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2019 (12) TMI 5 - SC - Indian Laws


Issues Involved:
1. Constitutional validity of Section 87 of the Arbitration and Conciliation Act, 1996, as inserted by the 2019 Amendment Act.
2. Repeal of Section 26 of the 2015 Amendment Act by the 2019 Amendment Act.
3. Various provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) and their discriminatory treatment towards the petitioners.

Issue-wise Analysis:

1. Constitutional Validity of Section 87 of the Arbitration and Conciliation Act, 1996:
- The petitioners challenged Section 87, arguing it was contrary to the objectives of the Arbitration Act, 1996, and the 2015 Amendment Act, which aimed to minimize judicial intervention and expedite arbitration proceedings. They contended that Section 87 reintroduced automatic stays on arbitral awards, leading to delays and financial hardships.
- The court noted that Section 36 of the Arbitration Act, 1996, as interpreted by previous judgments, was misconstrued to imply an automatic stay of arbitral awards upon filing a challenge under Section 34. This interpretation was incorrect, as Section 36, when read with Section 35, only intended to enforce awards like court decrees without implying automatic stays.
- The court declared that the judgments in NALCO and Fiza Developers were per incuriam for not considering Sections 9, 35, and the second part of Section 36, and thus, the automatic stay doctrine was incorrect.
- The court found that the amended Section 36, introduced by the 2015 Amendment Act, clarified that filing a challenge under Section 34 does not automatically render the award unenforceable unless the court grants a stay.
- The court concluded that Section 87 of the 2019 Amendment Act, which reintroduced the automatic stay, was manifestly arbitrary and contrary to the objectives of the Arbitration Act, 1996, and the 2015 Amendment Act. It was struck down as unconstitutional under Article 14.

2. Repeal of Section 26 of the 2015 Amendment Act by the 2019 Amendment Act:
- The court examined whether the 2019 Amendment Act removed the basis of the BCCI judgment, which had interpreted Section 26 of the 2015 Amendment Act.
- The court held that the retrospective omission of Section 26 by the 2019 Amendment Act removed the basis of the BCCI judgment, as Section 26 had been crucial in bifurcating arbitral proceedings and court proceedings for the application of the 2015 Amendment Act.
- The court found that the introduction of Section 87 and the deletion of Section 26 were manifestly arbitrary, as they reintroduced delays and judicial interference, contrary to the objectives of the Arbitration Act, 1996, and the 2015 Amendment Act.
- Consequently, the court struck down the deletion of Section 26 and the insertion of Section 87 as unconstitutional under Article 14.

3. Various Provisions of the Insolvency and Bankruptcy Code, 2016 (IBC):
- The petitioners argued that the IBC's provisions were arbitrary and discriminatory, as they allowed for insolvency proceedings against them while they were unable to recover dues from government bodies due to automatic stays on arbitral awards.
- The court rejected the petitioners' argument to read "corporate person" in Section 3(7) of the IBC to include government bodies, as NHAI, a statutory body performing governmental functions, could not be subjected to insolvency proceedings.
- The court referred to its judgment in K. Kishan, which held that the mere filing of a challenge under Section 34 of the Arbitration Act indicated a pre-existing dispute, making the debt disputed and outside the scope of the IBC.
- The court found no merit in the petitioners' argument that the IBC's definition of "financial position" was arbitrary, as the IBC was not a debt recovery mechanism but aimed at resolving stressed assets.
- The court also rejected the petitioners' plea to fill a casus omissus by interpreting the IBC to include a third-party procedure for debt recovery, as the IBC was not intended for such purposes.
- The court dismissed the constitutional challenge to the IBC, finding it devoid of merit.

Conclusion on Facts:
- The court noted factual disputes between the parties regarding the exact amounts due under arbitral awards, amounts paid/deposited, and the status of stay orders.
- The court held that it could not undertake a detailed investigation of disputed facts under Article 32 of the Constitution.
- The court rejected the petitioners' challenge to the NITI Aayog Scheme, which allowed contractors to retrieve 75% of awarded amounts with an additional 10% annual bank guarantee, finding nothing arbitrary in the scheme.
- The writ petitions were disposed of in light of the judgment, and the applications for interim relief were allowed in terms of the prayer therein.

 

 

 

 

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