Pendency Of Execution Petitions Or Appeals Under Sec.37 Of The Arbitration & Conciliation Act, Not A Bar To Initiate Insolvency Resolution Process; NCLAT [Read Judgment]

It was quite uncertain as to whether the preference of an Appeal under Sec.37 of the Arbitration and Conciliation Act, 1996 against the dismissal of the objection under Sec.34 would amount to 'an existence of dispute' which debars initiation of Corporate Insolvency Process under Sec.9(1) of the I & B Code, and equally unclear about the status of 'pendency of an Execution Petition for the enforcement of an Arbitral Award' would debars the initiation of Corporate Insolvency Process. In a recent judgment, the National Company Law Appellate Tribunal in M/s Annapurna Infrastructure Pvt Ltd Vs. M/s Soril Infra Resources Ltd (Company Appeal (AT) (Insolvency) No.32 of 2017) has settled this long pending legal issue. NCLAT has elaborately dealt with this question and come to a conclusion that the pendency of Sec.37 Appeal under the Arbitration and Conciliation Act cannot be treated as an 'existence of dispute' under Sec.8(2)(a) of I & B Code which bars initiation of insolvency process under Sec.9 of the Code. It has further held that the pendency of a proceeding for execution of an Award or a judgment and decree shall not act as a bar for an operational Creditor to prefer a petition under the I & B Code.?'The term 'dispute' is defined in 5(6) of the I & B Code, as follows;"5. In this part, unless the context otherwise requires, -(6). "dispute" includes a suit or arbitration proceedings relating to-(a) the existence of the amount of debt;(b) the quality of goods or service; or(c) the breach of a representation or warranty;"While describing the obligation of corporate debtor to reply to the demand notice, Sec.8(2)(a) of the Code, says that the Corporate debtor shall within a period of 10 days of the receipt of the demand notice or copy of the invoice, bring to the notice of the operational creditor that "existence of a dispute, if any, and record or the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute." Sec.8(2)(a) would make it clear that pendency of an arbitration proceedings has been termed as an 'existence of dispute' and not the pendency of an application under Sec.34 or Sec.37 of the Arbitration Act. Annapurna case is arises out of dismissal of the application under Sec.9 of the I& B Code, by the NCLT holding that a Sec.37 Appeal is pending against the dismissal of Sec.34 Petition and hence it constitutes 'an existence of dispute' for the purpose of the Code. M/s Annapurna, the operational Creditor had also filed an Execution Petition for the enforcement of the Arbitral Award prior to the enactment of the I & B Code. The Corporate Debtor defended the Insolvency proceedings on two grounds; There is existence of dispute since the appeal preferred by them under Sec.37 of the Arbitration and Conciliation Act, is pending before the competent Court; Execution petition filed by the operational creditor for enforcement of the Award is pending for adjudication and hence the insolvency process is barred by the principles of forum shopping.Sadly, the application for initiating insolvency resolution process was dismissed by the Principal Bench of NCLT, New Delhi imposing a cost of Rs.1,00,000/- on the operational creditor. According to the NCLT, The Corporate Debtor has already preferred a Sec.37 Appeal against the dismissal of Sec.34 Petition under the Arbitration and Conciliation Act, which shows that the Arbitration Award had not yet attained finality and there is complete answer to the claim made by the applicant in terms of Sec.8(2)(a) r/w Sec.9(1) of I&B Code. It was held that, 'it is a classical case where a dispute between the parties has already been subjected to the arbitration proceedings which are yet to attain finality'. Since the Operational Creditor has already initiated Execution proceedings for implementing the Arbitral Award against the Corporate Debtor, the initiation of Corporate Insolvency Process u/s 9 of I & B Code amounts to forum shopping.NCLAT reversed the above findings with the following conclusions. 8(2)(a) of the Code states 'pendency of an arbitration proceedings' can be termed to be an 'existence of dispute' and not pendency of an application under Sec.34 or Sec.37 of the Arbitration Act. The order passed by Arbitration Panel has been cited as one of the document in the Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which is the form required to be filed to apply under Sec.9 of the Code. Hence the Arbitral Award has been held to be a document of debt and non-payment of awarded amount amounts to 'default of debt' which invites corporate insolvency resolution process under the I & B Code. Arbitral Award reaches finality after expiry of enforceable time under Sec.34 and/or if application under Sec.34 is filed and rejected. Hence Award is the final determination of a particular issue or claim in the arbitration. Pendency of Appeal under Sec.37 of...

Pendency Of Execution Petitions Or Appeals Under Sec.37 Of The Arbitration & Conciliation Act, Not A Bar To Initiate Insolvency Resolution Process; NCLAT [Read Judgment]

Rajesh Panayanthatta

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Rajesh Panayanthatta

Pendency Of Execution Petitions Or Appeals Under Sec.37 Of The Arbitration & Conciliation Act, Not A Bar To Initiate Insolvency Resolution Process; NCLAT [Read Judgment]

Rajesh Panayanthatta

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Rajesh Panayanthatta

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