Arbitration enforcement and insolvency limits: SC struck down Section 87, upheld the Code's resolution framework, and rejected the scheme challenge.

The SC held that Section 87 of the Arbitration and Conciliation Act, 1996, inserted by the 2019 Amendment Act, was manifestly arbitrary because it revived an older automatic-stay regime contrary to the object of the 2015 amendments and reintroduced delay and uncertainty in enforcement; the beneficial 2015 amendments were therefore held applicable to court proceedings initiated after 23.10.2015. It further held that the Insolvency and Bankruptcy Code, 2016 is a resolution framework, not a debt recovery mechanism, so it could not be read down to pursue government bodies or statutory authorities as corporate debtors, and no relief was granted on that challenge. The challenge to the NITI Aayog scheme condition requiring an additional 10% annual bank guarantee was also rejected.

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Issues: (i) Whether Section 87 of the Arbitration and Conciliation Act, 1996, inserted by the 2019 Amendment Act, and the retrospective omission of Section 26 of the 2015 Amendment Act, were constitutionally valid. (ii) Whether the challenged provisions of the Insolvency and Bankruptcy Code, 2016 were unconstitutional or required to be read down so as to permit the petitioners to proceed against government bodies and statutory authorities. (iii) Whether the challenge to the NITI Aayog scheme condition requiring an additional 10% annual bank guarantee was sustainable.

Issue (i): Whether Section 87 of the Arbitration and Conciliation Act, 1996, inserted by the 2019 Amendment Act, and the retrospective omission of Section 26 of the 2015 Amendment Act, were constitutionally valid.

Analysis: The amended scheme of the Arbitration Act was read against the object of the 2015 Amendment Act, which had corrected the earlier position that treated the mere filing of a Section 34 application as operating like an automatic stay. The Court held that the earlier understanding of Section 36 was incorrect and that enforcement of an arbitral award is governed by the Code of Civil Procedure only after the award becomes final and binding, while a stay must be obtained on a separate application. On that basis, Section 87, which revived the older regime by making the 2015 amendments inapplicable to a large class of pending court proceedings, was found to be contrary to the object of the 2015 Amendment Act and to create arbitrariness by reintroducing delay and uncertainty. The retrospective omission of Section 26 did not save the provision, because the substance of the earlier ruling was defeated and the legislative change was held to be unreasonable and arbitrary.

Conclusion: Section 87 was struck down as manifestly arbitrary, and the beneficial amendments made by the 2015 Amendment Act were held applicable to court proceedings initiated after 23.10.2015.

Issue (ii): Whether the challenged provisions of the Insolvency and Bankruptcy Code, 2016 were unconstitutional or required to be read down so as to permit the petitioners to proceed against government bodies and statutory authorities.

Analysis: The Court held that the Insolvency Code is a resolution statute and not a debt recovery mechanism. Government companies fall within the definition of corporate person, but a statutory authority performing sovereign and public functions, such as the highway authority discussed in the case, cannot be treated as a corporate debtor in the manner suggested by the petitioners. The Court also held that once proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 are pending, the debt becomes disputed for the purpose of insolvency law, and the Code cannot be used to recover amounts under disputed arbitral awards. The request to read into the definition of corporate person words that were not there was rejected, as was the invitation to create a third-party recovery mechanism by interpretation.

Conclusion: The challenge to the Insolvency and Bankruptcy Code, 2016 failed, and no reading down was ordered.

Issue (iii): Whether the challenge to the NITI Aayog scheme condition requiring an additional 10% annual bank guarantee was sustainable.

Analysis: The scheme was treated as a voluntary beneficial arrangement devised to mitigate hardship caused by the earlier enforcement regime for arbitral awards. Having taken advantage of the scheme, the petitioners could not later assail one of its conditions as arbitrary. The additional guarantee was held to be linked to protection of the further interest component and to the continuing availability of the amount released under the scheme.

Conclusion: The challenge to the scheme condition was rejected.

Final Conclusion: The principal relief succeeded only to the extent of invalidating Section 87, while the challenge to the Insolvency and Bankruptcy Code, 2016 and the challenge to the NITI Aayog scheme failed. The arbitration amendments operating from 23.10.2015 were restored in substance, but no relief was granted on the insolvency and scheme-based claims.

Ratio Decidendi: A retrospective legislative change that revives an abandoned automatic-stay regime for arbitral awards, contrary to the object of the later corrective amendment, and which reintroduces delay and uncertainty in enforcement, is manifestly arbitrary; pending Section 34 proceedings do not convert the insolvency statute into a recovery tool for disputed award claims.

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