This case involves an insolvency petition under Section 9 of the IBC based on an arbitral award disputed by the corporate debtor. The NCLT held that the pending Section 37 appeal constituted a continuation of the dispute and dismissed the insolvency application.
The insolvency resolution process was not allowed to be initiated.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH (COURT II) KOLKATA
C.P. (I.B.) No. 268/KB/2021
A Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016
IN THE MATTER OF:
MASYC PROJECTS PRIVATE LIMITED , having CIN: U74899DL1990PTC038957 and having its Registered Office: 23, Community Centre, Mayapur Phase – I, New Delhi 1100645
..... Operational Creditor/ Applicant
-Versus-
HIRANMAYE ENERGY LIMITED , Erstwhile India Power Corporation (Haldia) Limited, having CIN: U40105WB2008PLC125220 Registered Office: Centre for Excellence, Plot No. X-1, 2&3, Block-EP, Sector-V, Salt Lake City, Kolkata 700091
..... Corporate Debtor/ Respondent
Date of Hearing: December 23, 2022 Date of Pronouncing the Order: June 05, 2023
CORAM:
SMT. BIDISHA BANERJEE, HON’BLE MEMBER (JUDICIAL) SHRI BALRAJ JOSHI, HON’BLE MEMBER (TECHNICAL)
Ld. Counsels on Record appeared Physically/ through Video Conferencing:
For Operational Creditor:
1. Mr. Shyak Mitra, Adv.
2. Mr. Abhidipto Tarafder, Adv.
3. Ms. Anshumala Bansal, Adv.
4. Ms. Prarthana Singha Roy, Adv.
For Corporate Debtor:
1. Mr. Joy Saha, Sr. Adv.
IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH (COURT II) KOLKATA
C.P. (I.B.) No. 268/KB/2021
2. Mr. Aasish Choudhary, Adv.
3. Mr. Ritoban Sarkar, Adv.
4. Ms. Puja Tripathi, Adv.
O R D E R
Per: Bidisha Banerjee, Member (Judicial)
1. This Court is congregated through hybrid mode.
2. This instant petition has been filed by Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “ I&B Code ”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016 by MASYC Project Private Limited , the Applicant hereinafter referred as Operational Creditor against Hiranmaye Energy Limited , the Respondent hereinafter referred as Corporate Debtor seeking to initiate insolvency resolution process against the Corporate Debtor.
3. It is claimed that the Corporate Debtor is a non-govt. public company limited by shares, incorporated on 28/04/2008 and has the Authorized Share Capital of Rs. 10,20,00,00,000/- and Paid-up Share Capital of Rs. 5,11,82,46,100/-
4. Particulars of the Operational Debt:
| Total | Rs.1,71,87,500/-(Rupees One Crore Seventy One Lakhs |
|---|---|
| Amount | Eighty Seven Thousands And Five Hundreds Only), which in |
| of Debt: | terms of the Arbitral Award passed on 30.07.2019 in the |
| Arbitration Case No. 520 of 2018 comprises of the Principal | |
| Amount of Rs.1,25,00,000/- (Rupees One Crore And Twenty Five | |
| Lakhs Only) along with the Accrued Interest @18% per annum calculated with effect from 30.07.2019 till 17.08.2021 as |
|
| Rs.46,87,500/- (Rupees Forty Six Lakhs Eighty Seven Thousands And Five Hundreds Only) . |
|
| Total | Rs.1,71,87,500/-(Rupees One Crore Seventy One Lakhs |
| Amount | Eighty Seven Thousands And Five Hundreds Only), which in |
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IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH (COURT II) KOLKATA
C.P. (I.B.) No. 268/KB/2021
in terms of the Arbitral Award passed on 30.07.2019 in the Default: Arbitration Case No. 520 of 2018 comprises of the Principal Amount of Rs.1,25,00,000/- (Rupees One Crore And Twenty Five Lakhs Only) along with the Accrued Interest @18% per annum calculated with effect from 30.07.2019 till 17.08.2021 as Rs.46,87,500/- (Rupees Forty Six Lakhs Eighty Seven Thousands And Five Hundreds Only) . Date of July 30, 2019 Default
5. Operational Creditor has relied on the following documents in support of its claims:
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C.P. (I.B.) No. 268/KB/2021
6. In a Nutshell, the Submissions of the Ld. Counsel of the Applicant would be this:
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MSMED, Act, 2006 could only be challenged subject to the fulfilment of the conditions under Section 19 of the said MSMED Act, 2006 which envisages as follows:
“ Application for setting aside decree, award or order – No application for setting aside any decree , award or other order made either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by any court unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, the other order in the manner directed by such court : Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose .”
That, the Corporate Debtor, by its own admission is unable to deposit the 75% of the award (Annexure C to the Reply Affidavit at Page 181 Para 7 Vol. II ) and this has also been noted in the order passed by the Ld. Panchkula Court while dismissing the application for condonation of delay. (Annexure B to the Reply Affidavit). The order records at para 8 as follows: “… the applicant is still not in possession to deposit 75% of the Arbitral amount failing which, the Objection Petition cannot be entertained.”
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circumstances, the Ld. Judge held that there was no sufficient cause to prefer a challenge to the award under section 34 of the Arbitration Act read with section 19 of the MSMED Act, after expiry of the time mentioned therein and refused to condone the delay in filing the same.
1. Gujarat State Disaster Management Authority v. Aska Equipments Ltd (2022) 1 SCC 61 paras 13 to 15
2. Tirupati Steels v. Shubh Industrial Component & Anr (2022) 7 SCC 429 paras 8 to 10
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Corporate Debtor on 17.08.2021 to demand the Unpaid Operational Debt Amount of Rs.1,71,87,500/-, which includes the Principal Amount of Rs.1,25,00,000/- along with the Accrued Interest @18% per annum calculated with effect from 30.07.2019 till 17.08.2021 as Rs.46,87,500/-.
7. Per contra, the Ld. Counsel for the Respondent would contend that:
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disputed, and therefore be outside the clutches of the Insolvency
11. “the CIRP could not be initiated on the basis of Arbitral Award, on the following grounds;
(b) When a challenge has also been filed against the Arbitral
Award. ”
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16(iii) “ Appeal being a continuation of the original proceeding, would enjoy the same protection under Section 36 as a proceeding under Section 34 would enjoy .”
“ It is settled law that an appeal is a continuation of the original proceeding. If an appeal against a judgment is filed, the proceeding becomes inchoate .”
6. “if it is treated as an application under Section 7 for execution of award, in said case it is to be held that the petition was filed with malicious intent not for the purpose of resolution of insolvency or liquidation .
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b. Jai Balaji Industries v. DK Mohanty & Ors. - 2021 SCC OnLine SC 3104 - Para 26 and 40
40. “. . . the code was not a substitute of recovery proceedings;”
/-) is paid by the respondent to the claimant and I order accordingly.” The Ld. Counsels for the Corporate Debtor, contends the entire claim of the Operational Creditor is based on an award for damages. An award for damages cannot be deemed or construed to be an operational debt under section 9 of the IBC.
Counter Claim 1- Liquidity damages towards delays solely attributable to the claimant.
Counter Claim 4- Cost incurred for civil works carried out for installation of the ECHS.
Counter Claim 5- Cost incurred for civil works carried out for installation of the ECHS
Referred the relevant pages 32 to 36 of the Award
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76. “ The entire claim of the Operational Creditor is based on the loss caused to it on account of not taking delivery of 21,808 LED TVs which were imported and shipped on the assurance of the Corporate Debtor. Resultantly, Operational creditor suffered a huge loss and had to pay customs charges in addition to the normal customs duty and also suffered losses due to clearance of stock of uncollected LED TVs at heavily marked down prices. The loss to the Operational Creditor is not crystallized. The Adjudicating Authority exercising summary jurisdiction cannot determine the claim amount and initiate the corporate insolvency resolution process… ”.
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the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties .”
“ 51. . . Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application .”
8. By way of Rejoinder Affidavit, the Operational Creditor has submitted as under:
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IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH (COURT II) KOLKATA
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9. Key Issue:
We have heard the Ld. Counsels appearing for the both parties and perused the records. The principal issue is whether existence of a pre-existing dispute is conclusively proved.
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10. Analysis and Findings: The admitted facts that could be culled out from pleadings are the following:
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period of 30 days which has not expired and Corporate Debtor was entitled to avail the benefit under Section 5 of the Limitation Act, 1963. The Court of Ld. ADJ found no merit in the application and therefore, dismissed the application having stated that:
11. The Identical Pronouncements and their Implications: -
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IN THE NATIONAL COMPANY LAW TRIBUNAL KOLKATA BENCH (COURT II) KOLKATA
11.1. In K. Kishan v. Vijay Nirman Company Pvt. Ltd . reported in MANU/SC/0872/2018 . The Hon’ble Apex Court of India observed that,
“ 18. We repeat with emphasis that under our Code, insofar as
an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process Under Sections 34 & 37 has taken place. 19. We may hasten to add that there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition Under Section 34 has been filed or a belated petition Under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.
20. We may hasten to add that there may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the Petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act .”
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“ …the arbitral awards in the present case had not attained finality and rejection of petitions Under Section 34 of the Act of 1996 had been in challenge in appeals Under Section 37 thereof. Even if the said appeals were dismissed in default, the Respondent company had moved for restoration with advance notice to the Appellant. It had not been a clear case of the corporate debtor being in default with no pre-existing dispute .”
11.3. In Hindustan Construction Company Limited v. Union of India , reported in MANU/SC/1638/2019 , it was held that,
“… the moment challenges are made to the arbitral awards, the amount said to be due by an operational debtor would become disputed, and therefore be outside the clutches of the
Insolvency Code .”
11.4. Further, we also rely upon the order passed by the Ld. NCLT, Kolkata Bench in Viom Infra Ventures Limited v. Bahula Infotech Private Limited , reported in MANU/NC/1867/2022 , where it was observed that
“…in order to initiate CIRP in case of arbitral award under section 9, the debts need to be undisputed. The Hon’ble Supreme Court also held that the CIRP could not be initiated on basis of Arbitral Award, on the following grounds;
(a) When a counterclaim exceeding the claim awarded was rejected by the Arbitral Tribunal on merits, and such rejection is also a matter of challenge before the Courts; and
(b) When a challenge had also been filed against the Arbitral Award. ”
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11.5. Moreover, from the Reply Affidavit filed by the Corporate Debtor (Para 11), it is seen that the liability on the corporate debtor shall arise only on actual delivery of goods which is not taken place in the present case. No goods have ever been delivered to the corporate debtor and therefore, the same would run contrary of the definition of Operational Debt and Operational Creditor definition under the Code. We do not find any satisfactory reply from the Operational Creditor in the Rejoinder. Thus, we have sufficient merit to believe that there is pre-existing dispute between the concerned parties.
11.6. In this regard we rely on Mobilox Innovations Pvt. Ltd . v. Kirusa Software Pvt. Ltd . reported in MANU/SC/1196/2017: (2018) 1 SCC 353 , on the pre-existing dispute amongst other points. In view of the law laid down by the Hon’ble Supreme Court of India, it is very clear that we are not here to determine the merits of the dispute. The Apex Court laid down that,
“ It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application Under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine
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the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application .”
11.7. We discern that the facts of the instant case are the exact replica and identical to the cases relied upon. Therefore, sans further probe in the mechanics of the dispute, we infer that there is a pre-existing dispute between then Operational Creditor and the Corporate Debtor, which is not feeble in terms of the cited case.
12. As a consequence, thereof, the present application being C.P. (I.B.) No. 268/KB/2021 filed under Section 9 of I&B Code, 2016, is hereby rejected and accordingly dismissed .
13. The Operational Creditor may, however, pursue any other legal remedy that may be available under any other law for the redressal of its grievance.
14. Urgent Certified copy of the order may be issued, if applied for, upon compliance with all the requisite formalities.
Balraj Joshi Bidisha Banerjee Member (Technical) Member (Judicial)
This Order is signed on the 05th Day of June, 2023
Bose, R. K. [LRA]
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2 issues framed by the court
Whether the existence of a Section 34 challenge and Section 37 appeal against an arbitral award constitutes a pre-existing dispute barring proceedings under Section 9 of the IBC.
Whether dismissal of the Section 34 application was based on bars of limitation distinctively lifting the dispute.
Colour shows how this judgement treated each authority
Gujarat State Disaster Management Authority v. Aska Equipments LtdReferred¶77
Gujarat State Disaster Management Authority v. Aska Equipments Ltd (2022) 1 SCC 61 · Who else cites this
Tirupati Steels v. Shubh Industrial Component & AnrReferred¶78
Tirupati Steels v. Shubh Industrial Component & Anr (2022) 7 SCC 429 · Who else cites this
K. Kishan v. Vijay Nirman Company Pvt. LimitedDistinguished¶203
K. Kishan v. Vijay Nirman Company Pvt. Limited (2018) 7 SCC 662 · Who else cites this
Hindustan Construction Co. v. Union of IndiaDistinguished¶209
Hindustan Construction Co. v. Union of India MANU/SC/1638/2019
Viom Infra Ventures Ltd. v. Bahula Infotech Pvt. Ltd.Distinguished¶215
Viom Infra Ventures Ltd. v. Bahula Infotech Pvt. Ltd. MANU/NC/1867/2022
Jai Balaji Industries v. DK Mohanty & Ors.Distinguished¶211
Jai Balaji Industries v. DK Mohanty & Ors. - 2021 SCC Online SC 3104 · Who else cites this
Hindustan Petroleum Corporation Limited v. Dilbahar SinghReferred¶120
Hindustan Petroleum Corporation Limited v. Dilbahar Singh - MANU/SC/0738/2014
National Highway Authorities of India v. B. Seenaihah & Company (Projects)Referred¶125
National Highway Authorities of India v. B. Seenaihah & Company (Projects) - MANU/WB/0651/2012
Akhil Bharatiya Manav Kalyan Samiti v. State of UP & Ors.Referred¶127
Akhil Bharatiya Manav Kalyan Samiti v. State of UP & Ors. MANU/UP/0197/1999
Chintels India Limited versus Bhayana Builders Pvt. Ltd.Referred¶130
Chintels India Limited versus Bhayana Builders Pvt. Ltd. - 2021 4 SCC 602 · Who else cites this
HDFC Bank v. Bhagwan Das Auto Finance CompanyDistinguished¶133
HDFC Bank v. Bhagwan Das Auto Finance Company – NCLAT
Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. LimitedDistinguished¶154
Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. Limited 2020 SCC OnLine NCLAT 445 · Who else cites this
Henan Boom Gelatin Co Ltd. v. Sunil Healthcare LimitedReferred¶157
Henan Boom Gelatin Co Ltd. v. Sunil Healthcare Limited – NCLAT
Mobilox Innovation Private Ltd. v. Kirusa Software Pvt. Ltd.Distinguished¶158
Mobilox Innovation Private Ltd. v. Kirusa Software Pvt. Ltd_ - (2018) 1 SCC 353 · Who else cites this
Transmission Corporation of Andhra Pradesh v. Equipment Conductors and CablesReferred¶165
Transmission Corporation of Andhra Pradesh v. Equipment Conductors and Cables – MANU/SC/1192/2018
4 provisions across 4 enactments
MASYC PROJECTS PRIVATE LIMITED
HIRANMAYE ENERGY LIMITED
Bidisha Banerjee
Balraj Joshi
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
