INTRODUCTION 

Although the main intention of arbitration is the acceleration of the dispute resolution process and avoiding judicial intervention, an act in the form of the Arbitration & Conciliation Act 1996 (hereinafter referred to as the “Act”) may not come up due to the insertion of Section 87 and revocation of Section 26. The automatic suspension of the arbitral award was not there in the original Act; it was added to Section 36 of the Act due to the verdict of the Apex Court in the cases of NALCO and Fiza Developers.

The Arbitration & Conciliation (Amendment) Act 2019 has once again brought back the same arbitrariness in the Act that was prevalent before the 2015 amendment. This was done by replacing Section 87 and rescinding Section 26. Therefore, the amendment act of 2015 was quite different from the previous edition, whereby, upon filing an application under Section 34 of the Act, the award automatically went into suspended mode. As a result, it became extremely difficult for the award holder to recover the dues from the award debtors. The arbitrariness in the statute corrected by the 2015 amendment was again re-established with the insertion of Section 87 and repeal of Section 26 by the 2019 amendment. The present article assesses the author’s understanding of the Supreme Court’s decision on Hindustan Construction Company Limited & Anr. v. Union of India & Ors. (2019).

FACTS

1. The petitioners are construction companies. They have undertaken large-scale infrastructure building projects like roads and bridges, hydropower, nuclear plants, tunnels, and rail facilities as contractors to government bodies. The grievance before this Court is that the government bodies dispute any cost overrun so that the same would delay the recovery of their legitimate dues. Their dues could be recovered only through arbitration or civil proceedings.
2. If, indeed, the arbitral award(s) was against the government bodies, then they have the right to challenge the said award(s) even under Section 34 and Section 37 of the Act, thereby causing automatic suspension of the award(s).
3. Other than that, the IBC 2016 did not apply to government entities as these were statutory bodies; however, the petitioners were not exempted from the IBC.
4. This worsened the petitioners’ situation because they could not recover their dues from the government authorities through insolvency proceedings. In contrast, the petitioners’ creditors recovered their dues from the petitioners on the same basis.

ISSUE RAISED

1. Whether Section 87 of the Arbitration and Conciliation Act, 1996 is constitutionally valid or not? 
2. Whether the 2019 amendment to the Arbitration and Conciliation Act, 1996 encroached upon the judgment of the court in BCCI v. Kochi Cricket Pvt. Ltd.(2018) or not? 

PLAINTIFF’S ARGUMENTS

1. In contrast to Section 36 of the Model UNCITRAL Law, the petitioners argued that Section 36 of the Act, when constructed with various Supreme Court judgments, provided for an automatic stay of arbitral awards the moment an application is filed under Section 34, despite being based on it. Consequently, it is necessary for a more extensive bench to review these judgments. 
2. The Government of India issued a press release on 07.03.2018 to enact the new Section 87, even though the 2015 amendment removed the arbitrariness in the Act. The Srikrishna Committee, which submitted its report on 30.07.2017, recommended that the 2015 amendment Act should not apply to pending court proceedings that have commenced after 23.10.2015 and should only apply in the case of arbitral proceedings that have themselves commenced post 23.10.2015 (including the court proceedings). 
3. They stated that the Government incorporated Section 87 into the Act through the 2019 amendment, even though the Supreme Court, in the case of BCCI v. Kochi Cricket Pvt. Ltd. (2018), also reviewed the recommendations of the Srikrishna Committee. The Supreme Court opined in the aforementioned judgment that the provision mentioned above would be inconsistent with the purpose of the 2015 Amendment Act. The judgment was also sent to the Ministry of Law and Justice and the Attorney General for India.
4. They argued that the retrospective resurrection of the automatic stay would result in all award debtors who have challenged arbitral awards and have made payments to the award holders being able to claim the award back.
5. The petitioners argued that Section 87 is a direct assault on the judgment of the Supreme Court in BCCI v. Kochi Cricket Pvt. Ltd. (2018).
6. They also argued that Section 87 violates Articles 14, 19(1)(g), 21, and 300-A of the Constitution of India and is contrary to the Act’s object.
7. It was also argued that arbitration proceedings automatically delay an award when an application is filed under Section 34, even though there is no automatic stay of a money decree in a civil appeal. 
8. The petitioners also contested the IBC because the definition of a corporate person under Section 3(7) of the IBC did not encompass government bodies. 
9. They also argued that Section 87 results in an absurd consequence, which is the insolvency of the award holder, when read in conjunction with various provisions of the IBC.

RESPONDENT’S ARGUMENTS

1. The respondents defended the insertion of Section 87 and the revocation of Section 26 by the 2019 amendment, asserting that the interpretation of Section 26 in the BCCI case was merely declaratory. Additionally, they stated that the parliament has the right to elucidate its original intent through an amendment if it believes that the Supreme Court’s perspective does not accurately reflect its own. Thus, the 2019 amendment by the parliament clarified its original intent, indicating that Section 87 is merely a clarification and not an assault on the BCCI judgment. 
2. They also stated that the challenge regarding the arbitrary nature of the cut-off date of 23.10.2015 for prospective applicability was without substance and that courts should not intervene unless the cut-off date is patently discriminatory.
3. The defendants argued that a writ petition lodged under Article 32 of the Constitution of India cannot be converted into recovery proceedings by the petitioner in response to the challenge made to the IBC. 

JUDGEMENT

In its judgment, the Supreme Court concurred with the petitioners that the introduction of Section 87 reinstated the mischief rectified by the 2015 amendment. It was noted that the section was introduced solely on the recommendation of the Srikrishna Committee Report to resolve the ambiguity surrounding the potential applicability of the 2015 amendment. However, the ambiguity was resolved by the court’s decisions in the BBCI case. It also stated that the 2015 amendment was merely clarifying in nature and that the arbitral awards in the original Act did not include an automatic stay. The court also concurred that Section 87 resulted in absurd outcomes when interpreted in conjunction with the provisions of IBC, such as award holders becoming insolvent and unable to reclaim the amounts from award debtors. Consequently, the court determined that the insertion of Section 87 and the revocation of Section 26 were in violation of Article 14. It also clarified that the position in BCCI remains valid. Specifically, filing a setting aside petition would not result in an automatic stay against the enforcement of any arbitral award, regardless of the commencement date of the arbitration.

CONCLUSION

The award debtors cannot evade their liability by submitting an application under Section 34 following this judgment. The award holders will be able to recover their dues previously ensnared in litigation or arbitration for an extended period, as there will be no automatic stay of the award.

It will also boost the stressed sectors, which are currently immobilized by a substantial amount of money due to litigation. Consequently, this judgment has enabled an award holder to secure a portion or the entirety of the award amount while awaiting the outcome of the petition to set aside the award under the Act.