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

The Judgment of the Court was delivered by R. F. NARIMAN, J.

1Copy pinpoint1. 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.

2Copy pinpoint2. 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 through arbitrations.

3Copy pinpoint3. Arbitration awards that are in favour of the Petitioner company are invariably challenged under Sections 34 and 37 of the Arbitration Act, 1996, and on average, more than 6 years are spent in defending these challenges. The major problem in the way of the Petitioners is that the moment a challenge is made under Section 34, there is an ‘automatic-stay’ of such awards under the Arbitration Act, 1996.

4Copy pinpoint4. The Petitioners are then subjected to a double-whammy. Government bodies other than Government companies are exempt from the Insolvency Code because they are statutory authorities or government departments. Even if they can be said to be operational debtors - which is not the case - the moment a challenge is filed to an award under Section 34 and/or Section 37 of the Arbitration Act, 1996, such debt becomes a ‘disputed debt’ under the judgments of this Court, and proceedings initiated under the Insolvency Code at the behest of the Petitioner company, not being maintainable in any case, would be H

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A dismissed at the threshold. Huge sums of money are therefore due from all these companies/government/government bodies to the Petitioners.

5Copy pinpoint5. 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.

6Copy pinpoint6. 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 provide appropriate security. Contrary to Article 36 of the UNCITRAL Model Law, Section 36 of the Arbitration Act, 1996 has been construed by judgments of this Court as granting an ‘automatic-stay’ the moment a Section 34 application is filed within time. According to the learned Senior Advocate, from the plain language of Section 36, automatic-stay does not follow, and the judgments of this Court which have so held would require a revisit by this larger bench. In any case, the 246th Report of the Law Commission of India titled, ‘Amendments to the Arbitration and Conciliation Act, 1996’ (August, 2014) (hereinafter referred to as the “246th Law Commission Report”) recommended that Section 36 be amended, which was in fact done by the 2015 Amendment Act, so that automatic-stays are now things of the past. However, despite the fact that the 2015 Amendment Act made large-scale changes to the Arbitration Act, 1996, keeping in view the objects of the Arbitration Act, 1996 of minimum judicial intervention, speedy determination and recovery of amounts contained in arbitral awards, yet, another ‘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

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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 automatic-stay of a money decree; whereas in a summary proceeding under Section 34 of the Arbitration Act, 1996, where the court does not sit in appeal over the award – and if the view of the arbitrator is a possible view, it passes muster – there is an automatic-stay of an arbitral award on the mere filing of Section 34 application, which in turn takes years for final disposal.

7Copy pinpoint7. Dr. Singhvi then trained his guns against Section 87, stating that it is violative of Articles 14, 19(1)(g), 21 and 300-A of the Constitution of India, as it is contrary to the object of the principal Arbitration Act, 1996 itself; takes away the vested right of enforcement and binding nature of an arbitral award; and without removing the basis of the BCCI judgment (supra), acts in the teeth of the said judgment, making the said section unreasonable, excessive, disproportionate as well as arbitrary. He then argued that in effect, the 2019 Amendment Act reverses the beneficial effects of the 2015 Amendment Act which remedied the original mischief contained in the Arbitration Act, 1996, H

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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

8Copy pinpoint8. 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 permit such interpretation. He then pointed out that whereas ‘financial position’ (as defined under Section 5(9) of the Insolvency Code) mandates taking into consideration the financial information and balance sheets, such financial position is irrelevant at the stage of triggering the Insolvency Code, and only becomes relevant at the stage of declaring such position to prospective resolution applicants, which itself makes

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the provision manifestly arbitrary. He then argued as to the omission of initiation of the resolution process by a creditor in Section 6 of the Insolvency Code, together with the absence of a mechanism for forcing debtors of a corporate debtor to make payments to avoid insolvency of such corporate debtors. He then referred to the principle of ‘casus omissus’ and how the modern view is that such casus omissus can be supplied by the Courts, so as to save the provisions of the Insolvency Code from the vice of manifest arbitrariness. He also argued that there is no level playing field so far as his client is concerned, as a statutory authority can initiate the resolution process against persons like his client, but not vice-versa. He then made an impassioned plea that, in any event, this Court ought to follow its earlier judgments and restate the principle that payment of a 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 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.

9Copy pinpoint9. 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

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10Copy pinpoint10. 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.

11Copy pinpoint11. 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).

12Copy pinpoint12. 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 absolving his client from the clutches of the Insolvency Code.

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 351 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

13Copy pinpoint13. Shri Nakul Dewan, learned Senior Advocate appearing on behalf of M/s Gangotri Enterprises Limited, i.e. the Petitioner No.1 in W.P. (C) No. 1310 of 2019, referred copiously to the UNCITRAL Model Law and stated that under the UNCITRAL Model Law, in case an award were to be passed, whether domestic or international, in the same country, two bites at the cherry would be available: one at the time of setting aside the award, and one at the time of recognition and enforcement. The Arbitration Act, 1996 has not followed this model and has a far more robust enforcement regime, as Section 36 of the Arbitration Act, 1996 mandates that once an award can be said to be final, it can be executed in the manner provided by the CPC. C

14Copy pinpoint14. 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 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 to pay debts, his client, though otherwise financially healthy, would suddenly become vulnerable to being declared insolvent under the Insolvency Code.

15Copy pinpoint15. The learned Attorney General for India, Shri K.K. Venugopal, defended the repeal of Section 26 of the 2015 Arbitration Amendment H

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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.

16Copy pinpoint16. 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 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 these cases, which have not been appealed against. He further argued

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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, amounting percentage wise to 83.3%. He also pointed out that insofar as IRCON is concerned, in relation to one particular arbitral award, IRCON has accused the Petitioner No.1 of trying to influence the arbitrator by providing unsolicited facilities to the arbitrator, and actually getting orders drafted on behalf of the arbitrator by the lawyer of the Petitioners and otherwise providing undue favours to the arbitrator; all of which is the subject matter of adjudication pending in the Delhi High Court. When it came to the challenge to the Insolvency Code, he argued that except for the sums owing under some arbitral awards, none of the PSUs have any other dues that are owing to the Petitioner No.1. He also pointed out that whether a person is an operational creditor has to be decided based upon the fact situation in each case. The very fundamental basis of the Petitioner’s argument that the Insolvency Code is unconstitutional because it does not give the Petitioners a right to recover monies from their debtors - and that the same Insolvency Code gives the debtor a right to recover from the Petitioner No.1 - is flawed, because the Insolvency Code is not a statute for recovery of debts, but is a statute for reorganisation of corporate persons and resolution of stressed assets of corporate persons. According to him, three of the five entities who have arbitral awards against them, namely NTPC, NHPC and IRCON, are Government Companies, which certainly fall within the definition of ‘corporate person’ and ‘corporate debtor’ under 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

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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

17Copy pinpoint17. 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

18Copy pinpoint18. At the outset, it is important to advert to Section 36 of the Arbitration Act, 1996 and the judgments interpreting it. Section 36 (prior to the 2015 Amendment Act) stated as follows: “36. Enforcement.—Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court.”

19Copy pinpoint19. The UNCITRAL Model Law is important in understanding the provisions of the Arbitration Act, 1996 as the said Act is explicitly based upon it. The preamble of the Arbitration Act, 1996 specifically states as follows: “Preamble. — WHEREAS the United Nations Commission on International Trade Law (UNCITRAL) has adopted the UNCITRAL Model Law on International Commercial Arbitration H in 1985; AND

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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.”

20Copy pinpoint20. 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

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21Copy pinpoint21. 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 has been made to a court referred to in paragraph (1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security.”

22Copy pinpoint22. Shri Dewan has argued that under the UNCITRAL Model Law, Articles 34 and 35 provide for two bites at the cherry: (i) in cases in which an award is sought to be set aside, and (ii) thereafter when not set aside, sought to be recognised and enforced in the same country in which it has been made. He is right in stating that Section 36 of the Arbitration Act, 1996 does not follow the two bites at the cherry doctrine, for the reason that when an award made in India becomes final and binding, it shall straightaway be enforced under the CPC, and in the same manner as if it were a decree of the Court, there being no recourse to the 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 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.”

23Copy pinpoint23. However, in National Aluminum Company Ltd. (NALCO) v. Pressteel & Fabrications (P) Ltd. and Anr. 2004 1 SCC 540, this Court held: “10…At one point of time, considering the award as a money decree, we were inclined to direct the party to deposit the awarded amount in the court below so that the applicant can

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withdraw it, on such terms and conditions as the said court might permit it to do as an interim measure. But then we noticed from the mandatory language of Section 34 of the 1996 Act, that an award, when challenged under Section 34 within the time stipulated therein, becomes unexecutable. There is no discretion left with the court to pass any interlocutory order in regard to the said award except to adjudicate on the correctness of the claim made by the applicant therein. Therefore, that being the legislative intent, any direction from us contrary to that, also becomes impermissible. On facts of this case, there being no exceptional situation which would compel us to ignore such statutory provision, and to use our jurisdiction under Article 142, 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 discretion in the court to put the parties on terms, in our opinion, defeats the very objective of the alternate dispute resolution system to which arbitration belongs. We do find that there is a recommendation made by the Ministry concerned to Parliament to amend Section 34 with a proposal to empower the civil court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law.”

24Copy pinpoint24. When this court speaks of “the mandatory language of Section 34” of the Arbitration Act, 1996 obviously what is meant is the language of Section 36 of the Arbitration Act, 1996, as noted by National Buildings Construction Corporation Ltd. v. Lloyds Insulation India Ltd. (2005) 2 SCC 367 (in paragraph 6). In Fiza Developers and 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

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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.”

25Copy pinpoint25. 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 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.”

26Copy pinpoint26. 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.

27Copy pinpoint27. This also finds support from the language of Section 9 of the Arbitration Act, 1996, which specifically enables a party to apply to a Court for reliefs “…after the making of the arbitration award but before it is enforced in accordance with Section 36.” The decisions in NALCO (supra) and Fiza Developers and 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.]

28Copy pinpoint28. 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.”

29Copy pinpoint29. 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.

30Copy pinpoint30. 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

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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 position is that Section 36 - even as originally enacted - is not meant to do away with Article 36(2) of the UNCITRAL Model Law, but is really meant to do away with the two bites at the cherry doctrine in the context of awards made in India, and the fact that enforcement of a final award, when read with Section 35, is to be under the CPC, treating the award as if it were a decree of the court.

31Copy pinpoint31. 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 directing the losing party to deposit any part of the award into Court. While this decision was in relation to the powers of the Supreme Court to pass such an order under Section 42, the Bombay High Court in Afcons Infrastructure Ltd. v. Port of Mumbai [Afcons Infrastructure Ltd. v. Port of Mumbai, (2014) 1 Arb LR 512 (Bom)] applied the same principle to the powers of a court under Section 9 of the Act as well. Admission of a

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 361 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

Section 34 petition, therefore, virtually paralyses the process for the winning party/award creditor.

44. The Supreme Court, in National Aluminium [National Aluminium Co. Ltd. v. Pressteel & Fabrications (P) Ltd., (2004) 1 SCC 540] , has criticised the present situation in the following words: (SCC p. 546, para 11) 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 system to which arbitration belongs. We do find that there is a recommendation made by the Ministry concerned to Parliament to amend Section 34 with a proposal to empower the civil court to pass suitable interim orders in such cases. In view of the urgency of such amendment, we sincerely hope that necessary steps would be taken by the authorities concerned at the earliest to bring about the required change in law.’

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

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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)

32Copy pinpoint32. 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 award shall be enforced in accordance with the provisions of the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were a decree of the court. (2) Where an application to set aside the arbitral award has been under section 34, the filing of such an application shall not by itself render that award unenforceable, unless the Court grants an order of stay of the operation of the said arbitral award in accordance with the provisions of sub-section (3), on a separate application made for that purpose. (3) Upon filing of an application under sub-section (2) for stay of the operation of the arbitral award, the Court may, subject to such conditions as it may deem fit, grant stay of the operation of such award for reasons to be recorded in writing: Provided that the Court shall, while considering the application for grant of stay in the case of an arbitral award for payment of money, have due regard to the provisions for grant of stay of a money decree under the provisions of the Code of Civil Procedure, 1908 (5 of 1908).” Given the fact that we have declared that the judgments in NALCO (supra), National Buildings Construction Corporation 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

33Copy pinpoint33. It now falls to be determined as to whether the 2019 Amendment Act removes the basis of the BCCI judgment (supra) of this Court.

34Copy pinpoint34. 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

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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

35Copy pinpoint35. 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, while retaining the bifurcation of proceedings into arbitration and court proceedings, departed somewhat from Section 85-A as proposed by the Law Commission.”

36Copy pinpoint36. Section 26 was then stated to have bifurcated proceedings with a great degree of clarity into two sets of proceedings – arbitral proceedings themselves, and court proceedings in relation thereto. Paragraph 39 of the judgment refers to this and states as follows: “39. Section 26, therefore, bifurcates proceedings, as has been stated above, with a great degree of clarity, into two sets of proceedings — arbitral proceedings themselves, and court proceedings in relation thereto. The reason why the first part of Section 26 is couched in negative form is only to state that the Amendment Act will apply even to arbitral proceedings commenced before the amendment if parties otherwise agree. If the first part of Section 26 were couched in positive language (like the second part), it would have been necessary to add a 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)

37Copy pinpoint37. 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

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

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 367 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(iv) to provide that while considering any application for appointment of arbitrator, the High Court or the Supreme Court shall examine the existence of a prima facie arbitration agreement and not other issues; (v) to provide that the Arbitral Tribunal shall make its award within a period of twelve months from the date it enters upon the reference and that the parties may, however, extend such period up to six months, beyond which period any extension can only be granted by the Court, on sufficient cause; (vi) to provide for a model fee schedule on the basis of which High Courts may frame rules for the purpose of determination of fees of Arbitral Tribunal, where a High Court appoints arbitrator in terms of Section 11 of the Act; (vii) to provide that the parties to dispute may at any stage agree in writing that their dispute be resolved through 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 as an arbitrator; (ix) to provide that application to challenge the award is to be disposed of by the Court within one year.

7. The amendments proposed in the Bill will ensure that arbitration process becomes more 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

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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 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 defeats the object of the 1996 Act. [These amendments have the effect, as stated in HRD Corpn. v. GAIL (India) Ltd., (2018) 12 SCC 471 of limiting the grounds of challenge to awards as follows: (SCC p. 493, para 18)”18. In fact, the same Law Commission Report has amended Sections 28 and 34 so as to narrow grounds of challenge available under the Act. The judgment in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705 has been expressly done away with. So has the judgment in ONGC Ltd. v. Western Geco International Ltd., (2014) 9 SCC

263. Both Sections 34 and 48 have been brought back to the position of law contained in Renusagar Power Plant Co. Ltd. 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 understood as laid down in Renusagar, 1994 Supp (1) SCC 644. “Justice or morality” has been tightened and is now to be understood as meaning only basic notions of justice and morality i.e. such notions as would shock the conscience of the Court as understood in Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204. Section 28(3) has also been amended to bring it in line with the judgment of this Court in Associate Builders, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204, making it clear that the construction of the terms of the contract is primarily for the arbitrator to decide unless it is found that such a construction is not a possible one.”] It would be important to remember that the 246th Law Commission Report has itself

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.”

38Copy pinpoint38. 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.

39Copy pinpoint39. 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

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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.”

40Copy pinpoint40. 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.

41Copy pinpoint41. Dr. Singhvi has argued, based on a number of judgments of this Court, that the question of removing the basis of a judgment cannot arise unless and until the judgment is present to the mind of the legislature. He stated that in all the major cases in which a judgment of a court is nullified by removing its basis, the judgment in question has been expressly referred to in the concerned Statement of Objects and Reasons. We are afraid that we cannot agree with this line of argument. What is important is to see whether, in substance, the basis of a particular judgment is in fact removed, whether or not that judgment is referred to in the Statement of Objects and Reasons of the amending act which seeks to remove its basis.

42Copy pinpoint42. 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.”

43Copy pinpoint43. 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 to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively. In this process it cannot be said that there has been an encroachment by the legislature over the power of the judiciary. A court’s directive must always bind unless the conditions on which it is based are so fundamentally altered that under altered circumstances such decisions could not have been given. This will include removal of the defect in a statute pointed out in the judgment in question, as well as alteration or substitution of provisions of the enactment on which such judgment is based, with retrospective effect.”. D

44Copy pinpoint44. 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 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 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

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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

45Copy pinpoint45. Given the aforesaid judgments, Section 15 of the 2019 Amendment Act removes the basis of BCCI (supra) by omitting from the very start Section 26 of the 2015 Amendment Act. Since this is the provision that has been construed in the BCCI judgment (supra), there can be no doubt whatsoever that one fundamental prop of the said judgment has been removed by retrospectively omitting Section 26 altogether from the very day when it came into force. This argument must therefore be rejected.

46Copy pinpoint46. Equally, Shri Neeraj Kishan Kaul’s 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. 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

47Copy pinpoint47. 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 were conflicting High Court judgments on the reach of the 2015 Amendment Act at the time when the Committee deliberated on this subject. This was stated as follows in the Srikrishna Committee Report: “However, section 26 has remained silent on the applicability of the 2015 amendment Act to court proceedings, both pending and newly initiated in case of arbitrations commenced prior to 23 October 2015. Different High Courts in India have taken divergent views on the applicability of the 2015 Amendment Act to such court proceedings. Broadly, there are three sets of views as summarised below: 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