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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 ..... e 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. In any case, the legality of the order dated March 12, 2020 confirming the order dated October 15, 2018 has been challenged before the Supreme Court. Since, the matter is pending before the Supreme Court and there is no stay of the NCLAT order, the petitioner has to await adjudication of the proceedings before the Supreme Court. Petition dismissed. - ARB.P. 1166/2021 - - - Dated:- 21-12-2022 - HON'BLE MR. JUSTICE V. KAMESWAR RAO Petitioner Through: Mr. Rajiv Nayar, Sr. Adv. With Mr. Dhruv Divan, Ms. Meghna Mishra, Mr. Ankit Rajgarhia Mr. Tarun Mehta, Advs. Respondent Through: Mr. Jayant Mehta, Sr. Adv. with Mr. Kaushik Laik, Mr. Akshay Kaushik, Ms. Rudrakshi Deo Mr. Abhishek Tiwari, Advs. JUDGMENT V. KAMESWAR RAO, J 1. The present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 ( Act of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent to cure the defects in the area but the respondent has repeatedly failed to comply with the requests made by the petitioner. 5. Meanwhile, the Union of India filed a petition under Sections 241 and 242 of the Companies Act, 2013 before the National Company Law Tribunal ( NCLT ), Mumbai, inter alia praying for stay of institution of suits and arbitral proceedings against Infrastructure Leasing and Financial Services Limited ( IL FS ), i.e., the parent company of the respondent, and its 348 Group Companies. However, the NCLT, Mumbai declined the said relief. Thereafter, the Union of India filed an appeal before the National Company Law Appellate Tribunal ( NCLAT ) challenging the order passed by the NCLT, Mumbai. The NCLAT on October 15, 2018 passed an interim order staying the institution of suits and other proceedings against IL FS and its 348 Group Companies. 6. Subsequently, the respondent issued a demand notice dated July 15, 2019 under Section 8 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) to the petitioner herein for an amount of ?32,44,52,926/- along with interest and stated in the demand notice that the date of default was June 30, 2018. The petitioner vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reof for the time being in force. The Parties have agreed that the Arbitration Proceedings shall be held at an appropriate location as may be decided by DLF. The Arbitration proceedings shall be conducted by sole arbitrator. For the appointment of the sole Arbitrator. DLF shall identify three retired High Court Judges and intimate in writing to the Contractor. The names of the retired High Court Judges so identified. The Contractor shall within 30 days from the receipt of such written intimation. nominate in writing to DLF any one of such retired High Court Judges to be appointed as the Sole Arbitrator. Upon receiving the written intimation from the Contractor as stated hereinbefore, DLF shall appoint the sole arbitrator to adjudicate upon the dispute between the Parties. In the event. the Contractor fails to nominate in writing as aforesaid within 30 days from the receipt of written intimation from DLF. then DLF shall have the sole right to nominate and appoint, from within the three names nominated, the sole arbitrator to adjudicate upon the disputes between the Parties. The Contractor expressly acknowledges, accepts and agrees that it shall not be entitled to reject the names id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IBC and as such the applicant/petitioner cannot be termed to be an operational creditor . It was further stated that various acts of omission and non-performance of contractual obligations by the respondent has made the petitioner entitled to liquidated damages as the works performed by the respondent has been found to be seriously defective, and the overall claims against the respondent is to be quantified in excess of ?500 crore excluding legal costs. The petitioner has also filed an application under Section 8 of the Act of 1996 for referring the parties to arbitration. 12. It is stated that pursuant to a public advertisement dated August 14, 2020 issued in respect of the IL FS Group Companies, the creditors of the IL FS Group Companies including the respondent herein were directed to submit their claims in respect of undischarged liabilities due up to October 15, 2018. The deadline for filing the claims was extended up to December 31, 2020 and thereafter up till May 05, 2021. It is stated in the petition that the petitioner under advice, without prejudice to its rights against the respondent, would consider filing its claims against the respondent up to October 15, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is evident from the final completion certificate dated June 5, 2018 and the fact that the completion of the defects liability period was June 30, 2018 which was four months before the cut-off date of October 15, 2018. If the petitioner had any claims they would have been necessarily in relation to the period prior to October 15, 2018. The losses faced by the petitioner due to the alleged delays by the respondent cannot arise after October 15, 2018 as the construction was clearly completed before this date. This fact is also evident from a perusal of the notice under Section 21 of the Act of 1996 dated March 5, 2021. 17. It is the case of the respondent that the obligation of the petitioner to lodge claims before the CMA cannot be bypassed by invoking arbitration. Even the notice under Section 21 of the Act of 1996 was issued by the petitioner after a lapse of 6 months from the deadline of October 28, 2020. Therefore, it is evident that the neither any claims nor any disputes have arisen between the parties. The claims have been raised only as an afterthought to counter blast and thwart the proceedings under Section 9 of the IBC initiated by the respondent. 18. It is settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spension of temporarily the acceleration of any term loan, corporate loan, bridge loan, commercial paper, debentures, fixed deposits and any other financial facility by the IL FS and its 348 group companies by any party or person or Bank or Company, etc. as of the date of first default. (v) Any and all banks, financial institutions 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. 20. That apart, it is also stated that the petitioner had filed certain claims before the CMA who dismissed the same. Thereafter, the petitioner filed an interlocutory application dated February 1, 2022 before the NCLT, Mumbai challenging the decision of the CMA. 21. A perusal of the application reveals that the claims made be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Bharat Petroresources Limited v. JSW Ispat Special Products Limited, 2002 SCC OnLine Del 443, wherein claims that arose after the Insolvency Commencement Date were referred to arbitration. 25. It is also stated that the table contained in the supplementary affidavit filed by the respondent (reproduced above) is misleading inasmuch as the same only selectively compares claims raised in the notice invoking arbitration with those filed with the CMA. In fact, I find that a comparison of claims raised in the notice invoking arbitration and those submitted before the CMA has been filed by the petitioner in a tabular form which is reproduced as below: S.No. Claim Amount claimed in NIA* (In Crores) Amount claimed before Claims Management Advisor (In Crores) 1 Liquidated Damages 21.09 21.09 2 Cost of Descoping 68.03 47.10 3 Prolongation Cost on Account of Extended Services by Consultants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 on April 9, 2021 to contend that the issue whether the directions pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 scheme of hierarchy NCLAT is subordinate to the High Court an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ractor. (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 NCLAT seeking impleadment bu ..... 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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afterthought and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t October 15, 2018 can only be decided 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. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a cost sharing agreement with HUDA for external development works 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. as of the date of first default. (v) Any and all banks, financial institutions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le against a Group Company of IL FS, in view of the order dated October 15, 2018 of the NCLAT. Relevant part of 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be received from the sale of such shares is not to be distributed as per the approved 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any order. 16. In that view of the matter, we are of the considered view that the continuation 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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