TITLE: CAN ARBITRAL AWARD BE AUTOMATICALLY STAYED?

:
THE TUSSLE BETWEEN SECTION 26 AND 87 OF THE ARBITRATION
ACT, 1996

An analysis of the case - Hindustan Construction Company v. Union of India

(Writ Petition (Civil) No. 1074 of 2019, Supreme Court, judgment rendered on
November 27, 2019.)

SUBMITTED BY:

SEJAL MAKKAD
BA. LLB(H)
SEMESTER VI,
AMITY LAW SCHOOL,
AMITY UNIVERSITY CHHATTISGARH
Brief Facts

The petitioner, Hindustan Construction Company limited, filed a writ petition as a contractor
against government companies NTPC Limited, IRCON International Limited, NHPC
Limited, in addition to National Highways Authority of India (“ NHAI”). It was
filed that the petitioner had undertaken many projects with the respondents and
the cost overrun was always a matter between the parties. The amounts were
always collected by a way of Civil proceeding or Arbitration proceeding. The
petitioner was in most of the cases awarded the Arbitral Award but, the
respondents filed application under Section 34 of the arbitration and Conciliation
act, 2015. Due to this an automatic stay in the awards were instituted. These
amounts were counted as “undisputed debts” under provisions of Insolvency and
Bankruptcy Code (IBC) 2017. Due to this, any proceeding initiated by HCC
against the respondents were dismissed.

HCC had to suffer huge loss and due to this a large amount of money became
payable to its creditors. The problem was traced to be the automatic stay in the
awards due to which the cases remained unsolved. The petition was filed for the
removal of automatic stay in the awards and for revival of Section 26 of the Act.

Issues Raised:

 Whether section 87 inserted by the Amendment of 2105 was constitutionally valid?

 Whether Section 3(7) and 3(26) of IBC, 2017 are arbitrary in nature?
 Whether the repeal of Section 26 under Amendment Act of 2015 was correct or not?

Submissions

On behalf of petitioner:

The petitioner submitted that according to language of Section 36 of the act, automatic stay
did not follow and so the judgements of SC need re-visitation. Also, in the case of BCCI v.
Kochi Cricket Private Limited 1 , SC discouraged the insertion of Section 87 and
the same report was submitted to Ministry of Law but, at last the section was
inserted without referring to the judgement of SC. This was an ignorance of the
decision of SC.

1
[(2018) 6 SCC 287]
 It was also submitted that there was no bar in applying an Order VIII-A of the
Civil Procedure Code, 1908 (“ CPC”) to proceedings under the IBC. Also, the
payment of arbitral award should be a rule even when under challenge and the
stay should be an exception. the Petitioner also contended that within Section
3(7)of the IBC, the words ‘limited liability’ should be deleted and the words
under Section 3(23) (g) (any other entity established under a statute ) of the IBC
should be read into Section 3(7) of the IBC.

On behalf of respondent:

The respondents submitted that he writ petition filed under Article 32 of the
Constitution cannot be converted by petitioners into a recovery petition. Also,
both the section 3(7) and 3(23) are separate and cannot be mixed together.

It was submitted that even after the judgement of SC section 87 is inserted then
it might be necessity and the view expressed by SC did not affect its original
intent. Also, IBC was a statutory body and IBC could not be applied to bodies
performing sovereign functions.

Judgement

On November 27, 2019, Supreme Court struck down Section 87 for being
arbitrary in nature and revived Section 26 which was removed by the Amendment
Act of 2015.aqccording to the Supreme Court, the deletion of Section 26 and
addition of Section 87 reverted the objective of Amendment of 2015. The main
aim at that time was to remove the delay in the proceedings of arbitration and
make the process fast unlike before 2015. But, the addition of Section 87
reverted the same and took the law back to 1996 which was arbitrary in nature.

According to SC, Section 36 did not provide that an award was incapable to be
payed once a petition under Section 34 was filed. Instead, it emphasised in
making the award a deemed decree under Code of Civil Procedure. Therefore,
Section 36 was also a remedy to some of the problems that existed since 1996.
Reasoning of the judgement

The SC gave the reasoning behind the judgement that it was to do away with the
problems of the award holders and to assure that unnecessary stay in the awards.
This will ensure the payment to the award holders legally and without delay.
Thus, the judgement overshadows the judgement of 2015.