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2022 (2) TMI 625 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - pre-existing dispute between the parties or not - arbitration settlement of disputes - Whether in view of Clause 8 of the Agreement between the parties dated 25th March, 2012 for settlement of dispute by the Court of Arbitration of Switzerland, Application under Section 9 could not have been entertained by Adjudicating Authority - in view of Section 45 of the Arbitration and Conciliation Act, 1996, whether Adjudicating Authority was obliged to refer the dispute between the parties to the Arbitration as per Agreement? - HELD THAT - The present is a case where Operational Creditor is a company registered under the companies incorporated under the laws of Denmark and is a foreign entity, whereas the Corporate Debtor is a company registered under the Companies Act, 1956, which was within the territorial jurisdiction of National Company Law Tribunal, Mumbai. The Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons. Section 9 of the Code entitles an Operational Creditor to file Application after 10 days of the delivery of notice or invoices demanding payment. The argument, which has been raised is that in view of the arbitration clause contained in Clause 8 of the Agreement, Section 9 Application ought not to have been entertained and the matter ought to have been referred to arbitration. During the course of submission, learned the Counsel for the Appellant has also sought to raise a submission that Operational Creditor being a foreign entity, Section 9 of the Code could not have invoked. The said submission has no locus to stand and admittedly, the Corporate Debtor is a company registered under the Companies Act, 1956 and is fully covered with the definition of Section 3, sub-section (7) of the Code, which defines corporate persons , which clarifies that Application under Section 9 is fully maintainable. The question that a foreign supplier can invoke Section 9 of the code has no more res-integra in view of the judgment of the Hon ble Supreme Court in Macquarie Bank Limited vs. Shilpi Cable Technologies Limited. 2017 (12) TMI 850 - SUPREME COURT where the Corporate Debtor was the corporate person within the meaning of Code and the Operational Creditor was assignee from foreign entity. The submission of Shri Kaushik that Section 9 Application was not maintainable in view of Clause 8 of the Agreement also has no merit. The Code has been given an overriding effect on other laws including any instrument having effect by virtue of such law. Admittedly, the Corporate Debtor is a company registered under the Companies Act, 1956, which is having its office in the State of Maharashtra. The Corporate Debtor cannot be heard in contending that since it entered into an Agreement with a foreign entity where clause was for settlement of dispute by arbitration under the Swiss law, Section 9 of the Code, shall be overridden by virtue of Section 45 of the Arbitration Act read with Agreement - if an Application under Section 9 of the Arbitration and Conciliation Act is filed before the Adjudicating Authority, the Adjudicating Authority shall first proceed to find out whether any default is there and in the event there is default, it will proceed to admit the Application, rejecting the prayer for arbitration. In the present case, the debt and default is fully admitted. The Adjudicating Authority has also observed that even the date of defaults has not been disputed by the Corporate Debtor by filing any reply to Section 9 Application. It is thus concluded that Application under Section 9 of the Code was fully maintainable and could not have been thrown out on the ground that there was a clause in Agreement dated 25th March, 2012. Despite there being clause of arbitration in Agreement, Application under Section 9 was fully maintainable and could be proceeded with by Adjudicating Authority - The proceedings under Code having been given overriding effect, the right to initiate Application under Section 9 shall not be taken away by the Operational Creditor by any Agreement of arbitration in the contract, when Operational Creditor elect to initiate proceedings under Section 9, it cannot be rejected. Whether there was any pre-existing dispute between the parties on account of which, the Application under Section 9 was liable to be rejected? - HELD THAT - The dispute which has been contemplated under Section 9, which may be basis for rejecting an Application under Section 9 has to be genuine dispute. A dispute, which is invented for the purpose of case to get away from liabilities to pay debt, cannot be a dispute, on the basis of which the Application has not to be rejected. It is satisfying that there was no dispute at all prior to issuance of Section 8 notice by the Operational Creditor and there is overwhelming evidence that Corporate Debtor always acknowledged outstanding dispute and never disputed the debt or its liability to pay and now to only get away from its liability to pay its debt is making submission before us that there was pre-existing dispute between the parties - there are no substance in the contention of the learned Counsel for the Appellant that there was dispute regarding the default, hence, the Application under Section 9 ought not to have been admitted. Whether in the facts of present case, the Application under Section 9 was not maintainable, since the Corporate Debtor was a solvent Company? - HELD THAT - The details of correspondence exchanged between the parties, which we have noticed while considering Question No.2, clearly indicate that Corporate Debtor was unable to pay its debt, which was admitted throughout and for more than three years, Corporate Debtor only requested for more time to pay the same. On the perusal of all the evidence and facts, which has emerged, we have no doubt that invocation of Section 9 IBC proceedings by Operational Creditor was in accordance with law. A Status Report has been filed by Interim Resolution Professional. The learned Counsel for the RP has submitted before us that Appellant itself has submitted twice the Resolution Plan, which could not be approved - There being debt of more that ₹ 50 crores, the Resolution Plan, which was submitted by the Appellant was only for ₹ 6.5 crores, which did not find favour with the Committee of Creditors. In the facts, which have been brought on record, there are no substance in the submission of learned Counsel for the Appellant that Application under Section 9 by the Operational Creditor was not maintainable. There are no error in the judgment of the Adjudicating Authority admitting Section 9 Application filed by Operational Creditor Respondent No.1 - appeal dismissed.
Issues Involved:
1. Whether the application under Section 9 of the Insolvency and Bankruptcy Code (IBC) could be entertained despite the arbitration clause in the agreement. 2. Whether there was any pre-existing dispute between the parties that would render the application under Section 9 inadmissible. 3. Whether the application under Section 9 was maintainable given that the Corporate Debtor was a solvent company. Issue-Wise Detailed Analysis: Issue 1: Arbitration Clause and Section 9 Application The agreement between the Corporate Debtor and the Operational Creditor included an arbitration clause (Clause 8) stipulating that disputes would be settled by the Court of Arbitration of Switzerland and governed by Swiss law. The appellant argued that this clause should preclude the application under Section 9 of the IBC, citing Section 45 of the Arbitration and Conciliation Act, 1996, which mandates referral to arbitration unless the agreement is null and void, inoperative, or incapable of being performed. However, the tribunal emphasized that the IBC, enacted to consolidate and amend laws related to insolvency resolution, has an overriding effect as per Section 238. The tribunal cited the Supreme Court's judgment in Macquarie Bank Limited vs. Shilpi Cable Technologies Limited, affirming that foreign suppliers can invoke Section 9 of the IBC. The tribunal concluded that the application under Section 9 was fully maintainable despite the arbitration clause, as the IBC takes precedence over other laws and agreements. Issue 2: Pre-Existing Dispute The appellant contended that there was a pre-existing dispute, referencing an email dated 5th August 2014 about leakage in a freezer room. The tribunal examined the correspondence between the parties, noting that the Corporate Debtor had repeatedly acknowledged the debt and requested more time for payment without raising any disputes about the quality of goods or services. The tribunal found no evidence of a genuine dispute prior to the issuance of the Section 8 notice by the Operational Creditor. The tribunal referred to the Supreme Court's decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which requires the adjudicating authority to reject a Section 9 application only if there is a plausible contention requiring further investigation. The tribunal concluded that the alleged dispute was a patently feeble legal argument unsupported by evidence, and thus, the application under Section 9 was rightly admitted. Issue 3: Solvency of Corporate Debtor The appellant argued that the Corporate Debtor was solvent and that the IBC proceedings were not meant for debt recovery. The tribunal reviewed the evidence, including the Corporate Debtor's repeated acknowledgments of debt and inability to pay over several years. The tribunal noted that the Corporate Debtor had made partial payments and continuously requested more time, indicating financial distress. The tribunal also considered the status report filed by the Interim Resolution Professional (IRP), which revealed that the Corporate Debtor had significant liabilities exceeding ?50 crores. The appellant's resolution plans, which were not approved by the Committee of Creditors, further indicated financial instability. The tribunal concluded that the application under Section 9 was justified and maintainable. Conclusion: The tribunal dismissed the appeal, upholding the National Company Law Tribunal's (NCLT) decision to admit the Section 9 application. The tribunal found no merit in the appellant's arguments and affirmed the maintainability of the application under the IBC despite the arbitration clause, the absence of a genuine pre-existing dispute, and the Corporate Debtor's financial distress. The appeal was dismissed with no order as to costs.
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