2018 (2) TMI 1095 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Whether the Award amount is an operational debt?- Whether Petitioner, i.e., TVS Interconnect Systems Private Limited is an Operational Creditor - Whether there exists any dispute relating to the operational debt? - enforce the Arbitration Agreement - suppression of material facts - Held that - In view of the Assignment Agreement, it can be said that the Petitioner is an Assignee of the operational debt due to MOKA from ORG. The Petitioner, in this case is not seeking initiation of Corporate Insolvency Resolution Process on the basis of the debt assigned to it, but on the basis of the Arbitral Award. Therefore, Petitioner although can be termed as Operational Creditor in respect of the operational debt assigned to it, it cannot enforce the Arbitration Agreement which is in favour of MOKA the Assignor unless there is specific assignment of the arbitral award amount to the Petitioner provided the Award amount is having the characteristics of operational debt. Therefore, the Petitioner being an Assignee under the Assignment Agreement of the operational debt cannot maintain this Petition for recovery of arbitral Award amount which has not been assigned to it. The material on record show that the Petitioner obtained assigned debt from MOKA on 14.11.2013 during the pendency of arbitral proceedings and the same was also brought to the notice of the learned Arbitrator. It is also a fact that MOKA also filed Section 138, N.I. Act case before the Criminal Court, and that fact was in the knowledge of the Petitioner. But Petitioner made self-serving statement in the Reply Affidavit that only recently it came to know about the winding up proceedings. Therefore, it is a clear case where the Petitioner cannot deny knowledge about the winding up proceedings filed by MOKA which is Assignor of the debt of ORG. Therefore, such a material fact has been suppressed by the Petitioner. The contract have to be construed strictly without altering the nature of the contract, as it may affect the interest of either of the parties adversely. In the case on hand, the Assignment Agreement is only with reference to the operational debt but not to the Award amount. Therefore, the assignment contract if strictly construed cannot take in its ambit the arbitral Award amount.

Summary

Issues Involved:
1. Whether the Award amount is an operational debt.
2. Whether the Petitioner, TVS Interconnect Systems Private Limited, is an Operational Creditor.
3. Whether there exists any dispute relating to the operational debt.

Detailed Analysis:

Issue 1: Whether the Award amount is an operational debt.
The Tribunal examined Section 5(21) of the Insolvency and Bankruptcy Code, 2016, which defines 'Operational Debt' as a claim in respect of the provision of goods or services, including employment or a debt in respect of the repayment of dues arising under any law for the time being in force. The Tribunal noted that the amount due to MOKA from ORG was subject to arbitration, resulting in an Award in favor of MOKA. The Tribunal concluded that the amount claimed by MOKA from ORG in the arbitration proceedings is an 'operational debt'. However, since the operational debt transformed into an Arbitral Award, it can be executed only after reaching finality. The Tribunal emphasized that the existence of a dispute, as indicated by Section 8(2)(a) and Section 9(5)(i)(d) of the Code, precludes the initiation of the Corporate Insolvency Resolution Process (CIRP). The Tribunal found that the arbitration proceedings and other legal actions indicated an existing dispute between MOKA and ORG, thus the Award amount could not be treated as an operational debt for initiating CIRP.

Issue 2: Whether the Petitioner, TVS Interconnect Systems Private Limited, is an Operational Creditor.
The Tribunal analyzed Section 5(20) of the Code, which defines 'Operational Creditor' as a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. The Petitioner claimed to be an assignee under an Assignment Agreement dated 14.11.2013. The Tribunal confirmed that TVS Interconnect Systems Limited, which was later converted to TVS Interconnect Systems Private Limited, was indeed the assignee of the operational debt. However, the Tribunal noted that the Petitioner issued a Notice under Section 8 of the Code without disclosing the change from a Public Limited to a Private Limited Company, rendering the notice invalid. Moreover, the Petitioner's claim was based on the Arbitral Award, not the assigned operational debt. The Tribunal concluded that the Petitioner, as an assignee of the operational debt, could not maintain the Petition for recovering the arbitral Award amount, which was not specifically assigned to it.

Issue 3: Whether there exists any dispute relating to the operational debt.
The Tribunal found substantial evidence of a pre-existing dispute between MOKA and ORG, including arbitration proceedings, winding up petitions, and other legal actions. The Tribunal noted that MOKA had filed a winding-up petition, which was only withdrawn after the Respondent filed objections in the current Petition. The Tribunal observed that the Petitioner suppressed material facts regarding the winding-up proceedings and other legal actions initiated by MOKA. The Tribunal emphasized that the existence of a dispute, as indicated by the arbitration proceedings and other legal actions, precluded the initiation of CIRP.

Conclusion:
The Tribunal dismissed the Petition, concluding that the Award amount could not be treated as an operational debt due to the existence of a dispute, and the Petitioner, as an assignee of the operational debt, could not maintain the Petition for recovering the arbitral Award amount. The Tribunal also highlighted the Petitioner's suppression of material facts regarding the winding-up proceedings and other legal actions.