Arbitral Tribunal Has Power To Pass Interim Award On Basis Of Admissions Made Before IRP In CIRP Proceedings: Delhi High Court

Dismissing the argument of the appellant that the admissions made before the IRP cannot be treated as an admission in the arbitral proceedings, the bench of Justices Suresh Kumar Kait and Neena Bansal Krishna remarked that Order XII Rule 6 of the Code of Civil Procedure, 1908 (CPC) is couched in the widest terms and the same permits considering the admissions made in the pleadings before the Court or “otherwise”.

Order XII Rule 6 of CPC gives power to the Court to pass orders or give judgment, having regard to the admissions of fact made by the parties in the pleadings before the Court or otherwise.

After certain disputes arose between the appellant, Bharat Heavy Electricals Ltd, and the respondent, M/s. Zillion Infraprojects Pvt Ltd, under a Contract, the respondent/claimant invoked the arbitration clause.

After the commencement of the arbitral proceedings, Corporate Insolvency Resolution Process (CIRP) was initiated against the respondent under the Insolvency and Bankruptcy Code, 2016 (IBC).

The appellant/Operational Creditor, Bharat Heavy Electricals, appeared before the IRP and submitted its claims against the respondent/ debtor in Form B under Section 7 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 under various head. In the said Form B, the appellant admitted that a specified sum was liable to be adjusted as set off, from the total amount payable to it by the respondent/ debtor.

The respondent/ claimant, Zillion Infraprojects, filed an application under Section 31(6) read with Section 17 of the A&C Act, for allowing an interim Award in terms of the admitted amount, stated as set-off by the appellant in Form B before the IRP.

The Sole Arbitrator allowed the application of the respondent/claimant and granted an interim Award with respect to the said admitted amount.

The interim Award was challenged by the appellant under Section 34 of the A&C Act before the District Court, who dismissed the petition.

Against this, the appellant, Bharat Heavy Electricals, filed an appeal before the Delhi High Court under Section 37 of the A&C Act.

The appellant, Bharat Heavy Electricals, argued before the High Court that the alleged admissions mentioned as setoff in Form B, as submitted before the IRP in the CIRP proceedings, cannot be considered as a determinate amount or an unequivocal admission, till the same is adjudicated along with the Claims before the Arbitral Tribunal.

The appellant pleaded that the amount awarded by the Arbitrator in its interim Award, is against the principles laid down in Order XII Rule 6 of CPC, which requires that the admission must be clear, unequivocal and categorical.

Referring to the Apex Court’s decision in Union of India vs. Karam Chand Thapar & Bros. (Coal Sales) Ltd. (2004) 3 SCC 504 and the Delhi High Court’s decision in Amit Kumar Chopra vs. Narain Cold Storage & Allied Industries Pvt Ltd. 2014 (208) DLT 509, the Court observed that equitable set-off is different than the legal set-off. While Rule 6 Order VIII of CPC deals with legal set-off, equitable set-off is independent of the provisions of CPC.

Mutual debts and credits or cross-demands, to be available for extinction by way of equitable set-off, must have arisen out of the same transaction or must be connected in their nature and circumstances. Further, the plea of equitable set-off cannot be raised as a matter of right, and that it is the discretion of the court to entertain and allow such a plea, the Court observed.

Noting that equitable set-off is founded on the fundamental principles of equity, justice and good conscience, the bench took note that an equitable set-off is not to be allowed where protracted enquiry is needed for determination of the sum due.

Referring to the facts of the case, the bench concluded that the said set-off arises in the same business transactions between the parties. Further, it has been made in the proceedings relating to the claims/counter-claims filed by the parties against each other.

While concluding that the appellant, by giving a detailed statement of claims in Form B before the IRP, has indicated that the set-off amount has to be paid by it to the respondent/ claimant, the Court remarked, “It is a categorical admission by the appellant which requires no further adjudication, and there can be no evidence better than an admission.”

The appellant, Bharat Heavy Electricals, further argued before the High Court that since the set-off amount also finds mention in the Counter-Claim/documents filed by it before the Arbitral Tribunal, the set-off cannot be looked into till the adjudication of the Claim and the Counter-Claim by the Tribunal.

Dismissing the argument of the appellant, and while holding that the Counter-Claim is like an independent Suit filed by the appellant which needs independent adjudication, the Court remarked, “Merely because, the set-off finds mention in the counter-claim/documents filed by the appellant, it does not take away the character of the set-off which is an admission of a liability. The argument thus raised, on behalf of the appellant that the set-off cannot be looked into till the adjudication of the claim and the counter-claim, is frivolous and not tenable.”

The appellant, Bharat Heavy Electricals, also averred before the Court that Form B, in which the set-off amount is mentioned, had been filed before the IRP and not before the Arbitrator and thus, it cannot be treated as an unequivocal admission in the arbitral proceedings.

To this, the bench said, “The law on judgements on admissions as contained in Order XII Rule 6 CPC, 1908 is couched in widest terms to permit considering the admissions made in the pleadings or “otherwise”.”

The appellant’s admission of set-off amount in Form B is not couched with any clarification, explanation or any denial, and the admissions are unequivocal and have rightly formed the basis of the interim Award, the Court said. The bench also observed that the interim Award is subject to any adjustments, if required, at the time of final adjudication.

“The learned Arbitrator has judiciously exercised its jurisdiction under Section 31(6) of the Act, 1996 to give an interim Award on the basis of admission made by the appellant in Form B by way of set-off. There is no illegality, perversity or irrationality in the findings so returned by the learned Arbitrator which have been accepted by the learned District Judge,” it ruled.

The Court thus dismissed the appeal.

Case Title: Bharat Heavy Electricals Ltd vs M/s Zillion Infraprojects Pvt Ltd

Citation: 2023 LiveLaw (Del) 179

Dated: 21.02.2023

Counsel for the Appellant: Ms. Mani Gupta, Ms. Iti Pandey & Ms. Sonali Jain, Advocates

Counsel for the Respondent: Mr. Sumit Kumar & Ms. Shivani Shukla, Advocates

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