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

- **Citation:** [2019] 17 S.C.R. 331
- **Court:** Supreme Court of India
- **Decided:** 2019-11-27
- **Bench:** R. F. Nariman, Surya Kant, V. Ramasubramanian
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hindustan-construction-company-limited-anr-v-union-of-india-ors-33657
- **Pages:** 65

## Headnote

Arbitration and Conciliation Act, 1996: ss.34 to 36 -
Automatic stay of award - Held: s.36 when read with s.35 states
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 - The raison
d'etre for s.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
- To read s.36 as inferring something negative, namely, that where
the time for making an application under s.34 has not expired and,
therefore, on such application being made within time, an
automatic-stay ensues, is to read something into s.36 which is not
there at all - Automatic stay of award is, therefore, not a rule -
Also, this construction omits to consider the rest of s.36, which
deals with applications under s.34 that have been dismissed, which
leads to an award being final and binding when read with s.35
which then becomes enforceable under the CPC, the award being
treated as a decree for this purpose - This is also supported by
the language of s.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 s.36." - These words in s.9 have not undergone any change
by reason of the 2015 or 2019 Amendment Acts - Further, s.36,
even as originally enacted, was not meant to do away with
Art.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 s.35, is to be under the CPC, treating the
award as if it were a decree of the court - The amended s.36, being
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clarificatory in nature, merely restates the position that the
unamended s.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.
Arbitration and Conciliation (Amendment) Act, 2019: s.13 -
Removal of basis of *BCCI judgment by Amendment Act, 2019 -
Whether 2019 Amendment Act removes the basis of *BCCI
judgment of Supreme Court - Held: Argument that the question of
removing the basis of a judgment cannot arise unless and until the
judgment is present in the mind of the legislature and expressly
referred to in the concerned Statement of Objects and Reasons is
rejected - What is important is to see whether in substance, the
basis of a particular judgment is in fact removed, and not whether
that judgment is referred to in the Statement of Objects and Reasons
of the amending act which seeks to remove its basis - Further
argument that s.87 is nothing but a rehash of s.26 is also rejected
- The scheme of s.87 is different from that of s.26, and is 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 - Argument that in the instant case there was a direct assault
on a judgment of this Court without first removing its basis is,
therefore, rejected - Legislative competence - Arbitration and
Conciliation Act, 1996.
Arbitration and Conciliation Act, 1996: s.87 - Constitutional
validity of introduction of s.87 into the Arbitration Act, 1996, and
deletion of s.26 of the 2015 Amendment Act by the 2019 Amendment
Act - Held: The law on s.26 of the 2015 Amendment Act was laid
down in *BCCI with great clarity - After construing s.26, the Court
cautioned the Government that the immediate effect of enacting the
proposed s.87 would be directly contrary to the Statement and
Objects and Reasons of the 2015 Amendment Act, which made it
clear that the

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HINDUSTAN CONSTRUCTION COMPANY LIMITED & ANR.
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 1074 of 2019)
NOVEMBER 27, 2019
[R. F. NARIMAN, SURYA KANT AND
V. RAMASUBRAMANIAN, JJ.]
Arbitration and Conciliation Act, 1996: ss.34 to 36 -
Automatic stay of award - Held: s.36 when read with s.35 states
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 - The raison
d'etre for s.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
- To read s.36 as inferring something negative, namely, that where
the time for making an application under s.34 has not expired and,
therefore, on such application being made within time, an
automatic-stay ensues, is to read something into s.36 which is not
there at all - Automatic stay of award is, therefore, not a rule -
Also, this construction omits to consider the rest of s.36, which
deals with applications under s.34 that have been dismissed, which
leads to an award being final and binding when read with s.35
which then becomes enforceable under the CPC, the award being
treated as a decree for this purpose - This is also supported by
the language of s.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 s.36." - These words in s.9 have not undergone any change
by reason of the 2015 or 2019 Amendment Acts - Further, s.36,
even as originally enacted, was not meant to do away with
Art.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 s.35, is to be under the CPC, treating the
award as if it were a decree of the court - The amended s.36, being
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clarificatory in nature, merely restates the position that the
unamended s.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.
Arbitration and Conciliation (Amendment) Act, 2019: s.13 -
Removal of basis of *BCCI judgment by Amendment Act, 2019 -
Whether 2019 Amendment Act removes the basis of *BCCI
judgment of Supreme Court - Held: Argument that the question of
removing the basis of a judgment cannot arise unless and until the
judgment is present in the mind of the legislature and expressly
referred to in the concerned Statement of Objects and Reasons is
rejected - What is important is to see whether in substance, the
basis of a particular judgment is in fact removed, and not whether
that judgment is referred to in the Statement of Objects and Reasons
of the amending act which seeks to remove its basis - Further
argument that s.87 is nothing but a rehash of s.26 is also rejected
- The scheme of s.87 is different from that of s.26, and is 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 - Argument that in the instant case there was a direct assault
on a judgment of this Court without first removing its basis is,
therefore, rejected - Legislative competence - Arbitration and
Conciliation Act, 1996.
Arbitration and Conciliation Act, 1996: s.87 - Constitutional
validity of introduction of s.87 into the Arbitration Act, 1996, and
deletion of s.26 of the 2015 Amendment Act by the 2019 Amendment
Act - Held: The law on s.26 of the 2015 Amendment Act was laid
down in *BCCI with great clarity - After construing s.26, the Court
cautioned the Government that the immediate effect of enacting the
proposed s.87 would be directly contrary to the Statement and
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 - To thereafter delete
this salutary provision and introduce s.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
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infirmities in the working of the original 1996 statute - The
introduction of s.87 and deletion of s.26 of the 2015 Amendment
Act was thus 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 - Arbitration and Conciliation
(Amendment) Act, 2015 - s.26.
Arbitration and Conciliation Act, 1996: s.34 - It is well
settled law that an application under s.34 of the Act, 1996 is a
summary proceeding not in the nature of a regular suit - As a
result, a court reviewing an arbitral award under s.34 does not sit
in appeal over the award, and if the view taken by the arbitrator
is possible, no interference is called for.
Insolvency and Bankruptcy Code, 2016: s.3(7) -
Interpretation of term 'Corporate person' - Plea that for recovery
of money from Government Companies, the definition of 'corporate
person' contained in s.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 s.3(23)(g) of the Insolvency
Code, which is the definition of 'person' read into the said provision
- Held: A statutory body which functions as an extended limb of
the Central Government, and performs governmental functions
cannot be taken over by a resolution professional under the
Insolvency Code, or by any other corporate body - Nor can such
Authority ultimately be wound-up under the Insolvency Code - For
such reasons, it is not possible to either read in, or read down,
the definition of 'corporate person' in s.3(7) of the Insolvency
Code.
Insolvency and Bankruptcy Code, 2016: Object of - Held:
The Insolvency Code is not meant to be a recovery mechanism, the
idea of the Code being a mechanism which is triggered in order
that resolution of stressed assets then takes place.
Insolvency and Bankruptcy Code, 2016: s.5(6) - Definition
of 'dispute' - Held: The definition of 'dispute' in s.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 - Insofar as (a) is concerned, the
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definition of the word 'debt' contained in s.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
- Therefore, a dispute must be between the parties as understood
under the Insolvency Code, which does not contain an Or.VIII-A
CPC type mechanism - Code of Civil Procedure, 1908 - Or.VIIIA.
Constitution of India: Art.32 - Writ jurisdiction, invocation
of - Factual disputes between parties relating to exact quantum
of arbitral awards in favour of petitioner company - Held: It is
settled law that when exercising its jurisdiction under Art.32 of the
Constitution, Supreme Court cannot embark on a detailed
investigation of disputed facts - In the instant case, there was
factual dispute between the parties relating to: (i) the exact
quantum of the arbitral awards 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 automatic-stay mode or not - This Court cannot, therefore, in
exercise of its jurisdiction under Art.32 undertake a detailed
investigation to determine the status of monies paid/deposited
pursuant to arbitral-awards in favour of the Petitioner company
- Consequently, no directions in respect thereof can be made in
these proceedings.
Disposing the writ petitions, the Court
HELD: 1.1 It was argued on behalf of Petitioner 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
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enforcement; and that 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. It is correct to state 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 self-same 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. [Para
13, 22] [351-A-B; 356-D-F]
National Aluminum Company Ltd. (NALCO) v. Pressteel
& Fabrications (P) Ltd. and Anr. (2004) 1 SCC 540 ;
Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI
(India) Pvt. Ltd. and Anr. (2009) 17 SCC 796 : [2009]
12 SCR 1 - per incurium.
National Buildings Construction Corporation Ltd. v.
Lloyds Insulation India Ltd. (2005) 2 SCC 367 - not
correct law.
1.2 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. 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. 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
automatic-stay ensues, is to read something into Section 36 which
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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. 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." [Paras 25-27] [358B-C, E-G]
Leela Hotels Ltd. v. Housing and Urban Development
Corporation Ltd. (2012) 1 SCC 302 : [2011] 13 SCR
156 - relied on.
Dirk India Pvt. Ltd. v. Maharashtra State Power
Generation Company Ltd. 2013 SCC Online Bom 481
- referred to.
1.3 The automatic stay of an award is incorrect. 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. [Para
30] [360-B-C]
REMOVAL OF THE BASIS OF THE BCCI JUDGMENT
BY THE 2019 AMENDMENT ACT
2.1 The argument is made 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. This argument is
rejected. 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.
Section 15 of the 2019 Amendment Act removes the basis of
BCCI by omitting from the very start Section 26 of the 2015
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Amendment Act. Since this is the provision that has been
construed in the BCCI judgment, 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. [Paras 41, 45] [370C-D; 372-B-C]
Shri Prithvi Cotton Mills Ltd. and Anr. v. Broad
Borough Municipality and Ors. (1969) 2 SCC 283 :
[1970] 1 SCR 388 ; State of Tamil Nadu v. Arooran
Sugars Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl. SCR
193 ; Goa Foundation v. State of Goa (2016) 6 SCC
602 : [2016] 1 SCR 1025 ; *BCCI v. Kochi Cricket
Pvt. Ltd. (2018) 6 SCC 287: [2018] 2 SCR 829 -
relied on.
2.2 Equally, the argument that Section 87 is nothing but a
re-hash 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. [Para 46] [372-D-F]
3. Constitutional Challenge to the 2019 Amendment Act
3.1 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. The Srikrishna Committee Report is dated
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30.07.2017, which is long before this Court's judgment in the
BCCI case. Whatever uncertainty there may have been because
of the interpretation by different High Courts has disappeared
as a result of the BCCI judgment, 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 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. 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. 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. [Paras 4749] [372-H; 373-A; 374-C-H; 375-A-B]
Canara Nidhi Ltd. v. M. Shashikala 2019 SCC Online
SC 1244 ; Associated Construction v. Pawanhans
Helicopters Ltd. (2008) 16 SCC 128 - relied on.
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3.2 It has been held in *Sangyong Engineering that after
the 2015 Amendment Act, this Court cannot interfere with an
arbitral award on merits. The anomaly, therefore, of Order XLI
Rule 5 of the CPC applying in the case of full-blown 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
automatic-stay 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 award-holders in a situation of no-stay
or conditional-stay now being reversed. In fact, refund
applications have been filed in some of the cases before us,
praying that monies that have been released for payment as a
result of conditional stay orders be returned to the judgmentdebtor. [Para 50] [375-C-G]
*Sangyong Engineering & Construction Co. Ltd. v.
NHAI (2019) SCC Online 677 - relied on.
3.3 Also, it is important to notice that the 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 automatic-stay doctrine laid down by judgments of this
Court - which have only been reversed by the present judgment
- the award-holder 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,
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or even in cases where conditional stays are granted. Also, an
arbitral award-holder is deprived of the fruits of its award - which
is usually obtained after several years of litigating - as a result
of the automatic-stay, 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
automatic-stays of arbitral awards, exposing such award-holders
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. [Para 51] [375H; 376-A-C]
UOI v. Parameswaran Match Works (1975) 1 SCC
305 : [1975] 2 SCR 573 ; Govt. of A.P. v. N.
Subbarayudu (2008) 14 SCC 702 : [2008] 5 SCR 522
- held inapplicable.
3.4 The BCCI judgment will 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. [Para 54] [377-A]
CONSTITUTIONAL
CHALLENGE
TO
THE
INSOLVENCY CODE
4.1 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 define
'company' and 'Government Company'. 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,
petitioner'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. [Paras 57, 58] [378-D-E-G-H; 379-A]
4.2 It is clear from a reading of the Statement of Objects
and Reasons of the NHAI Act, that the development and
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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. [Para 59] [379-B-C]
4.3 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
wound-up under the Insolvency Code. For all these reasons, it
is not possible to either read in, or read down, the definition of
'corporate person' in Section 3(7) of the Insolvency Code. 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. [Paras 63, 65] [386-E-F; 387-F]
Pioneer Urban Land and Infrastructure Limited and
Anr. v. Union of India and Ors. (2019) 8 SCC 416 ;
Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC
17 : [2019] 3 SCR 535 - referred to.
4.4 The argument 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 sub-contractor and the principal employer
with whom the sub-contractor may have no privity of contract,
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also not accepted. 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. 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. It is clear therefore that a dispute must be
between the parties as understood under the Insolvency Code,
which does not contain an Order VIII-A CPC type mechanism.
[Paras 68, 69, 71] [388-E-H; 389-E]
6. 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 arbitral-awards 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 automatic-stay mode or not.
This Court cannot 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
arbitral-awards in favour of Petitioner company. Consequently,
no directions in respect thereof are made in these proceedings.
[Paras 78, 79, 82] [392-F-G; 394-D-E]
Gulabdas & Co. v. Asstt. Collector of Customs AIR
1957 SC 733 - followed.
Surendra Prasad Khugsal v. Chairman, MMTC. (1994)
Supp. 1 SCC 87 ; Sumedha Nagpal v. State of Delhi
(2000) 9 SCC 745 - relied on.
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Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt.
Ltd. (2018) 1 SCC 353 : [2017] 10 SCR 1006 ;
K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2018)
17 SCC 662 : [2018] 10 SCR 959 ; Chloro Controls
(I) Pvt. Ltd. v. Seven Trent Water Purification Inc.
(2013) 1 SCC 641 : [2012] 13 SCR 402 - referred
to.
Case Law Reference
[2018] 2 SCR 829
relied on
Para 6
[2017] 10 SCR 1006
referred to
Para 12
[2018] 10 SCR 959
referred to
Para 16
[2012] 13 SCR 402
referred to
Para 20
(2004) 1 SCC 540
per incurium
Para 23
(2005) 2 SCC 367
not correct law
Para 24
[2009] 12 SCR 1
per incurium
Para 24
[2011] 13 SCR 156
relied on
Para 25
[1970] 1 SCR 388
relied on
Para 42
[1996] 8 Suppl. SCR 193
relied on
Para 43
[2016] 1 SCR 1025
relied on
Para 44
(2008) 16 SCC 128
relied on
Para 49
[1975] 2 SCR 573
held inapplicable
Para 52
[2008] 5 SCR 522
held inapplicable
Para 52
(2019) 8 SCC 416
referred to
Para 66
[2019] 3 SCR 535
referred to
Para 66
AIR 1957 SC 733
followed
Para 79
(1994) Supp. 1 SCC 87
relied on
Para 80
(2000) 9 SCC 745
relied on
Para 81
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CIVIL ORIGINAL/APPELLATE JURISDICTION : Writ
Petition (Civil) No. 1074 of 2019.
[Under Article 32 of The Constitution of India]
With
Writ Petition (Civil) Nos. 1276, 1310 of 2019, M.A. Nos. 21402144 of 2019 in Civil Appeal Nos. 2621-2625 of 2019.
K. K. Venugopal, AG, Tushar Mehta, SG, Ms. Pinky Anand,
Maninder Acharya, ASGs, Dr. A. M. Singhvi, Mukul Rohatgi, Neeraj
Kishan Kaul, Nakul Diwan, Ritin Rai, C. A. Sundaram, Sr. Advs.,
Mahesh Agarwal, Rishi Agarwala, Ankur Saigal, Ms. Madhavi Khanna,
Ms. Devika Mohan, Samar Kachwaha, Ms. Chanan Parwani,
Ms. Namisha Chadha, Ms. Shruti Arora, E. C. Agrawala, C. M. Patel,
Ms. Awantika Manohar, Ms. Nooreen Sarna, Prashant Kumar, Joseph
Pookkatt, Ms. Gunjan Mathur, Mridul Godha, M/s. AP & J Chambers,
Ashwani Kumar, Jay Kumar, Ms. Peeha Verma, Ms. Chinmayee
Chandra, Rajat Nair, Kanu Agrawal, Ankur Talwar, Sumit Teterwal,
Ms. Snidha Mehra, Chakitan Papta, Mrs. Anil Katiyar, Arvind Kumar
Sharma, Shailesh Madiyal, Sudhanshu Prakash, Kartik Anand,
Ms. Madhu Sweta, Ms. Kanika Tandon, Ms. Subashree Mohapatra,
Siddharth R. Agarwal, Ms. Astha Tyagi, Piyush Sharma, Gauhar Mirza,
Ms. Amee Rana, Nishant Doshi, Manavendra Gupta, S. S. Shroff, Shail
Kumar Dwivedi, Siddharth Krishna Dwivedi, Ms. Vibha Dwivedi,
Ms. Nidhi Dwivedi, Ashish Bhan, Mohit Rohatgi, Ketan Gaur, Ayush
Mitruka, Rajendra Dangwal, Syed Jafar Alam, Abhishek Gupta, Zafar
Inayat, Ms. Rohini Musa, Tarun Johri, Ankur Gupta, Ravindra Lokhande,
Satayam Singh, Advs. for the appearing parties.
The Judgment of the Court was delivered by
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
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"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 public-utilities 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
'automatic-stay' of such awards under the Arbitration Act, 1996.
4. The Petitioners are then subjected to a double-whammy.
Government bodies other than Government companies are exempt 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
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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 'automatic-stay' the moment
a Section 34 application is filed within time. According to the learned
Senior Advocate, from the plain language of Section 36, automatic-stay
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
automatic-stays are now things of the past. However, despite the fact
that the 2015 Amendment Act made large-scale 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
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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 full-blooded 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
automatic-stay 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 automatic-stay 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 300-A 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 BCCI judgment (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,
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that too after a period of more than 19 years. To bring back this mischief
of automatic-stays 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, non-payment 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 award-holder. Further, the retrospective resurrection
of the automatic-stay provision allows award-debtors who have
challenged arbitral awards before the Courts, and who have in fact made
payments to award-holders, to now claim the aforesaid sums back from
such award-holders.