2023 (2) TMI 1098 - HC - Insolvency and Bankruptcy

Validity of interim award granted - interim Award dated was based on the premise that the set-off/Counter-Claims raised by the Operational Creditor/appellant herein could not have been filed before the learned Arbitrator, being barred under Section 14 of the Insolvency and Bankruptcy Code, 2016. HELD THAT - The first ground of challenge is that the alleged admissions mentioned as setoff in Form B submitted before IRP in the proceedings under Insolvency and Bankruptcy Code, 2016 cannot be considered as a determinate amount, unless adjudicated. Moreover, Form B in which the set-off amount is mentioned had been filed before the IRP and not before the learned Arbitrator and cannot be treated as an unequivocal admission in the present proceedings. In AMIT KUMAR CHOPRA VERSUS NARAIN COLD STORAGE ALLIED INDUSTRIES PVT. LTD. AND ORS. 2014 (3) TMI 1210 - DELHI HIGH COURT , the Co-ordinate Bench of this Court observed that from the aforesaid enunciation of law it is quite clear that equitable set-off is different than the legal set-off; that it is independent of the provisions of the Code of Civil Procedure; that the mutual debts and credits or cross-demands must have arisen out of the same transaction or to be connected in the nature of circumstances; that such a plea is raised not as a matter of right; and that it is the discretion of the court to entertain and allow such a plea or not. The concept of equitable set-off is founded on the fundamental principles of equity, justice and good conscience. Thus, set-off is an admitted amount adjustable from the due being claimed a person. The appellant herein, while giving a detailed statement of claims in Form B before the IRP, has also indicated that the set-off amount has to be paid by it to the respondent. It is a categorical admission by the appellant which requires no further adjudication, and there can be no evidence better than an admission. The scope of interference under Section 37 of the Act, 1996 is extremely limited. Sections 34 and 37 demand respect to the finality of the arbitral ruling and the party autonomy in having chosen to get their issues resolved through alternate forum of arbitration which would be thwarted if the courts were to accept the challenge to the arbitral rulings on factual issues in a regular manner as reiterated in the recent decision of PROJECT DIRECTOR, NATIONAL HIGHWAYS NO. 45 E AND 220 NATIONAL HIGHWAYS AUTHORITY OF INDIA VERSUS M. HAKEEM ANR. 2021 (7) TMI 1343 - SUPREME COURT - It was observed by the Apex Court that Section 34 has a different methodology and it cannot be considered as a typical Appellate Jurisdiction. The Award, being supported by reasons, does not call for any interference. The Court is not permitted to independently evaluate the merits of the Award, but must confine its authority to the parameters permitted under the statute. The learned Arbitrator has judiciously exercised its jurisdiction under Section 31(6) of the Act, 1996 to give an interim Award on the basis of admission made by the appellant in Form B by way of set-off. There is no illegality, perversity or irrationality in the findings so returned by the learned Arbitrator which have been accepted by the learned District Judge - appeal dismissed.

Issues Involved:
1. Validity of the interim award based on admissions in Form B.
2. Applicability of Section 14 of the Insolvency and Bankruptcy Code, 2016.
3. Scope of interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.
4. Jurisdiction and powers of the Arbitrator under Section 31(6) of the Arbitration and Conciliation Act, 1996.
5. Consideration of counter-claims and set-offs in arbitral proceedings.

Detailed Analysis:

1. Validity of the Interim Award Based on Admissions in Form B:
The appellant contested the interim award, arguing that the admissions made in Form B before the IRP should not be considered unequivocal admissions for the purpose of an interim award. The court clarified that a set-off is an admitted amount that can be adjusted against the claim, and the appellant's admission in Form B was a categorical admission requiring no further adjudication. The court held that the set-off amount mentioned in Form B was an unequivocal admission, justifying the interim award.

2. Applicability of Section 14 of the Insolvency and Bankruptcy Code, 2016:
The appellant argued that the counter-claims could not be filed before the Arbitrator due to the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. The court noted that the counter-claim had been filed before the Arbitrator pursuant to the District Judge's directions, and both claims and counter-claims could now be adjudicated together. The court emphasized that the set-off amount was an admission of liability and could be considered independently of the counter-claim adjudication.

3. Scope of Interference under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996:
The court reiterated that the scope of interference under Sections 34 and 37 is extremely limited. Interference is permissible only when an award is in conflict with the public policy of India, involves fraud, breach of fundamental policy of Indian law, or is patently illegal. The court emphasized that it is not permitted to independently evaluate the merits of the award but must confine its authority to the parameters permitted under the statute.

4. Jurisdiction and Powers of the Arbitrator under Section 31(6) of the Arbitration and Conciliation Act, 1996:
The court upheld the Arbitrator's jurisdiction to pass an interim award under Section 31(6) of the Act, 1996, based on admissions. The court cited previous judgments recognizing the Arbitrator's power to make interim awards on admissions and clarified that this power is not restricted to exclude admissions made in related proceedings, such as those before the IRP.

5. Consideration of Counter-Claims and Set-Offs in Arbitral Proceedings:
The appellant argued that the set-off amount should be adjudicated along with the counter-claims. The court held that the set-off amount was an admitted liability and could be considered independently of the counter-claims. The court emphasized that the interim award was subject to adjustments at the time of final adjudication, and the set-off amount's admission did not require further evidence.

Conclusion:
The court found no merit in the appellant's arguments and dismissed the appeal. The court upheld the interim award based on the appellant's admissions in Form B and emphasized the limited scope of interference under Sections 34 and 37 of the Act, 1996. The court also dismissed any pending applications as infructuous.

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