TMI Blog2018 (4) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to pendency of appeal u/s 37 of the Arbitration and Conciliation Act, 1996 This Company Petition is dismissed by holding that the dispute has already been in pre-existence in between the Petitioner and Corporate Debtor even before section 8 notice was issued by the Petitioner - CP No. 168l/IB&C/2OL7 - - - Dated:- 16-2-2018 - Mr. B. S. V. Prakash Kumar And Mr. V. Nallasenapathy, JJ. For The Petltioner : Mr. Zat Andyarjina, Adv.a/w and Hemant Prabhulkar, Adv., Mr. Shrey, Adv. And Ms. Prerana S. Adhav, Adv. i/b Jurisperitus For The Respondent : Mr. Kumar Tolani, Adv. ORDER Per B. S. V. Prakash Kumar, Member (ludicial) It is a Company Petition filed under section 9 of Insolvency Bankruptcy Code by the Petitioner against the Corporate Debtor on the footing that the Corporate Debtor having defaulted payment of ₹ 80,88,364.55 as on 30.09.2017 against an Arbitral Award dated 15.09.2002 directing the Corporate Debtor to pay ₹ 10,70,834.50 along with interest @ 18% p.a. to the Petitioner from 12.12.1996 (the date of imposition of liquidated damages) till the date of Award i.e. 15.09.2002, hence this Company Petition for initiation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (IDCOL) and Idcol Cements Ltd. in pursuance of share purchase agreement executed in the month of December 2003 among IDCOL, Idcol Cements Ltd. and ACC (Corporate Debtor), whereby Idcol Cement Ltd. became subsidiary of ACC Cement Ltd. with a name called Bargarh Cement Ltd., in the year 2005, it was again merged into ACC Ltd. It is how the present Corporate Debtor has become liable to pay the outstanding dues subsisting in respect to the supply contract entered between the Petitioner and Idcol Cement Ltd. 4. When the Ld. Dist. Judge of Sambalpur dismissed the challenge made against the Award passed in favor of the Petitioner herein, this Corporate Debtor preferred an Appeal vide ARBA 17/2005 before Hon ble High Court of Orissa u/s 37(l)(b) of the Act which is still pending till date, but no stay has been granted against execution of the Award. For there being no stay against enforcement of the Award, the Petitioner filed an execution Petition 77/2005 against the Corporate Debtor before Sambalpur Civil Court to recover the amount of ₹ 72,36,000 as on July 2015. 5. In the meanwhile, Insolvency Bankruptcy Code having come into force entitling the Petitioner to initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding before the respective authority. As there is no stay against enforcement of the award, filing an appeal u/s 37, according to the Petitioner s Counsel will not amount to existence of dispute. 10. When it comes to dispute, section 5(6) of the Code says, dispute includes suit or arbitration proceeding relating to - a) the existence of the amount of debt, b) the quality of goods or service, or c) the breach of a representation or warranty. 11. It is an admitted fact that reference was made for arbitration in the year 2002, thereafter when award was passed, it was in the year 2005 taken to the District Court u/s 34 of The Act , there when it was decided against the Corporate Debtor/Respondent, the corporate debtor has filed an appeal u/s 37 and the same is still pending. 12. To justify his argument, the Petitioner s Counsel relied upon a case decided by Hon ble NCLAT in between Annapurna Infrastructure (P.) Ltd. v. SORIL Infra Resources Ltd. (Company Appeal (AT), (Insolvency) 32 of 2017, dated 29-8-2017). 22. From clause (a) of sub-section (2) of Sec. 8, we find that pendency of an arbitration proceeding has been termed to be an existence of dispute and not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng alternative remedy under some other enactment cannot become a ground for denying relief to the creditors u/s 9 of the Code, 3) for the Hon ble NCLAT already held in Kirusa Software (P.) Ltd. v. Mobilox Innovations (P.) Ltd. (Company Appeal (AT) Insotvency 6 of 2017) that when an award has been passed by arbitral panel notwithstanding pendency of arbitration proceeding u/s 34 of The Act , the Operational Creditor can proceed on the footing arbitral award is a document entitling the creditors to proceed u/s 9 of the Code. 14. As against this proposition placed by the Counsel of the Operational creditor, the only hitch that comes in the way of deciding this case is as to whether proceeding u/s 37 of The Act is an arbitration proceeding or not. This point was not brought to the notice of Hon ble NCLAT while deciding M/s, Annapurna Infrastructure Pvt. Ltd. Anr. v. M/s. SORIL Infra Resources Ltd. (Company Appeal (AT) (Insolvency) 32/2077 decided on 29.08.2077) besides this, Hon'ble Supreme Court set aside Hon'ble NCLAT order passed in Mobilox Innovations Pvt, Ltd, v. Kirusa Software Pvt. Ltd. ((2018) 7 SCC 253 ) stating as follows: 56. Going by the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as below: Arbitration Conciliation Act, 1996 Part 1 Arbitration Section 2 Definitions: (a) arbitration means any arbitration whether or not administered by a permanent arbitral institution; (b) arbitration agreement means an agreement referred to section 7; (c) arbitral award includes an interim award; (d) arbitral tribunal means a sole arbitrator or a Panel of arbitrators. 21. Commencement of arbitral proceedings: - Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent 32. Termination of proceedings: - (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). (2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where- (a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognizes a legitimate Interest on his part in obtaining a final settlement of the dispute, (b) the parties agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to interpret it by looking at the heading of this section, then we will have to see chapter heading then to parts in case the Act is divided into parts. When a specific part of the enactment is titled as arbitration, how could it be said that the proceedings included under the said head is not an arbitration proceeding. Apart from this, interpretation of law normally remains in alignment with context in which application is required, here we are doing all this exercise to arrive to a conclusion as to whether or not pendency of appeal amounts existence of dispute under another enactment, not to decide something under Arbitration and Conciliation Act, 1996, here it is Insolvency and Bankruptcy Code. 20. In view of these reasons only, in the Insolvency Bankruptcy Code, it has been defined as arbitration proceedings, not as arbitral proceedings, therefore, beginning from section 21 and ending at section 32 in respect to arbitral proceedings cannot be equated or extended to arbitration proceedings. 21. May be it is to some extent right in respect to issue of limitation and other aspects having regard to arbitration proceedings, but it cannot be exceeded to say that once arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence, then what could be the eventuality, if the other side feels it is obligeable and obliges, then also cause for dispute automatically gets frustrated. Any of this kind happened in this case? What in fact happened is admittedly delay happened in completion of work in late 90s, then bank guarantee invoked, by which, the petitioner having felt aggrieved, it has caused commencement of arbitral proceedings. Dispute here is invocation of bank guarantee, which led to initiation of arbitral proceedings. All was said for one and only one reason is receiving of reference is not commencement of dispute, but commencement of arbitral proceeding is owing to existence of dispute as on the date reference is made. So what we say is existence of dispute and commencement of arbitral proceedings are two different actions, commencement of arbitral proceedings is sequel to existence of dispute, so closure of arbitral proceedings need not be closure of dispute. It will be further clear if answer to second point is looked into. 24. Second point: On close reading of section 32 that is the stage for termination of arbitral proceedings, it is evident that arbitral proceedings can terminate in two wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the arbitral award, can it be at least for the sake of IBC said that there is no pre-existing dispute in respect to the operational debt claim made by the petitioner. We believe it is not so. May be, it is to some extent right in respect to arbitration proceedings, because for challenge u/s 34, there are some qualifications, likewise to file an appeal u/s 37, there are further qualifications, but those qualifications cannot be magnified to the extent to say that no dispute is in existence in between the Petitioner and the corporate debtor when appeal is pending. If dispute is terminated or closed by virtue of section 32 of the Act, what for appeal is filed? 27. One thing we should not get lost sight of is logic; law is almost all times an imprimatur of state to the logic appealable to layman. When logic is lost in our decision, there is somewhere something wrong in our objective perception, because logic is supported by law. No law without reason. 28. When it comes to existence of dispute under IBC in respect to arbitration proceedings, jurisprudence and the rules of the game will automatically will be different. Just because a claim under the Act is permitted to proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al court to do away the devouring evil the then existing. State time to time comes with enactments to eradicate the evils pestering the society, in doing so; the requisite strength that is required to do away the evil will be infused into it. It does not mean the same vigor is applicable to another enactment on a particular meaning given in that statute. One of the reasons considered for saying Limitation Act is not applicable in the afore said enactment is due to suo motu power of attachment of the property of the notified person, for this reason alone, it has been held that Court is not bound by any period of limitation unless it has been prescribed under the said enactment. Same cannot be equated to a case where remedy is provided for a money claim. We must also say one more thing, that is the concept in dealing with winding up proceedings under 1956 Act is different from I B Code concept. Under old Companies Act, inability of payment is of primordial importance to pass winding up order, but when it comes to IB Code, it is missing. Here, existence of debt and default are elements necessary to admit cases, therefore whatever concepts that are established under old Companies Act c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of unpaid operational debt- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation : - For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. 9. (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed. (3) The operational creditor shall, along with the application furnish- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mence from the date of admission of the application under sub-section (5) of this section. 35. In section 8, it has been envisaged that a notice has to be given intimating debt and default, on which, if the corporate debtor having failed to respond to the notice either by paying unpaid debt or by notifying it to the petitioner about existence of dispute within 10 days prior to receipt of section 8 notice, the petitioner gets cause of action to file petition under section 9 on two situations, 1 - if reply has been given notifying existence of dispute since before receipt of notice, 2 - if reply notice has not been given within 10 days from the date of receipt of section 8 notice. On first count, the petitioner if files case under section 9 despite reply has come to it within 10 days disputing the claim, heavy burden lies upon it to prove that no dispute is in preexistence as on the date of receipt of section 8 notice. In second count, if reply has not been given, it cannot be assumed that petition u/s 9 shall be admitted, but burden shifts upon the corporate debtor to prove dispute is in existence. Basing on the cause of not replying alone, petition cannot be admitted, because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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