2017 (8) TMI 1330 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Held that - The finding of the learned Adjudicating Authority insofar as it relates to award , default of debt and the alternative remedy , are not based on sound principle and against the provisions of law, we refrain to decide the question as to whether the 1st appellant is an operational creditor or not which is first required to be decided by learned Adjudicating Authority. For the aforesaid reasons, we set aside the impugned order dated 24th March, 2017 and remit the case to the learned Adjudicating Authority, Principal Bench, New Delhi to decide as to whether the 1st appellant is an operational creditor and if so, whether the application under Sec. 9 preferred by the appellants is complete for admitting and initiation of corporate insolvency resolution process. If the first question relating to status of appellant as operational creditor is decided in affirmative, in favour of the appellant, then learned Adjudicating Authority will decide the issue whether the application is complete or not and if not complete may grant seven days time to the appellants to complete the record as per the proviso to Sec. 9 of the I&B Code. The appeal is allowed with aforesaid observations. We make it clear that we have not expressed any opinion in regard to other questions such as whether the 1st appellant is an operational creditor and whether the application preferred under Sec. 9 is complete or not, which is to be decided by the Adjudicating Authority after notice to the parties uninfluenced by any observation made in the impugned order.

Summary

Issues Involved:
1. Existence of dispute between the parties post-Arbitral Tribunal award.
2. Impact of pending execution proceedings on the initiation of Corporate Insolvency Resolution Process (CIRP).
3. Status of the appellant as an "Operational Creditor" under the Insolvency and Bankruptcy Code (I&B Code).

Detailed Analysis:

Existence of Dispute:
The Tribunal initially presumed a dispute was pending due to the ongoing appeal under Section 37 of the Arbitration and Conciliation Act, 1996, despite the arbitral award being affirmed under Section 34. The Adjudicating Authority held that the arbitration proceedings had not attained finality, thus barring the initiation of CIRP under Section 9 of the I&B Code. However, the appellate tribunal clarified that the pendency of an arbitration proceeding is considered a dispute, while an arbitral award, once affirmed and not under appeal, is a record of default. They concluded that the Adjudicating Authority's finding of a pending dispute was against the law and the rules framed thereunder.

Impact of Pending Execution Proceedings:
The Adjudicating Authority held that the initiation of execution proceedings for the arbitral award precluded the appellants from invoking CIRP, as it would amount to forum shopping and was against judicial principles. The appellate tribunal disagreed, stating that the I&B Code allows for the initiation of CIRP for default of debt, including amounts awarded by an arbitral tribunal. They emphasized that insolvency resolution is not merely for execution of decrees but for resolving insolvency in a time-bound manner, maximizing asset value, and balancing stakeholder interests.

Status as Operational Creditor:
The appellants claimed to be operational creditors based on a lease deed, arguing that the obligation to pay rent falls under the definition of "operational debt" under Section 5(21) of the I&B Code. The Adjudicating Authority did not decide on this issue, having dismissed the application on other grounds. The appellate tribunal remitted the case back to the Adjudicating Authority to determine whether the appellants qualify as operational creditors and if the application under Section 9 is complete for admitting and initiating CIRP.

Conclusion:
The appellate tribunal set aside the impugned order dated 24th March 2017 and remitted the case to the Adjudicating Authority to decide the status of the appellants as operational creditors and the completeness of their application under Section 9 of the I&B Code. They emphasized that the finding of a pending dispute was against the law and that insolvency resolution is distinct from execution of decrees. The appeal was allowed with no order as to costs, and the Adjudicating Authority was instructed to proceed uninfluenced by any observations made in the impugned order.