Hindustan Construction Company Limited & Anr. vs. Union of India & Ors.

Case Number:

Writ Petition (Civil) No. 1074 of 2019

Bench:

Rohinton Fali Nariman

Aniruddha Bose

V. Ramasubramanian

Date of Judgment:

27/11/2019

Relevant Acts:

Arbitration and Conciliation Act, 1996

Constitution of India

Insolvency and Bankruptcy Code, 2016

Facts of the Case:

The petitioners were construction firms that had worked as contractors for government agencies on large-scale infrastructure projects such as roads, bridges, hydropower, and nuclear reactors, tunnels and rail facilities, etc. The petitioners were aggrieved by the fact that if a cost surge occurred, the government bodies contested it, resulting in a delay in the recovery of their rightful dues, which could only be retrieved either through an arbitration process or civil proceedings. They were unable to recover their debts from government bodies through insolvency proceedings as government bodies were not covered by the Insolvency and Bankruptcy Code, 2016.

The petitioner argued that the unamended Act violated the UNCITRAL Model Law by prohibiting the use of two key aspects of award debtor, one during setting aside procedures under section 34 and the other during enforcement proceedings under section 36 of the Arbitration and Conciliation Act, 1996. It was also contended that Section 87 enacted was violative of Article 14, 21, and 300-A of the Constitution as it weakened the binding nature of an arbitral ruling by removing the vested power of enforcement.

The respondents stated that the 2019 amendment inserting Section 87 and revocation of Section 26 by claiming that the interpretation of Section 26 in the BCCI case was purely declaratory and there was no merit in the petitioner’s statement that the interpretation is unconstitutional. The respondents also asserted that the BCCI ruling, it was said, was just declaratory and did not invalidate any executive action. As a result, section 87 merely clarified the original legislative meaning and had no incidence on the BCCI judgment.

The issue before the High Court:

Whether Section 87 of the Arbitration and Conciliation Act, 1996 introduced by the 2019 Amendment Act is valid?

The ratio of the Case:

The SC concurred with the respondents that no direct and substantiating reference to the BCCI decision was required to negate it through legislation. The court also concluded that, when read in conjunction with the IBC, Section 87 had ludicrous effects, such as award holders being unable to recover funds from award debtors and being insolvent. Subsequently, the court ruled that the addition of Section 87 and the repeal of Section 26 were in violation of Article 14.

The Supreme Court explained in BCCI v. Kochi Cricket Private Limited (2018) that while the 2015 Amendment Act was prospective in nature, the change in the position regarding the former automatic stay against enforcement was applicable retrospectively. The Supreme Court stated that section 87 was enacted solely to implement the Srikrishna Committee Report’s advice to remove doubt around the potential applicability of the 2015 Amendment Act when such uncertainty had already been resolved by the BCCI ruling.

The decision of the Court:

The Supreme Court concurred with the Petitioner that the addition of section 87 resurrects the problem that the 2015 Amendment Act attempted to address and is thus unconstitutional. The SC further agreed with the Petitioners that, when read in conjunction with the IBC, section 87 results in an illogical result, namely, the award holder becoming insolvent due to its inability to recover money under arbitral awards. As a result, the Supreme Court concluded that the 2015 Amendment Act’s inclusion of section 87 and deletion of section 26 violated Article 14 of the Indian Constitution.

The present article has been written by Aathira Pillai.

The present article has been edited by Shubham Yadav, a 4th- year student from Banasthali Vidyapith.

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