Athe idea of the Insolvency Code being a mechanism which is triggeredin order that resolution of stressed assets then takes place. For thispurpose, the definitions of ‘dispute’ under Section 5(6), ‘claim’ underSection 3(6), ‘debt’ under Section 3(11), and ‘default’ under Section3(12), have all to be read together. Also, the Insolvency Code, belongingto the realm of economic legislation, raises a higher threshold ofBchallenge, leaving the Parliament a free play in the joints, as has beenheld in Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC 17 (seeparagraphs 17 to 24 thereof). For all these reasons, this contention ofDr. Singhvi must needs be rejected.

67. Dr. Singhvi’s argument as to the need to fill in a casusComissus in the Code in order that his client get relief is again not tenable.The argument that an Order VIII-A CPC type mechanism is missing,and can be provided by us through interpretation - there being no third-party procedure by which debts owed to persons like the Petitioner canthen be, by some theory of contribution or indemnity, fastened on toDPSUs when operational creditors invoke the Insolvency Code againstpersons like the Petitioner - is again an argument which is answeredby stating that the Insolvency Code is not meant to be a debt recoverylegislation.

68. The argument of Shri Rai that the definition of ‘dispute’ underSection 5(6) of the Insolvency Code does not speak of the ‘parties’ toEa dispute, and can therefore be interpreted to include a dispute betweena sub-contractor and the principal employer with whom the sub-contractor may have no privity of contract, also does not commend itselfto us. The definition of ‘dispute’ in Section 5(6) of the Insolvency Codedeals with a suit or arbitration proceedings relating to one of three thingsF- (a) the existence of the amount of debt; (b) the quality of goods orservice; or (c) the breach of a representation or warranty.

69. Insofar as (a) is concerned, the definition of the word ‘debt’contained in Section 3(11) of the Insolvency Code, refers to a liabilityor obligation in respect of a claim which is due from any person. ThisGnecessarily postulates the existence of a contractual or otherrelationship, which gives rise to a liability or obligation between partiesin law. The same goes for (c), as a breach of a representation orwarranty can only be by one contracting party to another. Also, whenthe quality of goods or service is referred to in (b), this again postulatessome contractual or other relationship in law by which one party mayHsue the other.

70. In Mobilox (supra), after setting out the definition of‘dispute’, this Court held:

“34. Therefore, the adjudicating authority, when examining anapplication under Section 9 of the Act will have to determine:

i. Whether there is an “operational debt” as definedexceeding Rs 1 lakh? (See Section 4 of the Act)

ii. Whether the documentary evidence furnished with theapplication shows that the aforesaid debt is due andpayable and has not yet been paid? And

iii. Whether there is existence of a dispute between theparties or the record of the pendency of a suit orarbitration proceeding filed before the receipt of thedemand notice of the unpaid operational debt in relationto such dispute?

If any one of the aforesaid conditions is lacking, the applicationwould have to be rejected. Apart from the above, the adjudicatingauthority must follow the mandate of Section 9, as outlined above,and in particular the mandate of Section 9(5) of the Act, andadmit or reject the application, as the case may be, dependingupon the factors mentioned in Section 9(5) of the Act.”

71. It is clear therefore that a dispute must be between the partiesas understood under the Insolvency Code, which does not contain anOrder VIII-A CPC type mechanism. This contention must also thereforebe rejected.

72. For all these reasons, we find the challenge to the provisionsof Insolvency Code, insofar as the present Writ Petitions are concerned,to be wholly devoid of merit.

Conclusion on facts

73. In the Writ Petition No.1074 of 2019 filed on 16.08.2019, thePetitioner company had alleged that a sum of INR 6070 crores wasthe sum awarded to the Petitioner company under various arbitralawards from 2008 to 2019 which had been challenged by theRespondent PSUs before various Courts, but the operation of whichhad not been stayed by such courts. On this factual premise, thePetitioner sought interim reliefs from this Court for the repayment ofthe said amounts from the Respondent PSUs, so as to enable it to repay A

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Aits pending dues to its own operational creditors. This Court recordedas much in its order dated 13.09.2019 in Writ Petition No.1074 of 2019as follows:

“The two interlocutory applications are filed for two reliefs. Oneis to stay further proceedings before the National Company LawBTribunal, and the second is to direct respondent nos.5-8 – Unionof India, National Highways Authority of India, NHPC Ltd.,IRCON International Ltd. and NTPC Limited to pay off amountsdue under the Awards of Arbitrators which have not been stayedby any Court, amounting to a sum of Rs.6,070 crores.

CDr. Singhvi, learned Senior Counsel, states that his client will paythe Operational Creditors in these two interlocutory applications,amounts of Rs.8.81 crores and 26.21 crores within a period of12 weeks from today. We record the aforesaid statement.

We also issue notice to the Respondents in the two interlocutoryDapplications.

Dasti service, in addition, is permitted.

List the matter on 04[th] October, 2019.

Dr. Singhvi further states that this order which is passed by usat 11:45am today, will be communicated orally to the NCLTEwhich, apparently, is taking up these matters today.

74. However, in its Counter Affidavit dated 21.10.2019, the Unionof India contended that this prayer was ‘factually incorrect’ andF‘deliberately misleading’. The Union of India reproduced charts filedby IRCON, NHPC and NHAI before this Court regarding the statusof arbitral awards against them in favour of the Petitioner company(as on 30.09.2019), which detailed, inter alia, (i) the value of thecontract between the Petitioner company and the Respondent PSU;(ii) the amount already paid by the Respondent PSU to the PetitionerGunder the said contract; (iii) the Petitioner’s principal claim against theRespondent PSU in the arbitration; (iv) the amount awarded in favourof the Petitioner in the arbitration; (v) the amounts paid/deposited bythe Respondent PSU by which the competent Court had granted stay;(vi) the balance amount due to the Petitioner; and (vii) whether stayHorders were granted by competent Courts in respect of the arbitral HINDUSTAN CONSTRUCTION COMPANY LIMITED v.UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

awards. On the basis of these charts, the Union of India contendedthat the Petitioner company had deliberately suppressed the fact thatthese Respondent PSUs had stay orders in their favour in respect ofsome of these arbitral awards, and that these PSUs had already paid/deposited a substantial amount (approximately 83.30%) payable by themunder the arbitral awards, after which stay orders in respect of thesearbitral awards were granted. The figures mentioned in the charts weresuccinctly summarised in a table in the Counter Affidavit, which isreproduced below:

(Figures in INR Crores)

75. Pertinently, the Union of India alleged that none of the stayorders obtained by the Respondent PSUs in respect of these arbitralawards were under the automatic-stay mode, or under Section 87 ofthe 2019 Amendment Act. Instead, it was contended that the said stayorders were granted by the competent Court on an application filed bythe Respondent PSUs, a hearing of the said application on merits, andupon the condition that portions of the arbitral awards be paid/depositedin the Court.

76. The Union of India also strongly denied the Petitionercompany’s contention that it was in financial distress due to the non- A

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Apayment of contractual dues owed to it by the Respondent PSUs, whichallegedly left it susceptible to being proceeded against under the Codeby its various creditors. The Union of India alleged that the Petitionerhas been paid the amount of the contract, even with escalation, in almostall cases. In fact, it was contended in the Counter Affidavit that thePetitioner company had been paid more than the initial contract valueBby the Respondent PSUs (approximately 117%). The Union of Indiafurther contended that most of the claims raised by the Petitionercompany against the Respondent PSUs are outside the scope of thebasic contract value - such as ‘loss of profit’ etc. - which would in anyevent not have any impact on the financial health of the company. This,Cthe Union of India alleged, demonstrated that it was ‘absolutely false’that the Petitioner company had been relegated to insolvency due tothe non-payment of dues by the Respondent PSUs.

77. The Petitioner company then filed an Additional Affidavitdated 04.11.2019 before this Court, wherein it admitted that, as onD31.08.2019, the Petitioner company, while due a sum of INR 6373.82crores from the Respondent PSUs, had already received INR 951.51crores through court orders, and INR 1530.89 crores through the NITIAayog Scheme (totalling INR 2482.4 crores). The Petitioner companythen itself challenged as incorrect some of the figures and statementsplaced on record by the Union of India in its Counter Affidavit,Eparticularly those on the status of Court proceedings in relation toarbitral-awards in favour of the Petitioner company.

78. A perusal of the rival contentions makes it clear that there isa factual dispute between the parties relating to: (I) the exact quantumof the arbitral-awards in favour of the Petitioner company due fromFthe Respondent PSUs; (II) the amounts which may have already beenpaid and/or deposited by the Respondent PSUs in favour of thePetitioner company under the said arbitral awards; and (III) whetherstay orders of competent Courts were passed in respect of these arbitralawards, and if so, whether they were under the automatic-stay modeGor not.

79. It is settled law that when exercising its jurisdiction underArticle 32 of the Constitution, this Court cannot embark on a detailedinvestigation of disputed facts. A five-Judge bench of this Court inGulabdas & Co. v. Asstt. Collector of Customs AIR 1957 SC 733,Hwas seized of a batch of Writ Petitions filed under Article 32, wherein the petitioners (who were Indian importers of stationary articles) allegedthat the Central Board of Revenue had acted erroneously by imposingtax upon ‘crayons’ imported by them, which were not taxable, incorrectlyassuming them to be ‘colour pencils’. Dismissing these Writ Petitions,this Court held as follows:

“15. The contention that the impugned orders are manifestlyerroneous, because “Crayons” have been treated as ‘colouredpencils’ is not a contention which can be gone into on anapplication under Article 32 of the Constitution. It has no bearingon the question of the enforcement of a fundamental right, norcan the question be decided without first determining whatconstitutes the distinction between a ‘coloured pencil’ and a‘crayon’, a distinction which must require an investigation intodisputed facts and materials. This was a matter for the Customsauthorities to decide, and it is obvious that this Court cannot, onan application under Article 32 of the Constitution, embark onsuch an investigation.”

80. To similar effect is the decision in Surendra PrasadKhugsal v. Chairman, MMTC. 1994 Supp. (1) SCC 87, where thisCourt held:

“6. We have heard both the parties in all the petitions at somelength. The petitioners in all the petitions place their reliance onthe decision in the M.M.R. Khan case [1990 Supp SCC 191 :1990 SCC (L&S) 632 : (1991) 16 ATC 541] . However, we findthat the said case which admittedly concerned the canteenworkers both in the statutory canteens and recognised non-statutory canteens was decided on the facts in those casesincluding the provisions of the Railway Manual, the notificationsand circulars issued by the Railway Board from time to time andother documents which pertained to the workers employed in thesaid canteens. None of the material which was taken intoconsideration there has relevance to the workers concerned inthe present canteens. On the other hand, there are disputed factsin the present case which cannot be resolved in a writ petitionunder Article 32. We, therefore, find that this Court is not theproper forum to decide the present disputes.”

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A81. More recently, this Court in Sumedha Nagpal v. State ofDelhi (2000) 9 SCC 745 held:

“2. Both parties do recognise that the question of custody of thechild will have to be ultimately decided in proceedings arisingunder Section 25 of the Guardians & Wards Act read with Section6 of the Act and while deciding such a question, welfare of theminor child is of primary consideration. Allegations and counter-allegations have been made in this case by the petitioner andRespondent 2 against each other narrating circumstances as tohow the estrangement took place and how each one of them isentitled to the custody of the child. Since these are disputed facts,unless the pleadings raised by the parties are examined withreference to evidence by an appropriate forum, a proper decisionin the matter cannot be taken and such a course is impossible ina summary proceeding such as writ petition under Article 32 ofthe Constitution.”

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82. This Court cannot, therefore, in exercise of its jurisdictionunder Article 32 of the Constitution undertake a detailed investigationto determine the status of monies paid/deposited pursuant to arbitral-awards in favour of the Petitioner company. Consequently, no directionsEin respect thereof can be made in the present proceedings.

83. Dr. Singhvi then argued that the NITI Aayog Office’sMemorandum dated 05.09.2016, which contained a scheme by whichcontractors were able to retrieve 75% of awarded amounts togetherwith interest thereon - referred to as “pay-out amount” - is arbitraryFonly to a limited extent. He had no quarrel with the fact that a bankguarantee should be given under the scheme to secure the pay-outamount, but argued that an additional bank guarantee of 10% per yearon the pay-out amount, which is then compounded annually, is arbitraryand should be struck down under Article 14. This being severable, heGcontended that the scheme can remain, with the requirement of a ‘top-up’ bank guarantee of 10% per annum being struck down. A look atthe circular dated 05.09.2016 shows that the scheme is in order thatthe hardship felt by the construction sector, thanks to the automatic-stay regime under Section 36 as originally enacted, be mitigated. It canthus be seen that the scheme is so that the construction sector can getHthe fruits of arbitral awards in their favour, which otherwise was not available at the time under the law. Dr. Singhvi’s client was free toavail of the circular on its terms, or not to avail of the said circular.Having availed of the benefit contained in the circular, it is not possiblefor his client to now turn around and state, years after availing thisbenefit, that one part of the circular is onerous and should be struckdown. Even otherwise, we find nothing arbitrary in requiring a 10%additional bank guarantee per annum so that the scheme be availed.Had the scheme not been open-ended, and had it ended within one year,there would have been no need for this 10% additional bank guarantee.It is only because the bank guarantee may be renewed for 75% of thepay-out amount that has been disbursed to contractors, that this conditionis said to be onerous. We find that in point of fact the 10% extra bankguarantee is only to ensure that the further interest component perannum also gets covered, so that the Government/Government bodiesare able to claim these amounts in case the bank guarantees have tobe encashed. We, therefore, find no substance in this plea and rejectit.

84. All the Writ Petitions are disposed of in the light of thisjudgment.

85. Accordingly, M.A. Nos. 2140-2144 of 2019 in C.A. Nos.2621-2625 of 2019 are allowed in terms of prayer (a) therein.

Devika Gujral

Writ petitions disposed of.

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