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TMI Blog2021 (8) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... ) No. 688/KB/2020. By this Impugned Order, the Adjudicating Authority, has allowed CP(IB) No. 688/KB/2020 preferred by M/s. Jai Balaji Industries Ltd. (hereinafter referred to as the 'Operational Creditor') against M/s. Orissa Minerals Development Company Ltd. (hereinafter referred to as the 'Corporate Debtor'). CP(IB) No. 676/KB/2020 was disposed off with a liberty to the 'Operational Creditor' to submit its claim in the CIRP proceedings, to the IRP. While admitting the Section 9 Application, the Adjudicating Authority observed as follows: "10. It has been held by the Apex Court that if it is shown that the application under Section 34 of the A & C Act, 1996 is pending or Appeal under Section 37 of the Act is pending, then insolvency proceedings cannot be initiated. In this case, on the date of filing of this Application under Section 9 of Insolvency and Bankruptcy Code, 2016 i.e. on 29.02.2020, no proceeding under Section 34 or Appeal under Section 37 of the Act was then pending against the Operational Creditor (although restoration application of Appeal was pending). So on the facts, we hold that above ruling is in favour of the Operational Creditor rather than the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Innovations Pvt. Ltd.' Vs. 'Kirusa Software Pvt. Ltd.' (2018) 1 SCC 353 which holds that the moment that there is a dispute between the parties, which need not be a 'bonafide dispute', any Application under Section 9 cannot be admitted. The 'Operational Creditor' has already filed execution proceedings being EC No. 61 of 2010 for enforcing the said Arbitral Award before the Learned Second Court of the Civil Judge, Senior Division at Barasat, North 24 Parganas. The 'Operational Creditor' by filing parallel proceedings for execution of the Arbitral Award was in fact abusing the process of Law. Filing of a Petition under Section 34 of the A&C Act, 1996 against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of proceedings in an Award, continues even after the Award, at least till the final Adjudicatory Process under Sections 34 and 37 has taken place. It is contended that the Adjudicating Authority has ignored the fact that the steps taken for the challenge of the Arbitral Award would indicate that the 'Operational Debt', is a disputed one. It is submitted that the Section 9 Application was affirmed on 29.02.2020 and was filed only on 02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to file application u/s 9 expired on 11.05.2013 or 01.03.2015 i.e. 3 years from the date when 'Operational Debt' became 'due and payable' by the Corporate Debtor i.e. 11.05.2010 (date of award)/ 29.02.2012 ( date of dismissal of Section 34 under A&C Act, 1996) 28.05.2016 IBC came into force. 02.03.2020 Application under Section 9 of the Code filed on the basis that date of default was 22.11.2019 i.e. date of dismissal of the Appeal under Section 37 of the A&C Act, 1996. It is submitted that the date of default would be the date when the Learned District Judge confirmed the Award under Section 34 of the A&C Act, 1996 i.e. 29.02.2012. It is correctly mentioned by the 'Operational Creditor' that the 'Operational Debt' became 'due and payable' on 11.05.2010 but has purposely mentioned a wrong date of default as 22.11.2019. Hence, the Application is clearly time barred as the same ought to have been filed on 11.05.2013 or on 01.03.2015 i.e. three years from the date when the 'Operational Debt' became 'due and payable' by the Corporate Debtor i.e. 11.05.2010 (date of Award) 29.02.2012 (date of dismissal of Section 34 of the A&C Act, 1996). The Learned Counsel placed reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should be done in the manner prescribed and not in any other way.' It is argued that the Code does not acknowledge doctrine of "relation back" upon restoration of the Appeal. Learned Counsel submitted that the issue to be determined in 'Vareed Jacob' Vs. 'Sosamma Geevarghese & Ors.' (2004) 6 SCC 378 is evident from para 5 wherein, "In view of the aforestated arguments, the point which arises for determination is: whether there is automatic revival of interlocutory orders with the restoration of the suit unless the circumstances occurring during the interregnum or the orders passed by the court speak to the contrary." It is submitted that the Judgement does not deal with the doctrine of "relation back" and is only limited to the effect of the Interim Orders upon the restoration proceedings. The majority view of (Hon'ble Justice V.N. Khare and Hon'ble Justice S.H. Kapadia) opined that upon restoration, Interlocutory Orders would stand revived, unless the Court expressly directs to the contrary. It is submitted by the Learned Counsel that, while differing with the majority's conclusion regarding automatic revival of Interlocutory Orders, Hon'ble Justice S.B. Sinha had give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady perfected his title by way of adverse possession then the right so accrued should not be allowed to be defeated by permitting an amendment and seeking a new relief which would relate back to the date of the suit and thereby depriving the defendant of the advantage accrued to him by lapse of time, by excluding a period of about 11 years in calculating the period of prescriptive title claimed to have been earned by the defendant..." The Learned Counsel based on the above legal discussions, submitted that four Principles emerge from the doctrine of "relation back" which are detailed as here under: (i) The said doctrine is not an absolute one and has been consistently applied with applicable limitations in law and fact. (ii) There is no uniformity and straight- jacket formula on the applicability of this doctrine as the same is required to be construed on a case-to-case basis. (iii) This doctrine does not impact the rights accrued in the interregnum period. (iv) No statutorily accrued/vested rights can be disturbed by the use of this doctrine. It is strenuously argued that Section 238 of the Code has an overriding affect and the only defence available with the 'Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12333 of 2019 upon service of the same upon the Advocate for the Jai Balaji Industries Ltd. and the said restoration application is still pending for disposal. (g) The dismissal of the appeal was for default and not on merits and as such the above dismissal cannot be treated as permanent closure of the proceeding of the OMDC for setting aside the Award, particularly when the application for restoration filed within time is still pending for disposal. (h) Even on 24th February 2020 the appellant OMDC Ltd. mentioned the said restoration application before the Hon'ble Appeal Court upon notice to Advocate for the Jai Balaji Industries Ltd. and the Hon'ble Appeal Court has been pleased to direct that the said application will appear in the list on 25.02.2020 and thus the whole matter is sub Judice before the Hon'ble Appeal Court of the Hon'ble High Court at Calcutta. (i) It is also a fact that Jai Balaji Industries Ltd. even filed a Money Execution Case bearing No. 61 of 2010 before the learned 2nd Court of the Civil Judge, Senior Division at Barasat, North 24- Parganas and during pendency of the appeal the said Execution Application remains stand still as per the provisions con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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? If anyone of the aforesaid conditions is lacking, the application would have to be rejected..." (Emphasis Supplied) 8. The Appeal under Section 37 of the A&C Act, 1996, was restored on 02.03.2020. The majority view of the three Judge Bench in 'Vareed Jacob' (Supra) reads as follows:- "17. In the case of Shivaraya v. Sharnappa it has been held that the question whether the restoration of the suit revives ancillary orders passed before the dismissal of the suit depends upon the terms in which the order of dismissal is passed and the terms in which the suit is restored. If the court dismisses the suit for default, without any reference to the ancillary orders passed earlier, then the interim orders shall revive as and when the suit is restored. However, if the court dismisses the suit specifically vacating the ancillary orders, then restoration will not revive such ancillary orders. This was a case under Order 39. 18. In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Order 21 Rule 57 whose scheme is similar to Order 38 Rule 11 and Rule 11-A CPC and therefore, we cannot put all interlocutory orders on the same basis." 9. What can be gleaned from the majority decision is that upon restoration of Appeal to its original number, the Appellant is restored to the position when the Court has initially dismissed the Appeal for default, unless the Court expressly or by implication excludes the operation of any Orders passed during the period between the dismissal of the restoration. 10. The minority view relied upon by the Learned Counsel appearing for 'Operational Creditor' is not applicable to this case. The binding Judicial Precedent is the view taken by the majority. That constitutes the Rule of the Court. Having regard to the interpretation of the ratio laid down in the aforenoted Judgement that once an Appeal is restored to its original number, the fact that Interlocutory Orders would stand revived unless otherwise directed, further strengthens the case of the Appellant herein. We are of the considered view that the ratio of majority view of 'Vareed Jacob' (Supra) is applicable to the facts of this case and hence, we hold that once an Appeal un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled before the receipt of such notice or invoice in relation to such dispute; (b) the [payment] 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 [payment] of the 'Operational Debt' in respect of which the default has occurred." (Emphasis Supplied) 15. Section 8(2)(a) provides that Existence of a Dispute, [if any, or] record of the pendency of the suit or Arbitration Proceedings filed before the receipt of such Notice or invoice in relation to such Dispute. At the outset, what has to be seen is 'whether there is any Existence of Dispute', 'if any or' record of the pendency of the suit or Arbitration Proceedings. In the instant case, it is an admitted fact by both the parties that disputes arose way back in the year 2003 and 2004, and based on the terms of MoU entered into, the 'Ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... Operational Creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures. The alarming result of an 'Operational Debt' contained in an arbitral award for a small amount of say, two lakhs of rupees, cannot possibly jeopardise an otherwise solvent company worth several crores of rupees. Such a company would be well within its rights to state that it is challenging the arbitral award passed against it, and the mere factum of challenge would be sufficient to state that it disputes the award. The code cannot be used in terrorem to extract this sum of money of rupees two lakhs even though it may not be finally payable as adjudication proceedings in respect thereto are still pending. The object of the Code, at least insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist. Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311, followed LKM Investment Holdings (Pte Ltd. v. Cathay Theatres Pte Ltd., 2000 SGHC 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A&C Act together with the steps taken for its challenge would only make it clear that the 'Operational Debt', in the present case, happens to be a disputed one." (Emphasis Supplied) 17. The ratio in the aforenoted Judgement is squarely applicable to the fact of the instant case as it can be seen from the record that the entire basis for the Section 8 Notice is that the Appeals preferred by the 'Corporate Debtor' under Section 37 of the A&C Act, 1996 were dismissed for default on 22.11.2019. The issue that was determined in the aforenoted Judgement 'K. Kishan' (Supra) is that the Code cannot be invoked in respect of an 'Operational Debt' where an Arbitral Award has been passed against the 'Corporate Debtor' but which has not yet been finally adjudicated upon. Further, the filing of the Sections 34 & 37 of A&C Act, 1996 against an Arbitral Award shows that a Pre-Existing Dispute which culminates at the first stage of proceeding in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 & 37 is completed. In the instant case, the 'Corporate Debtor' filed an Application for restoration on 17.12.2019, the Demand Notice was issued on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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