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2020 (1) TMI 812 - HC - Companies LawValidity of Arbitral Award - maintainability of application - petitioner contends that the application cannot be proceeded since Corporate Insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (the IBC) has been initiated against the petitioner as the Corporate Debtor - whether the present application under Section 34 of the Act should be kept in abeyance by reason of the provision of the IBC being invoked by operational creditors against the petitioner? HELD THAT - It would be evident from the dates since above that the impugned Award of 7th July, 2008 is a culmination of a dispute between the parties which existed before the initiation of corporate insolvency proceedings against the petitioner. It is also true that once the Award was challenged by the petitioner (Award Debtor) in 2008, the debt became disputed and subject to a decision in the Section 34 proceedings). This court is not inclined to agree with the contentions of the petitioner that the challenge to the Award cannot be considered by reason of the proceedings under the IBC. This is by reason of the fact that the respondent award-holder could not have filed a claim before the NCLT/IRP since the Section 34 proceedings had not been decided in favour of the said respondent in 2017 and hence there was no final or adjudicated claim as on that date. Further, once the stage under Section 14 of the IBC, namely, moratorium with regard to continuation of pending proceedings against the Corporate Debtor has been declared to be over, no further embargo remains for continuing to hear suits and other proceedings to which the Corporate Debtor (the petitioner in this case) is a party. This Court finds no basis for relegating the Section 34 to the backburner. Although, no formal application has been made, this Court deemed it fit to pass this order since detailed submissions have been made by Counsel appearing for the parties. List the application on 21st January, 2020.
Issues:
Setting aside of an Award under Section 34 of The Arbitration and Conciliation Act, 1996 due to initiation of Corporate Insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. Analysis: 1. The petitioner sought to set aside an Award dated 7th July, 2008, arguing that the application under Section 34 of the Act cannot proceed due to Corporate Insolvency proceedings under the IBC initiated against the petitioner as the Corporate Debtor. 2. The key issue was whether the Section 34 application should be stayed because of the invocation of the IBC by operational creditors against the petitioner. 3. The petitioner's counsel presented NCLT orders showing the Resolution Plan's binding nature on various stakeholders, indicating that the management of the petitioner had been taken over by another entity. 4. The respondent's counsel argued to continue the application to set aside the Award, relying on NCLT's order that the moratorium under Section 14 of the IBC ceased to have effect. 5. The respondent cited legal precedents to support their stance, emphasizing that the IBC should not be used prematurely or as a substitute for debt enforcement procedures. 6. Detailed facts were presented, including the timeline of events from the arbitration reference to the initiation of insolvency proceedings and the subsequent legal actions taken by both parties. 7. The court elaborated on the IBC's procedural stages, highlighting the roles of operational creditors, the moratorium, the appointment of Resolution Professionals, and the formation of the Committee of Creditors. 8. Reference was made to a Supreme Court case where the court cautioned against misusing the insolvency process for debt enforcement, emphasizing the need for a genuine dispute before invoking the IBC. 9. The court compared the present case to the Supreme Court decision, noting the significance of pre-existing disputes and the timing of legal actions in relation to the insolvency proceedings. 10. The court concluded that the challenge to the Award predated the insolvency proceedings, making the debt disputed and subject to the Section 34 proceedings, rejecting the petitioner's argument to stay the proceedings due to the IBC. 11. Based on the analysis, the court found no reason to delay the Section 34 application, allowing the case to proceed. 12. The petitioner was granted permission to file an affidavit in reply within a specified timeframe. 13. The case was scheduled for the next hearing on a specific date.
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