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TMI Blog2023 (7) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... d Medium Facilitation Council, Kolkata, within 15 days from this order; And/Or (ii) For further issuance of an appropriate order/direction as Your Lordships may deem fit and proper for doing conscionable justice to the petitioner." 3. The present proceedings arise out of execution case instituted by the respondent for execution of arbitration award dated 06.07.2018 under Section 36 of the Arbitration and Conciliation Act, 1996 for a total amount of Rs. 1,59,09,214.33 plus interest @ 3% of bank rate of RBI Compounded with monthly rests. The award was passed by the West Bengal Facilitation Council under the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred as 'MSME Act') in case number 330 and 331 of 2014. Admittedly, the award was not challenged under section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). The petitioner prayed for dismissal of the execution proceedings and also to pass necessary orders that the executing court had no jurisdiction to entertain the execution petition based on illegal and non-est order passed by the West Bengal State Small and Medium Enterprises Facilitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the petitioner has submitted that even if the award was not challenged under section 34 of the Arbitration and Conciliation Act, 1996, objection could have been taken at the stage of its enforcement when it is sought to be enforced under section 36 of the aforesaid Act of 1996. Learned counsel for the petitioner has relied upon a judgment passed by the Hon'ble Supreme Court reported in (2003) 8 SCC 565 para 4, to submit that it has been held by the Hon'ble Supreme Court that the objection in connection with stamping of the arbitral award could have been raised under Section 47 of the CPC at the stage of enforcement of the award under section 36 of the Act of 1996. He has also relied upon the judgment passed by the Hon'ble Supreme Court reported in (2022) 2 SCC 290 para 8 and also the judgment reported in (2018) 18 SCC 165 para 8 to submit that in the execution proceedings, objection under Section 47 of Code of Civil Procedure, 1908 were taken even in execution of arbitral award. He has also relied upon a judgment reported in (2017) 5 SCC 371 para 22 and 23 to submit that exercise of power under section 47 of CPC is microscopic and lies in a very narrow inspection hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an elaborate reasoned decision with respect to the same point has been rendered by the Hon'ble Patna High Court in the judgment reported in AIR 2016 Patna 202 para15 onwards. The learned counsel submits that such view has been taken considering the fact that there is mandate of expeditious disposal in the matter of Arbitration and Conciliation proceedings and least jurisdictional intervention has been prescribed. He has also referred to Section 5 of the aforesaid Act of 1996. The learned counsel has referred to the judgment passed by the Hon'ble Supreme Court reported in (2018) 1 SCC 407 (Innoventive Industries Limited vs. ICICI Bank & Another) para 29. 12. The learned counsel has referred to the provisions of Section 238 of Insolvency and Bankruptcy Code, 2016 and has submitted that it has to be read with Section 245 to 255 of the Code in view of the fact that there is a specific provision under IBC Code to make specific amendments in corresponding law to ensure that those laws are made subject to Insolvency and Bankruptcy Code, 2016. There is no such corresponding provision, so far as the MSME Act and Arbitration and Conciliation Act, 1996 are concerned. 13. He has further re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim under dispute pre corporate insolvency resolution process till 2nd April, 2018 has been enlisted therein and the name of the respondent appears at serial No. 7. 19. The learned counsel has also relied upon the order passed by the Hon'ble Supreme Court in the main petition at page No. 125 to submit that so far as the dues in connection with operational creditors are concerned, the same was to be reconsidered and therefore, it cannot be said that the claim of such creditors stood nullified finally. The resolution plan with respect to NIL payment to operational creditors did not become final. The learned counsel has finally referred to the order passed by the Hon'ble Supreme Court dated 21.01.2022 in Civil Appeal No. 5908/2021 to submit that in the said order, the arbitral proceedings were permitted to be proceeded. 20. The learned counsel has also submitted that so far as the judgment passed in the case of Ghanshyam Mishra (supra) is concerned, it stands on a different footing in view of the fact that in the said case, the party did not make any claim before the resolution professionals, therefore their claim was not subsequently maintainable and stood extinguished. Rejoinder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rejected on the ground that they were assignees who acquired the rights prior to passing of the decree. It was held that the objection filed under section 47 of the C.P.C. filed before the executing court was maintainable. This judgement does not apply to the facts and circumstances of this case. 25. In the judgement reported in (2018) 18 SCC 165 (Kohinoor Transporters v. State of U.P.), the issue was as to whether the High Court was right in directing the appointment of a chartered accountant for the purpose of determining as to whether the decretal debt is to be marked as satisfied. It has been held that the High Court had acted in excess of its jurisdiction as the issue as to whether the decree has been discharged or satisfied has to be determined by the executing court under Section 47 CPC. This judgement also does not apply to the facts and circumstances of the case. 26. In the judgement reported in (2003) 8 SCC 565 (M. Anasuya Devi and Another Vs. M. Manik Reddy and Others), it has been held that the question as to whether the award was required to be stamped or not was not required to be gone into at the stage of the proceedings under Section 34 of the Act as this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well to render the decree unexecutable." It has been further held that the scrutiny is limited to objections to its executability on the ground of jurisdictional infirmity or voidness and the judgement reported in (1970) 1 SCC 670 was referred to say, that in essence, the law is that only a decree which is a nullity can be subject matter of objection under Section 47 of the Code of Civil Procedure and not one which is erroneous either in law or in facts. Paragraphs 22 and 23 of the aforesaid judgement reported in (2017) 5 SCC 371 (Brakewel Automotive Components (India) (P) Ltd. v. P.R. Selvam Alagappan) is quoted as under: "22. Judicial precedents to the effect that the purview of scrutiny under Section 47 of the Code qua a decree is limited to objections to its executability on the ground of jurisdictional infirmity or voidness are plethoric. This Court, amongst others in Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman in essence enunciated that only a decree which is a nullity can be the subject-matter of objection under Section 47 of the Code and not one which is erroneous either in law or on facts. The following extract from this decision seems apt: (SCC pp. 672-73, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier judgement referred to and quoted in the aforesaid judgement in para 22 above, it has been explained as to when a decree is a nullity and certain instances have been given including where it is passed without bringing the legal representative on the record of a person who was dead at the date of the decree. On the point of objection to execution of decree suffering from inherent lack of jurisdiction, it has been held that objection as to its validity may be raised in an execution proceeding if such objection appears on the face of the record. It has also been held that where the objection as to the jurisdiction of the court to pass the decree does not appear on the face of the record and requires examination of the questions raised and decided at the trial or which could have been raised but not raised, the executing court will have no jurisdiction to entertain an objection as to the validity of the decree even on the ground of absence of jurisdiction. It has been further held that the scope of Section 47 of the CPC is quite different and much narrower than those in appeal/revision or review. It is microscopic and lies in a very narrow inspection hole; an executing court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not apply to a proceeding under special law as the Arbitration Act, apply to only the proceedings provided for under the Arbitration Act and cannot be extended to the proceedings for execution of an Arbitral Award, as if it were a decree of the Court. Once the Arbitration Act, 1996 itself has conferred on the Arbitral Award the status of a decree of the Civil Court and made the same executable in accordance with the provisions of CPC, I see no reason to apply the aforesaid observations made in an entirely different context i.e., to execution proceedings. To interpret so would be a violation of the express provision of Section 36 (1) of enforcement of the Arbitral Award in accordance with the provisions of the CPC in the same manner as if it were a decree of the Civil Court. If the intent of the legislature while enacting the Arbitration Act, 1996 had been to exclude objections of the nature permitted to be taken under Section 47 of the CPC in execution proceedings in execution of arbitral awards, for the reason of time limited for taking thereof under Section 34 of the Arbitration Act, 1996 or otherwise, it would have provided so and which has not been done. In the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decree was incorrect in law or on facts. Until it is set aside by an appropriate proceeding in appeal or revision, a decree even if it be erroneous is still binding between the parties. 8. If the decree is on the face of the record without jurisdiction and the question does not relate to the territorial jurisdiction or under Section 11 of the Suits Valuation Act, objection to the jurisdiction of the Court to make the decree may be raised; where it is necessary to investigate facts in order to determine whether the court which had passed the decree had no jurisdiction to entertain and try the suit, the objection cannot be raised in the execution proceeding." 31. One such example of exercise of such jurisdiction to declare the arbitral award a nullity is the judgement passed by the Hon'ble Supreme Court in Civil Appeal No. 2899 of 2021 (Jharkhand Urja Vikas Nigam Limited Vs. State of Rajasthan and Ors.), wherein the arbitral award passed by MSME was not challenged under section 34 of the Act of 1996 but was challenged in a writ petition. In the said judgement, the claim was filed before the Rajasthan Micro and Small Facilitation Council by the third respondent of the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he eye of law. It is true that under the scheme of the Arbitration and Conciliation Act, 1996 an arbitral award can only be questioned by way of application under Section 34 of the Arbitration and Conciliation Act, 1996. At the same time when an order is passed without recourse to arbitration and in utter disregard to the provisions of Arbitration and Conciliation Act, 1996, Section 34 of the said Act will not apply. We cannot reject this appeal only on the ground that appellant has not availed the remedy under Section 34 of the Arbitration and Conciliation Act, 1996. ..........................................Though the learned counsel appearing for the respondents have placed reliance on certain judgments to support their case, but as the order of 06.08.2012 was passed contrary to Section 18(3) of the MSMED Act and the mandatory provisions of the Arbitration and Conciliation Act, 1996, we are of the view that such judgments would not render any assistance to support their case." 32. From perusal of the aforesaid judgement passed by Hon'ble Supreme Court, it is clear that in a given circumstances an award can be held to be a nullity even if the award has not been challenged un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontemplate second opportunity to challenge the award particularly when the Act of 1996 is a self-contained code which prescribes the specific grounds and specific mode of challenge to an arbitral award. This would be the position except under the circumstances, where the award cannot be termed as an award in the eyes of law and therefore it is required to be rendered void ab initio /nullity and consequently required to be declared non-est in the eyes of law. This can be done pursuant to such objection raised under section 47 of CPC at the stage of execution of the award. Award which suffers from inherent lack of jurisdiction in the eyes of law, cannot be said to be award and therefore would fall outside the provision of Arbitration and Conciliation Act, 1996 and can certainly be declared as a nullity in an appropriate proceeding including under section 47 of CPC at the stage of execution of the award. The point no (a) is answered accordingly. Thus the plea of nullity with regard to the arbitral award can be taken under section 47 of the CPC , but in a very narrow campus as explained above in para 32 to 34. Point no. (b) Whether the arbitral award in the present case could be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise certainly require close examination of the resolution plan read with the orders passed by NCLT/NCLAT/Supreme Court which itself is a debatable issue on facts as well as on law. In view of the aforesaid situation and in the light of the facts and circumstances of this case, the arbitral proceedings culminating in the award involved in this case, cannot be said to be suffering from inherent lack of jurisdiction. 39. On the point of jurisdiction, it has also been argued by the learned counsel for the petitioner that earlier an arbitrator was appointed by the petitioner for resolution of dispute and the arbitral proceedings also commenced. This was prior to filing of claim by the respondent before the Facilitation Council of west Bengal constituted under MSME Act. It has been argued that once the arbitral proceedings had commenced before the learned sole arbitrator, the subsequent proceedings before the facilitation council were not maintainable. 40. In reply to such plea, it has been stated by the respondent in their counter-affidavit that the respondent had sent a legal notice dated 16th September, 2014 demanding the dues, failing which arbitration will be invoked, but the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion council, this court finds that the petitioner had submitted before the facilitating council that the order of the facilitation council on the point of jurisdiction which was decided against the petitioner was challenged before the District Court at Alipore but the petitioner never produced the ad-interim order before the Facilitation Council. Otherwise also, the order of stay passed by the District Court at Alipore has no impact due to the interim order as well as the final order passed by Hon'ble Calcutta High Court in the civil revision application. The interim order passed by the District Court is also not available before this court, which was never produced before the Facilitation Council also to ascertain the nature and extent of the interim order. Such issues are not the issues relating to patent or inherent lack of jurisdiction of the facilitation council so as to render the award a nullity in the eyes of law. 42. Thus, the argument of the learned counsel for the petitioner, that the award suffers from patent or inherent lack of jurisdiction/ nullity and therefore the objection to the execution of the award could have been taken at the stage of execution without challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such debt has been legally assigned or transferred The Hon'ble Supreme Court in the judgment of Innoventive Industries Limited (supra) has compared the provisions of initiation of Corporation Insolvency Resolution Process by financial creditor under Section 7 and Insolvency Resolution Process by operational creditor under Section 8. The Hon'ble Supreme Court at paragraph 27 to 30 of the said judgment has held as under: - 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing-i.e. before such notice or invoice was received by the corporate debtor. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the adjudicating authority can grant its approval to the plan. It is at this stage that the plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan. The legislative intent behind this is to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the corporate resolution process is to take place." 48. Para 87 and 88 of the aforesaid judgement of Essar Steel India Ltd (supra) deals with the distinction between 'financial creditors' and 'operational creditors' and it has been held that they stand on different footing . It has also been held that fair and equitable dealing of operational creditors' right under the regulation involves the resolution plan stating as to how it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll within the definition of 'operational creditor' as defined under IBC. Rather, extensive arguments have been advanced on the approved resolution plan by both the parties. 50. This issue requires consideration of the point as to whether the amount claimed by the respondent and pending for adjudication in the arbitral proceedings much prior to insolvency commencement date, was ever declared to be nil in terms of the insolvency resolution plan of the petitioner read with various orders passed by NCLT, Kolkata / NCLAT, New Delhi/Supreme court. This would require examination of the approved insolvency resolution plan. It is not in dispute that the approved insolvency resolution plan was never interfered by the NCLT, Kolkata / NCLAT, New Delhi and Hon'ble Supreme Court. 51. The relevant dates /sequence of events are as follows: - (i) On 02.12.2014 & 20.12.2014, respondent filed claim application being Case Nos. 0330 and 0331 of 2014, before West Bengal Micro, Small and Medium Facilitation Council for total principal outstanding receivable amount as Rs. 1,59,09,214/-. In Case No. 330/2014 the claim amount was Rs. 1,36,69,981.33/- and Case No. 331/2014 the claim amount was Rs.22,39,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already settled at NIL as per the resolution plan read with the various order of NCLT/NCLAT/Supreme Court and therefore nothing was payable to the respondent. 52. It is the case of the petitioner that on 29.03.2018, Resolution Plan was submitted by Vedanta Limited wherein at para 3.8 all claim of operational creditors is settled at "NIL VALUE". On 17.04.2018, the NCLT, Kolkata in C.P. No.361/KB/2017 approved the resolution plan submitted by Committee of Creditor, Bank and other Financial Creditors. The moratorium ends on the acceptance of the Resolution Plan. It was observed in para - 50 of the order passed by the NCLT - "the claims of all the operational creditors settled as NIL". No appeal was preferred by the Respondent. The order dated 17.04.2018 was challenged before the National Company Law Appellate Tribunal, New Delhi, in Company Appeal (AT) (Insolvency) No.175 of 2018 by some of the Operational Creditors but the same was dismissed on 10.08.2018. Various other creditors also approached the NCLAT, New Delhi, in Company Appeal (AT) (Insolvency) No. 265 of 2018 and analogous cases on the ground that in the resolution plan, the resolution applicant has not taken proper care of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21.65% of the value of their Admitted Debt ("Priority Payment") which will be paid in priority to any payments to the assenting Financial Creditors." Clause 3.2(xii) of the resolution plan provided as follows:- "(xii) Notwithstanding the above, upon the approval of the Resolution Plan by the NCLT under Section 31 of the IBC, on and from the Effective Date: (A) All pending proceedings relating to the winding-up of the Company shall stand irrevocably and unconditionally abated in perpetuity and all Claims in connection with all violation or breach of any agreement by the Company shall be settled at NIL value at par with Operational Creditors as specified in Section 3.4.ii of this Resolution Plan." Clause 3.4 of the resolution plan dealt with proposal for operational creditor . Clause 3.4 (i) and (ii) is relevant for the purposes of this case which is as under: - "3.4 Proposal for Operational Creditors (excluding employees and Workmen): i. As per the List of Creditors, total claims filed by Operational Creditors (excluding employees and Workmen) aggregate to INR 1,687.69 Cr out of which claims aggregating to INR 782.05 Cr have been verified and admitted for the purposes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Company as set out in Section 3.4.ii of the Resolution Plan." Annexure-3 of the resolution plan was giving the list of contingent liabilities of the company which has two columns i.e direct tax litigation and indirect tax litigation. Annexure- 5 of the resolution plan gives the list of litigations under different columns i.e Criminal proceedings Civil proceedings Service tax proceedings Central excise matters Customs duty and entry tax matters Income tax matters Arbitration and conciliation Winding up proceedings Other matters and notices, and List of Top 30 Operational Creditor Claims. 55. As per clause 3.8 of the resolution plan, , with regard to the ongoing litigation , what were to be settled at NIL amongst the list at annexure-3 and 5, were only the Tax related Claims or liabilities specifically set out in Annexure 3 and Annexure 5 but the claim of the respondent was enlisted at serial no. 25 in annexure-5 under Arbitration and conciliation and cannot be termed as Tax related Claims or liabilities. Serial 25 of Annexure-5 of the resolution plan is quoted as as under:- Details [No. of cases outstanding] Amount involved [In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hemselves. In such circumstances, there was no occasion for the respondent to challenge the resolution plan. Admittedly, some of the creditors (operational/financial) had challenged the resolution plan with respect to their claim and provisions made in the resolution plan but all such objections /challenges were dismissed and there has been no interference in the approved resolution plan at any stage. 58. Thus, irrespective of maintainability of the objection to arbitral award under section 47 of the CPC, on facts, the Facilitation Council did not lose its jurisdiction to proceed and pronounce the arbitral award on account of approval of the insolvency resolution plan of the petitioner under section 31 of the IBC. This is on account of the reason that the arbitral proceedings were initiated prior to insolvency resolution date, suspended during the moratorium period, resumed upon expiry of the moratorium period and the approved resolution plan did not determine the claim of the respondent as nil whose pending litigation before the west Bengal facilitation council was taken note of in the resolution plan. The point no (c) is accordingly decided against the petitioner and in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1996, the Executing Court or any competent court of law can not entertain any application save and except so provided in part-I of the Arbitration Act 1996 but judgment debtor didn't also do that. It is also settled principle of law that a court executing a decree cannot go beyond the decree. It has already held in the Judgment M/S. Brakewel Automotive components (India) Pvt. Ltd.-V-P.R. Selvam Alagappan, reported in 2017(5) SCC 371 (Para 20) that the executing court cannot act as an appellate court and cannot go beyond the decree. So, in my view, the matter raised by the Judgment debtor in its application dated 14.05.2019 will not be heard in this case. It clearly shows that the Judgment debtor seeks to deprive the decree holder of the fruits of the award and wants to keep case pending unnecessarily and also not mention any tenable ground in its application. Hence, on the basis of above-mentioned facts and circumstances of this case and perused the materials available on records, this court find no merit in the application filed by the Judgment debtor dated 14.05.2019. Having gone through the authorities of law relied by the learned counsel for the Judgment debtor, this cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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