HINDUSTAN CONSTRUCTION COMPANY LIMITED & ANR. v. UNION OF INDIA & ORS.

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A The committee feels that permitting the 2015 Amendment Act to apply to pending court proceedings related to arbitrations commenced prior to 23 October 2015 would result in uncertainty and prejudice to parties, as they may have to be heard again. It may also not be advisable to make the 2015 Amendment Act applicable to fresh court proceedings in relation to such B arbitrations, as it may result in an inconsistent position. Therefore, it is felt that it may be desirable to limit the applicability of the 2015 Amendment Act to arbitrations commenced on or after 23 October 2015 and related court proceedings.” (emphasis supplied) C

48Copy pinpoint48. The Srikrishna Committee Report is dated 30.07.2017, which is long before this Court’s judgment in the BCCI case (supra). Whatever uncertainty there may have been because of the interpretation by different High Courts has disappeared as a result of the BCCI judgment (supra), the law on Section 26 of the 2015 Amendment Act D being laid down with great clarity. To thereafter delete this salutary provision and introduce Section 87 in its place, would be wholly without justification and contrary to the object sought to be achieved by the 2015 Amendment Act, which was enacted pursuant to a detailed Law Commission report which found various infirmities in the working of E the original 1996 statute. Also, it is not understood as to how “uncertainty and prejudice would be caused, as they may have to be heard again”, resulting in an ‘inconsistent position’. The amended law would be applied to pending court proceedings, which would then have to be disposed of in accordance therewith, resulting in the benefits of the 2015 Amendment Act now being applied. To refer to the Srikrishna F Committee Report (without at all referring to this Court’s judgment) even after the judgment has pointed out the pitfalls of following such provision, would render Section 87 and the deletion of Section 26 of the 2015 Amendment Act manifestly arbitrary, having been enacted unreasonably, without adequate determining principle, and contrary to the public interest sought to be subserved by the Arbitration Act, 1996 G and the 2015 Amendment Act. This is for the reason that a key finding of the BCCI judgment (supra) is that the introduction of Section 87 would result in a delay of disposal of arbitration proceedings, and an increase in the interference of courts in arbitration matters, which defeats the very object of the Arbitration Act, 1996, which was strengthened by the 2015 Amendment Act.

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 375 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

49Copy pinpoint49. Further, this Court has repeatedly held that an application under Section 34 of the Arbitration Act, 1996 is a summary proceeding not in the nature of a regular suit – see Canara Nidhi Ltd. v. M. Shashikala 2019 SCC Online SC 1244 at paragraph 20. As a result, a court reviewing an arbitral award under Section 34 does not sit in appeal over the award, and if the view taken by the arbitrator is possible, no interference is called for – see Associated Construction v. Pawanhans Helicopters Ltd. (2008) 16 SCC 128 at paragraph 17.

50Copy pinpoint50. Also, as has been held in the recent decision Ssangyong Engineering & Construction Co. Ltd. v. NHAI 2019 SCC Online 677, after the 2015 Amendment Act, this Court cannot interfere with an arbitral award on merits (see paragraph 28 and 76 therein). The C anomaly, therefore, of Order XLI Rule 5 of the CPC applying in the case of full-blown appeals, and not being applicable by reason of Section 36 of the Arbitration Act, 1996 when it comes to review of arbitral awards, (where an appeal is in the nature of a rehearing of the original proceeding, where the chance of succeeding is far greater than in a D restricted review of arbitral awards under Section 34), is itself a circumstance which militates against the enactment of Section 87, placing the amendments made in the 2015 Amendment Act, in particular Section 36, on a backburner. For this reason also, Section 87 must be struck down as manifestly arbitrary under Article 14. The petitioners are also correct in stating that when the mischief of the misconstruction E of Section 36 was corrected after a period of more than 19 years by legislative intervention in 2015, to now work in the reverse direction and bring back the aforesaid mischief itself results in manifest arbitrariness. The retrospective resurrection of an automatic-stay not only turns the clock backwards contrary to the object of the Arbitration F Act, 1996 and the 2015 Amendment Act, but also results in payments already made under the amended Section 36 to award-holders in a situation of no-stay or conditional-stay now being reversed. In fact, refund applications have been filed in some of the cases before us, praying that monies that have been released for payment as a result of conditional stay orders be returned to the judgment-debtor. G

51Copy pinpoint51. Also, it is important to notice that the Srikrishna Committee Report did not refer to the provisions of the Insolvency Code. After the advent of the Insolvency Code on 01.12.2016, the consequence of applying Section 87 is that due to the automatic-stay doctrine laid down by judgments of this Court - which have only been reversed today by H

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A the present judgment - the award-holder may become insolvent by defaulting on its payment to its suppliers, when such payments would be forthcoming from arbitral awards in cases where there is no stay, or even in cases where conditional stays are granted. Also, an arbitral award-holder is deprived of the fruits of its award - which is usually obtained after several years of litigating - as a result of the automatic- B stay, whereas it would be faced with immediate payment to its operational creditors, which payments may not be forthcoming due to monies not being released on account of automatic-stays of arbitral awards, exposing such award-holders to the rigors of the Insolvency Code. For all these reasons, the deletion of Section 26 of the 2015 C Amendment Act, together with the insertion of Section 87 into the Arbitration Act, 1996 by the 2019 Amendment Act, is struck down as being manifestly arbitrary under Article 14 of the Constitution of India.

52Copy pinpoint52. However, the learned Attorney General cited a number of judgments which state that the court should not ordinarily interfere with D the fixation of cut-off dates, unless such fixation appears to be arbitrary or discriminatory (see for e.g., UOI v. Parameswaran Match Works (1975) 1 SCC 305 at paragraph 10 2 and Govt. of A.P. v. N. Subbarayudu (2008) 14 SCC 702 at paragraphs 5 to 93).

53Copy pinpoint53. In the present case, the challenge is not to the fixing of E 23.10.2015 as a cut-off date, as the aforesaid date is the date on which the 2015 Amendment Act came into force. For this reason, the aforesaid judgments have no application. Instead, what has been found to be manifestly arbitrary is the non-bifurcation of court proceedings and arbitration proceedings with reference to the aforesaid date, resulting in improvements in the working of the Arbitration Act, 1996 being put on a backburner. This argument of the learned Attorney General for India also therefore must be rejected.

2 “10….The choice of a date as a basis for classification cannot be always be dubbed as arbitrary even if no particular reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances. Where it is seen that a line or point there must be, and there is no mathematical or logical way of fixing it precisely, the decision of the legislature or its delegate must be accepted unless we can say that it is very wide of the reasonable mark.” 3 “5….This Court is also of the view that fixing cut-off dates is within the domain of the executive authority and the court should not normally interfere with the fixation of a cut-off date by the executive authority unless such Court order appears to be on the face of it blatantly discriminatory and arbitrary.”

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 377 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

54Copy pinpoint54. The result is that the BCCI judgment (supra) will therefore continue to apply so as to make applicable the salutary amendments made by the 2015 Amendment Act to all court proceedings initiated after 23.10.2015.

55Copy pinpoint55. In this view of the matter, it is unnecessary to examine the constitutional challenge to the 2019 Amendment Act based on Articles B 19(1)(g), 21 and 300-A of the Constitution of India. Constitutional Challenge to the Insolvency Code

56Copy pinpoint56. It now falls on us to decide the second part of the challenges made in the present Writ Petitions, i.e. the challenge to the constitutionality of the Insolvency Code. As mentioned above, Dr. Singhvi has argued that the provisions of the Insolvency Code would operate arbitrarily on his client inasmuch as, on the one hand, an automatic-stay of arbitral awards in his favour would be granted under the Arbitration Act, 1996 as a result of which those monies cannot be used to pay-off the debts of his client’s creditors. On the other hand, any debt of over INR one lakh owed to a financial or operational creditor which remains unpaid, would attract the provisions of the Insolvency Code against the Petitioner No.1 - making these provisions arbitrary, discriminatory and violative of Articles 14 and 19(1)(g) of the Constitution of India. As a result, he has suggested that in order for his client, in turn, to recover monies from Government Companies and NHAI, the definition of ‘corporate person’ contained in Section 3(7) of the Insolvency Code should either be read without the words “with limited liability” contained in the third part of the definition, or have Section 3(23)(g) of the Insolvency Code, which is the definition of ‘person’, read into the aforesaid provision. In order to appreciate this contention it is necessary to set out these definitions: “Definitions

3. In this Code, unless the context otherwise requires,- xxx xxx xxx G (7) “corporate person” means a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability H

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A under any law for the time being in force but shall not include any financial service provider; (8) “corporate debtor” means a corporate person who owes a debt to any person; (23) “person” includes- B (a) an individual; (b) a Hindu Undivided Family; (c) a company; C (d) a trust; (e) a partnership; (f) a limited liability partnership; (g) any other entity established under a statute; D and includes a person resident outside India.”

57Copy pinpoint57. As correctly argued by the learned Solicitor General, Shri Tushar Mehta, the first part of ‘corporate person’, as defined in Section 3(7) of the Insolvency Code, means a company as defined in Clause 20 of Section 2 of the Companies Act 2013. Sections 2(20) and 2(45) E of the Companies Act, 2013, which define ‘company’ and ‘Government company’ respectively, are set out hereinbelow: “2(20). “company” means a company incorporated under this Act or under any previous company law;”

F “2(45). “Government company” means any company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.” G

58Copy pinpoint58. From a reading of the aforesaid definition, Shri Tushar Mehta is clearly right in stating that the three entities who owe monies under arbitral awards to the Petitioner No.1, being Government companies, would be subsumed within the first part of the definition. However, so far as NHAI is concerned, Dr. Singhvi’s argument of either deleting H certain words in Section 3(7) of the Insolvency Code, or adding certain

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 379 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

words in Section 3(23)(g) of the Insolvency Code into Section 3(7) A cannot be accepted.

59Copy pinpoint59. It is clear from a reading of the Statement of Objects and Reasons of the NHAI Act, that the development and maintenance of national highways is a government function that falls within Entry 23 of List I of the Seventh Schedule to the Constitution of India. Further, B under Section 5 of the National Highways Act, 1956, the Central Government may direct that any function in relation to the development or maintenance of national highways shall also be exercisable by any officer or authority subordinate to the Central Government. Under this provision, the function of execution of activities relatable to national C highways was earlier delegated to the State Governments under an “agency system”. Though the system worked through the State Public Works Departments for a period of 40 years, as difficulties were experienced, the Centre itself decided to take over development and maintenance of the national highways system through the creation of a national highways authority. D

60Copy pinpoint60. The following provisions of the NHAI Act are relevant and are set out hereinbelow: “3. Constitution of the Authority.— (1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint in this behalf, there shall be constituted for the purposes of this Act an Authority to be called the National Highways Authority of India. (2) The Authority shall be a body corporate by the name aforesaid having perpetual succession and a common seal, with power, subject to the provisions of this Act, to acquire, hold and dispose of property, both movable and immovable, and to contract and shall by the said name sue and be sued. [(3) The Authority shall consist of— G (a) a Chairman; (b) not more than six full-time members; and (c) not more than six part-time members, to be appointed by the Central Government by notification in the Official Gazette: H

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A Provided that the Central Government shall, while appointing the part-time members, ensure that at least two of them are non- Government professionals having knowledge or experience in financial management, transportation planning or any other relevant discipline.] B xxx xxx xxx

12. Transfer of assets and liabilities of the Central Government to the Authority— (1) On and from the date of publication of the notification under section 11.— C (a) all debts, obligations and liabilities incurred, all contracts entered into and all matters and things engaged to be done by, with, or for, the Central Government, immediately before such date for or in connection with the purposes of any national highway or any stretch D thereof vested in, or entrusted to, the Authority under that section, shall be deemed to have been incurred, entered into and engaged to be done by, with, or for, the Authority; (b) all non-recurring expenditure incurred by or for the E Central Government for or in connection with the purposes of any national highway or any stretch thereof, so vested in, or entrusted to, the Authority, up to such date and declared to be capital expenditure by the Central Government shall, subject to such terms and conditions as may be prescribed, be treated as capital provided by the Central Government to the Authority; (c) all sums of money due to the Central Government in relation to any national highway or any stretch thereof, so vested in, or entrusted to, the Authority immediately before such date shall be deemed to be due to the Authority; (d) all suits and other legal proceedings instituted or which could have been instituted by or against the Central Government immediately before such date for any matter in relation to such national highway or any stretch

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 381 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

thereof may be continued or instituted by or against the A Authority. (2) If any dispute arises as to which of the assets, rights or liabilities of the Central Government have been transferred to the Authority, such dispute shall be decided by the Central Government. B

xxx xxx xxx

14. Contracts by the Authority.— Subject to the provisions of section 15, the Authority shall be competent to enter into and perform any contract necessary for the discharge of its functions under this Act.

15. Mode of executing contracts on behalf of the Authority.— (1) Every contract shall, on behalf of the Authority, be made by the Chairman or such other member or such officer of the Authority as may be generally or specially empowered in this behalf by the Authority and such contracts or classes of contracts as may be specified in the regulations shall be sealed with the common seal of the Authority: E Provided that no contract exceeding such value or amount as the Central Government may prescribe in this behalf shall be made unless it has been previously approved by that Government: Provided further that no contract for the acquisition or sale of F immovable property or for the lease of any such property for a term exceeding thirty years and no other contract exceeding such value or amount as the Central Government may prescribe in this behalf shall be made unless it has been previously approved by that Government. G (2) Subject to the provisions of sub-section (1), the form and manner in which any contract shall be made under this Act shall be such as may be provided by regulations. (3) No contract which is not in accordance with the provisions of this Act and the regulations shall be binding on the Authority. H

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A 16. Functions of the Authority.— (1) Subject to the rules made by the Central Government in this behalf, it shall be the function of the Authority to develop, maintain and manage the national highways and any other highways vested in, or entrusted to, it by the Government. B (2) Without prejudice to the generality of the provisions contained in sub-section (1), the Authority may, for the discharge of its functions— (a) survey, develop, maintain and manage highways vested in, or entrusted to, it; (b) construct offices or workshops and establish and maintain hotels, motels, restaurants and rest-rooms at or near the highways vested in, or entrusted to, it; (c) construct residential buildings and townships for its employees; (d) regulate and control the plying of vehicles on the highways vested in, or entrusted to, it for the proper management thereof; E (e) develop and provide consultancy and construction services in India and abroad and carry on research activities in relation to the development, maintenance and management of highways or any facilities thereat; (f) provide such facilities and amenities for the users of the highways vested in, or entrusted to, it as are, in the opinion of the Authority, necessary for the smooth flow of traffic on such highways; (g) form one or more companies under the Companies Act, 1956 to further the efficient discharge of the functions imposed on it by this Act; [(h) engage, or entrust any of its functions to, any person on such terms and conditions as may be prescribed;] (i) advise the Central Government on matters relating to highways;

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 383 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(j) assist, on such terms and conditions as may be mutually agreed upon, any State Government in the formulation and implementation of schemes for highway development; (k) collect fees on behalf of the Central Government for services or benefits rendered under section 7 of the B National Highways Act, 1956, as amended from time to time, and such other fees on behalf of the State Governments on such terms and conditions as may be specified by such State Governments; and (l) take all such steps as may be necessary or convenient C for, or may be incidental to, the exercise of any power or the discharge of any function conferred or imposed on it by this Act. (3) Nothing contained in this section shall be construed as— D (a) authorising the disregard by the Authority of any law for the time being in force; or (b) authorising any person to institute any proceeding in respect of a duty or liability to which the Authority or its officers or other employees would not otherwise be E subject under this Act.

17. Additional capital and grants to the Authority by the Central Government.— The Central Government may, after due appropriation made by F Parliament, by law in this behalf,— (a) provide any capital that may be required by the Authority for the discharge of its functions under this Act or for any purpose connected therewith on such terms and conditions as that Government may determine; G (b) pay to the Authority, on such terms and conditions as the Central Government may determine, by way of loans or grants such sums of money as that Government may consider necessary for the efficient discharge by the Authority of its functions under this Act. H

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A 18. Funds of the Authority.— (1) There shall be constituted a Fund to be called the National Highways Authority of India Fund and there shall be credited thereto— (a) any grant or aid received by the Authority;

B (b) any loan taken by the Authority or any borrowings made by it; (c) any other sums received by the Authority. (2) The Fund shall be utilised for meeting—

C (a) expenses of the Authority in the discharge of its functions having regard to the purposes for which such grants, loans or borrowings are received and for matters connected therewith or incidental thereto; (b) salary, allowances, other remuneration and facilities D provided to the members, officers and other employees of the Authority; (c) expenses on objects and for purposes authorised by this Act.

E 19. Budget.—The Authority shall prepare, in such form and at such time in each financial year as may be prescribed, its budget for the next financial year, showing the estimated receipts and expenditure of the Authority and forward the same to the Central Government.

F 20. Investment of funds.—-The Authority may invest its funds (including any reserve fund) in the securities of the Central Government or in such other manner as may be prescribed.

21. Borrowing powers of the Authority.— (1) The Authority may, with the consent of the Central G Government or in accordance with the terms of any general or special authority given to it by the Central Government, borrow money from any source by the issue of bonds, debentures or such other instruments as it may deem fit for discharging all or any of its functions under this Act.

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 385 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

(2) Subject to such limits as the Central Government may, from time to time, lay down, the Authority may borrow temporarily by way of overdraft or otherwise, such amounts as it may require for discharging its functions under this Act. (3) The Central Government may guarantee in such manner as it thinks fit the repayment of the principal and the payment of interest thereon with respect to the borrowings made by the Authority under sub-section (1).

22. Annual report.—-The Authority shall prepare, in such form and at such time in each financial year as may be prescribed, its annual report, giving a full account of its activities during the previous financial year, and submit a copy thereof to the Central Government.

23. Accounts and audit.—-The accounts of the Authority shall be maintained and audited in such manner as may, in consultation with the Comptroller and Auditor-General of India, be prescribed and the Authority shall furnish, to the Central Government before such date as may be prescribed, its audited copy of accounts together with the auditors report thereon.

24. Annual report and auditor’s report to be laid before E Parliament.— The Central Government shall cause the annual report and auditor’s report to be laid, as soon as may be after they are received, before each House of Parliament. xxx xxx xxx F

33. Power of the Central Government to issue directions.- (1) Without prejudice to the other provisions of this Act, the Authority shall, in the discharge of its functions and duties under this Act, be bound by such directions on questions of policy as the Central Government may give in writing from time to time. G (2) The decision of the Central Government whether a question is one of policy or not shall be final.”

61Copy pinpoint61. Under Section 3 of the aforementioned Act, the Authority shall be a body corporate which shall consist of a Chairman and six full-time members, together with six part-time members, all appointed H

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A by the Central Government. The assets and liabilities of the Central Government in relation to national highways are then transferred to the Authority under Section 12. Under Sections 14 and 15, contracts that can be made on behalf of the Authority can only be made, if they exceed a certain value, after previous approval by the Government. Section 16 deals with the functions of the Authority, which makes it clear that B these are governmental functions to be carried out only by the Government or by its agent appointed in this behalf.

62Copy pinpoint62. Under Section 19, the budget prepared for the Authority has to be sent to the Central Government, capital and grants to the authority being made by the Central Government into the fund of the Authority C (see Sections 17 and 18 of the NHAI Act supra). Likewise, an annual report is to be given to the Central Government under Section 22. Accounts and audit have to be made in consultation with the Comptroller and Auditor General of India, and furnished to the Central Government, which have then to be laid before the Parliament [see Sections 22 to D 24 of the NHAI Act (supra)]. Under Section 33, the Central Government can issue directions on questions of policy, which would then be binding on the Authority.

63Copy pinpoint63. From a conspectus of the above provisions, what is clear is that NHAI is a statutory body which functions as an extended limb of E the Central Government, and performs governmental functions which obviously cannot be taken over by a resolution professional under the Insolvency Code, or by any other corporate body. Nor can such Authority ultimately be wound-up under the Insolvency Code. For all these reasons, it is not possible to accede to Dr. Singhvi’s argument to either read in, or read down, the definition of ‘corporate person’ in F Section 3(7) of the Insolvency Code.

64Copy pinpoint64. Even otherwise, on the footing that the NHAI can be roped in under the Insolvency Code, this Court in K. Kishan (supra) has held: “22. Following this judgment, it becomes clear that operational G creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an operational debt contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a H company would be well within its rights to state that it is

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 387 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. Such a case would clearly come within para 38 of Mobilox Innovations [Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311] , being a case of a pre-existing ongoing dispute between the parties. The Code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. We repeat that the object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a C real dispute between the parties as to the debt owed does not exist. xxx xxx xxx

27. We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process under Sections 34 and 37 has taken place.”

65Copy pinpoint65. In this view of the matter, the moment challenges are made to the arbitral awards, the amount said to be due by an operational debtor would become disputed, and therefore be outside the clutches of the Insolvency Code. Looked at from any point of view, therefore, proceeding against the NHAI under the Insolvency code by the Petitioner No.1 is not possible.

66Copy pinpoint66. Dr. Singhvi then argued that under Section 5(9) of the Insolvency Code, ‘financial position’ is defined, which is only taken into account after a resolution professional is appointed, and is not taken into account when adjudicating ‘default’ under Section 3(12) of the Insolvency Code. This does not in any manner lead to the position that such provision is manifestly arbitrary. As has been held by our judgment in Pioneer Urban Land and Infrastructure Limited and Anr. v. Union of India and Ors. (2019) 8 SCC 416, the Insolvency Code is not meant to be a recovery mechanism (see paragraph 41 thereof) - H

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A the idea of the Insolvency Code being a mechanism which is triggered in order that resolution of stressed assets then takes place. For this purpose, the definitions of ‘dispute’ under Section 5(6), ‘claim’ under Section 3(6), ‘debt’ under Section 3(11), and ‘default’ under Section 3(12), have all to be read together. Also, the Insolvency Code, belonging to the realm of economic legislation, raises a higher threshold of challenge, leaving the Parliament a free play in the joints, as has been held in Swiss Ribbons (P) Ltd. v. UOI (2019) 4 SCC 17 (see paragraphs 17 to 24 thereof). For all these reasons, this contention of Dr. Singhvi must needs be rejected.

67Copy pinpoint67. Dr. Singhvi’s argument as to the need to fill in a casus omissus in the Code in order that his client get relief is again not tenable. The argument that an Order VIII-A CPC type mechanism is missing, and can be provided by us through interpretation - there being no third- party procedure by which debts owed to persons like the Petitioner can then be, by some theory of contribution or indemnity, fastened on to D PSUs when operational creditors invoke the Insolvency Code against persons like the Petitioner - is again an argument which is answered by stating that the Insolvency Code is not meant to be a debt recovery legislation.

68Copy pinpoint68. The argument of Shri Rai that the definition of ‘dispute’ under Section 5(6) of the Insolvency Code does not speak of the ‘parties’ to E a dispute, and can therefore be interpreted to include a dispute between a sub-contractor and the principal employer with whom the sub- contractor may have no privity of contract, also does not commend itself to us. The definition of ‘dispute’ in Section 5(6) of the Insolvency Code deals with a suit or arbitration proceedings relating to one of three things F - (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty.

69Copy pinpoint69. Insofar as (a) is concerned, the definition of the word ‘debt’ contained in Section 3(11) of the Insolvency Code, refers to a liability or obligation in respect of a claim which is due from any person. This G necessarily postulates the existence of a contractual or other relationship, which gives rise to a liability or obligation between parties in law. The same goes for (c), as a breach of a representation or warranty can only be by one contracting party to another. Also, when the quality of goods or service is referred to in (b), this again postulates some contractual or other relationship in law by which one party may H sue the other.

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 389 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

70Copy pinpoint70. In Mobilox (supra), after setting out the definition of A ‘dispute’, this Court held: “34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: i. Whether there is an “operational debt” as defined exceeding Rs 1 lakh? (See Section 4 of the Act) B

ii. Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And iii. Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.”

71Copy pinpoint71. It is clear therefore that a dispute must be between the parties as understood under the Insolvency Code, which does not contain an Order VIII-A CPC type mechanism. This contention must also therefore be rejected.

72Copy pinpoint72. For all these reasons, we find the challenge to the provisions of Insolvency Code, insofar as the present Writ Petitions are concerned, to be wholly devoid of merit. Conclusion on facts

73Copy pinpoint73. In the Writ Petition No.1074 of 2019 filed on 16.08.2019, the Petitioner company had alleged that a sum of INR 6070 crores was the sum awarded to the Petitioner company under various arbitral awards from 2008 to 2019 which had been challenged by the Respondent PSUs before various Courts, but the operation of which had not been stayed by such courts. On this factual premise, the Petitioner sought interim reliefs from this Court for the repayment of the said amounts from the Respondent PSUs, so as to enable it to repay H

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A its pending dues to its own operational creditors. This Court recorded as much in its order dated 13.09.2019 in Writ Petition No.1074 of 2019 as follows: “The two interlocutory applications are filed for two reliefs. One is to stay further proceedings before the National Company Law B Tribunal, and the second is to direct respondent nos.5-8 – Union of India, National Highways Authority of India, NHPC Ltd., IRCON International Ltd. and NTPC Limited to pay off amounts due under the Awards of Arbitrators which have not been stayed by any Court, amounting to a sum of Rs.6,070 crores. C Dr. Singhvi, learned Senior Counsel, states that his client will pay the Operational Creditors in these two interlocutory applications, amounts of Rs.8.81 crores and 26.21 crores within a period of 12 weeks from today. We record the aforesaid statement. We also issue notice to the Respondents in the two interlocutory D applications. Dasti service, in addition, is permitted. List the matter on 04th October, 2019. Dr. Singhvi further states that this order which is passed by us at 11:45am today, will be communicated orally to the NCLT E which, apparently, is taking up these matters today. (emphasis supplied)

74Copy pinpoint74. However, in its Counter Affidavit dated 21.10.2019, the Union of India contended that this prayer was ‘factually incorrect’ and F ‘deliberately misleading’. The Union of India reproduced charts filed by IRCON, NHPC and NHAI before this Court regarding the status of arbitral awards against them in favour of the Petitioner company (as on 30.09.2019), which detailed, inter alia, (i) the value of the contract between the Petitioner company and the Respondent PSU; (ii) the amount already paid by the Respondent PSU to the Petitioner G under the said contract; (iii) the Petitioner’s principal claim against the Respondent PSU in the arbitration; (iv) the amount awarded in favour of the Petitioner in the arbitration; (v) the amounts paid/deposited by the Respondent PSU by which the competent Court had granted stay; (vi) the balance amount due to the Petitioner; and (vii) whether stay orders were granted by competent Courts in respect of the arbitral

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 391 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

awards. On the basis of these charts, the Union of India contended that the Petitioner company had deliberately suppressed the fact that these Respondent PSUs had stay orders in their favour in respect of some of these arbitral awards, and that these PSUs had already paid/ deposited a substantial amount (approximately 83.30%) payable by them under the arbitral awards, after which stay orders in respect of these arbitral awards were granted. The figures mentioned in the charts were succinctly summarised in a table in the Counter Affidavit, which is reproduced below: NAME OF THE PSU TOTAL AMOUNT OF TOTAL AMOUNT

AWARDS IN FAVOUR PAID/DEPOSITED BY THE C OF THE PETITIONER PSU PENDING THE

STATUTORY CHALLENGE

OF THE AWARD

D NHPC 1063.82 932.03

NHAI 2343.23 2025.62

IRCON 268.10 119.06 E NTPC 116.15 81.70

TOTAL 3791.30 3158.41 [83.30%]

(Figures in INR Crores) F

75Copy pinpoint75. Pertinently, the Union of India alleged that none of the stay orders obtained by the Respondent PSUs in respect of these arbitral awards were under the automatic-stay mode, or under Section 87 of the 2019 Amendment Act. Instead, it was contended that the said stay orders were granted by the competent Court on an application filed by G the Respondent PSUs, a hearing of the said application on merits, and upon the condition that portions of the arbitral awards be paid/deposited in the Court.

76Copy pinpoint76. The Union of India also strongly denied the Petitioner company’s contention that it was in financial distress due to the non- H

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A payment of contractual dues owed to it by the Respondent PSUs, which allegedly left it susceptible to being proceeded against under the Code by its various creditors. The Union of India alleged that the Petitioner has been paid the amount of the contract, even with escalation, in almost all cases. In fact, it was contended in the Counter Affidavit that the Petitioner company had been paid more than the initial contract value B by the Respondent PSUs (approximately 117%). The Union of India further contended that most of the claims raised by the Petitioner company against the Respondent PSUs are outside the scope of the basic contract value - such as ‘loss of profit’ etc. - which would in any event not have any impact on the financial health of the company. This, C the Union of India alleged, demonstrated that it was ‘absolutely false’ that the Petitioner company had been relegated to insolvency due to the non-payment of dues by the Respondent PSUs.

77Copy pinpoint77. The Petitioner company then filed an Additional Affidavit dated 04.11.2019 before this Court, wherein it admitted that, as on D 31.08.2019, the Petitioner company, while due a sum of INR 6373.82 crores from the Respondent PSUs, had already received INR 951.51 crores through court orders, and INR 1530.89 crores through the NITI Aayog Scheme (totalling INR 2482.4 crores). The Petitioner company then itself challenged as incorrect some of the figures and statements placed on record by the Union of India in its Counter Affidavit, E particularly those on the status of Court proceedings in relation to arbitral-awards in favour of the Petitioner company.

78Copy pinpoint78. A perusal of the rival contentions makes it clear that there is a factual dispute between the parties relating to: (I) the exact quantum of the arbitral-awards in favour of the Petitioner company due from the Respondent PSUs; (II) the amounts which may have already been paid and/or deposited by the Respondent PSUs in favour of the Petitioner company under the said arbitral awards; and (III) whether stay orders of competent Courts were passed in respect of these arbitral awards, and if so, whether they were under the automatic-stay mode or not.

79Copy pinpoint79. It is settled law that when exercising its jurisdiction under Article 32 of the Constitution, this Court cannot embark on a detailed investigation of disputed facts. A five-Judge bench of this Court in Gulabdas & Co. v. Asstt. Collector of Customs AIR 1957 SC 733, H was seized of a batch of Writ Petitions filed under Article 32, wherein

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 393 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

the petitioners (who were Indian importers of stationary articles) alleged that the Central Board of Revenue had acted erroneously by imposing tax upon ‘crayons’ imported by them, which were not taxable, incorrectly assuming them to be ‘colour pencils’. Dismissing these Writ Petitions, this Court held as follows: “15. The contention that the impugned orders are manifestly erroneous, because “Crayons” have been treated as ‘coloured pencils’ is not a contention which can be gone into on an application under Article 32 of the Constitution. It has no bearing on the question of the enforcement of a fundamental right, nor can the question be decided without first determining what constitutes the distinction between a ‘coloured pencil’ and a C ‘crayon’, a distinction which must require an investigation into disputed facts and materials. This was a matter for the Customs authorities to decide, and it is obvious that this Court cannot, on an application under Article 32 of the Constitution, embark on such an investigation.” D (emphasis supplied)

80Copy pinpoint80. To similar effect is the decision in Surendra Prasad Khugsal v. Chairman, MMTC. 1994 Supp. (1) SCC 87, where this Court held: “6. We have heard both the parties in all the petitions at some E length. The petitioners in all the petitions place their reliance on the decision in the M.M.R. Khan case [1990 Supp SCC 191 : 1990 SCC (L&S) 632 : (1991) 16 ATC 541] . However, we find that the said case which admittedly concerned the canteen workers both in the statutory canteens and recognised non- F statutory canteens was decided on the facts in those cases including the provisions of the Railway Manual, the notifications and circulars issued by the Railway Board from time to time and other documents which pertained to the workers employed in the said canteens. None of the material which was taken into consideration there has relevance to the workers concerned in G the present canteens. On the other hand, there are disputed facts in the present case which cannot be resolved in a writ petition under Article 32. We, therefore, find that this Court is not the proper forum to decide the present disputes.” (emphasis supplied) H

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81Copy pinpoint81. More recently, this Court in Sumedha Nagpal v. State of Delhi (2000) 9 SCC 745 held: “2. Both parties do recognise that the question of custody of the child will have to be ultimately decided in proceedings arising under Section 25 of the Guardians & Wards Act read with Section B 6 of the Act and while deciding such a question, welfare of the minor child is of primary consideration. Allegations and counter- allegations have been made in this case by the petitioner and Respondent 2 against each other narrating circumstances as to how the estrangement took place and how each one of them is entitled to the custody of the child. Since these are disputed facts, C unless the pleadings raised by the parties are examined with reference to evidence by an appropriate forum, a proper decision in the matter cannot be taken and such a course is impossible in a summary proceeding such as writ petition under Article 32 of the Constitution.” D (emphasis supplied)

82Copy pinpoint82. This Court cannot, therefore, in exercise of its jurisdiction under Article 32 of the Constitution undertake a detailed investigation to determine the status of monies paid/deposited pursuant to arbitral- awards in favour of the Petitioner company. Consequently, no directions in respect thereof can be made in the present proceedings.

83Copy pinpoint83. Dr. Singhvi then argued that the NITI Aayog Office’s Memorandum dated 05.09.2016, which contained a scheme by which contractors were able to retrieve 75% of awarded amounts together with interest thereon - referred to as “pay-out amount” - is arbitrary only to a limited extent. He had no quarrel with the fact that a bank guarantee should be given under the scheme to secure the pay-out amount, but argued that an additional bank guarantee of 10% per year on the pay-out amount, which is then compounded annually, is arbitrary and should be struck down under Article 14. This being severable, he contended that the scheme can remain, with the requirement of a ‘top- up’ bank guarantee of 10% per annum being struck down. A look at the circular dated 05.09.2016 shows that the scheme is in order that the hardship felt by the construction sector, thanks to the automatic- stay regime under Section 36 as originally enacted, be mitigated. It can thus be seen that the scheme is so that the construction sector can get the fruits of arbitral awards in their favour, which otherwise was not

HINDUSTAN CONSTRUCTION COMPANY LIMITED v. 395 UNION OF INDIA & ORS. [R. F. NARIMAN, J.]

available at the time under the law. Dr. Singhvi’s client was free to avail of the circular on its terms, or not to avail of the said circular. Having availed of the benefit contained in the circular, it is not possible for his client to now turn around and state, years after availing this benefit, that one part of the circular is onerous and should be struck down. Even otherwise, we find nothing arbitrary in requiring a 10% B additional bank guarantee per annum so that the scheme be availed. Had the scheme not been open-ended, and had it ended within one year, there would have been no need for this 10% additional bank guarantee. It is only because the bank guarantee may be renewed for 75% of the pay-out amount that has been disbursed to contractors, that this condition is said to be onerous. We find that in point of fact the 10% extra bank C guarantee is only to ensure that the further interest component per annum also gets covered, so that the Government/Government bodies are able to claim these amounts in case the bank guarantees have to be encashed. We, therefore, find no substance in this plea and reject it. D

84Copy pinpoint84. All the Writ Petitions are disposed of in the light of this judgment.

85Copy pinpoint85. Accordingly, M.A. Nos. 2140-2144 of 2019 in C.A. Nos.2621- 2625 of 2019 are allowed in terms of prayer (a) therein. E Devika Gujral Writ petitions disposed of.