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TMI Blog2018 (9) TMI 1533X X X X Extracts X X X X X X X X Extracts X X X X ..... tition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation. There may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act. With regard to the submission of learned counsel for the respondent, that the amount of ₹ 1.71 Crores stood admitted by Mr. Banerji s client, as was recorded in the Arbitral Award, suffice it to say that cross-claims of sums much above this amount has been turned down by the Arbitral Tribunal, which are pending in a Section 34 petition challenging the said Award. The very fact that there is a possibility that Mr. Banerji s client may succeed on these cross-claims is sufficient to state that the operational debt, in the present case, canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the existing two lane highway to four lanes on NH 67 at KM 190000 to KM 218215 admeasuring a total of 28.215 KM for and on behalf of KCPL. ii) Apart from this Agreement, a separate agreement of the same date was entered into between the said KPCL and one M/s SDM Projects Private Limited, Bangalore, as a result of which, a tripartite Memorandum of Understanding was entered into on 09.05.2008 between KCPL, M/s SDM Projects Pvt. Ltd. and the Respondent. iii) During the course of the project, disputes and differences arose between the parties and the same were referred to an Arbitral Tribunal, which delivered its Award on 21.01.2017. One of the claims that was allowed by the said Award was in favour of the respondent for a sum of ₹ 1,71,98,302/- which arises out of certain interim payment certificates. Another claim that was allowed related to higher rates of payment in which a sum of ₹ 13,56,98,624/- was awarded. Three cross claims that were made by the Respondent were rejected. iv) It is pertinent to note that, at this stage, a notice dated 06.02.2017 was sent by the Respondent to KCPL to pay an amount of ₹ 1,79,00,166/-. This notice was stated to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Commercial Court cum XXIV Additional Chief Judge, City Civil Court at Hyderabad in petition filed U/Sec. 34 of the Act. Copy of the section 34 application filed and pending before the Hon'ble Court is enclosed herewith as Annexure R-6. vii) The NCLT, by its order dated 29.08.2017, referred to the aforestated facts, and also referred to the fact that the Award which was challenged under Section 34 specifically stated that learned counsel for the first Respondent (i.e. the corporate debtor) was fair enough to admit that the claimant is entitled to the said sum of ₹ 1,71,98,302/-. According to the NCLT, the fact that a Section 34 petition was pending was irrelevant for the reason that the claim stood admitted, and there was no stay of the Award. For these reasons, therefore, the Section 9 petition was admitted. viii) An appeal filed to the Appellate Tribunal met with the same fate, as according to the Appellate Tribunal, the nonobstante clause contained in Section 238 of the Code would override the Arbitration Act. Also, according to the Appellate Tribunal, since Form V of Part 5 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be owed, and that therefore, the Arbitration Act can be relied upon for this purpose, there being nothing inconsistent between it and the Code. 4) Dr. P.V. Amarnadha Prasad, learned Advocate, appearing on behalf of the respondent has argued in reply that according to the law in the United Kingdom, and Practice Directions thereunder, an insolvency process does not get stultified because an application to set aside the judgment, order or decision is pending in an appeal or otherwise. He also referred to the law in Singapore, and relied upon a judgment of the Singapore High Court to the effect that once it is found that there is a primary adjudication between the parties which indicates the existence of a debt, any further dispute which may be pending in appeal or otherwise over the debt could not be said to be bona fide disputed by the debtor. According to him, the Appellate Tribunal was absolutely correct in applying Section 238 of the Code, as there would be a direct inconsistency between the application of the Code and a Section 34 proceeding which was said to be pending, and which, according to him, was not relevant in view of the law that he has cited. 5) Having heard le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a dispute, also cannot be doubted. 6) However, learned counsel appearing on behalf of the Respondent strongly relied on the fact that this is not an ordinary case inasmuch as the amount of ₹ 1.71 Crores which was awarded was admitted by Mr. Banerji s client in the arbitral proceedings to be a debt due, and that this being so, there can be no dispute regarding the same. We are afraid that we are unable to agree. As was correctly pointed out by Mr. Banerji, counter claims for amounts far exceeding this were rejected by the learned Arbitral Tribunal, which rejection is also the subjectmatter of challenge in a petition under Section 34 of the Act. It is important to note that unlike counter claim Nos. 1 and 2, which were rejected by the Arbitral Tribunal for lack of evidence, counter claim No.3 which amounts to ₹ 19,88,20,475/- was rejected on the basis of a price adjustment clause on merits. Therefore, it is difficult to say at this stage of the proceedings, that no dispute would exist between the parties. 7) Our recent judgment in Mobilox Innovations (supra) throws considerable light on the issue at hand. While referring to the legislative history of the Code, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act. (Para 34). 12) In para 38, this Court cautioned: We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties. Finally, the law was summed up as follows:- 51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9 (5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o attract the winding up jurisdiction of the Courts in the UK, made it clear that even in a case where a judgment debt is no longer a disputed debt, as it has been finally adjudicated upon, yet if there be a cross-claim which is being adjudicated upon, or which may not even have reached the adjudicatory process at all, would be sufficient to stave off a winding up order. The learned Judge referred to the judgment in Re Bayoil SA [1999] 1 WLR 147 as follows, and concluded:- 27. This, of course, is not a case of a disputed debt. There is a judgment debt and it can be enforced immediately. However, Mr. Chivers draws attention to Re Bayoil SA [1999] 1 WLR 147, which deals with a case not involving a disputed debt but involving a cross-claim by the company, the subject of the petition or the intended petition, where the amount of the cross-claim exceeds the petition debt. The headnote to Re Bayoil recites the essential facts. The petitioner claimed for freight. The established law is there is no defence of set-off available in relation to a claim to freight. The claim went to arbitration and the arbitrators made an award in favour of the petitioner. The petitioner then pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Directions referred to in the U.K. judgment and the Singapore High Court judgment, referred to in LKM Investment Holdings Pte Ltd. vs. Cathay Theatres Pte Ltd. [2000] SGHC 13, are in situations where the debt needs to be bona fide disputed, which is not the situation under our Code. For this reason, it is not possible to agree with learned counsel for the Respondent that a pending proceeding challenging an award or decree of a tribunal or Court would not make the debt contained therein a debt that is disputed. 17) The Australian High Court judgment also relied upon by the respondent in Ramsay Health Care Australia Pty Ltd vs. Adrian John Compton [2017] HCA 28 was relied upon to show, in para 111 thereof, that where a judgment debt has been obtained after testing of the merits in adversarial litigation, then in the absence of some evidence of fraud, collusion, or miscarriage of justice, a court exercising bankruptcy jurisdiction will rarely have substantial reasons to investigate whether the debt which emerged in the judgment was truly owed. With respect to the High Court of Australia, we may only state that following Mobilox Innovations (supra) , it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said Award. The very fact that there is a possibility that Mr. Banerji s client may succeed on these cross-claims is sufficient to state that the operational debt, in the present case, cannot be said to be an undisputed debt. 22) We also accept Mr. Banerji s submission that the Appellate Tribunal was in error in referring to Section 238 of the Code. Section 238 of the Code would apply in case there is an inconsistency between the Code and the Arbitration Act in the present case. We see no such inconsistency. On the contrary, the Award passed under the Arbitration Act together with the steps taken for its challenge would only make it clear that the operational debt, in the present case, happens to be a disputed one. 23) We are also of the view that the Appellate Tribunal, when it relied upon Form V Part 5 of the 2016 Rules to state that the operational debt would, therefore, be said to have been proved, missed the vital sub-clause (iii) in para 34 of Mobilox Innovations (supra) . Even if it be clear that there be a record of an operational debt, it is important that the said debt be not disputed. If disputed within the parameters laid down in Mobilox Innovations (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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