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TMI Blog2022 (12) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... t infrastructure development company to the petitioner and based on its representation, the petitioner awarded development works to be carried out in the project to the respondent. 3. Subsequently, the petitioner entered into a separate contract agreement dated June 21, 2012 ("contract", hereinafter) with the respondent. The term of the contract period was for 24 months and total price of the contract was ?394,30,00,000/-. However, the said project was not completed because of various defaults on the part of the respondent, and the project timelines were extended till June 30, 2017. A major portion of the works were de-scoped, vide agreement dated May 11, 2018 as the respondent was unable to complete the work on time and further did not carry out the maintenance works; which in terms of the contract, the respondent was liable to do for five years. The maintenance work of the project is still ongoing and is being carried out through some other agencies at the risk and cost of the petitioner. Due to the delay caused by the respondent, and the subsequent de-scoping, the petitioner incurred additional expenses. The respondent also failed to adhere by the quality and safety norms set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 21 of the Act of 1996 and invoking Clause 20.2 of the Contract, which deals with Dispute Resolution Procedure. The said Clause provided that the dispute between the parties would be attempted to be resolved through mutual discussion, failing which names of three arbitrators would be proposed by the petitioner. Clause 20.2 is reproduced below:- "20.2 Dispute Resolution Procedure 20.2.2 Amicable Resolution 20.2.1.1 Save where expressly stated to the contrary in this Contract, any dispute, difference or controversy of whatever nature between the Parties, however, arising under, out of or in relation to this Contract include disputes, if any, with regard to any acts, decision or opinion of DLFs Representative and so notified in writing by either party to the other (the "Dispute") shall in the first instance be attempted to be resolved amicably by mutual discussions co-operation and consultation in accordance with the procedure setout in clause 20.2.1.2 below. 20.2.1.2 Either party may require such Dispute to be referred to a nominated official/director of each *Party, for amicable settlement. Upon such reference, the two shall meet at the earliest mutual convenience and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerning all matters in terms of this Contract. Performance under the Agreement shall continue unabated during Arbitration Proceedings and no payment due or payable by one party to the other shall be withheld unless any such payment is or forms as part of the subject matter of the Arbitration Proceedings. The Party invoking arbitration shall specify the disputes to be referred to Arbitration under this cause together with the amounts claimed or any other remedy demanded in respect of each such dispute. The Arbitral Proceedings in respect of particular disputes shall commence on the date on which a request for reference of that disputes for arbitration is received by the other side. The Arbitrator shall give his award separately on each individual item in dispute. The Arbitrator shall also give reasons for arriving at the conclusion separately for each item in dispute. The Award of the Arbitrator shall be final, conclusive and binding on both the parties to these contracts." 9. The petitioner accordingly proposed the names of three retired Judges of the Supreme Court and further called upon the respondent to revert within thirty days of the receipt of the notice. 10. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner to thwart the insolvency proceedings. 14. The respondent had initially issued a demand notice on July 15, 2019 under Section 8 of the IBC for an operational debt of ?32,44,52,926/-. Upon the failure of the petitioner to provide a reply, the respondent approached the NCLT under Section 9 of the IBC on December 2, 2019. The NCLT issued notice to the petitioner vide order dated December 24, 2019. The petitioner in its reply to the said petition also filed an application under Sections 5 and 8 of the Act of 1996 before the NCLT seeking reference of the alleged disputes to arbitration. Though the said application is yet to be heard and adjudicated by the NCLT, a bare perusal of the same would establish that the present petition has been filed by the petitioner seeking essentially the same relief as has been sought by it before the NCLT. The petitioner has failed to place before this Court, the said application and even the reply to the petition under Section 9. 15. It is also stated that the respondent is a part of the IL&FS Group, which is subject to a moratorium by virtue of order dated October 15, 2018 passed by the NCLAT under Sections 241 and 242 of the Companies Act, 2013. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective resolution applicant exactly knows what has to be paid in order that it may take them over and run the business of the corporate debtor. Therefore, the remedy sought to be availed by the petitioner in the present petition is untenable. 19. That apart, it is stated that the invocation of arbitration by the petitioner is untenable in light of a 'moratorium' declared qua IL&FS and its 348 Group Companies including the respondent. Relevant portion of the order dated October 15, 2018 passed by the NCLAT prohibiting commencement or continuation of any new proceedings against IL&FS and its Group Companies is reproduced as under: "Taking into consideration the nature of the case, larger public interest and economy of the nation and interest of the Company and 348 group companies, there shall be stay of (i) The institution or continuation of suits or any other proceedings by any party or person or Bank or Company, etc. against 'IL&FS' and its 348 group companies in any Court of Law/Tribunal/Arbitration Panel or Arbitration Authority; and (ii) Any action by any party or person or Bank or Company, etc. to foreclose, recover or enforce any security interest created over the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected profits, business reputation, goodwill etc. 200 200 i. Interest 185.48 40.55 22. It is stated that the petitioner had concealed the fact that it had lodged the same claims before the CMA as has been sought to be referred to arbitration. 23. A reply has been filed by the petitioner to the supplementary affidavit filed by the respondent wherein it has been stated that the claims up to October 15, 2018 submitted before the CMA is without prejudice and whilst reserving its rights to prosecute its claims for damages against the respondent in the arbitration proceedings, as is clear from a perusal of paragraph 22 of the petition. 24. It is stated that the petitioner has sought reference of all disputes between itself and the respondent to arbitration and not just claims pertaining to damages post October 15, 2018. However, it is averred that if this Court comes to the conclusion that only claims arising after October 15, 2018 are capable of being referred to arbitration, then such claims be so referred. In this regard, a reference is made to the judgment of a Coordinate Bench of this Court in the case of Bharat Petroresources Limited v. JSW Ispat Special Products Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the petitioner can be left without a remedy in respect of its claims post the cut-off date against the respondent, which admittedly lie outside the resolution framework of IL&FS as approved by the NCLAT vide order dated March 12, 2020. 27. It is the submission of Mr. Nayar that the moratorium given by NCLAT vide order dated October 15, 2018 and confirmed by the subsequent order dated March 12, 2020, is not a statutory moratorium under Section 14 of the IBC. In fact, the resolution of IL&FS is not being conducted under the IBC at all but is being done pursuant to the provisions of Sections 241 and 242 of the Companies Act, 2013. Therefore, the rigours of Section 14 of the IBC are not attracted to the present case at all and this is what distinguishes the present case from a case where a company claims immunity from proceedings on the basis of a statutory provision i.e., Section 14 of the IBC. That apart, even the order dated March 12, 2020 is under challenge before the Supreme Court. 28. He has relied upon the Judgment of the Bombay High Court in the case of Bay Capital Advisors Pvt. Ltd. v. IL&FS Financial Services Ltd. & Ors., Arbitration Petition (L) No. 10089/2020 decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of learned Single Judge, the Division Bench permitted Bay Capital to file a counter claim and if any impediment was felt, Bay Capital was allowed the liberty to apply for modification or clarification of order. The Division Bench was conscious of the fact that the order of moratorium could be relied upon by IL&FS to non-suit Bay Capital from filing a counter claim (on the ground that counter claim is a proceeding against IL&FS and no proceeding could be filed against IL&FS in view of the order of moratorium) and protected the rights of Bay Capital to file a counter claim in the arbitration proceedings where IL&FS was the Claimant. 31. Mr. Nayar has argued that though the decision of the learned Single Judge in Bay Capital (supra) has been stayed by the Division Bench, the same would not preclude this Court from deriving persuasive strength from the decision and coming to the view that the recourse to arbitration against an IL&FS entity is not altogether prohibited by virtue of the orders of the NCLAT, more so when the order dated March 12, 2020 confirming the order dated October 15, 2018 is under challenge before the Supreme Court. 32. He has also stated that in the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntiff APCO Titan as a construction contractor. (iii) The plaintiff directly sued NHIDC invoking Section 70 of the Indian Contract Act, 1872 on the basis that even though it has no direct privity of contract with NHIDC since the benefit of the work done by it has been received by NHIDC, it must be paid by NHIDC under Section 70 of the Contract Act. (iv) In the suit, SSTL and ITNL filed an application under Order 1 Rule 10 CPC seeking impleadment on the ground that the plaintiff could not directly seek recovery of monies and that since the privity of contract is between the plaintiff and ITNL/ SSTL, any recourse of the plaintiff must only be against the latter. It was further argued that in view of the NCLAT order of the moratorium, the plaintiff could not bring proceedings against ITNL and SSTL. (v) The learned Single Judge repelled the plaintiff's reliance on Section 70 of the Contract Act and held that it could not bypass ITNL in order to create an obligation on NHIDC to pay. (vi) The Court also allowed the impleadment application filed by ITCL and SSTL. (vii) The Court further noted that prior to the filing of the suit, the plaintiff had filed an application before NCLA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution process which is typically followed in respect of Companies undergoing corporate insolvency resolution process. According to Mr. Nayar, the process being followed in the present case is for the sale of the paid-up capital of the respondent held by IL&FS and another IL&FS group company called ILFS Financial Services Limited (IFIL) on a Swiss Challenge Method. Further, even the distribution of the proceeds to be received from the sale of such shares is not to be distributed as is usually done in any IBC case i.e., as per the approved Resolution Plan and the mandate of Committee of Creditors but in a sui generis method. The only commonality between the process under IBC and the IL&FS resolution framework is that there is a clear cut-off date. While under IBC the cut-off date is a date on which Corporate Insolvency Resolution Process ("CIRP") is initiated (being the date on which the petition is admitted), in case of IL&FS entities the said date is October 15, 2018. Accordingly, the creditors of the respondent were asked to submit their claims as of the cut-off date. When claims after that date have not been invited and are therefore not known, it is not understood as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a device to thwart the proceedings which have been initiated by the respondent against the petitioner under Section 9 of the IBC, pending before the NCLT, Chandigarh. 41. The petitioner has invoked arbitration vide notice dated March 5, 2021, i.e., fourteen months after the NCLT had issued notice in the proceedings under the Section 9 of the IBC. The petitioner also lodged its claims before the CMA on September 24, 2021 by which time the deadline of lodging claims had already concluded. If the intent of the petitioner was not to thwart the proceedings under Section 9 of the IBC and the claims where genuine, it would not have delayed lodging its claims with the CMA. 42. Mr. Mehta has argued that the petitioner made a grossly misleading averment at paragraph 22 of the petition wherein it was stated that it 'would consider filing its claims against the Respondent upto October 15, 2018'. According to him, this was done by the petitioner knowing well that the respondent was not aware of the claims made by the petitioner before the CMA. 43. A schedule detailing the list of dates and events has been filed in page 3 of the additional note of submissions on behalf of the respondent, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided once a resolution plan of the respondent is finally approved and takes effect. Referring the parties to arbitration during the subsistence of a moratorium would defeat the very purpose and concept of moratorium. 49. Mr. Mehta has also argued that the Judgment in the case of Vidya Drolia (supra) is not applicable to the facts of this case as therein the Court was not dealing with a situation where a Section 11 petition was filed on the face of a 'moratorium order' as is in the present case. That apart, the Court therein was also not dealing with a situation wherein the petition was filed for thwarting proceedings initiated under Section 9 of the IBC. 50. In any case, there can be no question of any claims arising after October 15, 2018 as the respondent's obligations stood concluded on June 30, 2018. The construction period concluded on June 30, 2017 and the defect liability period ended on June 30, 2018. Even a settlement agreement dated May 11, 2018 has been executed wherein the petitioner had agreed to pay an amount of ?47.78 Crore to the respondent and even a completion certificate dated June 5, 2018 was issued by the petitioner. Further, vide letter dated June 20, 2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for improvement of certain road networks in Gurgaon, Haryana. Subsequently, the petitioner entered into a separate contract agreement dated June 21, 2012 with the respondent with a contract period of 24 months. It is the case of the petitioner that the project could not be completed for various defaults and disputes arose in November 2018 in relation to certain works to be completed/rectified by the respondent. Meanwhile, the Union of India in a petition under Sections 241 and 242 of the Companies Act, 2016 moved the NCLT, Mumbai praying for stay of institution and continuation of suits and other proceedings against IL&FS and its 348 Group Companies. NCLT, Mumbai declined to grant the relief. In appeal, the NCLAT vide order dated October 15, 2018 passed an interim order, inter-alia staying institution and continuation of suits and other proceedings against IL&FS and its 348 Group Companies. The said order dated October 15, 2018 was confirmed by the NCLAT in a subsequent order dated March 12, 2020. There is no dispute the respondent herein is a Group Company of IL&FS. On March 05, 2021, the petitioner issued a notice under Section 21 of Act of 1996 invoking the arbitration clause. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns from exercising the right to set off or lien against any amounts lying with any creditor against any dues whether principal or interest or otherwise against the balance lying in any bank accounts and deposits, whether current or savings or otherwise of the 'IL&FS' and its 348 group companies. The interim order will continue until further orders and not be applicable to any petition under Article 226 of the Constitution of India before any Hon'ble High Court or under any jurisdiction of the Hon'ble Supreme Court." 56. The submission of Mr. Nayar is that the 'moratorium' granted by the NCLAT is not a statutory moratorium under Section 14 of the IBC and resolution of IL&FS is not being conducted under the IBC, but under Sections 241 and 242 of the Companies Act, 2013 and as such the rigours of Section 14 of the IBC are not attracted to the present proceedings. Suffice to state, the challenge to the order dated March 12, 2020 of the NCLAT is pending consideration before the Supreme Court, and as such this Court cannot advert to the legality of the order of the NCLAT. The issues in this case need to be decided on the premise that the NCLAT has stayed the institution or continuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment is reproduced as under:- "32. It is not disputed that the above order continues to operate and apply even qua ITNL. The primary dispute and claim for recovery being against ITNL/SSTL, in view of the order dated 15th October, 2018 of the NCLAT, the present suit would not be maintainable." 61. That apart, the High Court of Himachal Pradesh in the case of M/s VIL Limited v. IL&FS Transportation Networks, CARAP No. 16/2018 dated November 30, 2018, while dealing with the same order dated October 15, 2018 of the NCLAT, has held as under:- "9. Order dated 15.10.2018 has been passed by Appellate Tribunal under Sections 241 read with 242 of the Companies Act, 2013, but it is similar to the order passed under Section 14 of the Code providing declaration of moratorium, as prima facie the Appellate Tribunal has considered that it has wider power under Sections 241 and 242 of the Companies Act, 2013, than the power vested under provisions of the Code............. ***** ***** ***** 14..............interim order dated 15.10.2018 passed by Appellate Tribunal is not an order passed under Section 14 of the Code. However, it is explicit from the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved resolution plan and mandate of the Committee of Creditors, but in a sui generis method. This submission is also without any merit. This I say so, because of the effect of the order of the NCLAT, which is primarily an order akin to an order of moratorium under Section 14 of the IBC. The purpose and rationale behind granting a moratorium is to ensure that the assets of the corporate debtor are protected, with an intention to keep the company a going concern and to use the period to strengthen its financial position. It means, the intent of the order of the NCLAT is to protect the assets of IL&FS and its group companies in order to make the resolution process effective/purposeful. 64. Further, the order does not make any distinction between the claims before October 15, 2018 and after October 15, 2018. It restrains not just continuance of suits or proceedings already instituted, but also filing of fresh suits or proceedings. In other words, the order of stay/moratorium prohibits the initiation of any proceedings, regardless of the period to which the claims in the proceedings pertain. 65. If this Court is to accept the plea of Mr. Nayar, then it would mean that there is no restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the proceedings before the learned NGT for the same cause of action, which is seized with the High Court, would not be in the interest of justice." 70. Similarly the Judgment in the case of Alapan Bandyopadhyay (supra) relied upon by Mr. Nayar shall have no applicability for the reasons already stated above. Even the Judgment in the case of Bhagaban Sarangi (supra) has no bearing on the issue which arises for consideration in this petition. 71. Similarly, L. Chandra Kumar (supra) has no applicability as the present proceedings are not the proceedings under Article 226 of the Constitution of India, but a petition under Section 11 of the Act of 1996, which is filed for initiating arbitration process, which initiation itself has been restrained by the NCLAT. That apart, it is apposite to note that the NCLAT has not restrained the filing of petitions under Articles 226 of the Constitution of India and invoking the jurisdiction of the Supreme Court, as is seen from the order of the NCLAT which I have already reproduced in paragraph 55 above. In view of this, reference made to the said judgment is misplaced. 72. Though there is no dispute with regard to the law laid down in Bha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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