Arbitration Act and IBC conflict: 2 companies move Supreme Court

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Published: November 1, 2019 4:44 AM

The companies have told the SC that Section 87 of the Arbitration and Conciliation Act 1996, as inserted by the 2019 Amendment Act, is in conflict with the Insolvency and Bankruptcy Code 2016 as the new provision destroys the level playing field.

sc, supreme courtA Bench led by Justice RF Nariman will take up the matter on November 5.

Left with no effective remedy to initiate action against the government, PSUs and other statutory bodies for recovery of thousands of crores of rupees, Hindustan Construction Company (HCC) and Gammon Engineers & Contractors have approached the Supreme Court seeking to prevent their lenders from pushing them into insolvency.

While HCC is seeking to recover Rs 6,070 crore from the Central government and other PSUs including NHAI and NTPC, Gammon wants its dues of over Rs 837 crore that is stuck with the government and other PSUs like NHPC, Gail and DMRC in terms of various arbitration awards. The companies have told the SC that Section 87 of the Arbitration and Conciliation Act 1996, as inserted by the 2019 Amendment Act, is in conflict with the Insolvency and Bankruptcy Code 2016 as the new provision destroys the level playing field. They said Section 87 provides that for all arbitral proceedings, which commenced prior to October 23, 2015, there shall be an automatic stay of the arbitral awards when challenged under Section 34 of the 1996 Act. This amendment, according to them, “clearly creates an imbalance between the consequences of the 1996 Act and the IBC.”

They have challenged various provisions – Sections 3(10), 3(11), 3(12), 6, 7, 9, 31 and 238 of IBC as well as Section 87 of the Arbitration Act as being “arbitrary and discriminatory”.

The Arbitration Act and IBC need to be harmoniously construed to protect the rights of a company which is facing the wrath of two mutually inconsistent enactments that is leading to divergent and devastating outcomes, Gammon said.

A Bench led by Justice RF Nariman will take up the matter on November 5. Expressing criticism about the newly inserted provision, the Judges told solicitor general Tushar Mehta that “you (government) have put the clock back” as the provision had nullified the effect of its earlier judgment (BCCI vs Kochi Cricket) that decided the prospective application of automatic stay provision in the Arbitration Act. “We will start with presumption of unconstitutionality. You started this. World over this 2019 Act is being criticised. India cannot become a hub of arbitration if you go like this,” Justice Nariman observed.

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