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TMI Blog2022 (4) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... d between the applicant and the respondent referred as "Agreement No.1". 3. As contended by the applicant, the business scenario had undergone a change and created a negative impact during the subsistence of Agreement No.1. In such situation, another agreement dated 5 July 2016 referred to as "Agreement No.2" was executed between the parties, under which, the date of repayment of the borrowing was extended from 30 June 2015 to 31 March 2017. Except for such variation, it is contended that the terms and conditions in such agreement are similar to the ones as contained in "Agreement No.1". 4. Nonetheless, there were defaults on the part of the applicant in the payment of the loan installments. It is the case of the applicant that in discharge of its liability towards the respondent under such agreements, the applicant issued a cheque dated 7 September 2021 to the respondent, of an amount of Rs. 31,08,33,457/- being the repayment of the respondent's dues upto 31 August 2021, which according to the respondent, was in accordance with the terms and conditions of the loan agreement dated 5 July 2016. It is not in dispute that such cheque was dishonoured when presented for payment. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant has no defence before the NCLT, the present application has been filed to escape the rigors under the IBC. 8. It is the respondent's case that the record is replete with petitioner's admission of liability and its failure to clear the outstanding amounts payable to the respondent under the loan agreements. It is contended that an offer was made by the applicant by forwarding an allotment letter dated 23 April 2015 of a flat in the upcoming project of the applicant named "Gyan Ghar" to secure the amounts payable to the respondent. It is stated that also the Director of the Applicant had executed a deed of guarantee dated 23 April 2015 guaranteeing repayment of the loan/borrowing from the respondent. The respondent contends that in discharge of the liability, the applicant had also issued a cheque of Rs. 31,08,33,457/- towards payment of the respondent's dues upto 31 August 2021, which was in accordance with the terms and conditions of the loan agreement dated 5 July 2016, which was dishonoured. 9. Thus, the primary contention of the respondent is to the effect that as the liability of the applicant towards the respondent of a financial debt was clearly an admitted liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt would submit that a holistic reading of such decision, would bring about a position in law that the IBC proceedings are required to be given primacy, that is, till the NCLT passes an order under sub-section (5) of Section 7, the Section 11 ACA application, ought not to proceed, so as to appoint an arbitral tribunal. 13. On the other hand Dr.Saraf, learned Senior Counsel for the applicant would submit that once the IBC proceedings are at the preadmission stage or in other words, once no order is passed by the NCLT admitting the Section 7 proceedings filed by the respondent against the applicant, there is no embargo on the powers of the Section 11 Court to adjudicate the Section 11 application. Dr.Saraf would contend that such position in law is clearly derived from the observations of the Supreme Court wherein a distinction has been made in regard to the preadmission stage of the Section 7 proceedings and the post admission stage, for the reason that post admission of the Section 7 proceedings, the proceedings would become proceedings in rem. 14. Dr.Iqbal has raised another contention that this is a clear case where the applicant had clearly accepted its liability and towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to them by Indus Biotech, and hence, there was default on the part of Indus Biotech. In such situation as the debt had not been paid by Indus Biotech, respondent Nos.1 to 4 had invoked the jurisdiction of NCLT by initiating the Corporate Insolvency Resolution Process under the IBC. Respondent No.2 had also filed a petition under Section 7 of the IBC seeking appointment of a resolution Professional. It was contended that in such proceedings, Indus Biotech had filed a Miscellaneous Application under Section 8 of the ACA, praying for a direction to refer the parties to arbitration. Respondent No.2 therein had objected to the said application. The NCLT, however, considering the rival contentions had allowed the application filed by Indus Biotech under Section 8 of the ACA, and as a consequence, the petition filed by respondent No.2 therein under Section 7 of the IBC was dismissed. Such order was assailed by respondent No.2 by filing a separate Special Leave Petition before the Supreme Court. It in on such conspectus, the Supreme Court considered as to what would be the legal status of the proceedings under Section 7 of the IBC on its filing and the position which would emerge, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire scope and ambit of the IB Code was considered and the validity of the provisions were upheld. The said decisions have also been relied on to contend that when the petition under Section 7 of IB Code is triggered it becomes a proceedings in rem and even the creditor who has triggered the process would also lose control of the proceedings as Corporate Insolvency Resolution Process is required to be considered through the mechanism provided under the IB Code. The principles as laid down in Swiss Ribbons (supra) was also referred to in detail in the case of Pioneer Urban Land and Infrastructure (supra) wherein the observations contained in para 39 though in the case of Real Estate Development was laid down. The relevant portion which has been referred to, reads as follows: "Thus, any allottee/home buyer who prefers an application under Section 7 of the Code takes the risks of his flat/apartment not being completed in the near future, in the event of there being a breach on the part of the developers. Under the Code, he may never get refund of the entire principal, let alone interest. This is because, the moment a petition is admitted under Section 7, the resolution professiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the adjudicating authority (NCLT) is duty bound to advert to the material available before it, alongwith the application under Section 7 of the IBC, by the financial creditor to indicate the default alongwith the version of the corporate debtor. The Court emphasized that this would be keeping in perspective the scope of the proceedings under the IBC and there being a timeline for the consideration to be made by the adjudicating authority, as also for the reason that such process as set into motion cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. Thus, in the context that even if an application under Section 8 of the ACA is filed, it was observed that the adjudicating authority has a duty to advert to the contentions put forth under an application filed under Section 7 of the IBC by examining the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. At the same time while doing so, the contention being put forth by the corporate debtor is to be noted to determine as to whether there is substance in the defence and to arrive at the conclusion whether there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he independent consideration of the same dehors the application filed under Section 7 of IB Code and materials produced therewith will not arise. The Adjudicating Authority is duty bound to advert to the material available before him as made available along with the application under Section 7 of IB Code by the financial creditor to indicate default along with the version of the corporate debtor. This is for the reason that, keeping in perspective the scope of the proceedings under the IB Code and there being a timeline for the consideration to be made by the Adjudicating Authority, the process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process. In that view, even if an application under Section 8 of the Act, 1996 is filed, the Adjudicating Authority has a duty to advert to contentions put forth on the application filed under Section 7 of IB Code, examine the material placed before it by the financial creditor and record a satisfaction as to whether there is default or not. While doing so the contention put forth by the corporate debtor shall also be noted to determine as to whether there is substance in the defence and to arrive at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court to come to an inevitable conclusion that mere filing of the proceedings under Section 7 of the IBC cannot be treated as an embargo on the Court exercising jurisdiction under Section 11 of the ACA, for the reason that only after an order under sub-section (5) of Section 7 of the IBC is passed by the NCLT, the Section 7 proceedings would gain a character of the proceedings in rem, which would trigger the embargo precluding the Court to exercise jurisdiction under the ACA, and more particularly in view of the provisions of Section 238 of the IBC which would override all other laws. In the facts of the present case as the Corporate Insolvency Resolution Process as initiated by the respondent under Section 7 of the IBC is yet to reach a stage of the NCLT passing an order admitting the said proceedings, the Court would not be precluded from exercising its jurisdiction under Section 11 of the ACA, when admittedly, there is an arbitration agreement between the parties and invocation of the arbitration agreement has been made, which was met with a refusal on the part of the respondent to appoint an arbitral tribunal. 22. It is also Dr.Iqbal's contention that necessarily the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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