Insolvency and BankruptcyNCLTRulingsTribunal & Appellate

NCLT treats Arbitral Proceeding or pendency of suit as “existence of dispute” & Arbitral award or Tribunal order as “record of Operational Debt”

NCLT Ruling : Ksheeraabd Constructions Pvt. Ltd vs. Vijay Nirman Company Pvt. Ltd.

NCLT Hyderabad clarified that “pendency of suit” or “Arbitral Proceeding” would be considered as an “existence of dispute” and the order of a Court, Tribunal or Arbitral award would be treated to be a “record of Operational Debt” under Form-5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read Section 5 (6) and Section 9 of the ‘I&B Code.

In the present case, NCLT Hyderabad had admitted and had appointed ‘Insolvency Resolution Professional against Ksheeraabad. Constructions Pvt. Ltd. (Appellant/ ,’Corporate Debtor’) for initiating ‘Corporate Insolvency Resolution Process’. Therefore, the Operational Debtor had appealed and claimed that the application filed by Vijay Nirman Company Pvt. Ltd. (Respondent/ (‘Operational Creditor) u/s 9 of the Code was not maintainable. Petitioner claimed that was a pendency of a case and existence of the dispute as the Arbitral award was passed hence the application u/s 34 of the Arbitration and Conciliation Act, 1996 would to be preferred.

NCLT referred to Section 238 (Provision of this Code to override other laws) of I&B Code and held that, “’I&B Code’ being a Complete Code therefore it will prevail over all other Acts including Arbitration and Conciliation Act, 1996”. NCLT further clarified that the provision under the ‘I&B Code’ with regard to finality of an Arbitral Award for initiation of ‘Corporate Insolvency Resolution Process’ would prevail over the provisions of the ‘Arbitration and Conciliation Act, 1996’.

NCLT held that, “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, of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.”

NCLT referred to ‘Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd.’ wherein SC held that Tribunal should determine the following 3 conditions in order to examine the application u/s 9. Incase any of the mentioned below conditions is lacking then application should be rejected. Below are the 3 conditions :-

(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?

NCLT dismissed the appeal and stated 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’.”

Hence, NCLT dismissed the appeal and decided not to interfere against the order passed against the Petitioner in the impugned order.

 

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