TMI Blog2022 (4) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the same by the NCLT de hors the application filed under Section 7 of the IBC and the material produced therewith will not arise. It was observed that the adjudicating authority (NCLT) is duty bound to advert to the material available before it, alongwith the application under Section 7 of the IBC, by the financial creditor to indicate the default alongwith the version of the corporate debtor. In the context that even if an application under Section 8 of the ACA is filed, it was observed that the adjudicating authority has a duty to advert to the contentions put forth under an application filed under Section 7 of the IBC by examining the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. At the same time while doing so, the contention being put forth by the corporate debtor is to be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is default. It was categorically observed that if the irresistible conclusion of the adjudicating authority (NCLT) is that there is default and the debt is payable, the bogey of arbitration to delay the process would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation filed under Section 11 of the Arbitration and Conciliation Act,1996 (for short the ACA ). The question being, whether mere filing of a proceeding under Section 7 of the Insolvency and Bankruptcy Code, 2016, would amount to any embargo on the Court considering an application under Section 11 of the Arbitration and Conciliation Act,1996, to appoint an arbitral tribunal? 2. Briefly the facts are: It is the case of the applicant that the respondent in the usual course of its business provided financial assistance to the applicant of an amount of ₹ 4,50,00,000/- for which a loan Agreement dated 23 April 2015 was entered between the applicant and the respondent referred as Agreement No.1 . 3. As contended by the applicant, the business scenario had undergone a change and created a negative impact during the subsistence of Agreement No.1. In such situation, another agreement dated 5 July 2016 referred to as Agreement No.2 was executed between the parties, under which, the date of repayment of the borrowing was extended from 30 June 2015 to 31 March 2017. Except for such variation, it is contended that the terms and conditions in such agreement are similar to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l tribunal, the present application has been filed under Section 11(6) of the Arbitration and Conciliation Act,1996 (for short the ACA ) praying, that an arbitral tribunal be appointed. 7. A reply affidavit has been filed on behalf of the respondent opposing the petition. At the outset, an objection is raised to the maintainability of the present application on the ground that the application is an afterthought and an attempt on the part of the applicant to dilute the prior proceedings filed by the respondent before the NCLT. It is contended that the respondent s proceedings before the NCLT pertain to the admitted liability of the applicant and as the applicant has no defence before the NCLT, the present application has been filed to escape the rigors under the IBC. 8. It is the respondent s case that the record is replete with petitioner s admission of liability and its failure to clear the outstanding amounts payable to the respondent under the loan agreements. It is contended that an offer was made by the applicant by forwarding an allotment letter dated 23 April 2015 of a flat in the upcoming project of the applicant named Gyan Ghar to secure the amounts payable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent to the maintainability of this petition. The objection is on the ground that once prior in time to the present proceedings, when a recourse is taken by the respondent to the provisions of Section 7 of the IBC, by initiating proceedings against the applicant before NCLT, whether the Court in such event, would be precluded from exercising jurisdiction under Section 11 of the ACA to appoint an arbitral tribunal ? 12. The common bone of contention, as urged on behalf of the parties is referring to the law as laid down by the Supreme Court in Indus Biotech (supra). On one hand Dr.Iqbal, learned Counsel for the respondent referring to such decision of the Supreme Court would submit that a holistic reading of such decision, would bring about a position in law that the IBC proceedings are required to be given primacy, that is, till the NCLT passes an order under sub-section (5) of Section 7, the Section 11 ACA application, ought not to proceed, so as to appoint an arbitral tribunal. 13. On the other hand Dr.Saraf, learned Senior Counsel for the applicant would submit that once the IBC proceedings are at the preadmission stage or in other words, once no order is passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of Indus to repay any amount claimed respondent nos.1 to 4. Indus Biotech accordingly contended that, as the parties themselves could not resolve the disputes, the same be referred to arbitration and for such reason a proceedings before the Supreme Court were filed. Respondent Nos.1 to 4, however, contended that they having subscribed to the optionally convertible redeemable preference shares of Indus Biotech, and on redemption of the same, the amount was required to be paid by Indus Biotech to respondent Nos.1 to 4, being an amount of ₹ 367,08,56,503/- which had become due and payable to respondent nos.1 to 4. It was contended that when such amount was demanded, the same was not paid to them by Indus Biotech, and hence, there was default on the part of Indus Biotech. In such situation as the debt had not been paid by Indus Biotech, respondent Nos.1 to 4 had invoked the jurisdiction of NCLT by initiating the Corporate Insolvency Resolution Process under the IBC. Respondent No.2 had also filed a petition under Section 7 of the IBC seeking appointment of a resolution Professional. It was contended that in such proceedings, Indus Biotech had filed a Miscellaneous Applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der that the invocation of arbitration in a case like this seems to be justified. In our view, the stage of the proceedings at which the said observation was made will be relevant. If the case has reached the stage to the status of a proceeding in rem, then such observation would not be justified and sustainable but not otherwise. In the instant case, the petition was yet to be admitted and, therefore had not assumed the status of a proceedings in rem. . .. 24. In the case of Swiss Ribbons Private Limited vs. Union of India (2019) 4 SCC 17 and Pioneer Urban Land and Infrastructure Limited vs. Union of India Ors. (W.P.(C) No.43/2019) relied on behalf of Kotak Venture, the entire scope and ambit of the IB Code was considered and the validity of the provisions were upheld. The said decisions have also been relied on to contend that when the petition under Section 7 of IB Code is triggered it becomes a proceedings in rem and even the creditor who has triggered the process would also lose control of the proceedings as Corporate Insolvency Resolution Process is required to be considered through the mechanism provided under the IB Code. The principles as laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication being filed by Indus Biotech, for referring the dispute to arbitration, the Supreme Court in paragraph 25 observed as to what should be the course to be adopted by the adjudicating authority (NCLT), when the application under Section 8 of the ACA is filed seeking reference to arbitration. Reiterating the legal position that before the Section 7 proceedings are admitted, it would not be an action in rem, the Supreme Court observed that notwithstanding the fact that the corporate debtor files an application under Section 8 of the ACA, an independent consideration of the same by the NCLT de hors the application filed under Section 7 of the IBC and the material produced therewith will not arise. It was observed that the adjudicating authority (NCLT) is duty bound to advert to the material available before it, alongwith the application under Section 7 of the IBC, by the financial creditor to indicate the default alongwith the version of the corporate debtor. The Court emphasized that this would be keeping in perspective the scope of the proceedings under the IBC and there being a timeline for the consideration to be made by the adjudicating authority, as also for the reason tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 25, 26 and 27 of the decision in Indus Biotech (supra), thus: 25. 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 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act, 1996. (emphasis supplied) 21. The above observations as made by the Supreme Court would lead this Court to come to an inevitable conclusion that mere filing of the proceedings under Section 7 of the IBC cannot be treated as an embargo on the Court exercising jurisdiction under Section 11 of the ACA, for the reason that only after an order under sub-section (5) of Section 7 of the IBC is passed by the NCLT, the Section 7 proceedings would gain a character of the proceedings in rem, which would trigger the embargo precluding the Court to exercise jurisdiction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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