2018 (7) TMI 1918 - AT - Insolvency and Bankruptcy

Maintainability of petition - appointment of a Sole Arbitrator - Initiation of Corporate Insolvency Resolution Process - existence of dispute - Section 9 of the Insolvency and Bankruptcy Code, 2016 - Corporate Debtor - HELD THAT - In view of the fact that the arbitral proceedings commence since the request made under Section 21 of the Arbitration and Conciliation Act, 1996, we hold that on commencement of arbitral proceedings, it is rightly pleaded that there is an existence of dispute and therefore, the petition under Section 9 was not maintainable. We are not deciding the question as to whether the Appellants are Operational Creditor or not - The appeal is accordingly dismissed.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process.
2. Rejection of the application by the Adjudicating Authority based on the existence of a dispute.
3. Admittance by the Corporate Debtor of the claim based on the lease agreement.
4. Counterclaim by the Corporate Debtor regarding unpaid premises maintenance charges.
5. Notice of alleged Arbitration Proceedings issued by the Corporate Debtor.
6. Interpretation of the Arbitration and Conciliation Act, 1996 in relation to the existence of a dispute.

Analysis:
The judgment pertains to an appeal filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiating the Corporate Insolvency Resolution Process against a Corporate Debtor. The Adjudicating Authority rejected the application citing the existence of a dispute. The factual background involved the lease agreement between the Appellants and the Corporate Debtor, where the Corporate Debtor terminated the agreement prematurely, leading to a claim by the Appellants for outstanding rentals and interest. The Corporate Debtor admitted the claim but argued that no default could be claimed due to the termination of the agreement. Additionally, the Corporate Debtor counterclaimed for unpaid premises maintenance charges.

The Respondent, Corporate Debtor, highlighted an alleged Arbitration Proceedings notice issued to the Appellants, emphasizing the existence of a dispute. The Appellants contended that they were Operational Creditors based on the commercial lease agreement falling under the ambit of services as per the Insolvency and Bankruptcy Code. The Corporate Debtor's notice of Arbitration Proceedings was analyzed in light of the Arbitration and Conciliation Act, 1996, specifically Section 21, which determines the commencement of arbitral proceedings upon the receipt of a request for arbitration.

The judgment concluded that since the arbitral proceedings had commenced as per the Arbitration and Conciliation Act, 1996, there was a valid existence of a dispute. Consequently, the petition under Section 9 was deemed not maintainable. The court refrained from deciding the Operational Creditor status of the Appellants due to the finding of the existence of a dispute. The appeal was dismissed without any costs awarded, considering the circumstances of the case.