NCLT Kolkata: Debt Arising From Foreign Arbitral Awards Can't Be Considered Financial Debt, But Can Be Treated As “Other Debts”

The National Company Law Tribunal (“NCLT”), Kolkata Bench, comprising Smt. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member) have partly allowed an application and held that the debt arising out of foreign arbitral awards cannot be considered as Financial Debt, however, it can be treated as “Other Debts”. The Bench further observed that since the claim has reached finality in the view of the decree of competent foreign arbitral forums and only the execution is pending before the High Court, the claim should be admitted in full, and provision should have been made from the Resolution Plan value.Background FactsRishima SA Investments LLC (“Applicant”) is a financial investor holding 35% equity shares in Sarga Hotel Pvt Ltd (“Corporate Debtor”). Mr Avishek Gupta (“Respondent”) is the Resolution Professional of Sarga Hotel Pvt Ltd.By final award dated 12.07.2020 read with a partial award dated 30.04.2019 which are foreign arbitral awards (Singapore seated arbitration forums), the Applicant holds a decree against both Shristi Infrastructure Development Corporation Ltd (“SIDCL”) and the Corporate Debtor. SIDCL and the Corporate debtor are liable to pay Rs. 132 Crores in addition to legal costs amounting to Rs. 50.41 Lakhs to the Applicant. The Applicant has filed a petition before the High Court, Delhi for enforcement of these awards in terms of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) which is pending. On 11.02.2022, the Corporate Insolvency Resolution Process (“CIRP”) of the Corporate Debtor was initiated. Following this, based on these awards the Applicant filed Form C dated 25.02.2022 with the Resolution Professional of the Corporate Debtor as a financial debt, during CIRP of the Corporate Debtor. However, the claim was rejected by the Resolution Professional of the Corporate Debtor on 16.03.2022 on the ground that the claim of the Applicant did not meet the criteria of a “financial debt”, following which the Applicant filed his claim in Form F dated 21.03.2022 in protest, in the capacity of “Other Creditors”. The Resolution professional admitted the claim of Applicant as a contingent claim for a notional value of Rs. 1/-. Aggrieved by the action of the Resolution Professional, the Applicant filed this application. Contentions of ApplicantThe Applicant argued that being a decree holder of a foreign arbitral award, the sums due on account of such award would be like financial debt and therefore he is entitled to be treated as a financial creditor and consequently he should be allowed to participate in the Committee of Creditors (“CoC”) meetings. The Applicant further argued that in any event his claim should be admitted at least as other debts and be dealt with in the resolution plan in full. Contentions of RespondentThe Respondent opposed the submissions of the Applicant and argued that the claim of the Applicant cannot be admitted as a financial debt because of the arbitral awards and the cause for arbitral award arose on account of breach of condition contained in the SSHA. Therefore, the Applicant never gave any amount as a loan or gave any financial accommodation to the corporate debtor for his claim to be treated as a “financial debt” in terms of Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (“IBC”). NCLT VerdictNCLT has partly allowed the application and observed that none of the ingredients mentioned in Section 5(8) of IBC which deals with “financial debt” are present in the transactions between the Applicant, SIDCL and Corporate debtor. Therefore, the Applicant cannot be called a financial creditor, and he is not entitled to participate in the CoC meeting of the corporate debtor during the CIRP process. NCLT further observed that since the Applicant is a “decree holder” of a foreign award which is already stamped as a decree the same will have to be considered as debt. Therefore, the action of the Resolution professional in treating this debt as “other debt” cannot be faulted however the claim of the Applicant cannot be disposed of by providing only a notional amount of Rs. 1. Case Title: Rishima SA Investments LLC (Mauritius) vs Avishek GuptaCase No.: I.A. (IB) No. 1131/KB/2022Counsel For Resolution Professional: 1. Ms. Manju Bhuteria, Adv.; 2. Ms. Pooja Mahajan, Adv.; 3. Ms. Mahima Singh, Adv.; 4. Mr. Sourojit Dasgupta, Adv.; 5. Ms. Shreya Mahalwar, Adv. and, 6. Mr. Souvik Mazumdar, Adv.Counsel For Rishima SA Investment LLC (Mauritius): 1. Mr. Debnath Ghosh, Adv.; 2. Mr. Satyaki Mukherjee, Adv. and, 3. Ms. Mini Agarwal, Adv.Counsel For Successful Resolution Applicant: 1. Mr. D. N. Sharma, Adv.; 2. Mr. Orijit Chatterjee, Adv.; 3. Ms. Swati Dalmia, Adv. and, 4. Ms. Arpita Dey, AdvClick here to Read/Download Order

NCLT Kolkata: Debt Arising From Foreign Arbitral Awards Can't Be Considered Financial Debt, But Can Be Treated As “Other Debts”

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NCLT Kolkata: Debt Arising From Foreign Arbitral Awards Can't Be Considered Financial Debt, But Can Be Treated As “Other Debts”

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