M/S. Ksheeraabd Constructions Pvt. Ltd vs M/S. Vijay Nirman Company Pvt. Ltd

(Arising out of Order dated 29th August, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Hyderabad Bench, Hyderabad in Company Petition (IB) No. 100/9/HDB/2017)

In the matter of:

M/s. Ksheeraabd Constructions Pvt. Ltd. Appellant

Vs.

M/s. Vijay Nirman Company Pvt. Ltd. Respondent

Present: For Appellant: Shri Arun Kathpalia, Senior Advocate with Shri D. Abhinav Rao, Shri D. Bharathi Reddy, Shri Somaksh Goyal, Shri Swaroop George and Shri George Thomas, Advocates.

For Respondent : Shri Sanjay Kumar Chhetry and Shri Vijayshree Pattnaik, Advocates.

JUDGMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Respondent- M/s. Vijay Nirman Company Pvt. Ltd.

('Operational Creditor) filed an application under Section 9 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B

Code") for initiation of 'Corporate Insolvency Resolution Process' against

the Appellant- M/s. Ksheeraabad. Constructions Pvt. Ltd. ('Corporate

Debtor'). By impugned order dated 29th August, 2017 passed by

Company Appeal (AT) (Insolvency) No. 167012017 Adjudicating Authority (National Company Law Tribunal), Hyderabad

Bench, Hyderabad in CP(IB) No.100/9/HDB/2017, the application

having been admitted, order of moratorium having been passed and in

view of appointment of 'Insolvency Resolution Professional', present

appeal has been preferred by the 'Corporate Debtor'.

2. The main plea taken by the Appellant-'Corporate Debtor' is that

there is an 'existence of a dispute' and therefore, the petition under

Section 9 of the 'I&B Code' was not maintainable.

3. Learned counsel appearing on behalf of the Appellant-'Corporate

Debtor' submitted that the 'Corporate Insolvency Resolution Process'

cannot be initiated and decided when notice of dispute is issued to the

'Operational Creditor' under sub-section (2) (a) of Section 8 of the 'I&B

Code' bringing to its attention an 'existence of a dispute' or 'pendency of

arbitration proceedings'.

4. Learned counsel appearing on behalf of the Appellant-'Corporate

Debtor' further submitted that after Arbitral Award passed by the

Arbitral Tribunal, the application under Section 34 of the Arbitration

and Conciliation Act, 1996 having been preferred, it amounts to

pendency of a case and 'existence of a dispute'. It was submitted that

the aforesaid fact was brought to the notice of the Adjudicating Authority

but in spite of the same, impugned order of admission and moratorium

has been passed.

Company Appeal (AT) (Insolvency) No. 167 of 2017

5. Learned counsel for the Appellant-'Corporate Debtor' relied on

Hon'ble Supreme Court judgment in 'Mobi lox Innovations Pvt. Ltd. Vs.

Kirusa Software Pvt. Ltd. (2017) SCC OnLine SC 1154' wherein the

Hon'ble Supreme Court held:-

"54. It is clear, therefore, that once the operational

creditor has filed an application, which is otherwise

complete, the adjudicating authority must reject the

application under Section 9(5)(2)(d) if notice of

dispute has been received by the operational

creditor or there is a record of dispute in the

information utility. It is clear that such notice must

bring to the notice of the operational creditor the

"existence" of a dispute or the fact that a suit or

arbitration proceeding relating to a dispute is

pending between the parties. Therefore, all that the

adjudicating authority is to see at this stage is

whether there is a plausible contention which

requires further investigation and that the "dispute"

is not a patently feeble legal argument or an

assertion of fact unsupported by evidence. It is

important to separate the grain from the chaff and to

reject a spurious defence which is mere bluster.

However, in doing so, the Court does not need to be

satisfied that the defence is likely to succeed. The

Company Appeal (AT) (Insolvency) No. 167 of 2017 4

Court does not at this stage examine the merits of

the dispute except to the extent indicated above. So

long as a dispute truly exists in fact and is not

spurious, hypothetical or illusory, the adjudicating

authority has to reject the application."

6. It was submitted that the Adjudicating Authority has erred in not

considering that the Appellant while opposing the claims raised by the

Respondent has also raised a counter claim of Rs. 19 crores before the

Arbitral Tribunal. That fact that, the counter claim was raised by the

Appellant is itself sufficient to show that there is an 'existence of dispute'

as brought to the notice of the 'Operational Creditor' pursuant to reply

under sub-section (2)(a) of Section 8 of the 'I&B Code'. It was submitted

that the Arbitral Award dated 21st January, 2017 cannot be termed to

be 'decree', till it is enforceable and cannot be regarded as a 'debt' before

it is final, if challenged under Section 34 of the Arbitration and

Conciliation Act, 1996. It was further submitted that as per Section 36

of the Arbitration and Conciliation Act, 1996, an Arbitral Award is

enforceable in the same manner as if there is a decree of the Court but

only on the expiry of the time to make an application to set aside the

award under Section 34 of the Arbitration and Conciliation Act, 1996.

Reliance has been placed on Hon'ble Supreme Court's decision in 'Fiza

Developers and Inter-trade P. Ltd. Vs. AMCI (I) (P) '(Ltd.) - 2009 (7)

SCC 796'.

Company Appeal (AT) (Insolvency) No. 167 012017

7. On the other hand, according to counsel for the Respondent-

'Operational Creditor', the Award having been passed, the dispute stand

decided and the award amount is a debt payable to the 'Operational

Creditor'.

8. It was submitted that the Appellant never raised any dispute prior

to notice under sub-section (1) of Section 8 of the 'I&B Code', therefore,

it cannot be termed as dispute in existence. Reliance has been placed on

decision of this Appellate Tribunal in 'MIs. Annapurna Infrastructure

Pvt. Ltd. and Anr. Vs. M/s. SORIL Infra Resource Ltd - Company

Appeal (AT) (Insolvency) No. 32 of 2017' wherein the Appellate

Tribunal held: -

"38. From the impugned order dated 24th March,

2017, we find that the learned Adjudicating Authority

noticed the aforesaid plea at paragraph 6 of the

impugned judgment, as quoted below:

"6. In order to buttress his stand that

applicant is an 'Operational Creditor' learned

counsel has placed reliance on aportion ofpara

3.2.2 of the report of the Bankruptcy Law

Reforms Committee Volume I: Rationale and

Design and has argued that the report clearly

brings out that the obligation to pay rent is

certainly cover by the definition of expression

'Operational Creditors'. According to the

Company Appeal (AT) (Insolvency) No. 167 of 2017 learned counsel the expression 'Operational

Creditor' used in section 5(20) and 5(21) of the

Code must be construed to include the

obligation to pay rent to the applicant as an

'Operational Creditor'. According to the learned

counsel the definition of 'Operational Creditor'

as adopted in section 5(20) of the Code is not

exhaustive but it is illustrative as it is evident

from the use of word 'include'. Mr. Nair has

submitted that it is well settled principle of

law that wherever the expression 'include' is

used to define an expression then it has room

to imply many other things as the definition is

not exclusive."

39. However, we find that the aforesaid issue has

not been decided by the learned Adjudicating

Authority, having not entertained the application

under Sec. 9, on other ground of 'existence of

dispute'.

40. For the reason aforesaid, while we hold that

the finding of the learned Adjudicating Authority

insofar as it relates to 'award', 'default of debt' and

the 'alternative remedy', are not based on sound

principle and against the provisions of law, we refrain

Company Appeal (AT) (Insolvency) No. 167 of 2017 7

to decide the question as to whether the 1st appellant

is an 'operational creditor' or not which is first

required to be decided by learned Adjudicating

Authority.

41. For the aforesaid reasons, we set aside the

impugned order dated 24th March, 2017 and remit the

case to the learned Adjudicating Authority, Principal

Bench, New Delhi to decide as to whether the 1st

appellant is an 'operational creditor' and if so,

whether the application under Sec. 9 preferred by the

appellants is complete for admitting and initiation of

corporate insolvency resolution processi If the first

question relating to status of appellant as 'operational

creditor' is decided in affirmative, in favour of the

appellant, then learned Adjudicating Authority will

decide the issue whether the application is 'complete

or not' and if not complete may grant seven days' time

to the appellants to complete the record as per the

proviso to Sec. 9 of the I&B Code."

9. We have heard learned counsel for the parties and perused the

record.

10. In 'Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt.

Ltd.' (supra) the Hon'ble Supreme Court referred to the facts is to be

Company Appeal (AT) (Insolvency) No. 167 of 2017 8

considered by the Adjudicating Authority for admitting an application

under Section 9 of the 'I&B Code' and held as follows: -

"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)

(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?

35. If any one of the aforesaid conditions is lacking,

the application would have to be rejected.

36. 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

Company Appeal (AT) (Insolvency) No. 167 of 2017 9

case may be, depending upon the factors mentioned

in Section 9(5) of the Act."

11. The question arises for consideration, whether pendency of a case

before a Court under Section 34 of the Arbitration and Conciliation Act,

1996 can be termed to be 'dispute in existence' for the purpose of sub-

section (6) of Section 5 of the 'I&B Code'.

12. It is true that under Section 36 of the Arbitration and Conciliation

Act, 1996, an Arbitral Award is executable as a decree. It can be enforced

only after the time for filing the application under Section 34 has expired

and/or, if no application is made or such application having been made

has been rejected. Therefore, for the purpose of Arbitration and

Conciliation Act, 1996, an Arbitral Award reaches its finality after expiry

of enforcement time or if the application under Section 34 is filed and

rejected. However, for the purpose of 'l&B Code' no reliance can be

placed on Section 34 of the Arbitration and Conciliation Act, 1996, for

the reasons stated below.

13. The 'I&B Code' being a Complete Code will prevail over all other

Acts including Arbitration and Conciliation Act, 1996. As per , Section

238, provision of 'I&B Code' is to override other laws, including

Arbitration Act, 1996, as quoted below: -

"238. Provisions of this Code to override other

laws. - The provisions of this Code shall have

effect, notwithstanding anything inconsistent

Company Appeal (AT) (Insolvency) No. 167 of 2017 10

therewith contained in any other law for the time

being in force or any instrument having effect by

virtue of any such law."

14. Therefore, the provision under the 'I&B Code' with regard to

finality of an Arbitral Award for initiation of 'Corporate Insolvency

Resolution Process' will prevail the provisions of the 'Arbitration and

Conciliation Act, 1996'.

15 For the purpose of Section 9 of the 'I&B Code', the application to

be preferred under Form-5 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016 (hereinafter referred

to as "Rules, 2016") as per which, the order passed by Arbitral

panel/Arbitral Tribunal has been treated to be one of the

documents/ records and evidence of default, as apparent from Part V of

Form 5, as quoted below:

"FORM 5

Part-V

PARTICULARS OF OPERATIONAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF DEFAULT]

1. PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS ESTIMATED VALUE AS PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)

Company Appeal (AT) (Insolvency) No. 167 012017 11

2. DETAILS OF RESERVATION / RETENTION OF TITLE ARRANGEMENTS (IF ANY) IN RESPECT OF GOODS TO WHICH THE OPERATIONAL DEBT REFERS

3. PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL ADJUDICATING ON THE DEFAULT, IF ANY (ATTACH A COPY OF THE ORDER)

4. RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF SUCH RECORD)

5. DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF ADMINISTRATION, OR COURT DECREE (AS MAYBE APPLICABLE), UNDER THE INDIAN SUCCESSION ACT, 1925 (10 OF 1925) (ATTACHA COPY)

6. PROVISION OF LAW, CONTRACT OR OTHER DOCUMENT UNDER WHICH OPERATIONAL DEBT HAS BECOME DUE

7. A STATEMENT OF BANK ACCOUNT WHERE DEPOSITS ARE MADE OR CREDITS RECEIVED NORMALLY BY THE OPERATIONAL CREDITOR IN RESPECT OF THE DEBT OF THE CORPORATE DEBTOR (ATTACH A COPY)

8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT"

16. The aforesaid provisions made in the Form-5 if read with sub-

section (6) of Section 5 and Section 9 of the 'I&B Code' it is clear that

while pendency of the suit or Arbitral Proceeding has been termed to be

an 'existence of dispute', an order of a Court, Tribunal or Arbitral Panel

adjudicating on the default (commonly known as Award), has been

treated to be a "record of Operational Debt".

Company Appeal (AT) (Insolvency) No. 167 of 2017 12

17. In view of the aforesaid provisions of law and mandate of 'I&B

Code', we hold that no person can take advantage of pendency of a case

under Section 34 of the Arbitration and Conciliation Act, 1996 to stall

'Corporate Insolvency Resolution Process' under Section 9 of the 'I&B

Code'.

18. In view of the findings above, no interference is called for against

the impugned order dated 29th August, 2017. In absence of any merit,

the appeal is dismissed. However, in the facts and circumstances of the

case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice A.I.S. Cheema) (Balvinder Singh) Member (Judicial) Member(Technical)

NEW DELHI 20th November, 2017 AR

Company Appeal (AT) (Insolvency) No. 167 of 2017