HINDUSTAN CONSTRUCTION COMPANY LIMITED & Anr. v. UNION OF INDIA & Ors.

Shri Prithvi Cotton Mills Ltd. and Anr. v. Broad Borough Municipality and Ors. (1969) 2 SCC 283 : [1970] 1 SCR 388 ; State of Tamil Nadu v. Arooran Sugars Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl. SCR 193 ; Goa Foundation v. State of Goa (2016) 6 SCC 602 : [2016] 1 SCR 1025 ; *BCCI v. Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287: [2018] 2 SCR 829 – relied on.

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

#3. Constitutional Challenge to the 2019 Amendment Act

3.1 The Srikrishna Committee Report recommended the introduction of Section 87 owing to the fact that there were conflicting High Court judgments on the reach of the 2015 Amendment Act at the time when the Committee deliberated on this subject. The Srikrishna Committee Report is dated A B C D E F G H 338 SUPREME COURT REPORTS [2019] 17 S.C.R. A B C D E F G H

30.07.2017, which is long before this Court’s judgment in the BCCI case. Whatever uncertainty there may have been because of the interpretation by different High Courts has disappeared as a result of the BCCI judgment, the law on Section 26 of the 2015 Amendment Act being laid down with great clarity. To thereafter delete this salutary provision and introduce Section 87 in its place, would be wholly without justification and contrary to the object sought to be achieved by the 2015 Amendment Act, which was enacted pursuant to a detailed Law Commission report which found various infirmities in the working of the original 1996 statute. Also, it is not understood as to how “uncertainty and prejudice would be caused, as they may have to be heard again”, resulting in an ‘inconsistent position’. The amended law would be applied to pending court proceedings, which would then have to be disposed of in accordance therewith, resulting in the benefits of the 2015 Amendment Act now being applied. To refer to the Srikrishna Committee Report (without at all referring to this Court’s judgment) even after the judgment has pointed out the pitfalls of following such provision, would render Section 87 and the deletion of Section 26 of the 2015 Amendment Act manifestly arbitrary, having been enacted unreasonably, without adequate determining principle, and contrary to the public interest sought to be subserved by the Arbitration Act, 1996 and the 2015 Amendment Act. This is for the reason that a key finding of the BCCI judgment is that the introduction of Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for. [Paras 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 Helicopters Ltd. (2008) 16 SCC 128 – relied on. HINDUSTAN CONSTRUCTION COMPANY LIMITED v. UNION OF INDIA & ORS. 339

3.2 It has been held in *Sangyong Engineering that after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits. The anomaly, therefore, of Order XLI Rule 5 of the CPC applying in the case of full-blown appeals, and not being applicable by reason of Section 36 of the Arbitration Act, 1996 when it comes to review of arbitral awards, (where an appeal is in the nature of a rehearing of the original proceeding, where the chance of succeeding is far greater than in a restricted review of arbitral awards under Section 34), is itself a circumstance which militates against the enactment of Section 87, placing the amendments made in the 2015 Amendment Act, in particular Section 36, on a backburner. For this reason also, Section 87 must be struck down as manifestly arbitrary under Article 14. The petitioners are also correct in stating that when the mischief of the misconstruction of Section 36 was corrected after a period of more than 19 years by legislative intervention in 2015, to now work in the reverse direction and bring back the aforesaid mischief itself results in manifest arbitrariness. The retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the Arbitration Act, 1996 and the 2015 Amendment Act, but also results in payments already made under the amended Section 36 to award-holders in a situation of no-stay or conditional-stay now being reversed. In fact, refund applications have been filed in some of the cases before us, praying that monies that have been released for payment as a result of conditional stay orders be returned to the judgment- debtor. [Para 50] [375-C-G] *Sangyong Engineering & Construction Co. Ltd. v. NHAI (2019) SCC Online 677 – relied on.

3.3 Also, it is important to notice that the Srikrishna Committee Report did not refer to the provisions of the Insolvency Code. After the advent of the Insolvency Code on 01.12.2016, the consequence of applying Section 87 is that due to the automatic-stay doctrine laid down by judgments of this Court - which have only been reversed by the present judgment - the award-holder may become insolvent by defaulting on its payment to its suppliers, w hen such payments would be forthcoming from arbitral awards in cases where there is no stay, A B C D E F G H 340 SUPREME COURT REPORTS [2019] 17 S.C.R. A B C D E F G H or even in cases where conditional stays are granted. Also, an arbitral award-holder is deprived of the fruits of its award - which is usually obtained after several years of litigating - as a result of the automatic-stay, whereas it would be faced with immediate payment to its operational creditors, which payments may not be forthcoming due to monies not being released on account of automatic-stays of arbitral awards, exposing such award-holders to the rigors of the Insolvency Code. For all these reasons, the deletion of Section 26 of the 2015 Amendment Act, together with the insertion of Section 87 into the Arbitration Act, 1996 by the 2019 Amendment Act, is struck down as being manifestly arbitrary under Article 14 of the Constitution. [Para 51] [375- H; 376-A-C]