Disha Agrawal | ICFAI Law School, Hyderabad | 30th May 2020
Hindustan Construction Company Limited & Ors. V. Union Of Indian (UOI) & Ors[1].
Factual Background
The petitioner, Hindustan Construction Company (HCC), is an infrastructure company involved in a large scale business where they undertake infrastructure projects as a contractor from government companies and bodies like the NTPC, NHAI, NHPC and PWD. Eventually, HCC had dispute with this government regarding the cost overruns involve in these projects. In arbitral proceedings several awards were passed in the favour of HCC. These awards were challenged under section 34 of Arbitration Act[2] by the government. According to the newly inserted section 87, the award debtor i.e., government companies was successful in getting automatic stay in award.
HCC’s primary contention was that there will be delay on enforcement of award. Additionally, because of this delay in award various operational creditors that had supplied labour and machinery to HCC for such projects were issuing demand notice to HCC. In the light of this, HCC filed a petition challenging the constitutional validity of Section 87 , deletion of section 26 of the 2015 Amendment Act and certain provisions of Insolvency and Bankruptcy Code, 2016(IBC).
Issues
Whether the introduction of section 87 resurrects the mischief sought to be corrected by the 2015 Amendment Act and is unconstitutional?
Judgement
SC agreed on Respondents that there is no need to expressly refer to BCCI decision in order to nullify it by way of legislation i.e., there is no necessity that pointed reference to a SC judgement by the legislature is mandatory to introduce amendments with respect to the same.
SC struck down the insertion of section 87 and deletion of section 26 of the Arbitration Act is unconstitutional on the ground of being manifestly arbitrary under Article 14 of Constitution of India. SC also rejected the constitutional challenge to read down the definition of ‘corporate person’ under section 3(7) of the IBC so as to suggest that government bodies should be included as corporate debtor.
Analysis
As section 87 indirectly states that the award when it is challenge will not automatic stay only if the arbitral proceeding of that award has began on or after 23 October 2015. Before 2015 amendment section 36 states there is automatic stay in award when it is challenge in the court of law but after 2015 the amended section 36 states that there will be no automatic stay in the award when it is challenge there should be a particular application should be given to the court for the stay of the award by the party it is challenged. So there was a question whether the amendment have retrospective effect or prospective effect.
As SC in 2018 judgement in BCCI V. Kochi[3] very clearly stated that 2015 amendment will have prospective effect except section 36 i.e., there will no automatic stay in the award even if it is challenge before 2015 or after 2015. But according to the newly introduced section 87 in 2019 states very contrary to the 2018 judgement of the SC.
And 2019 Amendment is not only contrary to the SC’s 2018 decision but also reversed the beneficial effect of the 2015 Amendment Act[4] which remedies the original mischief contained in the original Act of 1996[5], that too after a period of more than 19 years. The absurd consequences is this that the fruits of an award is denied to the party, like in this case only according to section 87 when award is automatic stayed, the award holder has to pay money to the supplier who supplied labour and machinery and as he himself not obtain the award , so he cannot not pass onto the supplier because of which they are making demand notice which can result in the way of declaring the award holder as Insolvent , for all these reason sec 87 contended constitutionally infirm.
Moreover this section 87 is contrary to the object of this Act and took away the vested right of the enforcement and diluted the binding nature of the arbitral award. The decision of SC i.e., to struck down section 87 will therefore provide much needed relief to award holder who no longer has to wait for years and years before realizing the awarded amount.
[1] (2019) (6) ARBLR 171 (SC)
[2] Arbitration and Conciliation (Amendment)Act,2019
[3] AIR 2018 SC 1549
[4] Arbitration and Conciliation (Amendment)Act, 2015
[5] Arbitration and Conciliation Act, 1996
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