Anurutan Textiles Private Limited vs Amaira International Private Limited

05.09.2023: The present appeal has been preferred under Section

61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as IB Code) against the order dated 15.06.2021 passed

by the National Company Law Tribunal, Court No. IV, New Delhi

(hereinafter referred to as the Adjudicating Authority). By the said

order the learned Adjudicating Authority has allowed I.A.

No.761/ND/2021 filed by the Respondent/Corporate Debtor

which was filed under Section 8 of the Arbitration and Conciliation

Act, 1996. Learned Adjudicating Authority while allowing the IA

No.761/2021 has declared CP (IB) No.782/ND/2020, which was

filed under section 9 of the IB Code, as infructuous and directed

for referring the matter for arbitration.

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2. It is the case of the appellant that since the application under

Section 9 of the IB Code was filed, the learned Adjudicating

Authority was required to examine first the petition filed under

Section 9 of the IB Code and decide it, and was not required to

adjudicate the Section 8 application under the Arbitration and

Conciliation Act, 1996 first. However, ignoring this the order

impugned has been passed under Section 8 of the Arbitration and

Conciliation Act, 1996 and further declaring the petition filed

under Section 9 of the IB Code as infructuous. It has been pleaded

that after filing of the IA No.761/2021 a rejoinder was filed which

was considered as reply to the IA. However, learned Adjudicating

Authority without discussing the points raised in the rejoinder has

passed the order in mechanical manner. Learned counsel for the

appellant while pressing the present appeal has placed heavy

reliance on a judgement passed by the Hon'ble Supreme Court

reported in (2021) 6 Supreme Court Cases 436 Indus Biotech

Private Ltd Vs Kotak India Venture (Offshore) Fund (earlier

known as Kotak India Venture Limited) and others and he has

referred to para 27, 28 and 29 of the judgement which are quoted

hereinbelow:-

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"27. As noted, the issue which is posed for our consideration is arising in a petition filed under Section 7 of IB Code, before it is admitted and therefore not yet an action in rem. In such application, the course to be adopted by the Adjudicating Authority if an application under Section 8 of the Act, 1996 is filed seeking reference to arbitration is what requires consideration. The position of law that the IB Code shall override all other laws as provided under Section 238 of the IB Code needs no elaboration. In that view, notwithstanding the fact that the alleged corporate debtor filed an application under Section 8 of the Act, 1996, the independent consideration of the same dehors the application filed under Section 7 of IB Code and materials produced therewith will not arise. The Adjudicating Authority is duty bound to advert to the material available before him as made available along with the application under Section 7 of IB Code by the financial creditor to indicate default along with the version of the corporate debtor. This is for the reason that, keeping in perspective the scope of the proceedings under the IB Code and there being a timeline for the consideration to be made by the Adjudicating Authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. In that view, even if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority has a duty to advert to contentions put forth on the application filed under Section 7 of IB Code, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. If the irresistible conclusion by the Adjudicating Authority is that there is default and the debt is payable, the bogey of arbitration to delay the process would not arise despite the position that the agreement between the parties indisputably contains an arbitration clause.

28. That apart if the conclusion is that there is default and the debt is payable, due to which the Adjudicating Authority proceeds to pass the order as contemplated under sub section 5(a) of Section 7 of IB Code to admit the application, the proceedings would then get itself transformed into a proceeding in rem having erga omnes effect due to which the question of arbitrability of the so called inter se dispute sought to be put forth would not arise. On the other hand, on such consideration made by the Adjudicating Authority if the satisfaction recorded is that there is no default committed by the company, the petition would stand rejected as provided under sub-section 5(b) to Section 7 of IB Code, which would leave the field open for the parties to secure appointment of the Arbitral Tribunal in 4

an appropriate proceedings as contemplated in law and the need for the NCLT to pass any orders on such application under Section 8 of Act, 1996 would not arise.

29. Therefore, to sum up the procedure, it is clarified that in any proceeding which is pending before the Adjudicating Authority under Section 7 of IB Code, if such petition is admitted upon the Adjudicating Authority recording the satisfaction with regard to the default and the debt being due from the corporate debtor, any application under Section 8 of the Act, 1996 made thereafter will not be maintainable. In a situation where the petition under Section 7 of IB Code is yet to be admitted and, in such proceedings, if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority is duty bound to first decide the application under Section 7 of the IB Code by recording a satisfaction with regard to there being default or not, even if the application under Section 8 of Act, 1996 is kept along for consideration. In such event, the natural consequence of the consideration made therein on Section 7 of IB Code application would befall on the application under Section 8 of the 1996 Act."

3. Taking aid from the aforesaid observations of the Hon'ble

Supreme Court it was argued that if a petition was filed under

Section 9 of IB Code for initiation of CIRP the learned Adjudicating

Authority was not required to entertain the petition filed Section 8

of the Arbitration and Conciliation Act, 1996. He further submits

that though purported order appears to be detail in nature, learned

Adjudicating Authority without noticing the objections raised in

the rejoinder has passed the impugned order.

4. Ms Sonali Karwasra Joon, learned counsel appearing on

behalf of the Respondent/Corporate Debtor at the very outset tried

to persuade the Tribunal that the judgement in Indus Biotech

Private Ltd Vs Kotak India venture (Offshore) Fund (Supra) has got 5

no application in the facts and circumstances of the present case.

She submits that this judgement was in relation to a case filed

under Section 7 of the IB Code. According to Ms Sonali, learned

Counsel for Respondent, in the present application filed under

Section 9 of IB Code there was already pre-existing dispute and as

such the applicability of petition filed under Section 8 of the

Arbitration and Conciliation Act, 1996 may not be treated at par

with petition filed under Section 7 of the IB Code. She further

submits that regarding pre-existing dispute there is already some

reference in impugned order particularly in para 8. It is better to

reproduce para 8 of the impugned order as follows:-

"8. In the present matter, it is an admitted fact that at the end of each invoice issued by the Operational Creditor there is an Arbitration Clause. Against these invoices Corporate Debtor had issued debit note. When the debit notes were issued, the corporate debtor also received emails from Operational Creditors seeking clarification and contesting the issuance of Debit Note, hence a dispute had come into existence by admitting the fact that valid invoice was existing between the parties. Subsequently, after the exchange of emails the parties have met multiple times to settle the dispute between them with respect to the invoice amount and supply involved. At this stage we are not going into the merits of existence of per-existing dispute as defined in I&B Code, 2016 but to test whether the dispute if any needs to be sent to arbitration as per Section 8 of Arbitration and Conciliation Act (as amended).

6 5. According to learned counsel for Respondent, the learned

Adjudicating Authority has rightly in view of arbitration clause in

the invoice itself has directed for referring the matter to the

Arbitration and impugned order may not to be interfered with.

6. The fact remain that the impugned order does not elaborately

deal with the objections raised by the appellant which were taken

in its rejoinder. Learned Adjudicating Authority only on the

ground of the arbitration clause in the invoice was persuaded to

pass an order for referring the matter for adjudication by the

Arbitrator in view of Section 8 of the Arbitration and Conciliation

Act, 1996. The Hon'ble Supreme Court in its judgement in Indus

Biotech Private Ltd (Supra) has categorically held that if a petition

is filed under Section 7 of the IB Code and during pendency of such

application any application under Section 8 of the Arbitration &

Conciliation Act, 1996 is filed, the learned Adjudicating Authority

need to first adjudicate on the application filed under Section 7 of

the IB Code by recording a satisfaction with regard to debt, default

etc., even if the application under Section 8 of the Arbitration Act

is filed for consideration. The proceedings initiated under Section

7 and Section 9 of IB Code may not be considered as similar

particularly due to the reasons that in a proceeding under Section 7 9, if a point is raised and established regarding pre-existing

dispute, certainly such petition cannot be admitted.

7. However, we are of the opinion that though the present case

is in relation to the petition filed under Section 9 of the IB Code,

the principle laid down by Hon'ble Supreme Court in Indus Biotech

Pvt Ltd (Supra) is equally applicable on consideration of petition

filed under Section 8 of the Arbitration and Conciliation Act, 1996

during pendency of an application under Section 9 of IB Code.

8. In the present case which was obviously filed under Section

9 of the IB Code, in the order impugned there is no indication as

to whether the learned Adjudicating Authority had considered the

point regarding pre-existing dispute when plea was taken in its

reply by the appellant. We are of the opinion that such point was

required to be considered by the learned Adjudicating Authority

while passing the impugned order. In view of aforesaid facts and

circumstances we are of the considered opinion that the order

impugned may not be allowed to continue; rather it can be remitted

to the Adjudicating Authority to re-examine the entire issue and

also the objections raised by the appellant in its rejoinder.

9. Accordingly the impugned order dated 15.06.2021 is hereby

set aside and matter is remitted back to the Adjudicating Authority 8

with a request to re-examine entire issue. Learned Adjudicating

Authority may also examine as to whether there was any pre-

existing dispute or not and pass an appropriate order in

accordance with law by providing full opportunity of heairng to

both the parties.

10. It goes without saying that we have not recorded any opinion

on merits of the case. The Learned Adjudicating Authority after

providing full opportunity to both the parties may pass appropriate

order in accordance with law.

11. Considering the fact that the appeal was filed in the year

2021, learned Adjudicating Authority may take appropriate steps

for its expeditious disposal.

(Justice Rakesh Kumar) Member (Judicial)

(Dr. Alok Srivastava) Member (Technical) Bm/md