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Hindustan Construction Company Ltd. Vs. Union of India [27/11/19]

Section

Hindustan Construction
Company Ltd. Anr. Vs. Union of India Ors.

[Writ Petition Civil No. 1074 of 2019]

[Writ Petition Civil
No. 1276 of 2019 ]

[Writ Petition Civil
No. 1310 of 2019]

[M.A. Nos. 2140-2144 of 2019]

[Civil Appeal Nos. 2621-2625 of 2019]

R.F. NARIMAN, J.

1. This set of Writ Petitions
seek to challenge the constitutional validity of Section 87 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as the “Arbitration Act,
1996”) as inserted by Section 13 of the Arbitration and Conciliation
(Amendment) Act, 2019 (hereinafter referred to as the “2019 Amendment Act”) and
brought into force with effect from 30.08.2019. They also seek to challenge the
repeal (with effect from 23.10.2015) of Section 26 of the Arbitration and
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 various provisions of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the
“Insolvency Code”) which, as stated by the Petitioners, result in
discriminatory treatment being meted out to them.

2. The facts relevant for the
determination of these matters may be gleaned from Writ Petition (Civil)
No.1074 of 2019. The Petitioner No.1 therein, i.e. Hindustan Construction
Company Limited, is an infrastructure construction company involved in the
business of construction of publicutilities and projects like roads, bridges,
hydropower and nuclear plants, tunnels and rail facilities. The
Petitioner company, inter alia, undertakes these building projects
as a contractor for 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”). Such projects 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 to huge delays in the recovery of
the legitimate dues of the petitioners. Also, these dues can only be recovered
through civil proceedings or through arbitrations.

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

4. The Petitioners are then
subjected to a doublewhammy. Government bodies other than Government companies
are exempt from the Insolvency Code because they are statutory authorities or
government departments. Even if they can be said to be operational debtors
which is not the case the moment a challenge is filed to an award 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 of the Petitioner company, not being
maintainable in any case, would be dismissed at the threshold. Huge sums of
money are therefore due from all these companies/government/government bodies
to the Petitioners.

5. On the other hand, in order
that the Petitioner company continue to operate, the Petitioner owes large sums
to operational creditors for supplying men, machinery and material for the
projects. It is stated in the Writ Petition No.1074 of 2019 that Demand Notices
have been issued to the Petitioner by a large number of operational creditors
for sums amounting to over a hundred crores.

6. Dr. Abhishek Manu Singhvi,
learned Senior Advocate appearing on behalf of the Petitioner No.1 in Writ
Petition No.1074 of 2019, has argued that the Arbitration Act, 1996 is based
upon the UNCITRAL Model Law on International Commercial Arbitration (as adopted
by the United Nations Commission on International Trade Law on 21 June 1985)
(hereinafter referred to as the “UNCITRAL Model Law”), Article 36(2) of which
specifically refers to applications for setting aside or suspension of an
award, in which the other party may provide appropriate security. Contrary to
Article 36 of the UNCITRAL Model Law, Section 36 of the Arbitration Act, 1996
has been construed by judgments of this Court as granting an ‘automaticstay’
the moment a Section 34 application is filed within time.

According to the
learned Senior Advocate, from the plain language of Section 36, automaticstay
does not follow, and the judgments of this Court which have so held would
require a revisit by this larger bench. In any case, the 246th Report of the
Law Commission of India titled, ‘Amendments to the Arbitration and Conciliation
Act, 1996’ (August, 2014) (hereinafter referred to as the “246th Law Commission
Report”) recommended that Section 36 be amended, which was in fact done by the
2015 Amendment Act, so that automaticstays are now things of the past.
However, despite the fact that the 2015 Amendment Act made largescale changes
to the Arbitration Act, 1996, keeping in view the objects of the Arbitration
Act, 1996 of minimum judicial intervention, speedy determination and recovery
of amounts contained in arbitral awards, yet, another ‘HighLevel Committee to
Review the Institutionalisation of Arbitration Mechanism in India’ headed by
Retd. Justice B.N. Srikrishna by its report dated 30.07.2017 (hereinafter
referred to as the “Srikrishna Committee Report”) opined that the 2015 Amendment
Act should not apply to pending court proceedings which have commenced after
23.10.2015 (i.e. the date of the 2015 Amendment Act coming into force), but
should only apply in case arbitral proceedings have themselves been commenced
post 23.10.2015, which would include court proceedings relating thereto. He
argued that the Government of India issued a Press Release on 07.03.2018 to
enact a new Section 87 in accord with what the Srikrishna Committee Report had
opined, which was pointed out to this Court before it decided the case of BCCI
v. Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287 (which was decided on
15.03.2018).

Despite the fact that this Court specifically opined in the said judgment that the aforesaid provision would be contrary to the object of the 2015
Amendment Act, and despite the fact that the judgment was specifically sent to
the Ministry of Law and Justice and to the learned Attorney General for India,
Section 87 was enacted, reference being made only to the Srikrishna Committee
Report, without even a mention of the aforesaid judgment of this Court in BCCI
(supra). Consequently, the learned Senior Advocate argued that since the
basis of a judgment of the Supreme Court can only be removed if there is a
pointed reference to the said judgment, obviously the judgment of this Court
has been sought 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 has stated that it
is amazing that in a Civil Court where a fullblooded appeal is filed, Order
XLI Rule 5 of the Code of Civil Procedure, 1908 (hereinafter referred to as the
“CPC”) is to apply, there being no automaticstay of a money decree; whereas in
a summary proceeding under Section 34 of the Arbitration Act, 1996, where the
court does not sit in appeal over the award and if the view of the arbitrator
is a possible view, it passes muster there is an automaticstay of an
arbitral award on the mere filing of Section 34 application, which in turn
takes years for final disposal.

7. Dr. Singhvi then trained his
guns against Section 87, stating that it is violative of Articles 14, 19(1)(g),
21 and 300A of the Constitution of India, as it is contrary to the object of
the principal Arbitration Act, 1996 itself; takes away the vested right of
enforcement and binding nature of an arbitral award; and without removing the
basis of the BCCIjudgment (supra), acts in the teeth of the said
judgment, making the said section unreasonable, excessive, disproportionate as
well as arbitrary. He then argued that in effect, the 2019 Amendment Act
reverses the beneficial effects of the 2015 Amendment Act which remedied the
original mischief contained in the Arbitration Act, 1996, that too after a
period of more than 19 years. To bring back this mischief of automaticstays
would result in manifest arbitrariness, rendering the provision constitutionally
infirm. He argued that the Srikrishna Committee Report also did not take into
account the enforcement of the Insolvency Code. On the one hand, arbitral
awards for crores of rupees will get automatically stayed through the
application of Section 87, and on the other hand, nonpayment of any amount
beyond INR one lakh by the Petitioner to its operational creditors would render
it open to being declared insolvent.

The absurd consequence of this is that the
fruits of an award are denied to the Petitioner, resulting in financial
hardship, which in turn results in applications being filed against the
Petitioner under the Insolvency Code for lesser amounts than what is due to it
as an awardholder. Further, the retrospective resurrection of the
automaticstay provision allows awarddebtors who have challenged arbitral
awards before the Courts, and who have in fact made payments to awardholders,
to now claim the aforesaid sums back from such award holders. For all these
reasons, it is contended that Section 87 is constitutionally infirm. Also,
according to Dr. Singhvi, since almost all the arbitration clauses with
Government/Government Bodies state that the Arbitration Act, 1996 together with
its amendments shall apply, this would make the 2019 Amendment Act applicable
to its pending arbitral awards, resulting in wholly arbitrary consequences.

8. So far as the challenge to
the Insolvency Code is concerned, Dr. Singhvi exhorted us to read ‘corporate
person’, as defined by Section 3(7) of the Insolvency Code, to include
Government Bodies other than Government Companies (which are already included).
This was based on the argument that qua the object sought to be achieved
by the Insolvency Code, it makes no difference as to whether the person sued as
a corporate person is a government company or a body corporate set up under a
statute. He exhorted us to either delete the words ‘limited liability’
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 stressed the ‘positive’
aspect of Article 14 of the Constitution of India, which permit such interpretation.

He then pointed
out that whereas ‘financial position’ (as defined under Section 5(9) of the
Insolvency Code) mandates taking into consideration the financial information
and balance sheets, such financial position is irrelevant at the stage of
triggering the Insolvency Code, and only becomes relevant at the stage of
declaring such position to prospective resolution applicants, which itself
makes the provision manifestly arbitrary. He then argued as to the omission of
initiation of the resolution process by a creditor in Section 6 of the
Insolvency Code, together with the absence of a mechanism for forcing debtors
of a corporate debtor to make payments to avoid insolvency of such corporate
debtors. He then referred to the principle of ‘casus omissus’ and how
the modern view is that such casus omissus can be supplied by the
Courts, so as to save the provisions of the Insolvency Code from the vice of manifest
arbitrariness.

He also argued that there is no level playing field so far as
his client is concerned, as a statutory authority can initiate the resolution
process against persons like his client, but not viceversa. He then
made an impassioned plea that, in any event, this Court ought to follow its
earlier judgments and restate the principle that payment of a moneydecree
under an award, even when under challenge, is the rule stay being the
exception. Also in cases like the present, even if deposits are made as a
condition of stay of moneydecrees, withdrawal ought to be permitted not on
onerous conditions such as bank guarantees but on other conditions such as
corporate guarantees and the like, so that such monies are available for
payment to other creditors, including operational creditors, who are free to
invoke the Insolvency Code against the Petitioner.

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

10. Shri Neeraj Kishan Kaul, also
appearing for Hindustan Construction Company, reiterated some of the
submissions of Dr. Singhvi and argued, based on a reading of Section 87 as
introduced by the 2019 Amendment Act and Section 26 of the 2015 Amendment Act,
that Section 87 is nothing but a rehash of Section 26 and this being so, is
therefore a direct attack on the judgment of this Court in BCCI (supra),
without removing its basis. He also added that since there is no setoff
mechanism provided by the Insolvency Code, the provisions of the Insolvency
Code will have to be held to be manifestly arbitrary so far as his client is
concerned, to this extent.

11. Shri C.A. Sundaram, learned
Senior Advocate appearing for M/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 directly contrary to this Court’s judgment in BCCI (supra), needs
to be set aside. He also argued that it retrospectively removes a vested right
in the petitioner, as is reflected in paragraph 62 and 63 of the BCCI judgment
(supra).

12. Shri Ritin Rai, learned
Senior Advocate appearing for M/s Gammon Engineers and Contractors Private
Limited, i.e. the Petitioner No.1 in W.P.(C) 1276 of 2019, pointed out various
paragraphs of the CounterAffidavit of the Union of India to show that there is
no real answer to the submission that Section 87 directly interferes with the
judgment of this Court in BCCI (supra), and that the introduction of
Section 87 is manifestly arbitrary. In any

case, he relied upon Section 6
of the General Clauses Act, 1897 to save the application of Section 36 as
amended by the 2015 Amendment Act. When it came to the provisions of the
Insolvency Code, he referred to this Court’s judgment in 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 VIIIA of the CPC type procedure to proceedings under the
Insolvency Code, so that when his client’s subcontractor triggers the
Insolvency Code against his client, his client inturn should be able to make
its principal employer a party to such proceedings, so that the subcontractor
may then recover these amounts from the principal employer directly, thereby
absolving his client from the clutches of the Insolvency Code.

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

14. Mr. Dewan then went on to
state that Section 87 destroyed a level playing field in relation to
enforcement of arbitral awards, by reimposing an arbitrary cutoff date qua
application of the amended Section 36. He then argued that even though
Section 15 of the 2019 Amendment 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 of an
arbitral award, and that arbitration proceedings and court proceedings are
distinct sets of proceedings as recognized by Section 87 itself. Further,
classification of parties on the basis of this cutoff date has no rational
nexus to the object sought to be achieved by the Arbitration Act, 1996.
Finally, he urged that the CounterAffidavit filed by the Union of India, after
referring to this Court’s judgment, then mouthed the same reasons for introducing Section 87 as were in the Srikrishna Committee Report, which was prior to, and could not have taken into account, this Court’s judgment in BCCI (supra).

Therefore, to state that even after this Court settled the law in BCCI (supra) there would still be ‘uncertainty’ would itself show that the
provision contained in Section 87 would be manifestly arbitrary. He then
argued, based on a treatise by Ian F. Fletcher on the law of insolvency, that a
distinction is made in insolvency law between refusal to pay, and inability to
pay. Since the automaticstay provision would render persons like his client
unable to pay debts, his client, though otherwise financially healthy, would
suddenly become vulnerable to being declared insolvent under the Insolvency
Code.

15. The learned Attorney
General for India, Shri K.K. Venugopal, defended the repeal of Section 26 of
the 2015 Arbitration Amendment and the insertion of Section 87 into the
Arbitration Act, 1996 by the 2019 Amendment Act. He argued that in BCCI ‘s
case (supra), the interpretation of Section 26 of the 2015 Amendment Act is
only declaratory in nature. Since the said judgment neither sets aside any
executive action, nor any provision of a statute, it does not require a
validating act to neutralise its effect. It is open to Parliament, if it finds
that a view expressed by the Apex Court does not reflect its original intent,
to clarify its original intent through amendment. This is in fact what 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 paragraph 6(vi) of the Statement of Objects and
Reasons to the Arbitration and Conciliation (Amendment) Bill, 2019. In any
event, even if the principles governing validating acts are applied, the
deletion of Section 26 retrospectively removes the basis of the judgment in the
BCCI case (supra). Further, there is no substance to the challenge to
Section 87 on the ground of the date being fixed as 23.10.2015, as cutoff
dates have been upheld in a plethora of cases as being within the exclusive
domain of Parliament, and the courts should not normally interfere with the
fixation of such cutoff date, unless blatantly arbitrary or discriminatory. He
referred to some of our judgments in support of this proposition.

16. Shri Tushar Mehta, learned
Solicitor General of India, defending the constitutional challenge to the
provisions of the Insolvency Code, argued that a Writ Petition filed under
Article 32 of the Constitution of India cannot be converted into a recovery
proceeding by the Petitioners. According to Shri Mehta, the conduct of the
Petitioner No.1 in W.P. (C) 1074 of 2019 is such that the Writ Petition ought
to be dismissed at the threshold itself. First and foremost, it was contended
that the petitioner has mislead this Court by stating that a sum of INR 6070
crores is liable to be paid by the Government entities mentioned therein, as
such sums amount to awards that have not been stayed by any Court. He referred
to and relied upon a chart appended to the CounterAffidavit of the Union of

India dated 21.10.2019, in
which he was at pains to point out that in each of the awards in favour of the
Petitioner No.1 in Writ Petition No.1074 of 2019, the contract value was much
less than the actual amount paid on completion of work, in addition to which,
deposit orders have been passed by courts in all these cases, which have not
been appealed against. He further argued that there was a gross suppression of
facts and figures by Petitioner No.1, as a result of which the Writ Petition
ought to be dismissed at the threshold. He contended that what was deliberately
hidden by the Petitioner No.1 was the fact that the Respondent Public Sector
Undertakings (hereinafter referred to as “PSUs”) have deposited/paid
substantial amounts that are due against them under arbitral awards, amounting
percentage wise to 83.3%. He also pointed out that insofar as IRCON is
concerned, in relation to one particular arbitral award, IRCON has accused the
Petitioner No.1 of trying to influence the arbitrator by providing unsolicited
facilities to the arbitrator, and actually getting orders drafted on behalf of
the arbitrator by the lawyer of the Petitioners and otherwise providing undue
favours to the arbitrator; all of which is the subject matter of adjudication

pending in the Delhi High
Court. When it came to the challenge to the Insolvency Code, he argued that
except for the sums owing under some arbitral awards, none of the PSUs have any
other dues that are owing to the Petitioner No.1. He also pointed out that
whether a person is an operational creditor has to be decided based upon the
fact situation in each case. The very fundamental basis of the Petitioner’s
argument that the Insolvency Code is unconstitutional because it does not give
the Petitioners a right to recover monies from their debtors and that the
same Insolvency Code gives 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 resolution
of stressed assets of corporate persons. According to him, three of the five
entities who have arbitral awards against them, namely NTPC, NHPC and IRCON,
are Government Companies, which certainly fall within the definition of
‘corporate person’ and ‘corporate debtor’ under Section 3(7) and 3(8) of the
Insolvency Code.

So far as the NHAI is concerned, he referred to the Statement
of Objects and Reasons of the National Highways Authority of India Act, 1988
(hereinafter referred to as the “NHAI Act”) and some sections of the said Act
to show that NHAI is a statutory body which functions as an extended limb of
the Central Government, and which is to carry out the sovereign function of
laying down national highways. Obviously, the Insolvency Code cannot be used
against such a statutory body, because no resolution professional or private
individual can take over the management of such body, as it performs sovereign
functions, nor can such body be driven to insolvency under an Insolvency Code.
He also referred to the definitions contained in Section 3(7) and 3(23) of the
Insolvency Code, and stated that they are separate and independent of each
other, Section 3(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. Kishan v. Vijay
Nirman Company Pvt. Ltd. (2018) 17 SCC 662 made it clear that arbitral
awards that are pending adjudication under Section 34 would show that a
preexisting dispute exists in such cases, and therefore would in any case be
outside the strong arm of the law contained in the Insolvency Code.

17. Ms. Pinky Anand, learned
Additional Solicitor General, supported the submissions of both the learned
Attorney General and the Solicitor General. She further argued, based on a
copious reading of the CounterAffidavit filed on behalf of the Union of India,
that no inroads have been made into the objects sought to be achieved by the
2015 Amendment Act by merely following a particular cutoff date. In any case,
the fixing of such cutoff date, being the sole prerogative of the Parliament,
cannot be interfered with by the courts as this pertains to policy matters. She
also cited some judgments of this Court to buttress her submissions. Interpretation of Section 36
of the Arbitration Act, 1996

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

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

19. The UNCITRAL Model Law is
important in understanding the provisions of the Arbitration Act, 1996 as the
said Act is explicitly based upon it. The preamble of the Arbitration Act, 1996
specifically states as follows:

“Preamble. WHEREAS the
United Nations Commission on International Trade Law (UNCITRAL) has adopted the
UNCITRAL Model Law on International Commercial Arbitration in 1985; AND
WHEREAS the General Assembly of the United Nations has recommended that
all countries give due consideration to the said Model Law, in view of the
desirability of uniformity of the law of arbitral procedures and the specific
needs of international commercial arbitration practice; AND WHEREAS the
UNCITRAL has adopted the UNCITRAL Conciliation Rules in 1980; AND

WHEREAS the General Assembly of
the United Nations has recommended the use of the said Rules in cases where a
dispute arises in the context of international commercial relations and the
parties seek an amicable settlement of that dispute by recourse to
conciliation; AND WHEREAS the said Model Law and Rules make significant
contribution to the establishment of a unified legal framework for the fair and
efficient settlement of disputes arising in international commercial relations;
AND WHEREAS it is expedient to make law respecting arbitration and
conciliation, taking into account the aforesaid Model 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 641 says as much in paragraph 93 thereof, which reads as
under:

“93. As noticed above,
the legislative intent and essence of the 1996 Act was to bring domestic as well
as international commercial arbitration in consonance with the UNCITRAL Model
Rules, the New York Convention and the Geneva Convention. The New York
Convention was physically before the legislature and available for its
consideration when it enacted the 1996 Act. Article II of the Convention
provides that each contracting State shall recognise an agreement and submit to
arbitration all or any differences which have arisen or which may arise between
them in respect of a defined legal relationship, whether contractual or not
concerning a subjectmatter capable of settlement by arbitration. Once the
agreement is there and the court is seized of an action in relation to such
subjectmatter, then on the request of one of the parties, it would refer the
parties to arbitration unless the agreement is null and void, inoperative or
incapable of performance.”

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

“Article 36. Grounds for
refusing recognition or enforcement

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

22. Shri Dewan has argued that
under the UNCITRAL Model Law, Articles 34 and 35 provide for two bites at the
cherry: (i) in cases in which an award is sought to be set aside, and (ii)
thereafter when not set aside, sought to be recognised and enforced in the same
country in which it has been made. He is right in stating that Section 36 of
the Arbitration Act, 1996 does not follow the two bites at the cherry doctrine,
for the reason that when an award made in India becomes final and binding, it
shall straightaway be enforced under the CPC, and in the same manner as if it were
a decree of the Court, there being no recourse to the selfsame grounds when it
comes to recognition and enforcement. In point of fact, the raison d’etre for
Section 36 is only to make it clear that when an arbitral award is not
susceptible to challenge, either because the 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 it were a
decree of the court. This becomes clear when Section 36 and 35 of the
Arbitration Act, 1996 are read together. Section 35 of the Arbitration Act,
1996 reads as follows:

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

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

“10.At one point of
time, considering the award as a money decree, we were inclined to direct the
party to deposit the awarded amount in the court below so that the applicant
can withdraw it, on such terms and conditions as the said court might permit it
to do as an interim measure. But then we noticed from the mandatory language of
Section 34 of the 1996 Act, that an award, when challenged under Section 34
within the time stipulated therein, becomes unexecutable. There is no
discretion left with the court to pass any interlocutory order in regard to the
said award except to adjudicate on the correctness of the claim made by the
applicant therein. Therefore, that being the legislative intent, any direction
from us contrary to that, also becomes impermissible. On facts of this case,
there being no exceptional situation which would compel us to ignore such
statutory provision, and to use our jurisdiction under Article 142, we restrain
ourselves from passing any such order, as prayed for by the applicant.

11. However, we do notice that this automatic suspension
of the execution of the award, the moment an application challenging the said
award is filed under Section 34 of the Act leaving no discretion in the court
to put the parties on terms, in our opinion, defeats the very objective of the
alternate dispute resolution system to which arbitration belongs. We do find
that there is a recommendation made by the Ministry concerned to Parliament to
amend Section 34 with a proposal to empower the civil court to pass suitable
interim orders in such cases. In view of the urgency of such amendment, we
sincerely hope that necessary steps would be taken by the authorities concerned
at the earliest to bring about the required change in law.”

24. When this court speaks of
“the mandatory language of Section 34” of the Arbitration Act, 1996 obviously
what is meant is the language of Section 36 of the Arbitration Act, 1996, as
noted by National Buildings Construction Corporation Ltd. v. Lloyds
Insulation India Ltd. (2005) 2 SCC 367 (in paragraph 6). In Fiza
Developers and Intertrade 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 the same manner as if it were a decree of
the court, but only on the expiry of the time for making an application to set
aside the arbitral award under Section 34, or such application having been
made, only after it has been refused. Thus, until the disposal of the
application under Section 34 of the Act, there is an implied prohibition of
enforcement of the arbitral award. The very filing and 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 34 becomes unexecutable merely by virtue of such
challenge being made because of the language of Section 36 is plainly
incorrect. As has been pointed out hereinabove, Section 36 was enacted for a
different purpose. When read with Section 35, all that Section 36 states is
that enforcement of a final award will be under the CPC, and in the same manner
as if it were a decree of the Court. In fact, this is how Section 36 has been
read by a threejudge bench in Leela Hotels Ltd. V. Housing and Urban
Development Corporation Ltd. (2012) 1 SCC 302 as follows:

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

26. To read Section 36 as
inferring something negative, namely, that where the time for making an
application under Section 34 has not expired and therefore, on such application
being made within time, an automaticstay ensues, is to read something into
Section 36 which is not there at all. Also, this construction omits to consider
the rest of Section 36, which deals with applications under Section 34 that
have been dismissed, which leads to an award being final and binding (when read
with Section 35 of the Arbitration Act, 1996) which then becomes enforceable
under the CPC, the award being treated as a decree for this purpose.

27. This also finds support
from the language of Section 9 of the Arbitration Act, 1996, which specifically
enables a party to apply to a Court for reliefs “…after the making of the
arbitration award but before it is enforced in accordance with Section 36.” The
decisions in NALCO (supra) and Fiza Developers and Intratrade Pvt.
Ltd. (supra) overlook this statutory position. These words in Section 9
have not undergone any change by reason of the 2015 or 2019 Amendment Acts.

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

“13.The second facet of
Section 9 is the proximate nexus between the orders that are sought and the
arbitral proceedings. When an interim measure of protection is sought before or
during arbitral proceedings, such a measure is a step in aid to the fruition of
the arbitral proceedings. When sought after an arbitral award is made but
before it is enforced, the measure of protection is intended to safeguard the
fruit of the proceedings until the eventual enforcement of the award. Here
again the measure of protection is a step in aid of enforcement. It is intended
to ensure that enforcement of the award results in a realisable claim and that
the award is not rendered illusory by dealings that would put 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 no discretion left with the Court to pass
any interlocutory order in regard to the said Award…” flies in the face of
the opening words of Section 9 of the Arbitration Act, 1996, extracted above.

30. Thus, the reasoning of the
judgments in NALCO (supra), and Fiza Developers and Intratrade Pvt.
Ltd. (supra) being per incuriam in not noticing Sections 9, 35 and
the second part of Section 36 of the Arbitration Act, 1996, do not commend
themselves to us and do not state the law correctly.1 The fact that NALCO (supra)
has been followed 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) in following NALCO (supra),
a per incuriam judgement, also does not state the law correctly. Thus, it is
clear that the automaticstay of an award, as laid down by these

1In NALCO (supra), this Court was concerned with two
questions the second question being whether the appropriate Court, for the
purpose of challenging or seeking modification of an award, was the Supreme
Court, or the principal Civil Court of original jurisdiction under Section 2(e)
of the Arbitration Act, 1996. This Court held, distinguishing State of M.P.
v. Saith and Skeleton (P) Ltd. (1972) 1 SCC 702 and Guru Nanak
Foundation v. Rattan Singh and Sons. (1981) 4 SCC 634, that the Court which
had jurisdiction to modify and/or set aside the award was not the Supreme
Court. On this point, NALCO (supra) has subsequently been followed by a
number of judgments and continues to be good law. Also, the ratio of the
judgment in Fiza Developers and Intratrade Pvt. Ltd. (supra) on the
construction of Section 34 of the Arbitration Act, 1996 relating to the framing
of issues and pleadings and proof required in Section 34 proceedings remains
untouched by the present judgment.

decisions, is incorrect. The
resultant position is that Section 36 even as originally enacted is not
meant to do away with Article 36(2) of the UNCITRAL Model Law, but is really
meant to do away with the two bites at the cherry doctrine in the context of
awards made in India, and the fact that enforcement of a final award, when read
with Section 35, is to be under the CPC, treating the 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 246th Law Commission Report on Section 36 as follows:

“25. At this point, it
is instructive to refer to the 246th Law Commission Report which led to the
Amendment Act. This Report, which was handed over to the Government in August
2014, had this to state on why it was proposing to replace Section 36 of the
1996 Act:

“AUTOMATIC STAY OF
ENFORCEMENT OF THE AWARD UPON ADMISSION OF CHALLENGE

“43. Section 36 of the Act
makes it clear that an arbitral award becomes enforceable as a decree only
after the time for filing a petition under Section 34 has expired or after the
Section 34 petition has been dismissed. In other words, the pendency of a
Section 34 petition renders an arbitral award unenforceable. The Supreme 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 that by virtue of Section 36, it was
impermissible to pass an order directing the losing party to deposit any part
of the award into Court. While this decision was in relation to the powers of
the Supreme Court to pass such an order under Section 42, the Bombay High Court
in Afcons Infrastructure Ltd. v. Port of Mumbai [Afcons
Infrastructure Ltd. v. Port of Mumbai, (2014) 1 Arb LR 512 (Bom)]
applied the same principle to the powers of a court under Section 9 of the Act
as well. Admission of a Section 34 petition, therefore, virtually paralyses the
process for the winning party/award creditor.

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

’11. However, we do
notice that this automatic suspension of the execution of the award, the moment
an application challenging the said award is filed under Section 34 of the Act
leaving no discretion in the court to put the parties on terms, in our opinion,
defeats the very objective of the alternate dispute resolution system to which
arbitration belongs. We do find that there is a recommendation made by the
Ministry concerned to Parliament to amend Section 34 with a proposal to empower
the civil court to pass suitable interim orders in such cases. In view of the
urgency of such amendment, we sincerely hope that necessary steps would be
taken by the authorities concerned at the earliest to bring about the required
change in law.’

45. In order to rectify this
mischief, certain amendments have been suggested by the Commission to Section
36 of the Act, which provide that the award will not become unenforceable
merely upon the making of an application under Section 34.” It then further went on to
state:

“62Since it is clear that
execution of a decree pertains to the realm of procedure, and that there is no
substantive vested right in a judgmentdebtor to resist execution, Section 36,
as substituted, would apply even to pending Section 34 applications on the date
of 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 be substituted, as it defeats the very objective of
the alternative dispute resolution system, and that the section should be
amended at the earliest to bring about the required change in law. It would be
clear that looking at the practical aspect and the nature of rights presently
involved, and the sheer unfairness of the unamended provision, which granted an
automatic stay to execution of an award before the enforcement process of
Section 34 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 that Section 36 as
amended should apply to Section 34 applications filed before the commencement
of the Amendment Act also for the aforesaid reasons.”

(emphasis supplied).

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

“36. Enforcement (1)
Where the time for making an application to set aside the arbitral award under
section 34 has expired, then, subject to the provisions of subsection (2),
such award shall be enforced in accordance with the provisions of the Code of
Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of
the court.

(2) Where an application to set
aside the arbitral award has been under section 34, the filing of such an
application shall not by itself render that award unenforceable, unless the
Court grants an order of stay of the operation of the said arbitral award in
accordance with the provisions of subsection (3), on a separate application made
for that purpose.

(3) Upon filing of an
application under subsection (2) for stay of the operation of the arbitral
award, the Court may, subject to such conditions as it may deem fit, grant stay
of the operation of such award for reasons to be recorded in writing:
Provided that the Court shall, while considering the application for
grant of stay in the case of an arbitral award for payment of money, have due
regard to the provisions for grant of stay of a money decree under the
provisions of the Code of Civil Procedure, 1908 (5 of 1908).” Given the
fact that we have declared that the judgments in NALCO (supra), National
Buildings Construction Corporation Ltd. (supra) and Fiza Developers (supra)
have laid down the law incorrectly, it is also clear that the amended Section
36, being clarificatory in nature, merely restates the position that the
unamended Section 36 does not stand in the way of the law as to grant of stay
of a money decree under the provisions of the CPC. Removal of the basis of
the BCCI judgment by the 2019 Amendment Act

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

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

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

(a) not apply to (i)
arbitral proceedings commenced before the commencement of the Arbitration and
Conciliation (Amendment) Act, 2015;

(ii) court proceedings arising
out of or in relation to such arbitral proceedings irrespective of whether such
court proceedings are commenced prior to or after the commencement of the
Arbitration and Conciliation (Amendment) Act, 2015;

(b)
apply only to arbitral proceedings commenced on or after the commencement of
the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings
arising out of or in relation to such arbitral proceedings.”

By Section 15 of the same
Amendment Act, Section 26 of the 2015 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 been omitted with effect from the 23rd October, 2015.”

Section 26 of the 2015
Amendment Act reads as follows:

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

35. This Court’s judgment in BCCI
(supra) had occasion to deal with the important question as to the true
interpretation of Section 26 of the 2015 Amendment Act. This Court, in
paragraph 28, referred to the transitory provision contained in Section 85A as
proposed in the 246th Law Commission Report, and thereafter in paragraphs 29 to
31, referred to the debates on the floor of the House. In paragraph 32, this
Court referred to the differences between Section 26 and Section 85A as
proposed, and then held:

“33. What can be seen
from the above is that Section 26 has, while retaining the bifurcation of
proceedings into arbitration and court proceedings, departed somewhat from
Section 85A as proposed by the Law Commission.”

36. Section 26 was then stated to
have bifurcated proceedings with a great degree of clarity into two sets of
proceedings arbitral proceedings 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 been stated above, with a great degree of
clarity, into two sets of proceedings arbitral proceedings themselves, and
court proceedings in relation thereto. The reason why the first part of Section
26 is couched in negative form is only to state that the Amendment Act will
apply even to arbitral proceedings commenced 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 a proviso
stating that the Amendment Act would apply even to arbitral proceedings
commenced before the amendment if the parties agree. In either case, the
intention of the legislature remains the same, the negative form conveying exactly
what could have been stated positively, with the necessary proviso. Obviously,
“arbitral proceedings” having been subsumed in the first part cannot reappear
in the second part, and the expression “in relation to arbitral proceedings”
would, therefore, apply only to court proceedings which relate to the arbitral
proceedings. The scheme of Section 26 is thus clear: that the Amendment Act is
prospective in nature, and will apply to those arbitral proceedings that are
commenced, as understood by Section 21 of the principal Act, on or after the
Amendment Act, and to court proceedings which have commenced on or after the
Amendment Act came into force.”

(emphasis supplied).

37. The Court was alive to the
Srikrishna Committee Report’s recommendation of a proposed Section 87, as is
clear from footnote 23 appended to paragraph 44 of the judgment. The Court then
made a reference to the Statement of Objects and Reasons for the 2015 Amendment
Act and stated as follows:

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

“2. The Act was enacted to
provide for speedy disposal of cases relating to arbitration with least court
intervention. With the passage of time, some difficulties in the applicability
of the Act have been noticed. Interpretation of the provisions of the Act by
courts in some cases have resulted in delay of disposal of arbitration
proceedings and increase in interference of courts in arbitration matters,
which tend to defeat the object of the Act. With a view to overcome the
difficulties, the matter was referred to the Law Commission of India, which
examined the issue in detail and submitted its 176th Report. On the basis of the
said Report, the Arbitration and Conciliation (Amendment) Bill, 2003 was
introduced in the Rajya Sabha on 22122003. The said Bill was referred to the
Departmentrelated Parliamentary Standing Committee on Personnel, Public
Grievances, Law and Justice for examination and report. The said Committee,
submitted its Report to Parliament on 482005, wherein the Committee
recommended that since many provisions of the said Bill were contentious, the
Bill may be withdrawn and a fresh legislation may be brought after considering
its recommendations. Accordingly, the said Bill was withdrawn from the Rajya
Sabha.

3. On a reference made again in
pursuance of the above, the Law Commission examined and submitted its 246th
Report on “Amendments to the Arbitration and Conciliation Act, 1996” in August
2014 and recommended various amendments in the Act. The proposed amendments to
the Act would facilitate and encourage Alternative Dispute Mechanism,
especially arbitration, for settlement of disputes in a more userfriendly,
costeffective and expeditious disposal
of cases since India is committed to improve its legal framework to obviate in
disposal of cases.

4. As India has been ranked at
178 out of 189 nations in the world in contract enforcement, it is high time
that urgent steps are taken to facilitate quick enforcement of contracts, easy
recovery of monetary claims and award of just compensation for damages suffered
and reduce the pendency of cases in courts and hasten the process of dispute
resolution through arbitration, so as to encourage investment and economic
activity.

5. As Parliament was not in
session and immediate steps were required to be taken to make necessary
amendments to the Arbitration and Conciliation Act, 1996 to attract foreign
investment by projecting India as an investor friendly country having a sound
legal framework, the President was pleased to promulgate the Arbitration and
Conciliation (Amendment) Ordinance, 2015.

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

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

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

(iii) an application for appointment of an arbitrator shall
be disposed of by the High Court or Supreme Court, as the case may be, as
expeditiously as possible and an endeavour should be made to dispose of the
matter within a period of sixty days;

(iv) to provide that while considering any application for
appointment of arbitrator, the High Court or the Supreme Court shall examine
the existence of a prima facie arbitration agreement and not other issues;

(v) to provide that the Arbitral Tribunal shall make its
award within a period of twelve months from the date it enters upon the
reference and that the parties may, however, extend such period up to six
months, beyond which period any extension can only be granted by the Court, on
sufficient cause;

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

(vii) to provide that
the parties to dispute may at any stage agree in writing that their dispute be
resolved through fasttrack procedure and the award in such cases shall be made
within a period of six months;

(viii) to provide for
neutrality of arbitrators, when a person is approached in connection with
possible appointment as an arbitrator;

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

7. The amendments proposed in
the Bill will ensure that arbitration process becomes more userfriendly,
costeffective and lead to expeditious disposal of cases.”

78. The Government will be welladvised in keeping the
aforesaid Statement of Objects and Reasons in the forefront, if it proposes to
enact Section 87 on the lines indicated in the Government’s Press Release dated
732018. The immediate effect of the proposed Section 87 would be to put all
the important amendments made by the Amendment Act on a backburner, such as
the important amendments made to Sections 28 and 34 in particular, which, as
has been stated by the Statement of Objects and Reasons,

” have resulted in delay of
disposal of arbitration proceedings and increase in interference of courts in
arbitration matters, which tend to defeat the object of the Act”, and will now
not be applicable to Section 34 petitions filed after 23102015, but will be
applicable to Section 34 petitions filed in cases where arbitration proceedings
have themselves commenced only after 23102015. This would mean that in all
matters which are in the pipeline, despite the fact that Section 34 proceedings
have been initiated only after 23102015, yet, the old law would continue to
apply resulting in delay of disposal of arbitration proceedings by increased
interference of courts, which ultimately defeats the object of the 1996 Act.

[These amendments have the effect, as stated in HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471 of limiting the grounds of challenge to
awards as follows: (SCC p. 493, para 18)”18. In fact, the same Law
Commission Report has amended Sections 28 and 34 so as to narrow grounds of
challenge available under the Act. The judgment in ONGC Ltd. v. Saw
Pipes Ltd., (2003) 5 SCC 705 has been expressly done away with. So has the
judgment in ONGC Ltd. v. Western Geco International Ltd., (2014)
9 SCC 263. Both Sections 34 and 48 have been brought back to the position 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 set out therein viz. “fundamental policy of Indian law”
and “justice or morality”. The ground relating to “the interest of India” no
longer obtains. “Fundamental policy of Indian law” is now to be understood as
laid down in Renusagar, 1994 Supp (1) SCC 644. “Justice or morality” has
been tightened and is now to be understood as meaning only basic notions of
justice and morality i.e. such notions as would shock the conscience of the
Court as

understood
in Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC
(Civ) 204. Section 28(3) has also been amended to bring it in line with the
judgment of this Court in Associate Builders, (2015) 3 SCC 49 : (2015) 2
SCC (Civ) 204, making it clear that the construction of the terms of the
contract is primarily for the arbitrator to decide unless it is found that such
a construction is not a possible one.”] It would be important to remember that
the 246th Law Commission Report has itself bifurcated proceedings into two
parts, so that the Amendment Act can apply to court proceedings commenced on or
after 23102015. It is this basic scheme which is adhered to by Section 26 of
the Amendment Act, which ought not to be displaced as the very object of the
enactment of the Amendment Act would otherwise be defeated. In paragraph 83, the Court then
concluded:”

(emphasis supplied).

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

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

39. At this point it is
important to refer to the relevant paragraphs of the Statement of Objects and
Reasons of the 2019 Amendment Act which introduced Section 87. In paragraphs 2
to 6 of the Statement of Objects and Reasons, the Srikrishna Committee Report
alone is referred to, 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:

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

40. Interestingly, no such
clarification was made by the 2019 Amendment Act. Instead, Section 26 was
omitted with effect from 23.10.2015 and Section 87 introduced.

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

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

“4.Granted legislative
competence, it is not sufficient to declare merely that the decision of the
Court shall not bind for that is tantamount to reversing the decision in
exercise of judicial power which the Legislature does not possess or exercise.
A court’s decision must always bind unless the conditions on which it is based
are so fundamentally altered that the decision could not have been given in the
altered circumstances.”

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

“16.The same view was
reiterated in the cases of West Ramnad Electric Distribution Co. Ltd. v.
State of Madras [(1963) 2 SCR 747 : AIR 1962 SC 1753] ; Udai Ram
Sharma v. Union of India [(1968) 3 SCR 41 : AIR 1968 SC 1138] ; Tirath
Ram Rajindra Nath v. State of U.P. [(1973) 3 SCC 585 : 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] ; Utkal Contractors and Joinery (P) Ltd. v. State of Orissa
[1987 Supp SCC 751] ; D. Cawasji Co v. State of Mysore [1984
Supp SCC 490 : 1985 SCC (Tax) 63] and Bhubaneshwar Singh v. Union of
India [(1994) 6 SCC 77] . It is open to the legislature to remove the
defect pointed out by the court or to amend the definition or any other
provision of the Act in question retrospectively. In this process it cannot be
said that there has been an encroachment by the legislature over the power of
the judiciary. A court’s directive must always bind unless the conditions on
which it is based are so fundamentally altered that under altered circumstances
such decisions could not have been given. This will include removal of the
defect in a statute pointed out in the judgment in question, as well as
alteration or substitution of provisions of the enactment on which such
judgment is based, with retrospective effect.”.

44. Likewise, in Goa
Foundation v. State of Goa (2016) 6 SCC 602, this Court held:

“24.The power to
invalidate a legislative or executive act lies with the Court. A judicial
pronouncement, either declaratory or conferring rights on the citizens cannot
be set at naught by a subsequent legislative act for that would amount to an
encroachment on the judicial powers. However, the legislature would be
competent to pass an amending or a validating act, if deemed fit, with
retrospective effect removing the basis of the decision of the Court. Even in
such a situation the courts may not approve a retrospective deprivation of
accrued rights arising from a judgment by means of a subsequent legislation (Madan
Mohan Pathak v. Union of India [Madan Mohan Pathak v. Union
of India, (1978) 2 SCC 50 : 1978 SCC (LS) 103] ). However, where the
Court’s judgment is purely declaratory, the courts will lean in support of the
legislative power to remove the basis of a court judgment even retrospectively,
paving the way for a restoration of the status quo ante. Though the consequence
may appear to be an exercise to overcome the judicial pronouncement it is so
only at first blush; a closer scrutiny would confer legitimacy on such an
exercise as the same is a normal adjunct of the legislative power. The whole
exercise is one of viewing the different spheres of jurisdiction exercised by
the two bodies i.e. the judiciary and the legislature. The balancing act,
delicate as it is, to the constitutional scheme is guided by the welldefined
values which have found succinct manifestation in the views of this Court in Bakhtawar
Trust [Bakhtawar Trust v. M.D. Narayan, (2003) 5 SCC 298].”

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

46. Equally, Shri Neeraj Kishan
Kaul’s argument that Section 87 is nothing but a rehash of Section 26, and
therefore in substance there is a direct encroachment on a judgment of this
Court, must also be rejected. When contrasted with Section 26, Section 87 is in
two parts: Section 87(a) negatively stating that the 2015 Amendment Act shall
not apply to Court proceedings arising out of arbitral proceedings irrespective
of whether such court proceedings are commenced before or after the
commencement of the 2015 Amendment Act; and positively applying only to court
proceedings in case they arise out of arbitral proceedings that are commenced
on or after the commencement of the 2015 Amendment Act. It can thus be seen
that the scheme of Section 87 is different from that of Section 26, and is
explicit in stating that court proceedings are merely parasitical on arbitral
proceedings. It is therefore clear that only arbitral proceedings have to be
looked at to see whether the 2015 Amendment Act kicks in. It is therefore not
possible to accept Shri Kaul’s argument that in the present case there is a
direct assault on a judgment of this Court without first removing its basis. Constitutional Challenge to
the 2019 Amendment Act

47. This now sets the stage for
the examination of the constitutional validity of the introduction of Section
87 into the Arbitration Act, 1996, and deletion of Section 26 of the 2015
Amendment Act by the 2019 Amendment Act against Articles 14, 19(1)(g), 21 and
Article 300A of the Constitution of India. The Srikrishna Committee Report
recommended the introduction of Section 87 owing to the fact that there were
conflicting High Court judgments on the reach of the 2015 Amendment Act at the
time when the Committee deliberated on this subject. This was stated as follows
in the Srikrishna Committee Report:

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

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

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

(c) The wording “arbitral
proceedings” in section 26 cannot be construed to include related court
proceedings. Accordingly, the 2015 Amendment Act applied to all arbitrations
commenced on or after 23 October 2015. As far as court proceedings are
concerned, the 2015 Amendment Act would apply to all court proceedings from
23October 2015, including fresh or pending court proceedings in relation to
arbitration commenced before, on or after 23 October 2015. Thus, it is evident
that there is considerable confusion regarding the applicability of the 2015
Amendment Act to related court proceedings in arbitration commenced before 23
October 2015.The Committee is of the view that a suitable legislative
amendment is required to address this issue.

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

(emphasis supplied).

48. The Srikrishna Committee
Report is dated 30.07.2017, which is long before this Court’s judgment in the BCCI
case (supra). Whatever uncertainty there may have been because of the
interpretation by different High Courts has disappeared as a result of the BCCI
judgment (supra), the law on Section 26 of the 2015 Amendment Act being
laid down with great clarity. To thereafter delete this salutary provision and
introduce Section 87 in its place, would be wholly without justification and
contrary to the object sought to be achieved by the 2015 Amendment Act, which
was enacted pursuant to a detailed Law Commission report which found various
infirmities in the working of the original 1996 statute. Also, it is not understood
as to how “uncertainty and prejudice would be caused, as they may have to be
heard again”, resulting in an ‘inconsistent position’. The amended law would be
applied to pending court proceedings, which would then have to be disposed of
in accordance therewith, resulting in the benefits of the 2015 Amendment Act
now being applied.

To refer to the Srikrishna Committee Report (without at all
referring to this Court’s judgment) even after the judgment has pointed out the
pitfalls of following such provision, would render Section 87 and the deletion
of Section 26 of the 2015 Amendment Act manifestly arbitrary, having been
enacted unreasonably, without adequate determining principle, and contrary to
the public interest sought to be subserved by the Arbitration Act, 1996 and the
2015 Amendment Act. This is for the reason that a key finding of the BCCI judgment
(supra) is that the introduction of Section 87 would result in a delay of
disposal of arbitration proceedings, and an increase in the interference of courts
in arbitration matters, which defeats the very object of the Arbitration Act,
1996, which was strengthened by the 2015 Amendment Act.

49. Further, this Court has
repeatedly held that an application under Section 34 of the Arbitration Act,
1996 is a summary proceeding not 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 in
appeal 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 Ssangyong Engineering Construction Co. Ltd. v.
NHAI 2019 SCC Online 677, after the 2015 Amendment Act, this Court cannot
interfere with an arbitral award on merits (see paragraph 28 and 76
therein). The anomaly, therefore, of Order XLI Rule 5 of the CPC applying in
the case of fullblown appeals, and not being applicable by reason of Section
36 of the Arbitration Act, 1996 when it comes to review of arbitral awards,
(where an appeal is in the nature of a rehearing of the original proceeding,
where the chance of succeeding is far greater than in a restricted review of
arbitral awards under Section 34), is itself a circumstance which militates
against the enactment of Section 87, placing the amendments made in the 2015
Amendment Act, in particular Section 36, on a backburner. For this reason also,
Section 87 must be struck down as manifestly arbitrary under Article 14.

The
petitioners are also correct in stating that when the mischief of the
misconstruction of Section 36 was corrected after a period of more than 19
years by legislative intervention in 2015, to now work in the reverse direction
and bring back the aforesaid mischief itself results in manifest arbitrariness.
The retrospective resurrection of an automaticstay not only turns the clock
backwards contrary to the object of the Arbitration Act, 1996 and the 2015
Amendment Act, but also results in payments already made under the amended
Section 36 to awardholders in a situation of nostay or conditionalstay 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 of
conditional stay orders be returned to the judgmentdebtor.

51. Also, it is important to
notice that the Srikrishna Committee Report did not refer to the provisions of
the Insolvency Code. After the advent of the Insolvency Code on 01.12.2016, the
consequence of applying Section 87 is that due to the automaticstay doctrine
laid down by judgments of this Court which have only been reversed today by
the present judgment the awardholder may become insolvent by defaulting on
its payment to its suppliers, when such payments would be forthcoming from
arbitral awards in cases where there is no stay, or even in cases where
conditional stays are granted. Also, an arbitral awardholder is deprived of
the fruits of its award which is usually obtained after several years of
litigating as a result of the automaticstay, whereas it would be faced with
immediate payment to its operational creditors, which payments may not be
forthcoming due to monies not being released on account of automaticstays of
arbitral awards, exposing such awardholders to the rigors of the Insolvency
Code. For all these reasons, the deletion of Section 26 of the 2015 Amendment
Act, together with the insertion of Section 87 into the Arbitration Act, 1996
by the 2019 Amendment Act, is struck down as being manifestly arbitrary under
Article 14 of the Constitution of India.

52. However, the learned
Attorney General cited a number of judgments which state that the court should
not ordinarily interfere with the fixation of cutoff dates, unless such
fixation appears to be arbitrary or discriminatory (see for e.g., UOI
v. Parameswaran Match Works (1975) 1 SCC 305 at paragraph 102 and Govt.
of A.P. v. N. Subbarayudu (2008) 14 SCC 702 at paragraphs 5 to 93).

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

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

53. In the present case, the
challenge is not to the fixing of 23.10.2015 as a cutoff date, as the
aforesaid date is the date on which the 2015 Amendment Act came into force. For
this reason, the aforesaid judgments have no application. Instead, what has
been found to be manifestly arbitrary is the nonbifurcation of court
proceedings and arbitration proceedings with reference to the aforesaid date,
resulting in improvements in the working of the Arbitration Act, 1996 being put
on a backburner. This argument of the learned Attorney General for India also
therefore must be rejected.

54. The result is that the BCCI
judgment (supra) will therefore continue to apply so as to make applicable
the salutary amendments made by the 2015 Amendment Act to all court proceedings
initiated after 23.10.2015.

55. In this view of the matter,
it is unnecessary to examine the constitutional challenge to the 2019 Amendment
Act based on Articles 19(1)(g), 21 and 300A of the Constitution of India. Constitutional
Challenge to the Insolvency Code

56. It now falls on us to
decide the second part of the challenges made in the present Writ Petitions,
i.e. the challenge to the constitutionality of the Insolvency Code. As
mentioned above, Dr. Singhvi has argued that the provisions of the Insolvency
Code would operate arbitrarily on his client inasmuch as, on the one hand, an
automaticstay of arbitral awards in his favour would be granted under the
Arbitration Act, 1996 as a result of which those monies cannot be used to
payoff the debts of his client’s creditors. On the other hand, any debt of
over INR one lakh owed to a financial or operational creditor which remains
unpaid, would attract the provisions of the Insolvency Code against the
Petitioner No.1 making these provisions arbitrary, discriminatory and
violative of Articles 14 and 19(1)(g) of the Constitution of India. As a result,
he has suggested that in order for his client, in turn, to recover monies from
Government Companies and NHAI, the definition of ‘corporate person’ contained
in Section 3(7) of the Insolvency Code should either be read without the words
“with limited liability” contained in the third part of the definition, or have
Section 3(23)(g) of the Insolvency Code, which is the definition of ‘person’,
read into the aforesaid provision. In order to appreciate this contention it is
necessary to set out these definitions:”Definitions

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

(7) “corporate
person” means a company as defined in clause (20) of section 2 of the
Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in
clause (n) of subsection (1) of section 2 of the Limited Liability Partnership
Act, 2008 (6 of 2009), or any other person incorporated with limited liability
under any law for the time being in force but shall not include any financial
service provider;

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

(23) “person” includes

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

(d) a trust;

(e) a partnership;

(f) a limited liability
partnership;

(g) any other entity
established under a statute; and includes a person resident outside India.”

57. As correctly argued by the
learned Solicitor General, Shri Tushar Mehta, the first part of ‘corporate
person’, as defined in Section 3(7) of the Insolvency Code, means a company as
defined in Clause 20 of Section 2 of the Companies Act 2013. Sections 2(20) and
2(45) of the Companies Act, 2013, which define ‘company’ and ‘Government
company’ respectively, are set out hereinbelow:

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

“2(45). “Government
company” means any company in which not less than fiftyone per cent of
the paidup share capital is held by the Central Government, or by any State Government
or Governments, or partly by the Central Government and partly by one or more
State Governments, and includes a company which is a subsidiary company of such
a Government company.”

58. From a reading of the
aforesaid definition, Shri Tushar Mehta is clearly right in stating that the
three entities who owe monies under arbitral awards to the Petitioner No.1,
being Government companies, would be subsumed within the first part of the
definition. However, so far as NHAI is concerned, Dr. Singhvi’s argument of
either deleting certain 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 and Reasons of the NHAI Act, that the development and
maintenance of national highways is a government function that falls within
Entry 23 of List I of the Seventh Schedule to the Constitution of India.
Further, under Section 5 of the National Highways Act, 1956, the Central
Government may direct that any function in relation to the development or
maintenance of national highways shall also be exercisable by any officer or
authority subordinate to the Central Government. Under this provision, the
function of execution of activities relatable to national highways was earlier
delegated to the State Governments under an “agency system”. Though the system
worked through the State Public Works Departments for a period of 40 years, as
difficulties were experienced, the Centre itself decided to take over
development and maintenance of the national highways system through the
creation of a national highways authority.

60. The following provisions of
the NHAI Act are relevant and are 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, there shall be constituted for the purposes of this Act an
Authority to be called the National Highways Authority of India.

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

[(3) The Authority shall
consist of

(a) a Chairman;

(b) not more than six fulltime
members; and

(c) not more than six parttime
members, to be appointed by the Central Government by notification in the
Official Gazette: Provided that the Central
Government shall, while appointing the parttime members, ensure that at least
two of them are nonGovernment professionals having knowledge or experience in
financial management, transportation planning or any other relevant
discipline.]

12. Transfer of assets and
liabilities of the Central Government to the Authority-

(1) On and from the date of
publication of the notification under section 11.-

(a) all debts, obligations and
liabilities incurred, all contracts entered into and all matters and things
engaged to be done by, with, or for, the Central Government, immediately before
such date for or in connection with the purposes of any national highway or any
stretch thereof vested in, or entrusted to, the Authority under that section,
shall be deemed to have been incurred, entered into and engaged to be done by,
with, or for, the Authority;

(b) all nonrecurring
expenditure incurred by or for the Central Government for or in connection with
the purposes of any national highway or any stretch thereof, so vested in, or
entrusted to, the Authority, up to such date and declared to be capital
expenditure by the Central Government shall, subject to such terms and
conditions as may be prescribed, be treated as capital provided by the Central
Government to the Authority;

(c) all sums of money due to
the Central Government in relation to any national highway or any stretch
thereof, so vested in, or entrusted to, the Authority immediately before such
date shall be deemed to be due to the Authority;

(d)
all suits and other legal proceedings instituted or which could have been
instituted by or against the Central Government immediately before such date
for any matter in relation to such national highway or any stretch thereof may
be continued or instituted by or against the Authority.

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

14. Contracts by the
Authority.- Subject to the provisions of
section 15, the Authority shall be competent to enter into and perform any
contract necessary for the discharge of its functions under this Act.

15.Mode of executing
contracts on behalf of the Authority.-

(1) Every contract shall, on
behalf of the Authority, be made by the Chairman or such other member or such
officer of the Authority as may be generally or specially empowered in this
behalf by the Authority and such contracts or classes of contracts as may be
specified in the regulations shall be sealed with the common seal of the
Authority: Provided that no contract exceeding such value or amount as the Central
Government may prescribe in this behalf shall be made unless it has been
previously approved by that Government: Provided further that no
contract for the acquisition or sale of immovable property or for the lease of any
such property for a term exceeding thirty years and no other contract exceeding
such value or amount as the Central Government may prescribe in this behalf
shall be made unless it has been previously approved by that Government.

(2) Subject to the provisions
of subsection (1), the form and manner in which any contract shall be made
under this Act shall be such as may be provided by regulations.

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

16. Functions of the
Authority.

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

(2) Without prejudice to the
generality of the provisions contained in subsection (1), the Authority may,
for the discharge of its functions-

(a)
survey, develop, maintain and manage highways vested in, or entrusted to, it;

(b) construct offices or
workshops and establish and maintain hotels, motels, restaurants and restrooms
at or near the highways vested in, or entrusted to, it;

(c) construct residential
buildings and townships for its employees;

(d) regulate and control the
plying of vehicles on the highways vested in, or entrusted to, it for the
proper management thereof;

(e) develop and provide
consultancy and construction services in India and abroad and carry on research
activities in relation to the development, maintenance and management of
highways or any facilities thereat;

(f) provide such facilities and
amenities for the users of the highways vested in, or entrusted to, it as are,
in the opinion of the Authority, necessary for the smooth flow of traffic on
such highways;

(g) form one or more companies
under the Companies Act, 1956 to further the efficient discharge of the
functions imposed on it by this Act;

[(h) engage, or entrust any of its
functions to, any person on such terms and conditions as may be prescribed;]

(i) advise the Central
Government on matters relating to highways;

(j) assist, on such terms and
conditions as may be mutually agreed upon, any State Government in the formulation
and implementation of schemes for highway development;

(k)
collect fees on behalf of the Central Government for services or benefits
rendered under section 7 of the National Highways Act, 1956, as amended from
time to time, and such other fees on behalf of the State Governments on such
terms and conditions as may be specified by such State Governments; and

(l) take all such steps as may
be necessary or convenient for, or may be incidental to, the exercise of any
power or the discharge of any function conferred or imposed on it by this Act.

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

(a) authorising the disregard
by the Authority of any law for the time being in force; or

(b) authorising any person to
institute any proceeding in respect of a duty or liability to which the
Authority or its officers or other employees would not otherwise be subject
under this Act.

17. Additional capital and
grants to the Authority by the Central Government. The Central Government may,
after due appropriation made by Parliament, by law in this behalf,

(a) provide any capital that
may be required by the Authority for the discharge of its functions under this
Act or for any purpose connected therewith on such terms and conditions as that
Government may determine;

(b)
pay to the Authority, on such terms and conditions as the Central Government
may determine, by way of loans or grants such sums of money as that Government
may consider necessary for the efficient discharge by the Authority of its functions
under this Act.

18. Funds of the
Authority. (1) There shall be constituted a Fund to be called the
National Highways Authority of India Fund and there shall be credited thereto-

(a) any grant or aid received
by the Authority;

(b) any loan taken by the
Authority or any borrowings made by it;

(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 its functions having regard to the purposes for which such
grants, loans or borrowings are received and for matters connected therewith or
incidental thereto;

(b) salary, allowances, other
remuneration and facilities provided to the members, officers and other
employees of the Authority;

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

19. Budget.The
Authority shall prepare, in such form and at such time in each financial year
as may be prescribed, its budget for the next financial year, showing the
estimated receipts and expenditure of the Authority and forward the same to the
Central Government.

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

21. Borrowing powers of the
Authority.

(1) The Authority may, with the
consent of the Central Government or in accordance with the terms of any
general or special authority given to it by the Central Government, borrow
money from any source by the issue of bonds, debentures or such other
instruments as it may deem fit for discharging all or any of its functions
under this Act.

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

(3) The Central Government may
guarantee in such manner as it thinks fit the repayment of the principal and
the payment of interest thereon with respect to the borrowings made by the
Authority under subsection (1).

22. Annual report.The
Authority shall prepare, in such form and at such time in each financial year
as may be prescribed, its annual report, giving a full account of its
activities during the previous financial year, and submit a copy thereof to the
Central Government.

23.
Accounts and audit.The accounts of the Authority shall be maintained
and audited in such manner as may, in consultation with the Comptroller and
AuditorGeneral of India, be prescribed and the Authority shall furnish, to the
Central Government before such date as may be prescribed, its audited copy of
accounts together with the auditors report thereon.

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

33. Power of the Central
Government to issue directions.

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

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

61. Under Section 3 of the
aforementioned Act, the Authority shall be a body corporate which shall consist
of a Chairman and six fulltime members, together with six parttime members,
all appointed by the Central Government. The assets and liabilities of the
Central Government in relation to national highways are then transferred to the
Authority under Section 12. Under Sections 14 and 15, contracts that can be
made on behalf of the Authority can only be made, if they exceed a certain
value, after previous approval by the Government. Section 16 deals with the
functions of the Authority, which makes it clear that these are governmental
functions to be carried out only by the Government or by its agent appointed in
this behalf.

62. Under Section 19, the
budget prepared for the Authority has to be sent to the Central Government, capital
and grants to the authority being made by the Central Government into the fund
of the Authority (see Sections 17 and 18 of the NHAI Act supra).
Likewise, an annual report is to be given to the Central Government under
Section 22. Accounts and audit have to be made in consultation with the
Comptroller and Auditor General of India, and furnished to the Central
Government, which have then to be laid before the Parliament [see Sections
22 to 24 of the NHAI Act (supra)]. Under Section 33, the Central Government can
issue directions on questions of policy, which would then be binding on the
Authority.

63. From a conspectus of the
above provisions, what is clear is that NHAI is a statutory body which
functions as an extended limb of the Central Government, and performs
governmental functions which obviously cannot be taken over by a resolution
professional under the Insolvency Code, or by any other corporate body. Nor can
such Authority ultimately be woundup under the Insolvency Code. For all these
reasons, it is not possible to accede to Dr. Singhvi’s argument to either read
in, or read down, the definition of ‘corporate person’ in Section 3(7) of the
Insolvency Code.

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

“22. Following this
judgment, it becomes clear that operational creditors cannot use the Insolvency
Code either prematurely or for extraneous considerations or as a substitute for
debt enforcement procedures. The alarming result of an operational debt
contained in an arbitral award for a small amount of say, two lakhs of rupees,
cannot possibly jeopardise an otherwise solvent company worth several crores of
rupees. Such a company would be well within its rights to state that it is
challenging the arbitral award passed against it, and the mere factum of
challenge would be sufficient to state that it disputes the award. Such a case
would clearly come within para 38 of Mobilox Innovations [Mobilox
Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 :
(2018) 1 SCC (Civ) 311] , being a case of a preexisting ongoing dispute
between the parties. The Code cannot be used in terrorem to extract this
sum of money of rupees two lakhs even though it may not be finally payable as
adjudication proceedings in respect thereto are still pending. We repeat that
the object of the Code, at least insofar as operational creditors are
concerned, is to put the insolvency process against a corporate debtor only in
clear cases where a real dispute between the parties as to the debt owed does
not exist.

27.We repeat with emphasis that under our Code, insofar
as an operational debt is concerned, all that has to be seen is whether the
said debt can be said to be disputed, and we have no doubt in stating that the
filing of a Section 34 petition against an arbitral award shows that a
preexisting dispute which culminates at the first stage of the proceedings in
an award, continues even after the award, at least till the final adjudicatory
process under Sections 34 and 37 has taken place.”

65. In this view of the matter,
the moment challenges are made to the arbitral awards, the amount said 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 against the NHAI under the Insolvency code by the
Petitioner No.1 is not possible.

66. Dr. Singhvi then argued
that under Section 5(9) of the Insolvency Code, ‘financial position’ is
defined, which is only taken into account after a resolution professional is
appointed, and is not taken into account when adjudicating ‘default’ under
Section 3(12) of the Insolvency Code. This does not in any manner lead to the
position that such provision is manifestly arbitrary. As has been held by our
judgment in Pioneer Urban Land and Infrastructure Limited and Anr. v. Union
of India and Ors. (2019) 8 SCC 416, the Insolvency Code is not meant to be
a recovery mechanism (see paragraph 41 thereof) the idea of the
Insolvency Code being a mechanism which is triggered in order that resolution
of stressed assets then takes place. For this purpose, the definitions of
‘dispute’ under Section 5(6), ‘claim’ under Section 3(6), ‘debt’ under Section
3(11), and ‘default’ under Section 3(12), have all to be read together. Also,
the Insolvency Code, belonging to the realm of economic legislation, raises a
higher threshold of challenge, leaving the Parliament a free play in the joints,
as has been held in Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC 17 (see
paragraphs 17 to 24 thereof). For all these reasons, this contention of Dr.
Singhvi must needs be rejected.

67. Dr. Singhvi’s argument as
to the need to fill in a casus omissus in the Code in order that his
client get relief is again not tenable. The argument that an Order VIIIA CPC
type mechanism is missing, and can be provided by us through interpretation
there being no thirdparty procedure by which debts owed to persons like the
Petitioner can then be, by some theory of contribution or indemnity, fastened
on to PSUs when operational creditors invoke the Insolvency Code against
persons like the Petitioner is again an argument which is answered by stating
that the Insolvency Code is not meant to be a debt recovery legislation.

68. The argument of Shri Rai
that the definition of ‘dispute’ under Section 5(6) of the Insolvency Code does
not speak of the ‘parties’ to a dispute, and can therefore be interpreted to
include a dispute between a subcontractor and the principal employer with whom
the subcontractor may have no privity of contract, also does not commend
itself to us. The definition of ‘dispute’ in Section 5(6) of the Insolvency
Code deals with a suit or arbitration proceedings relating to one of three
things (a) the existence of the amount of debt; (b) the quality of goods or
service; 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 liability or obligation in respect of a claim
which is due from any person. This necessarily postulates the existence of a
contractual or other relationship, which gives rise to a liability or obligation
between parties in law. The same goes for (c), as a breach of a representation
or warranty can only be by one contracting party to another. Also, when the
quality of goods or service is referred to in (b), this again postulates some
contractual or other relationship in law by which one party may sue the other.

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

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

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

iii. Whether the documentary evidence
furnished with the application shows that the aforesaid debt is due and payable
and has not yet been paid? And

iiii. Whether there is existence of a
dispute between the parties or the record of the pendency of a suit or
arbitration proceeding filed before the receipt of the demand notice of the
unpaid operational debt in relation to such dispute? If any one of the
aforesaid conditions is lacking, the application would have to be rejected.
Apart from the above, the adjudicating authority must follow the mandate of
Section 9, as outlined above, and in particular the mandate of Section 9(5) of
the Act, and admit or reject the application, as the case may be, depending
upon the factors mentioned in Section 9(5) of the Act.”

71. It is clear therefore that
a dispute must be between the parties as understood under the Insolvency Code,
which does not contain an Order VIIIA CPC type mechanism. This contention must
also therefore be rejected.

72. For all these reasons, we
find the challenge to the provisions of 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, the Petitioner company had alleged that a
sum of INR 6070 crores was the sum awarded to the Petitioner company under
various arbitral awards from 2008 to 2019 which had been challenged by the
Respondent PSUs before various Courts, but the operation of which had not been
stayed by such courts. On this factual premise, the Petitioner sought interim
reliefs from this Court for the repayment of the said amounts from the
Respondent PSUs, so as to enable it to repay its pending dues to its own
operational creditors. This Court recorded as much in its order dated
13.09.2019 in Writ Petition No.1074 of 2019 as follows:

“The two interlocutory
applications are filed for two reliefs. One is to stay further proceedings
before the National Company Law Tribunal, and the second is to direct
respondent nos.58 Union of India, National Highways Authority of India, NHPC
Ltd., IRCON International Ltd. and NTPC Limited to pay off amounts due under
the Awards of Arbitrators which have not been stayed by any Court, amounting to
a sum of Rs.6,070 crores.

Dr. Singhvi, learned Senior
Counsel, states that his client will pay the Operational Creditors in these two
interlocutory applications, amounts of Rs.8.81 crores and 26.21 crores within a
period of 12 weeks from today. We record the aforesaid statement.We also issue notice to the
Respondents in the two interlocutory applications.Dasti service, in addition, is permitted. List the matter on 04th
October, 2019. Dr. Singhvi further states that this order which is passed by us at 11:45am today, will be communicated orally
to the NCLT which,apparently, is taking up these matters today.”

(emphasis supplied).

74. However, in its Counter
Affidavit dated 21.10.2019, the Union of India contended that this prayer was
‘factually incorrect’ and ‘deliberately misleading’. The Union of India
reproduced charts filed by IRCON, NHPC and NHAI before this Court regarding the
status of arbitral awards against them in favour of the Petitioner company (as
on 30.09.2019), which detailed, inter alia, (i) the value of the contract
between the Petitioner company and the Respondent PSU; (ii) the amount already
paid by the Respondent PSU to the Petitioner under the said contract; (iii) the
Petitioner’s principal claim against the Respondent PSU in the arbitration;
(iv) the amount awarded in favour of the Petitioner in the arbitration; (v) the
amounts paid/deposited by the Respondent PSU by which the competent Court had
granted stay; (vi) the balance amount due to the Petitioner; and (vii) whether
stay orders were granted by competent Courts in respect of the arbitral awards.
On the basis of these charts, the Union of India contended that the Petitioner
company had deliberately suppressed the fact that these Respondent PSUs had
stay orders in their favour in respect of some of these arbitral awards, and
that these PSUs had already paid/deposited a substantial amount
(approximately 83.30%) payable by them under the arbitral awards, after which
stay orders in respect of these arbitral awards were granted. The figures
mentioned in the charts were succinctly summarised in a table in the Counter
Affidavit, which is reproduced below:

75.
Pertinently, the Union of India alleged that none of the stay orders obtained
by the Respondent PSUs in respect of these arbitral awards were under the
automaticstay mode, or under Section 87 of the 2019 Amendment Act. Instead, it
was contended that the said stay orders were granted by the competent Court on
an application filed by the Respondent PSUs, a hearing of the said application
on merits, and upon the condition that portions of the arbitral awards be
paid/deposited in the Court.

76.
The Union of India also strongly denied the Petitioner company’s contention
that it was in financial distress due to the nonpayment of contractual dues
owed to it by the Respondent PSUs, which allegedly left it susceptible to being
proceeded against under the Code by its various creditors. The Union of India
alleged that the Petitioner has been paid the amount of the contract, even with
escalation, in almost all cases. In fact, it was contended in the Counter
Affidavit that the Petitioner company had been paid more than the initial contract value by
the Respondent PSUs (approximately 117%). The Union of India further contended
that most of the claims raised by the Petitioner company against the Respondent
PSUs are outside the scope of the basic contract value such as ‘loss of
profit’ etc. which would in any event not have any impact on the financial
health of the company. This, the Union of India alleged, demonstrated that it
was ‘absolutely false’ that the Petitioner company had been relegated to
insolvency due to the nonpayment of dues by the Respondent PSUs.

77. The Petitioner company then filed an Additional Affidavit
dated 04.11.2019 before this Court, wherein it admitted that, as on 31.08.2019,
the Petitioner company, while due a sum of INR 6373.82 crores from the
Respondent PSUs, had already received INR 951.51 crores through court orders,
and INR 1530.89 crores through the NITI Aayog Scheme (totalling INR 2482.4
crores). The Petitioner company then itself challenged as incorrect some of the
figures and statements placed on record by the Union of India in its Counter
Affidavit, particularly those on the status of Court proceedings in relation to
arbitralawards in favour of the Petitioner company.

78. A perusal of the rival contentions makes it clear that
there is a factual dispute between the parties relating to: (I) the exact
quantum of the arbitralawards in favour of the Petitioner company due from the
Respondent PSUs; (II) the amounts which may have already been paid and/or
deposited by the Respondent PSUs in favour of the Petitioner company under the
said arbitral awards; and (III) whether stay orders of competent Courts were
passed in respect of these arbitral awards, and if so, whether they were under
the automaticstay mode or not.

79. It is
settled law that when exercising its jurisdiction under Article 32 of the
Constitution, this Court cannot embark on a detailed investigation of disputed
facts. A fiveJudge bench of this Court in Gulabdas Co. v. Asstt.
Collector of Customs AIR 1957 SC 733, was seized of a batch of Writ
Petitions filed under Article 32, wherein the petitioners (who were Indian
importers of stationary articles) alleged that the Central Board of Revenue had
acted erroneously by imposing tax upon ‘crayons’ imported by them, which were not
taxable, incorrectly assuming them to be ‘colour pencils’. Dismissing these
Writ Petitions, this Court held as follows:

“15. The
contention that the impugned orders are manifestly erroneous, because “Crayons”
have been treated as ‘coloured pencils’ is not a contention which can be gone
into on an application under Article 32 of the Constitution. It has no bearing
on the question of the enforcement of a fundamental right, nor can the question
be decided without first determining what constitutes the distinction between a
‘coloured pencil’ and a ‘crayon’, a distinction which must require an
investigation into disputed facts and materials. This was a matter for the
Customs authorities to decide, and it is obvious that this Court cannot, on an
application under Article 32 of the Constitution, embark on such an
investigation.”

(emphasis supplied).

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

“6. We
have heard both the parties in all the petitions at some length. The
petitioners in all the petitions place their reliance on the decision in the M.M.R.
Khan case [1990 Supp SCC 191 : 1990 SCC (LS) 632 : (1991) 16 ATC 541]
. However, we find that the said case which admittedly concerned the canteen
workers both in the statutory canteens and recognised nonstatutory canteens
was decided on the facts in those cases including the provisions of the Railway
Manual, the notifications and circulars issued by the Railway Board from time
to time and other documents which pertained to the workers employed in the said
canteens. None of the material which was taken into consideration there has
relevance to the workers concerned in the present canteens. On the other hand,
there are disputed facts in the present case which cannot be resolved in a writ
petition under Article 32. We, therefore, find that this Court is not the
proper forum to decide the present disputes.”

(emphasis supplied).

81. More
recently, this Court in Sumedha Nagpal v. State of Delhi (2000) 9 SCC
745 held:

“2. Both
parties do recognise that the question of custody of the child will have to be
ultimately decided in proceedings arising under Section 25 of the Guardians
Wards Act read with Section 6 of the Act and while deciding such a
question, welfare of the minor child is of primary consideration. Allegations
and counterallegations have been made in this case by the petitioner and
Respondent 2 against each other narrating circumstances as to how the
estrangement took place and how each one of them is entitled to the custody of
the child. Since these are disputed facts, unless the pleadings raised by the
parties are examined with reference to evidence by an appropriate forum, a proper decision in the matter cannot be
taken and such a course is impossible in a summary proceeding such as writ
petition under Article 32 of the Constitution.

(emphasis supplied).

82. This Court
cannot, therefore, in exercise of its jurisdiction under Article 32 of the
Constitution undertake a detailed investigation to determine the status of
monies paid/deposited pursuant to arbitralawards in favour of the Petitioner
company. Consequently, no directions in respect thereof can be made in the present
proceedings.

83. Dr.
Singhvi then argued that the NITI Aayog Office’s Memorandum dated 05.09.2016,
which contained a scheme by which contractors were able to retrieve 75% of
awarded amounts together with interest thereon referred to as “payout
amount” is arbitrary only to a limited extent. He had no quarrel with the
fact that a bank guarantee should be given under the scheme to secure the
payout amount, but argued that an additional bank guarantee of 10% per year on
the payout amount, which is then compounded annually, is arbitrary and should
be struck down under Article 14.This being severable, he contended that the
scheme can remain, with the requirement of a ‘topup’ bank guarantee of 10% per
annum being struck down. A look at the circular dated 05.09.2016 shows that the
scheme is in order that the hardship felt by the construction sector, thanks to
the automaticstay regime under Section 36 as originally enacted, be mitigated.
It can thus be seen that the scheme is so that the construction sector can get
the fruits of arbitral awards in their favour, which otherwise was not
available at the time under the law.

Dr. Singhvi’s client was free to avail 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 possible for his client to
now turn around and state, years after availing this benefit, that one part of
the circular is onerous and should be struck down. 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 openended, 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
the payout amount that has been disbursed to contractors, that this condition
is said to be onerous. We find that in point of fact the 10% extra bank
guarantee is only to ensure that the further interest component per annum also
gets covered, so that the Government/Government bodies are able to claim these
amounts in case the bank guarantees have to be encashed. We, therefore, find no
substance in this plea and reject it.

84. All the
Writ Petitions are disposed of in the light of this judgment.

85.
Accordingly, M.A. Nos. 21402144 of 2019 in C.A. Nos.26212625 of 2019 are
allowed in terms of prayer (a) therein.

……………………………J. (R.F. Nariman)

……………………………J. (Surya Kant)

……………………………J. (V. Ramasubramanian)

New Delhi;

November 27, 2019

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