Petition U/S 7 Of IBC Based On Arbitral Award Cannot Be Admitted Before Expiration Of 120 Days From Date Of Award: NCLT Delhi

The National Company Law Tribunal (NCLT), New Delhi bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), has held that a Petition under Section 7 of Insolvency & Bankruptcy Code, 2016 (Code), based on Arbitral Award passed in favour of the Financial Creditor, cannot be admitted unless the time period for filing objections (120 days) against the Award as per Section 34 of the Arbitration & Conciliation Act, 1996 (Arbitration Act) has expired. Background The Applicant, Brilliant Metals Pvt. Ltd. (Financial Creditor) had a business of manufacturing and supplying equipments, including milk and milk processing plants. The Financial Creditor and the Principal Borrower entered into an agreement to set up milk plants across various locations in India. The Principal Borrower did not fulfil its repayment obligations as per the agreement, which led the Financial Creditor to issue a demand notice to the Principal Borrower as well as to the Guarantor, including Avyukta Dairy Products Pvt. Ltd. (Corporate Debtor). Despite receiving the demand notice, the Principal Borrower and Corporate Debtor failed to discharge their obligations which amounted as a default under Section 7 of the Code. Thereafter, as per the agreement the Financial Creditor initiated arbitration proceedings against the Corporate Debtor and the Guarantors. The Arbitral Tribunal passed an award on 02.07.2024 holding the Corporate Debtor and its Guarantors, jointly and severally liable for the outstanding amount of Rs. 2,46,48,957/-. Due to the failure of the Corporate Debtor in complying with the Arbitral award, the Financial Creditor on 04.09.2024 initiated Insolvency proceedings against the Corporate Debtor. The date of default mentioned by the financial creditor in its Application filed before the NCLT, Delhi was 02.07.2024, which is same as the date on which the arbitral award was passed by the Arbitral Tribunal. Findings The Tribunal noted that the date of default mentioned by the Financial Creditor in the application is 02.07.2024 which is the same date on which the arbitral award was passed. It further observed that, a default cannot be deemed to have occurred on the date of the arbitral award itself for the purpose of initiating insolvency proceedings under Section 7 of the Code. A default in payment can be said to have occurred only after the expiration of a reasonable or prescribed time limit for challenging the arbitral award. However, when no time limit has been prescribed for compliance with an arbitral award, the settled legal principle is that an arbitral award attains finality only when the time limit prescribed for filing objections to the award under Section 34 of the Arbitration Act i.e., a total of 120 days has lapsed. It is after the period of 120 days has expired for raising objections, the award becomes enforceable as a decree of the court under Section 36 of the Arbitration Act. The National Company Law Appellate Tribunal (NCLAT) in M/s Annapurna Infrastructure Pvt. Ltd. vs. M/s SORIL Infra Resources Ltd. held that “the arbitral award reaches finality after expiry of enforceable time under Section 34 and/or if application under Section 34 is filed and rejected.” The tribunal further remarked that even if it permitted the applicant to rectify the date of default in the application, the date of filing the Application would remain the same and by no means can the date of filing the Application be rectified. The application was filed on 04.09.2024 which is before the date of default, and the tribunal cannot judge a matter which has been filed even before the default has occurred. Based on the above, the tribunal held that the arbitral award dated 02.07.2024 could not be defaulted upon as of September 2024, when the petition was filed. As, the compliance period or the period for challenging the award had not elapsed by that time. Hence, the Application is clearly not maintainable as per Section 7 of the code as there is no existence of default. Accordingly, the present petition was dismissed. Case Title: M/s Brilliant Metals Pvt. Ltd. V/s Avyukta Dairy Products Pvt. Ltd. Case Number: CP (IB) No. 613 (ND)/ 2024 Judgement Date: 07.02.2025 For Applicant : Mr. Abhishek Anand, Mr. Raghu Vasishth, Advocates Click Here To Read/Download The Order

Petition U/S 7 Of IBC Based On Arbitral Award Cannot Be Admitted Before Expiration Of 120 Days From Date Of Award: NCLT Delhi

Live Law News Network

This is a premium content
Available exclusively to
Our subscribers

INR 1099+GST

Tags

Petition U/S 7 Of IBC Based On Arbitral Award Cannot Be Admitted Before Expiration Of 120 Days From Date Of Award: NCLT Delhi

Live Law News Network

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

Tags

This is a premium content
Available exclusively to
Our subscribers