Holding

Section 87 of the 2019 Amendment Act and the omission of Section 26 of the 2015 Amendment are manifestly arbitrary and unconstitutional, and Section 36 does not impose an automatic stay of arbitral awards.

Summary

The Supreme Court examined a batch of writ petitions filed by Hindustan Construction Company Ltd seeking to strike down Section 87 of the Arbitration and Conciliation (Amendment) Act, 2019 and the deletion of Section 26 of the 2015 Amendment, arguing that they revived an automatic‑stay of arbitral awards and removed the basis of the BCCI judgment. The Court held that Section 36 of the Arbitration Act, 1996 does not create an automatic stay and that the 2015 amendment correctly abolished the two‑bites‑at‑the‑cherry doctrine. By retrospectively omitting Section 26, the 2019 amendment removed a fundamental basis of the BCCI decision and was therefore manifestly arbitrary, violating Article 14. Consequently, Section 87 and the repeal of Section 26 were struck down, preserving the effect of the 2015 amendment and the BCCI judgment. The Court also rejected challenges to the Insolvency and Bankruptcy Code, holding that the petitioners could not be forced into insolvency on the basis of disputed arbitral awards. The writ petitions were disposed of, and the related appeals were allowed in the relief sought concerning the invalidity of Section 87.

Issues considered

The constitutional validity of Section 87 of the Arbitration and Conciliation (Amendment) Act, 2019 and the deletion of Section 26 of the 2015 Amendment Act.
Whether Section 36 of the Arbitration and Conciliation Act, 1996 creates an automatic stay of enforcement of an award when a Section 34 application is filed.
Whether the 2019 amendment removes the basis of the Supreme Court’s BCCI judgment.
The applicability of the 2015 amendment to court proceedings relating to arbitral proceedings commenced before 23‑Oct‑2015.
The constitutionality of certain provisions of the Insolvency and Bankruptcy Code, 2016 as applied to the petitioners.

Legislation cited

Arbitration and Conciliation Act, 1996s. 34, s. 35, s. 36, s. 87, s. 9
Arbitration and Conciliation (Amendment) Act, 2015s. 26
Arbitration and Conciliation (Amendment) Act, 2019s. 13, s. 15
Code of Civil Procedure, 1908s. Order XLI Rule 5
Companies Act, 2013s. 2(20), s. 2(45)
General Clauses Act, 1897s. 6
Insolvency and Bankruptcy Code, 2016s. 3(11), s. 3(12), s. 3(7), s. 5(6)
National Highways Act, 1956s. 12, s. 14, s. 15, s. 16, s. 17, s. 18, s. 19, s. 20, s. 21, s. 22, s. 23, s. 24, s. 33, s. 5

Subjects

ArbitrationAutomatic staySection 36Section 87Arbitration Act 19962015 Amendment2019 AmendmentBCCI judgmentConstitutional validityArticle 14Article 32Insolvency and Bankruptcy CodeCorporate personGovernment companiesEnforcement of arbitral awardsUNCITRAL Model Law

Judgment

[2019] 17 S.C.R. 331 331

HINDUSTAN CONSTRUCTION COMPANY LIMITED & ANR. A
v.
UNION OF INDIA & ORS.
(Writ Petition (Civil) No. 1074 of 2019)
NOVEMBER 27, 2019 B
[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
C
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, D
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
E
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 F
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,
G
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 H
331
332 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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 –
B 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
C 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
D 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
E 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
F 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
G 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
H pursuant to a detailed Law Commission Report which found various
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 333
UNION OF INDIA & ORS.

infirmities in the working of the original 1996 statute – The A
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
B
(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 C
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 D
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 E
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. F

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.
G
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 H
334 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C CPC type mechanism – Code of Civil Procedure, 1908 – Or.VIII-
A.
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
D 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
E 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
F 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.
G 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
H setting aside the award and one at the time of recognition and
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 335
UNION OF INDIA & ORS.

enforcement; and that the Arbitration Act, 1996 has not followed A
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
B
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 C
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
D
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] E
12 SCR 1 – per incurium.
National Buildings Construction Corporation Ltd. v.
Lloyds Insulation India Ltd. (2005) 2 SCC 367 – not
correct law.
F
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 G
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 H
336 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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] [358-
B-C, E-G]
C
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
D
– 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
E
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
F
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
G
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
H BCCI by omitting from the very start Section 26 of the 2015
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 337
UNION OF INDIA & ORS.

Amendment Act. Since this is the provision that has been A
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] [370-
C-D; 372-B-C]
B
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
C
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
D
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 E
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 F
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 G
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 H
338 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C “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
D
(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
E 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
F
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
G not sit in appeal over the award, and if the view taken by the
arbitrator is possible, no interference is called for. [Paras 47-
49] [372-H; 373-A; 374-C-H; 375-A-B]
Canara Nidhi Ltd. v. M. Shashikala 2019 SCC Online
SC 1244 ; Associated Construction v. Pawanhans
H Helicopters Ltd. (2008) 16 SCC 128 – relied on.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 339
UNION OF INDIA & ORS.

3.2 It has been held in *Sangyong Engineering that after A
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 B
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 C
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 D
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 E
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 judgment-
debtor. [Para 50] [375-C-G]
F
*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 G
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, w hen such payments would be
forthcoming from arbitral awards in cases where there is no stay, H
340 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C arbitrary under Article 14 of the Constitution. [Para 51] [375-
H; 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
D – 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]
E 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.
F 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,
G 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
H and Reasons of the NHAI Act, that the development and
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 341
UNION OF INDIA & ORS.

maintenance of national highways is a government function that A
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
B
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 C
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 D
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 E
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 F
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. G
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, H
342 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C 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.
D
[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
E
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.
F 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.
G [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
H (2000) 9 SCC 745 – relied on.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 343
UNION OF INDIA & ORS.

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. A
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
B
to.
Case Law Reference
[2018] 2 SCR 829 relied on Para 6
[2017] 10 SCR 1006 referred to Para 12 C
[2018] 10 SCR 959 referred to Para 16
[2012] 13 SCR 402 referred to Para 20
(2004) 1 SCC 540 per incurium Para 23
D
(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 E

[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 F
[1975] 2 SCR 573 held inapplicable Para 52
[2008] 5 SCR 522 held inapplicable Para 52
(2019) 8 SCC 416 referred to Para 66
G
[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 H
344 SUPREME COURT REPORTS [2019] 17 S.C.R.

A CIVIL ORIGINAL/APPELLATE JURISDICTION : Writ
Petition (Civil) No. 1074 of 2019.
[Under Article 32 of The Constitution of India]
With
B Writ Petition (Civil) Nos. 1276, 1310 of 2019, M.A. Nos. 2140-
2144 of 2019 in Civil Appeal Nos. 2621-2625 of 2019.
K. K. Venugopal, AG, Tushar Mehta, SG, Ms. Pinky Anand,
Maninder Acharya, ASGs, Dr. A. M. Singhvi, Mukul Rohatgi, Neeraj
Kishan Kaul, Nakul Diwan, Ritin Rai, C. A. Sundaram, Sr. Advs.,
C 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
D 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,
E 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.
F
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
G
(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
H and Conciliation (Amendment) Act, 2015 (hereinafter referred to as the
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 345
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

“2015 Amendment Act”) by Section 15 of the 2019 Amendment Act. A
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 B
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
C
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 D
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
E
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
F
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 G
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 H
346 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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.
B 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
C 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
D 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
E 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
F 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 ‘High-
Level Committee to Review the Institutionalisation of Arbitration
G
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),
H but should only apply in case arbitral proceedings have themselves been
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 347
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

commenced post 23.10.2015, which would include court proceedings A
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
B
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 C
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,
D
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 E
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
F
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
G
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, H
348 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C 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. For all these reasons, it is contended that Section
D
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.
E
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
F 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
G
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
H such position to prospective resolution applicants, which itself makes
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 349
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

the provision manifestly arbitrary. He then argued as to the omission A
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
B
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 vice-versa. He then made an impassioned plea that, in any event,
this Court ought to follow its earlier judgments and restate the principle C
that payment of a money-decree 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 money-
decrees, withdrawal ought to be permitted - not on onerous conditions
such as bank guarantees - but on other conditions such as corporate
D
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.14070/14/2016-PPPAU
E
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 automatic-stay. 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 “pay-out amount”, F
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 pay-out amount
would also have to be given, which is then compounded annually.
G
According to him, given the fact that 75% of such pay-out 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. H
350 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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 re-hash of Section 26 and this being so,
B 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 set-off 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.
C 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
D 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
E Counter-Affidavit 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
F
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 VIII-A
G of the CPC type procedure to proceedings under the Insolvency Code,
so that when his client’s sub-contractor triggers the Insolvency Code
against his client, his client in-turn should be able to make its principal
employer a party to such proceedings, so that the sub-contractor may
then recover these amounts from the principal employer directly, thereby
H absolving his client from the clutches of the Insolvency Code.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 351
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

13. Shri Nakul Dewan, learned Senior Advocate appearing on A
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 B
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.
C
14. Mr. Dewan then went on to state that Section 87 destroyed
a level playing field in relation to enforcement of arbitral awards, by
re-imposing an arbitrary cut-off 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) D
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 cut-off date has no
rational nexus to the object sought to be achieved by the Arbitration E
Act, 1996. Finally, he urged that the Counter-Affidavit 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
F
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 automatic-stay provision would render persons like his client unable G
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 H
352 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C 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 cut-off dates
D
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 cut-off date, unless blatantly arbitrary or
discriminatory. He referred to some of our judgments in support of this
proposition.
E 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
F 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
G
to the Counter-Affidavit 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
H these cases, which have not been appealed against. He further argued
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 353
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

that there was a gross suppression of facts and figures by Petitioner A
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, B
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 C
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 D
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, E
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 F
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
G
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 H
354 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B ‘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 pre-existing dispute exists in such cases,
and therefore would in any case be outside the strong arm of the law
contained in the Insolvency Code.
C
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 Counter-Affidavit filed on behalf of the Union of India, that no
inroads have been made into the objects sought to be achieved by the
D 2015 Amendment Act by merely following a particular cut-off date. In
any case, the fixing of such cut-off 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.

E 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
F 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
G 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
H in 1985; AND
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 355
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

WHEREAS the General Assembly of the United Nations has A
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 B
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 C
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;
D
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 E
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.
F
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 G
not concerning a subject-matter capable of settlement by
arbitration. Once the agreement is there and the court is seized
of an action in relation to such subject-matter, 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.” H
356 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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-
xxx xxx xxx
(2) If an application for setting aside or suspension of an award
B
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
C 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
D 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 self-same grounds when it comes to recognition and
E 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
F 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.”
G 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
H awarded amount in the court below so that the applicant can
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 357
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

withdraw it, on such terms and conditions as the said court might A
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 B
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, C
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
D
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 E
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 F
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 Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd.
and Anr. (2009) 17 SCC 796, this Court held:
G
“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 H
358 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B 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 three-judge bench in Leela Hotels Ltd. V. Housing and
C 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
D 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,
E 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
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
F
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
G 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 Intra-trade
Pvt. Ltd. (supra) overlook this statutory position. These words in
Section 9 have not undergone any change by reason of the 2015 or
H 2019 Amendment Acts.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 359
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

28. Interpreting Section 9 of the Arbitration Act, 1996, a Division A
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. B
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 C
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 D
(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), E
and Fiza Developers and Intra-trade 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
F
1
In 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
G
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 Intra-trade 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. H
360 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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 automatic-stay of an
award, as laid down by these decisions, is incorrect. The resultant
B
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
C 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
D 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
E 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
F 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
G 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
H of a court under Section 9 of the Act as well. Admission of a
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 361
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

Section 34 petition, therefore, virtually paralyses the process for A
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) B
‘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 C
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
D
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
E
merely upon the making of an application under Section 34.”
It then further went on to state:
“62…Since it is clear that execution of a decree pertains to the
realm of procedure, and that there is no substantive vested right
in a judgment-debtor to resist execution, Section 36, as substituted, F
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:
G
“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 H
362 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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)
C 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 sub-section (2), such
D 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
E 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 sub-section (3), on a separate
application made for that purpose.
(3) Upon filing of an application under sub-section (2) for stay
F 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
G 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
H Ltd. (supra) and Fiza Developers (supra) have laid down the law
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 363
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

incorrectly, it is also clear that the amended Section 36, being clarificatory A
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 B
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
C
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–
D
(a) not apply to-
(i) arbitral proceedings commenced before the
commencement of the Arbitration and Conciliation
(Amendment) Act, 2015;
E
(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;
F
(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
G
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: H
364 SUPREME COURT REPORTS [2019] 17 S.C.R.

A “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.”
B
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 85-A as proposed in the
C 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
85-A as proposed, and then held:
“33. What can be seen from the above is that Section 26 has,
D while retaining the bifurcation of proceedings into arbitration and
court proceedings, departed somewhat from Section 85-A 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
E 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
F 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
G
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.
H Obviously, “arbitral proceedings” having been subsumed in the
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 365
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

first part cannot re-appear in the second part, and the expression A
“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
B
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 C
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 D
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
E
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 F
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 22-12-2003. The
said Bill was referred to the Department-related Parliamentary
Standing Committee on Personnel, Public Grievances, Law and
G
Justice for examination and report. The said Committee,
submitted its Report to Parliament on 4-8-2005, 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. H
366 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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,
B
for settlement of disputes in a more user-friendly, cost-effective
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
C 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.
D 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
E 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—
F (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
G 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
H within a period of sixty days;
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 367
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(iv) to provide that while considering any application for A
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 B
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 C
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 D
agree in writing that their dispute be resolved through
fast-track 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 E
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
F
process becomes more user-friendly, cost-effective and lead to
expeditious disposal of cases.”
78. The Government will be well-advised 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
G
Press Release dated 7-3-2018. The immediate effect of the
proposed Section 87 would be to put all the important amendments
made by the Amendment Act on a back-burner, 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, H
368 SUPREME COURT REPORTS [2019] 17 S.C.R.

A “… 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
23-10-2015, but will be applicable to Section 34 petitions filed in
B cases where arbitration proceedings have themselves commenced
only after 23-10-2015. This would mean that in all matters which
are in the pipeline, despite the fact that Section 34 proceedings
have been initiated only after 23-10-2015, yet, the old law would
continue to apply resulting in delay of disposal of arbitration
proceedings by increased interference of courts, which ultimately
C 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
D 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.
E 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
F 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
G 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
H remember that the 246th Law Commission Report has itself
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 369
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

bifurcated proceedings into two parts, so that the Amendment A
Act can apply to court proceedings commenced on or after 23-
10-2015. 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.”
B
(emphasis supplied)
In paragraph 83, the Court then concluded:
“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
C
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 D
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
E
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 F
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 G
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:-
xxx xxx xxx H
370 SUPREME COURT REPORTS [2019] 17 S.C.R.

A (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.”
B 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
C 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
D 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:
E
“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
F 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:
G
“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
H : 1973 SCC (Tax) 300] ; Krishna Chandra Gangopadhyaya
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 371
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

v. Union of India [(1975) 2 SCC 302] ; Hindustan Gum & A
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
B
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 C
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.”.
D
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 E
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 F
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 (L&S) 103] ).
However, where the Court’s judgment is purely declaratory, the
courts will lean in support of the legislative power to remove the G
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 H
372 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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 well-
defined 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].”
B
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
C 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 re-hash of Section 26, and therefore in substance there
D 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
E 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
F 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.
G 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
H 300-A of the Constitution of India. The Srikrishna Committee Report
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 373
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

recommended the introduction of Section 87 owing to the fact that there A
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 B
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: C
(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 D
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 E
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. F
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. G
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. H
374 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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)
C
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
D 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
E 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
F 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
G
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
H by the 2015 Amendment Act.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 375
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

49. Further, this Court has repeatedly held that an application A
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,
B
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 C
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 D
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 E
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
F
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 judgment-debtor. G
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 automatic-stay doctrine laid down
by judgments of this Court - which have only been reversed today by H
376 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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,
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-
B
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
C 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
D the fixation of cut-off 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 10 2 and Govt. of A.P. v. N.
Subbarayudu (2008) 14 SCC 702 at paragraphs 5 to 93).
53. In the present case, the challenge is not to the fixing of
E 23.10.2015 as a cut-off 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 non-bifurcation 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
F on a backburner. This argument of the learned Attorney General for
India also therefore must be rejected.

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
G 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 cut-off dates is within the domain of
the executive authority and the court should not normally interfere with the fixation
of a cut-off date by the executive authority unless such Court order appears to be on
H the face of it blatantly discriminatory and arbitrary.”
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 377
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

54. The result is that the BCCI judgment (supra) will therefore A
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 B
19(1)(g), 21 and 300-A of the Constitution of India.
Constitutional Challenge to the Insolvency Code
56. It now falls on us to decide the second part of the challenges
made in the present Writ Petitions, i.e. the challenge to the
C
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
automatic-stay 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 pay-off the debts of his client’s creditors. On the other hand, D
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
E
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 F
it is necessary to set out these definitions:
“Definitions
3. In this Code, unless the context otherwise requires,-
xxx xxx xxx G
(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 sub-section
(1) of section 2 of the Limited Liability Partnership Act, 2008 (6
of 2009), or any other person incorporated with limited liability H
378 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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-
B
(a) an individual;
(b) a Hindu Undivided Family;
(c) a company;
C (d) a trust;
(e) a partnership;
(f) a limited liability partnership;
(g) any other entity established under a statute;
D and includes a person resident outside India.”
57. As correctly argued by the learned Solicitor General, 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)
E 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;”

F “2(45). “Government company” means any company in which
not less than fifty-one per cent of the paid-up 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.”
G
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
H certain words in Section 3(7) of the Insolvency Code, or adding certain
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 379
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

words in Section 3(23)(g) of the Insolvency Code into Section 3(7) A
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, B
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
C
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. D
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, E
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, F
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—
G
(a) a Chairman;
(b) not more than six full-time members; and
(c) not more than six part-time members, to be appointed
by the Central Government by notification in the Official
Gazette: H
380 SUPREME COURT REPORTS [2019] 17 S.C.R.

A Provided that the Central Government shall, while appointing the
part-time members, ensure that at least two of them are non-
Government professionals having knowledge or experience in
financial management, transportation planning or any other
relevant discipline.]
B xxx xxx xxx
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.—
C
(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
D 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 non-recurring expenditure incurred by or for the
E 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
F 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
G 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
H matter in relation to such national highway or any stretch
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 381
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

thereof may be continued or instituted by or against the A
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. B

xxx xxx xxx
14. Contracts by the Authority.—
Subject to the provisions of section 15, the Authority shall be
C
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 D
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: E
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
F
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.
G
(2) Subject to the provisions of sub-section (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. H
382 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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.
B
(2) Without prejudice to the generality of the provisions contained
in sub-section (1), the Authority may, for the discharge of its
functions—
(a) survey, develop, maintain and manage highways vested
C in, or entrusted to, it;
(b) construct offices or workshops and establish and
maintain hotels, motels, restaurants and rest-rooms at
or near the highways vested in, or entrusted to, it;
(c) construct residential buildings and townships for its
D
employees;
(d) regulate and control the plying of vehicles on the
highways vested in, or entrusted to, it for the proper
management thereof;
E (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
F 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
G 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
H highways;
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 383
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(j) assist, on such terms and conditions as may be mutually A
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 B
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 C
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—
D
(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 E
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 F
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; G
(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. H
384 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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 (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—

C (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
D provided to the members, officers and other employees
of the Authority;
(c) expenses on objects and for purposes authorised by this
Act.

E 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.

F 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
G 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
H under this Act.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 385
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(2) Subject to such limits as the Central Government may, A
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 B
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 sub-section (1).
22. Annual report.—-The Authority shall prepare, in such form
and at such time in each financial year as may be prescribed, its C
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 D
with the Comptroller and Auditor-General 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 E
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.
xxx xxx xxx
F
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.
G
(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
full-time members, together with six part-time members, all appointed H
386 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C (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
D 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
E 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 accede to Dr. Singhvi’s argument to
either read in, or read down, the definition of ‘corporate person’ in
F 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
G 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
H company would be well within its rights to state that it is
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 387
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

challenging the arbitral award passed against it, and the mere A
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 pre-existing ongoing dispute between the
B
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 C
real dispute between the parties as to the debt owed does not
exist.
xxx xxx xxx
27. We repeat with emphasis that under our Code, insofar as
an operational debt is concerned, all that has to be seen is D
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 pre-existing dispute which
culminates at the first stage of the proceedings in an award,
continues even after the award, at least till the final adjudicatory E
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, F
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 G
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) - H
388 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B
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
C omissus in the Code in order that his client get relief is again not tenable.
The argument that an Order VIII-A CPC type mechanism is missing,
and can be provided by us through interpretation - there being no third-
party procedure by which debts owed to persons like the Petitioner can
then be, by some theory of contribution or indemnity, fastened on to
D 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
E
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, 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
F - (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
G 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
H sue the other.
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 389
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

70. In Mobilox (supra), after setting out the definition of A
‘dispute’, this Court held:
“34. Therefore, the adjudicating authority, when examining an
application under Section 9 of the Act will have to determine:
i. Whether there is an “operational debt” as defined
exceeding Rs 1 lakh? (See Section 4 of the Act) B

ii. Whether the documentary evidence furnished with the
application shows that the aforesaid debt is due and
payable and has not yet been paid? And
iii. Whether there is existence of a dispute between the C
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
D
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 E
as understood under the Insolvency Code, which does not contain an
Order VIII-A 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, F
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
G
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 H
390 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B Tribunal, and the second is to direct respondent nos.5-8 – 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.
C 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
D 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
E
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
F ‘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
G
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
H orders were granted by competent Courts in respect of the arbitral
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 391
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

awards. On the basis of these charts, the Union of India contended A
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
B
arbitral awards were granted. The figures mentioned in the charts were
succinctly summarised in a table in the Counter Affidavit, which is
reproduced below:
NAME OF THE PSU TOTAL AMOUNT OF TOTAL AMOUNT

AWARDS IN FAVOUR PAID/DEPOSITED BY THE C
OF THE PETITIONER PSU PENDING THE

STATUTORY CHALLENGE

OF THE AWARD

D
NHPC 1063.82 932.03

NHAI 2343.23 2025.62

IRCON 268.10 119.06
E
NTPC 116.15 81.70

TOTAL 3791.30 3158.41 [83.30%]

(Figures in INR Crores) F
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 automatic-stay 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 G
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 non- H
392 SUPREME COURT REPORTS [2019] 17 S.C.R.

A payment 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
B
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,
C the Union of India alleged, demonstrated that it was ‘absolutely false’
that the Petitioner company had been relegated to insolvency due to
the non-payment 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
D 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,
E
particularly those on the status of Court proceedings in relation to
arbitral-awards 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 arbitral-awards in favour of the Petitioner company due from
F
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
G 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 five-Judge bench of this Court in
Gulabdas & Co. v. Asstt. Collector of Customs AIR 1957 SC 733,
H was seized of a batch of Writ Petitions filed under Article 32, wherein
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 393
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

the petitioners (who were Indian importers of stationary articles) alleged A
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 B
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 C
‘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.” D
(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 E
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 (L&S) 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 non- F
statutory 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 G
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) H
394 SUPREME COURT REPORTS [2019] 17 S.C.R.

A 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
B 6 of the Act and while deciding such a question, welfare of the
minor child is of primary consideration. Allegations and counter-
allegations 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,
C 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.”
D (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 arbitral-
awards in favour of the Petitioner company. Consequently, no directions
E 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 “pay-out amount” - is arbitrary
F 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 pay-out
amount, but argued that an additional bank guarantee of 10% per year
on the pay-out amount, which is then compounded annually, is arbitrary
and should be struck down under Article 14. This being severable, he
G contended that the scheme can remain, with the requirement of a ‘top-
up’ 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 automatic-
stay 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
H the fruits of arbitral awards in their favour, which otherwise was not
HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 395
UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

available at the time under the law. Dr. Singhvi’s client was free to A
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%
B
additional bank guarantee per annum so that the scheme be availed.
Had the scheme not been open-ended, and had it ended within one year,
there would have been no need for this 10% additional bank guarantee.
It is only because the bank guarantee may be renewed for 75% of the
pay-out 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 C
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.
D
84. All the Writ Petitions are disposed of in the light of this
judgment.
85. Accordingly, M.A. Nos. 2140-2144 of 2019 in C.A. Nos.2621-
2625 of 2019 are allowed in terms of prayer (a) therein.
E
Devika Gujral Writ petitions disposed of.

F

G

H