2019 (1) TMI 454 - AT - Insolvency and Bankruptcy

Rejection of application under Section 9 of the I&B Code - scope of Operational Creditor - the amount due has not been regarded as an Operational Debt within the meaning of Section 5(21) of the I&B Code - execution of decree - legality and viability to decide foreign decree - applicability of Foreign judgment - maintainability of application - Held that - The Adjudicating Authority not being a Court or Tribunal and Insolvency Resolution Process not being a litigation, it has no jurisdiction to decide whether a foreign decree is legal or illegal. Whatever findings the Adjudicating Authority has given with regard to legality and propriety of foreign decree in question being without jurisdiction is nullity in the eye of law. Applicability of Foreign judgment - judgement not pronounced by a Court of competent jurisdiction and founded on an incorrect view of international law - Held that - The debt due to the Appellant does not come within the meaning of Operational Debt and thereby, the Appellant cannot be held to be the Operational Creditor within the meaning of Section 5(20) read with Section 5(21) of the I&B Code . The money claim do not relate to supply of goods or services and, therefore, the application under Section 9 by the Appellants against the Corporate Debtor was not maintainable. The Adjudicating Authority has no jurisdiction to decide the question of legality and propriety of a foreign judgment and decree in an application under Sections 7 or 9 or 10 of the I&B Code - question relating to maintainability is answered against the Appellants, they being not the Operational Creditor - Appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Adjudicating Authority to decide the legality and viability of a foreign decree.
2. Whether the Appellants qualify as 'Operational Creditors' under the I&B Code.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Adjudicating Authority:

The Adjudicating Authority (National Company Law Tribunal) held that a foreign judgment is not conclusive if it is not pronounced by a Court of competent jurisdiction or is founded on an incorrect view of international law. It emphasized that a certified copy of the decree is essential for recognizing it as valid in India. The decree must be executed in the District Court of India and should not be obtained by fraud or be in breach of any Indian law.

The Tribunal noted that the petitioner failed to provide certified copies of the decree and order and did not show any notification of reciprocation between the United States and India under Section 44A of the CPC. Additionally, the decree violated Indian law, specifically Section 8 of the Arbitration and Conciliation Act, 1996.

However, the Appellate Tribunal concluded that the Adjudicating Authority, not being a Court or Tribunal, has no jurisdiction to decide the legality of a foreign decree. The findings of the Adjudicating Authority regarding the legality and propriety of the foreign decree were deemed null and void.

2. Whether the Appellants qualify as 'Operational Creditors':

The Appellants argued that the Adjudicating Authority had no jurisdiction to decide the legality of the foreign decree. Conversely, the Respondent contended that the foreign decree was ex parte and not on merits, and thus, could not be treated as an operational debt.

The Tribunal found that the debt claimed by the Appellants did not arise from the supply of goods or services. The agreements presented were undated and unreliable, and the money claim was related to a breach of the 'License Agreement' rather than an operational debt. Consequently, the Appellants did not qualify as 'Operational Creditors' under Section 5(20) read with Section 5(21) of the I&B Code.

The Tribunal referred to the case "Binani Industries Limited Vs. Bank of Baroda & Anr." to emphasize that the objective of the I&B Code is resolution and maximization of the value of assets of the Corporate Debtor, balancing the interests of all stakeholders. The Tribunal reiterated that the Adjudicating Authority has no jurisdiction to decide the legality of a foreign decree and that the Appellants do not qualify as operational creditors, thereby making their application under Section 9 of the I&B Code not maintainable.

Conclusion:

The appeal was dismissed on the grounds that the Adjudicating Authority has no jurisdiction to decide the legality of the foreign decree and that the Appellants do not qualify as operational creditors under the I&B Code. No costs were awarded.