High Court of Calcutta (10.01.2020) in Sirpur Paper Mills Ltd. vs. I.K. Merchants Pvt. Ltd. (A.P. No.550 of 2008) held that Once the Award is challenged in arbitration, the debt became disputed and subject to a decision in the Sec. 34 of ACA, 1996 proceedings.
Excerpts of the order;
1. The petitioner prays for setting aside of an Award dated 7th July, 2008 and contends that the present application under Section 34 of The Arbitration and Conciliation Act, 1996 (the Act) cannot be proceeded since Corporate Insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (the IBC) has been initiated against the petitioner as the Corporate Debtor.
8. ……….. It is undisputed that the Arbitral Award delivered on 7th July, 2008 was in existence for nine years prior to initiation of the proceedings under the IBC against the petitioner in 2017. The challenge to the Award was of 31st October, 2008 which additionally made the “debt” (to borrow a term from the IBC) uncertain and subject to the adjudication of the Section 34 proceedings. The question of the respondent approaching the NCLT for filing a claim in 2017 at the time of initiation of the insolvency proceedings, could not, therefore, arise. Both K. Kishan and Mobliox make it clear an earlier dispute or notice of a suit or an arbitration must be given precedence to the insolvency proceedings.
9. Although the facts of the present case are different from K. Kishan since in that case it was the award-holder who had sought to resort to the corporate insolvency process and the award debtor had sought to rely on the arbitration pending between the parties, the caution sounded by the Supreme Court in that decision finds an echo in the present case. Here it is the award-holder who seeks to go on with Section 34 application while the award debtor (petitioner before this court) takes the plea of the proceedings before the NCLT. Further in K. Kishan, both the parties before the Supreme Court were before the NCLT and the NCLAT. In this case, the award-holder/respondent is admittedly not before the NCLT. The contentions of the petitioner/award debtor assume significance since the petitioner seeks to take refuge in the insolvency proceeding where the applicants/operational creditors are third parties who are in no way connected with the arbitration between the petitioner and the respondent. Whatever be the factual differences between the present case and K. Kishan, the intention of the Supreme Court was that corporate insolvency resolution proceedings cannot be used to defeat a claim or a dispute which existed prior to the initiation of the insolvency proceedings. The insolvency proceedings have admittedly been admitted on 18th September, 2017 which is long after the reference and the appointment of the Arbitrator on 2nd May, 2006.
10. It would be evident from the dates since above that the impugned Award of 7th July, 2008 is a culmination of a dispute between the parties which existed before the initiation of corporate insolvency proceedings against the petitioner. It is also true that once the Award was challenged by the petitioner (Award Debtor) in 2008, the debt became disputed and subject to a decision in the Section 34 proceedings). This court is not inclined to agree with the contentions of the petitioner that the challenge to the Award cannot be considered by reason of the proceedings under the IBC. This is by reason of the fact that the respondent award-holder could not have filed a claim before the NCLT/IRP since the Section 34 proceedings had not been decided in favour of the said respondent in 2017 and hence there was no final or adjudicated claim as on that date. Further, once the stage under Section 14 of the IBC, namely, moratorium with regard to continuation of pending proceedings against the Corporate Debtor has been declared to be over, no further embargo remains for continuing to hear suits and other proceedings to which the Corporate Debtor (the petitioner in this case) is a party. In any event, Section 14(a) contemplates suits or continuation of pending proceedings “against” the Corporate Debtor and it is only the other sections which create roadblocks for transferring or disposing of any assets of the Corporate Debtor. In this case, the petitioner being the Corporate Debtor/Award Debtor cannot be permitted to take refuge under the provisions of the IBC for relegating the claim of the respondent award-holder to a limbo for an indefinite period of time on the specious plea of the respondent not having gone before the NCLT.
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