TMI Blog2023 (6) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... starting point where the bar under Section 238 of the IB Code can be said to be capable of being invoked and the mere filing of an application under Section 7(1) of the IB Code cannot be said to be enough to invoke the bar - What is also material to note is that Section 7(5)(b) of the IB Code permits the Adjudicating Authority to reject the application where it is of the opinion that default has not occurred, thereby indicating that the mere filing of an application under Section 7(1) of the I B Code, would not act as a bar to any proceedings under other statutes, until and unless the satisfaction as contemplated by Section 7(4) r/w Section 7(5)(a) of the IB Code is recorded by the Adjudicating Authority and the application is admitted. It would also be material to note that there does not appear to be anything inconsistent between the provisions of the A C Act and the IB Code, inasmuch as the provisions of Section 238 of the IB Code would come into play only upon an order having been passed by the Adjudicating Authority under Section 7(5) of the IB Code and therefore an application under Section 11(6) of the A C Act, till such time cannot be said to be not maintainable - In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant, submits that once the above two conditions are admitted to exist, there is no other option than to appoint an arbitrator and the opposition by the respondent, is really without any merit. It is also contended that no order as yet has been passed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short IB Code , hereinafter), in proceedings initiated by the respondent and therefore mere initiation of proceedings does not injunct this Court from entertaining and deciding this application. It is also contended that the matter is covered by the judgment of this Court in Jasani Realty Pvt. Ltd. Vs. Vijay Corporation (Commercial Arbitration Application (L) No. 1242/2022, Decided on 25/04/2022), in which a similar issue has been decided. The applicant is a solvent company and the proceedings by the respondent before the National Company Law Tribunal (for short NCLT , hereinafter) under the IB Code are clearly not tenable at all. 3.1. Mr. Ashutosh Dharmadhikari, learned counsel for the applicant, in support of his contention, relies upon the following decisions :- (i) Sanjiv Prakash Vs. Seema Kukreja and others (2021) 9 SCC 732 ; (ii) DLF Home Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLT are not maintainable. 4.1. On the fact of the matter he submits that in fact there is no dispute at all as there is an admission by the applicant as to its liability to pay, for which he invites my attention to the e-mail dated 23/10/2019 (pg. 239), in which, the applicant has stated that due to financial crunch they will pay the dues later. According to him, only when the respondent expressed its intention to invoke the provisions of the IB Code by its notice dated 25/08/2020, the dispute was first created by the applicant by its reply dated 15/09/2020 after which the present application under Section 11 of the A C Act came to be filed on 23/10/2020, consequent to which, a petition under Section 9 of the IB Code was filed by the respondent before the NCLT on 22/01/2021. It is, thus, submitted that though no dispute existed, it was now sought to be created solely for the purpose of invoking Section 11 of the A C Act, claiming variation in test sample for which already a credit-note stood issued by the respondent, for which, reliance is placed on Bharat Sanchar Nigam Limited and another Vs. Nortel Networks India Private Limited (2021) 5 SCC 738. It is also conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less. Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second provisos within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission. Explanation . For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish (a) reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor - (a) 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; (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. Section 9. Application for initiation of corporate insolvency resolution process by operational creditor. - (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate debtor, if (a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section. 5.2. Section 238 of the Insolvency and Bankruptcy Code, reads as under : 238. Provisions of this Code to override other laws. - The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7(5)(b) of the IB Code permits the Adjudicating Authority to reject the application where it is of the opinion that default has not occurred, thereby indicating that the mere filing of an application under Section 7(1) of the I B Code, would not act as a bar to any proceedings under other statutes, until and unless the satisfaction as contemplated by Section 7(4) r/w Section 7(5)(a) of the IB Code is recorded by the Adjudicating Authority and the application is admitted. 5.6. This position has been considered by the Hon ble Apex Court in Indus Biotech (supra), in the following words : 17. The procedure contemplated will indicate that before the adjudicating authority is satisfied as to whether the default has occurred or not, in addition to the material placed by the financial creditor, the corporate debtor is entitled to point out that the default has not occurred and that the debt is not due, consequently to satisfy the adjudicating authority that there is no default. In such exercise undertaken by the adjudicating authority if it is found that there is default, the process as contemplated under sub-section (5) of Section 7 of IB Code is to be followed as provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petition is not ripe to be entertained or does not constitute all the ingredients, more particularly default, to admit the petition, since even such order would remain appealable to NCLAT and the Supreme Court where the correctness in that regard also will be examined. After considering Vidya Drolia (supra) it has been held that : 26. The underlying principle, therefore, from all the abovenoted decisions is that the reference to the triggering of a petition under Section 7 of the IB Code to consider the same as a proceedings in rem, it is necessary that the adjudicating authority ought to have applied its mind, recorded a finding of default and admitted the petition. On admission, third-party right is created in all the creditors of the corporate debtors and will have erga omnes effect. The mere filing of the petition and its pendency before admission, therefore, cannot be construed as the triggering of a proceeding in rem. Hence, the admission of the petition for consideration of the corporate insolvency resolution process is the relevant stage which would decide the status and the nature of the pendency of the proceedings and the mere filing cannot be taken as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent application has been filed on 23/10/2020, considering which, it cannot be said that the application is beyond time. A plea that the dispute/claim itself would be beyond time, is one which will have to be considered by the Arbitrator. 8. In view of what has been held in Indus Biotech (supra) that, the triggering of a petition under Section 7 of the IB Code to consider the same as a proceeding in rem, it is necessary that the Adjudicating Authority ought to have applied its mind, recorded a finding of default and admitted the petition, Gujarat Urja Vikas Nigam Limited Vs. Amit Gupta and others (2021) 7 SCC 209 and KSL and Industries Limited Vs. Arihant Threads Limited and others, (2008) 9 SCC 763 are of no assistance, for a contrary argument, to be acceptable. 9. No doubt there is very narrow scope of judicial consideration in an application under Section 11 (6) of the A C Act, however, in light of what has been held in Indus Biotech (supra) in which Vidya Droila (supra) has been considered and Jasani Realty Pvt. Ltd. (supra), in my considered opinion, cover the issue. 10. The application is, therefore, allowed and Mr. Justice Z. A. Haq, Former Judge of this Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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