Arbitration and Conciliation Act, 1996: ss.34 to 36 – Automatic stay of award – Held: s.36 when read with s.35 states that enforcement of a final award will be under the CPC, and in the same manner as if it were a decree of the Court – The raison d’etre for s.36 is only to make it clear that when an arbitral award is not susceptible to challenge, either because the time for making an application to set it aside has expired, or such application having been made is refused, the award, being final and binding, shall be enforced under the CPC, as if it were a decree of the court – To read s.36 as inferring something negative, namely, that where the time for making an application under s.34 has not expired and, therefore, on such application being made within time, an automatic-stay ensues, is to read something into s.36 which is not there at all – Automatic stay of award is, therefore, not a rule – Also, this construction omits to consider the rest of s.36, which deals with applications under s.34 that have been dismissed, which leads to an award being final and binding when read with s.35 which then becomes enforceable under the CPC, the award being treated as a decree for this purpose – This is also supported by the language of s.9 of the Arbitration Act, 1996, which specifically enables a party to apply to a Court for reliefs “…after the making of the arbitration award but before it is enforced in accordance with s.36.” – These words in s.9 have not undergone any change by reason of the 2015 or 2019 Amendment Acts – Further, s.36, even as originally enacted, was not meant to do away with Art.36(2) of the UNCITRAL Model Law, but is really meant to do away with the two bites at the cherry doctrine in the context of awards made in India, and the fact that enforcement of a final award, when read with s.35, is to be under the CPC, treating the award as if it were a decree of the court – The amended s.36, being clarificatory in nature, merely restates the position that the unamended s.36 does not stand in the way of the law as to grant of stay of a money decree under the provisions of the CPC. Arbitration and Conciliation (Amendment) Act, 2019: s.13 – Removal of basis of *BCCI judgment by Amendment Act, 2019 – Whether 2019 Amendment Act removes the basis of *BCCI judgment of Supreme Court – Held: Argument that the question of removing the basis of a judgment cannot arise unless and until the judgment is present in the mind of the legislature and expressly referred to in the concerned Statement of Objects and Reasons is rejected – What is important is to see whether in substance, the basis of a particular judgment is in fact removed, and not whether that judgment is referred to in the Statement of Objects and Reasons of the amending act which seeks to remove its basis – Further argument that s.87 is nothing but a rehash of s.26 is also rejected – The scheme of s.87 is different from that of s.26, and is explicit in stating that court proceedings are merely parasitical on arbitral proceedings – It is, therefore, clear that only arbitral proceedings have to be looked at to see whether the 2015 Amendment Act kicks in – Argument that in the instant case there was a direct assault on a judgment of this Court without first removing its basis is, therefore, rejected – Legislative competence – Arbitration and Conciliation Act, 1996.
Arbitration and Conciliation Act, 1996: s.87 – Constitutional validity of introduction of s.87 into the Arbitration Act, 1996, and deletion of s.26 of the 2015 Amendment Act by the 2019 Amendment Act – Held: The law on s.26 of the 2015 Amendment Act was laid down in *BCCI with great clarity – After construing s.26, the Court cautioned the Government that the immediate effect of enacting the proposed s.87 would be directly contrary to the Statement and Objects and Reasons of the 2015 Amendment Act, which made it clear that the law prior to the 2015 Amendment Act resulted in delay of disposal of arbitral proceedings and an increase in interference by courts in arbitration matters which tends to defeat a primary object of the Arbitration Act, 1996 – To thereafter delete this salutary provision and introduce s.87 in its place would be wholly without justification and contrary to the object sought to be achieved by the 2015 Amendment Act, which was enacted pursuant to a detailed Law Commission Report which found various infirmities in the working of the original 1996 statute – The introduction of s.87 and deletion of s.26 of the 2015 Amendment Act was thus manifestly arbitrary having been enacted unreasonably, without adequate determining principle and contrary to the public interest sought to be subserved by the Arbitration Act, 1996 and the 2015 Amendment Act – Arbitration and Conciliation (Amendment) Act, 2015 – s.26.
Arbitration and Conciliation Act, 1996: s.34 – It is well settled law that an application under s.34 of the Act, 1996 is a summary proceeding not in the nature of a regular suit – As a result, a court reviewing an arbitral award under s.34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for.
Insolvency and Bankruptcy Code, 2016: s.3(7) – Interpretation of term ‘Corporate person’ – Plea that for recovery of money from Government Companies, the definition of ‘corporate person’ contained in s.3(7) of the Insolvency Code should either be read without the words “with limited liability” contained in the third part of the definition or have s.3(23)(g) of the Insolvency Code, which is the definition of ‘person’ read into the said provision – Held: A statutory body which functions as an extended limb of the Central Government, and performs governmental functions cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body – Nor can such Authority ultimately be wound-up under the Insolvency Code – For such reasons, it is not possible to either read in, or read down, the definition of ‘corporate person’ in s.3(7) of the Insolvency Code.
Insolvency and Bankruptcy Code, 2016: Object of – Held: The Insolvency Code is not meant to be a recovery mechanism, the idea of the Code being a mechanism which is triggered in order that resolution of stressed assets then takes place. Insolvency and Bankruptcy Code, 2016: s.5(6) – Definition of ‘dispute’ – Held: The definition of ‘dispute’ in s.5(6) of the Insolvency Code deals with a suit or arbitration proceedings relating to one of three things - (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty – Insofar as (a) is concerned, the definition of the word ‘debt’ contained in s.3(11) of the Insolvency Code, refers to a liability or obligation in respect of a claim which is due from any person – This necessarily postulates the existence of a contractual or other relationship, which gives rise to a liability or obligation between parties in law – The same goes for (c), as a breach of a representation or warranty can only be by one contracting party to another – Also, when the quality of goods or service is referred to in (b), this again postulates some contractual or other relationship in law by which one party may sue the other – Therefore, a dispute must be between the parties as understood under the Insolvency Code, which does not contain an Or.VIII-A CPC type mechanism – Code of Civil Procedure, 1908 – Or.VIIIA. Constitution of India: Art.32 – Writ jurisdiction, invocation of – Factual disputes between parties relating to exact quantum of arbitral awards in favour of petitioner company – Held: It is settled law that when exercising its jurisdiction under Art.32 of the Constitution, Supreme Court cannot embark on a detailed investigation of disputed facts – In the instant case, there was factual dispute between the parties relating to: (i) the exact quantum of the arbitral awards in favour of the Petitioner company due from the Respondent PSUs; (ii) the amounts which may have already been paid and/or deposited by the Respondent PSUs in favour of the Petitioner company under the said arbitral awards; and (iii) whether stay orders of competent Courts were passed in respect of these arbitral awards, and if so, whether they were under the automatic-stay mode or not – This Court cannot, therefore, in exercise of its jurisdiction under Art.32 undertake a detailed investigation to determine the status of monies paid/deposited pursuant to arbitral-awards in favour of the Petitioner company – Consequently, no directions in respect thereof can be made in these proceedings.
Disposing the writ petitions, the Court
HELD: 1.1 It was argued on behalf of Petitioner that under the UNCITRAL Model Law, in case an award were to be passed, whether domestic or international, in the same country, two bites at the cherry would be available: one at the time of setting aside the award and one at the time of recognition and enforcement; and that the Arbitration Act, 1996 has not followed this model and has a far more robust enforcement regime as Section 36 of the Arbitration Act, 1996 mandates that once an award can be said to be final, it can be executed in the manner provided by the CPC. It is correct to state that Section 36 of the Arbitration Act, 1996 does not follow the two bites at the cherry doctrine, for the reason that when an award made in India becomes final and binding, it shall straightaway be enforced under the CPC, and in the same manner as if it were a decree of the Court, there being no recourse to the self-same grounds when it comes to recognition and enforcement. In point of fact, the raison d’etre for Section 36 is only to make it clear that when an arbitral award is not susceptible to challenge, either because the time for making an application to set it aside has expired, or such application having been made is refused, the award, being final and binding, shall be enforced under the CPC as if it were a decree of the court. This becomes clear when Section
36 and 35 of the Arbitration Act, 1996 are read together. [Para 13, 22] [351-A-B; 356-D-F]
National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. (2004) 1 SCC 540 ; Fiza Developers and Inter-trade Pvt. Ltd. v. AMCI (India) Pvt. Ltd. and Anr. (2009) 17 SCC 796 : [2009]
12 SCR 1 – per incurium.
National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd. (2005) 2 SCC 367 – not correct law.
1.2 To state that an award when challenged under Section
34 becomes unexecutable merely by virtue of such challenge being made because of the language of Section 36 is plainly incorrect. Section 36 was enacted for a different purpose. When read with Section 35, all that Section 36 states is that enforcement of a final award will be under the CPC, and in the same manner as if it were a decree of the Court. To read Section
36 as inferring something negative, namely, that where the time for making an application under Section 34 has not expired and therefore, on such application being made within time, an automatic-stay ensues, is to read something into Section 36 which is not there at all. Also, this construction omits to consider the rest of Section 36, which deals with applications under Section
34 that have been dismissed, which leads to an award being final and binding (when read with Section 35 of the Arbitration Act, 1996) which then becomes enforceable under the CPC, the award being treated as a decree for this purpose. This also finds support from the language of Section 9 of the Arbitration Act, 1996, which specifically enables a party to apply to a Court for reliefs “…after the making of the arbitration award but before it is enforced in accordance with Section 36.” [Paras 25-27] [358B-C, E-G] Leela Hotels Ltd. v. Housing and Urban Development Corporation Ltd. (2012) 1 SCC 302 : [2011] 13 SCR
156 – relied on.
Dirk India Pvt. Ltd. v. Maharashtra State Power Generation Company Ltd. 2013 SCC Online Bom 481 – referred to.
1.3 The automatic stay of an award is incorrect. Section
36 - even as originally enacted - is not meant to do away with Article 36(2) of the UNCITRAL Model Law, but is really meant to do away with the two bites at the cherry doctrine in the context of awards made in India, and the fact that enforcement of a final award, when read with Section 35, is to be under the CPC, treating the award as if it were a decree of the court. [Para 30] [360-B-C]
REMOVAL OF THE BASIS OF THE BCCI JUDGMENT
BY THE 2019 AMENDMENT ACT
2.1 The argument is made that in all the major cases in which a judgment of a court is nullified by removing its basis, the judgment in question has been expressly referred to in the concerned Statement of Objects and Reasons. This argument is rejected. What is important is to see whether in substance, the basis of a particular judgment is in fact removed, whether or not that judgment is referred to in the Statement of Objects and Reasons of the amending act which seeks to remove its basis. Section 15 of the 2019 Amendment Act removes the basis of BCCI by omitting from the very start Section 26 of the 2015 Amendment Act. Since this is the provision that has been construed in the BCCI judgment, there can be no doubt whatsoever that one fundamental prop of the said judgment has been removed by retrospectively omitting Section 26 altogether from the very day when it came into force. [Paras 41, 45] [370C-D; 372-B-C]
Shri Prithvi Cotton Mills Ltd. and Anr. v. Broad Borough Municipality and Ors. (1969) 2 SCC 283 : [1970] 1 SCR 388 ; State of Tamil Nadu v. Arooran Sugars Ltd. (1997) 1 SCC 326 : [1996] 8 Suppl. SCR
193 ; Goa Foundation v. State of Goa (2016) 6 SCC
602 : [2016] 1 SCR 1025 ; *BCCI v. Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287: [2018] 2 SCR 829 – relied on.
2.2 Equally, the argument that Section 87 is nothing but a re-hash of Section 26, and therefore in substance there is a direct encroachment on a judgment of this Court, must also be rejected. When contrasted with Section 26, Section 87 is in two parts: Section 87(a) negatively stating that the 2015 Amendment Act shall not apply to Court proceedings arising out of arbitral proceedings irrespective of whether such court proceedings are commenced before or after the commencement of the 2015 Amendment Act; and positively applying only to court proceedings in case they arise out of arbitral proceedings that are commenced on or after the commencement of the 2015 Amendment Act. It can thus be seen that the scheme of Section
87 is different from that of Section 26, and is explicit in stating that court proceedings are merely parasitical on arbitral proceedings. It is therefore clear that only arbitral proceedings have to be looked at to see whether the 2015 Amendment Act kicks in. [Para 46] [372-D-F]
3. Constitutional Challenge to the 2019 Amendment Act
3.1 The Srikrishna Committee Report recommended the introduction of Section 87 owing to the fact that there were conflicting High Court judgments on the reach of the 2015 Amendment Act at the time when the Committee deliberated on this subject. The Srikrishna Committee Report is dated 30.07.2017, which is long before this Court’s judgment in the BCCI case. Whatever uncertainty there may have been because of the interpretation by different High Courts has disappeared as a result of the BCCI judgment, the law on Section 26 of the 2015 Amendment Act being laid down with great clarity. To thereafter delete this salutary provision and introduce Section
87 in its place, would be wholly without justification and contrary to the object sought to be achieved by the 2015 Amendment Act, which was enacted pursuant to a detailed Law Commission report which found various infirmities in the working of the original 1996 statute. Also, it is not understood as to how “uncertainty and prejudice would be caused, as they may have to be heard again”, resulting in an ‘inconsistent position’. The amended law would be applied to pending court proceedings, which would then have to be disposed of in accordance therewith, resulting in the benefits of the 2015 Amendment Act now being applied. To refer to the Srikrishna Committee Report (without at all referring to this Court’s judgment) even after the judgment has pointed out the pitfalls of following such provision, would render Section 87 and the deletion of Section 26 of the 2015 Amendment Act manifestly arbitrary, having been enacted unreasonably, without adequate determining principle, and contrary to the public interest sought to be subserved by the Arbitration Act, 1996 and the 2015 Amendment Act. This is for the reason that a key finding of the BCCI judgment is that the introduction of Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for. [Paras 4749] [372-H; 373-A; 374-C-H; 375-A-B] Canara Nidhi Ltd. v. M. Shashikala 2019 SCC Online SC 1244 ; Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128 – relied on.
3.2 It has been held in *Sangyong Engineering that after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits. The anomaly, therefore, of Order XLI Rule 5 of the CPC applying in the case of full-blown appeals, and not being applicable by reason of Section 36 of the Arbitration Act, 1996 when it comes to review of arbitral awards, (where an appeal is in the nature of a rehearing of the original proceeding, where the chance of succeeding is far greater than in a restricted review of arbitral awards under Section 34), is itself a circumstance which militates against the enactment of Section 87, placing the amendments made in the 2015 Amendment Act, in particular Section 36, on a backburner. For this reason also, Section 87 must be struck down as manifestly arbitrary under Article 14. The petitioners are also correct in stating that when the mischief of the misconstruction of Section
36 was corrected after a period of more than 19 years by legislative intervention in 2015, to now work in the reverse direction and bring back the aforesaid mischief itself results in manifest arbitrariness. The retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the Arbitration Act, 1996 and the 2015 Amendment Act, but also results in payments already made under the amended Section 36 to award-holders in a situation of no-stay or conditional-stay now being reversed. In fact, refund applications have been filed in some of the cases before us, praying that monies that have been released for payment as a result of conditional stay orders be returned to the judgmentdebtor. [Para 50] [375-C-G]
*Sangyong Engineering & Construction Co. Ltd. v. NHAI (2019) SCC Online 677 – relied on.
3.3 Also, it is important to notice that the Srikrishna Committee Report did not refer to the provisions of the Insolvency Code. After the advent of the Insolvency Code on 01.12.2016, the consequence of applying Section 87 is that due to the automatic-stay doctrine laid down by judgments of this Court - which have only been reversed by the present judgment - the award-holder may become insolvent by defaulting on its payment to its suppliers, w hen 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-stay, whereas it would be faced with immediate payment to its operational creditors, which payments may not be forthcoming due to monies not being released on account of automatic-stays of arbitral awards, exposing such award-holders to the rigors of the Insolvency Code. For all these reasons, the deletion of Section 26 of the 2015 Amendment Act, together with the insertion of Section 87 into the Arbitration Act, 1996 by the 2019 Amendment Act, is struck down as being manifestly arbitrary under Article 14 of the Constitution. [Para 51] [375H; 376-A-C] UOI v. Parameswaran Match Works (1975) 1 SCC
305 : [1975] 2 SCR 573 ; Govt. of A.P. v. N.
Subbarayudu (2008) 14 SCC 702 : [2008] 5 SCR 522 – held inapplicable.
3.4 The BCCI judgment will continue to apply so as to make applicable the salutary amendments made by the 2015 Amendment Act to all court proceedings initiated after 23.10.2015. [Para 54] [377-A]
CONSTITUTIONAL
INSOLVENCY CODE
CHALLENGE
TO
THE
4.1 The first part of ‘corporate person’, as defined in Section 3(7) of the Insolvency Code, means a company as defined in Clause 20 of Section 2 of the Companies Act 2013. Sections 2(20) and 2(45) of the Companies Act, 2013 define ‘company’ and ‘Government Company’. The three entities who owe monies under arbitral awards to the Petitioner No.1, being Government companies, would be subsumed within the first part of the definition. However, so far as NHAI is concerned, petitioner’s argument of either deleting certain words in Section 3(7) of the Insolvency Code, or adding certain words in Section 3(23)(g) of the Insolvency Code into Section 3(7) cannot be accepted. [Paras 57, 58] [378-D-E-G-H; 379-A]
4.2 It is clear from a reading of the Statement of Objects and Reasons of the NHAI Act, that the development and maintenance of national highways is a government function that falls within Entry 23 of List I of the Seventh Schedule to the Constitution of India. Further, under Section 5 of the National Highways Act, 1956, the Central Government may direct that any function in relation to the development or maintenance of national highways shall also be exercisable by any officer or authority subordinate to the Central Government. Under this provision, the function of execution of activities relatable to national highways was earlier delegated to the State Governments under an “agency system”. Though the system worked through the State Public Works Departments for a period of 40 years, as difficulties were experienced, the Centre itself decided to take over development and maintenance of the national highways system through the creation of a national highways authority. [Para 59] [379-B-C]
4.3 NHAI is a statutory body which functions as an extended limb of the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to either read in, or read down, the definition of ‘corporate person’ in Section 3(7) of the Insolvency Code. The moment challenges are made to the arbitral awards, the amount said to be due by an operational debtor would become disputed, and therefore be outside the clutches of the Insolvency Code. Looked at from any point of view, therefore, proceeding against the NHAI under the Insolvency code by the Petitioner No.1 is not possible. [Paras 63, 65] [386-E-F; 387-F]
Pioneer Urban Land and Infrastructure Limited and Anr. v. Union of India and Ors. (2019) 8 SCC 416 ; Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC
17 : [2019] 3 SCR 535 – referred to.
4.4 The argument that the definition of ‘dispute’ under Section 5(6) of the Insolvency Code does not speak of the ‘parties’ to a dispute, and can therefore be interpreted to include a dispute between a sub-contractor and the principal employer with whom the sub-contractor may have no privity of contract, also not accepted. The definition of ‘dispute’ in Section 5(6) of the Insolvency Code deals with a suit or arbitration proceedings relating to one of three things - (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty. Insofar as (a) is concerned, the definition of the word ‘debt’ contained in Section 3(11) of the Insolvency Code, refers to a liability or obligation in respect of a claim which is due from any person. This necessarily postulates the existence of a contractual or other relationship, which gives rise to a liability or obligation between parties in law. The same goes for (c), as a breach of a representation or warranty can only be by one contracting party to another. Also, when the quality of goods or service is referred to in (b), this again postulates some contractual or other relationship in law by which one party may sue the other. It is clear therefore that a dispute must be between the parties as understood under the Insolvency Code, which does not contain an Order VIII-A CPC type mechanism. [Paras 68, 69, 71] [388-E-H; 389-E]
6. A perusal of the rival contentions makes it clear that there is a factual dispute between the parties relating to: (I) the exact quantum of the arbitral-awards in favour of the Petitioner company due from the Respondent PSUs; (II) the amounts which may have already been paid and/or deposited by the Respondent PSUs in favour of the Petitioner company under the said arbitral awards; and (III) whether stay orders of competent Courts were passed in respect of these arbitral awards, and if so, whether they were under the automatic-stay mode or not. This Court cannot in exercise of its jurisdiction under Article
32 of the Constitution undertake a detailed investigation to determine the status of monies paid/deposited pursuant to arbitral-awards in favour of Petitioner company. Consequently, no directions in respect thereof are made in these proceedings. [Paras 78, 79, 82] [392-F-G; 394-D-E]
Gulabdas & Co. v. Asstt. Collector of Customs AIR 1957 SC 733 – followed.
Surendra Prasad Khugsal v. Chairman, MMTC. (1994) Supp. 1 SCC 87 ; Sumedha Nagpal v. State of Delhi (2000) 9 SCC 745 – relied on.
Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 : [2017] 10 SCR 1006 ;
K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2018)
17 SCC 662 : [2018] 10 SCR 959 ; Chloro Controls (I) Pvt. Ltd. v. Seven Trent Water Purification Inc. (2013) 1 SCC 641 : [2012] 13 SCR 402 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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