NCLT Mumbai (09.06.2020) in Agrocorp International Private (PTE) Limited Vs National Steel and Agro Industries Limited [CP(IB) No. 798/MB/C-IV/2019] held that;
In the circumstances, we answer the first question in favour of the Appellant and hold that the Adjudicating Authority has no jurisdiction to decide the question of legality and propriety of a foreign judgment and decree in an application under Sections 7 or 9 or 10 of the ‘I&B Code’….”
if a party receives a binding award from a country which is signatory to the New York Convention or the Geneva Convention and the award was made in the territory which has been notified as a convention country by India, the award would then be enforceable in India. An award is ‘final’ if under the laws of the country in which an award has been made, is no longer open to challenge on merits.
The Hon’ble Supreme Court in K. Kishan Vs M/S Vijay Nirman Company Pvt. Ltd (Civil Appeal No. 21824 Of 2017) held that pendency of challenge to an arbitral award qualifies as ‘pre-existing dispute’ for the purposes of initiating corporate insolvency resolution process by the operational creditor
Excerpts of the Order;
# 1. This is a Company Petition filed under section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC) by Agrocorp International Private (PTE) Limited, a Private Company incorporated under the Companies Act (CAP 50) of Republic of Singapore, seeking to initiate Corporate Insolvency Resolution Process (CIRP) against National Steel and Agro Industries Limited [CIN: L27100MH1985PLC140379] (“the Corporate Debtor”).
# 3. The present petition was filed on 22.02.2019 before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of a sum of $930,000.00 (US Dollars nine lakh thirty thousand only) as principal amount and $38,971.84 (US Dollars thirty-eight thousand nine hundred seventy-one and cent eighty-four only) as interest at the rate of 4% p.a. compounded quarterly along with $9,536.00 (US Dollars nine thousand five hundred and thirty-six only) being cost awarded to the Operational Creditor by Arbitral Award (at p.3 of the Petition) arising out of a sale contract dated 11.10.2017, a copy of which is placed as Exhibit E at pp.42-52. The date of default is 19.04.2018, date on which Award of Arbitration was announced. A copy of the Arbitral Award is placed as Exhibit D at pp.17-41.
# 7. The objections of the Learned Counsel for the Corporate Debtor can be classified as follows: -
(a) A foreign award is not binding upon parties in India when it is yet to be found to be enforceable by the competent court under the Arbitration and Conciliation Act, 1996;
(b) There is a pre-existing dispute between the parties since the foreign award has not obtained finality;
(c) The petition is defective in as much as the signatory to the petition is not authorised by the board of directors of the Operational Creditor.
(d) Draft agreement and not a final contract between the parties.
# 8. The objections raised by the Corporate Debtor have been answered at length by the Learned Counsel of the Operational Creditor by its Rejoinder dated 12.07.2019 and written submissions dated 06.11.2019 and the Ld. Counsel of the Corporate Debtor by its written submissions dated 13.11.2019. The contentions of both the parties to the present petition can be collated and answered as under:
On foreign award ‘not binding’ upon parties in India
# 15. The Operational Creditor submits that at the time of enforcement of foreign judgments in India, two situations may arise depending on whether the foreign judgment is passed by a court in –
(i) a reciprocating territory or;
(ii) a non-reciprocating territory.
# 16. A ‘reciprocating territory’ means any country or territory outside India which the Central Government may, by notification in the Official Gazette, declare to be a reciprocating territory. The decree passed by a court in a reciprocating territory can be executed in India as if it had been passed by the District Court.
# 17. The United Kingdom, where the Award has been passed in the present case, is a reciprocating territory in terms of section 44A vide notification No.51 dated 01.03.1953 published in the Gazette of India, Extraordinary. Thus, the Award would no longer be open to challenge on merits.
# 18. The Operational Creditor submits that a Foreign Award is binding on persons between whom it was made and can be used by any of them by way of defence, set-off or otherwise in any legal proceeding in India. , in terms of section 46 of the Arbitration and Conciliation Act, 1996.
# 19. The Operational Creditor has relied on a judgment of the Hon’ble National Company Law Appellate Tribunal (NCLAT) in the matter of Usha Holdings L.L.C. & Anr. Vs Francorp Advisors Pvt. Ltd. C.P. No. (IB)- 196(PB)/2017 which observed the following:
“4. Learned counsel appearing on behalf of the Appellants submitted that the Adjudicating Authority has no jurisdiction to decide the legality and viability of foreign decree and no right finding can be given by it…
5. …*** – 13. …***
14. In the circumstances, we answer the first question in favour of the Appellant and hold that the Adjudicating Authority has no jurisdiction to decide the question of legality and propriety of a foreign judgment and decree in an application under Sections 7 or 9 or 10 of the ‘I&B Code’….”
On a pre-existing dispute between the parties since the Foreign Award has not obtained finality
# 23. The Corporate Debtor submits that the foreign award had not obtained finality as it could either, prefer an appeal in the appropriate forum in London or it can object to the enforcement of the award under the provisions laid under section 48 of the Arbitration Act.
# 25. The Hon’ble Supreme Court in K. Kishan Vs M/S Vijay Nirman Company Pvt. Ltd (Civil Appeal No. 21824 of 2017) held that pendency of challenge to an arbitral award qualifies as ‘pre existing dispute’ for the purposes of initiating corporate insolvency resolution process by the operational creditor.
# 30. The Operational Creditor submits that if a party receives a binding award from a country which is signatory to the New York Convention or the Geneva Convention and the award was made in the territory which has been notified as a convention country by India, the award would then be enforceable in India. An award is ‘final’ if under the laws of the country in which an award has been made, is no longer open to challenge on merits.
On defective petition
# 33. Board Resolution dated 05.07.2018 (Exhibit A at p.9 of the petition) appoints Mr. Vijaykumar Gopalan Iyengar, Director as constituted attorney giving him the authority to appoint and authorise substitute as attorneys and to represent the Operational Creditor in various courts including the National Company Law Tribunal under the provisions of the IBC, 2016 of India. Further at pp.12-13 of the petition a Power of Attorney dated 08.11.2018 signed by Mr. Vijaykumar Gopalan Iyengar, Director is annexed which states that the Operational Creditor appoints Mr. Nirav Dilip Gandhi as a constituted attorney to represent the Operational Creditor in various courts including the National Company Law Tribunal under the provisions of the IBC, 2016 of India along with Mr. Vijaykumar Gopalan Iyengar.
# 34. Hence it is clear from the above that Mr. Nirav Dilip Gandhi is rightly the authorised representative for the Operational Creditor to initiate the corporate insolvency resolution process against the Corporate Debtor.
On foreign award ‘not binding’ upon parties in India
# 36. The United Kingdom, where the Arbitration Award has been passed in the present case, is a reciprocating territory in terms of section 44A vide notification No. 51 dated 01.03.1953 published in the Gazette of India, Extraordinary as SRO 399. Thus, the Award would be capable of execution in India, and the challenge by the Corporate Debtor on this score need to be repelled.
On a pre-existing dispute between the parties since the Foreign Award has not obtained finality
# 37. The Hon’ble Supreme Court in K. Kishan Vs M/S Vijay Nirman Company Pvt. Ltd (Civil Appeal No. 21824 Of 2017) held that pendency of challenge to an arbitral award qualifies as ‘pre-existing dispute’ for the purposes of initiating corporate insolvency resolution process by the operational creditor. In the present case, there is no pending challenge to the Arbitral Award. This Bench is of the considered view that it is not possible to wait indefinitely for the Corporate Debtor to challenge the Arbitral Award, and that it has to decide the present petition on the basis of the admitted positions, that is to say, there is an Arbitral Award passed by a competent Arbitral Tribunal after the consideration of the positions of both the sides, and there is no challenge to the Arbitral Award dated 16.04.2018 in a manner known to law. Hence the same cannot be considered as a pre-existing dispute, and the objection of the Learned Counsel for the Corporate Debtor on this count is rejected.
On defective petition
# 38. The Corporate Debtor submitted that the Board Resolution submitted by Operational Creditor (Exhibit A to the petition) authorises Mr. Vijaykumar Gopalan Iyengar to file the present petition. However, the petition is signed by Mr. Nirav Gandhi as per the Power of Attorney submitted. The Corporate Debtor submits that in absence of specific authority in favour of Mr. Nirav Gandhi, the present petition is defective.
# 40. At the outset, it is clarified that the authority of Mr. Nirav Gandhi to file this petition cannot be challenged given the judgment of the Hon’ble NCLAT in Palogix Infrastructure Private Limited v ICICI Bank Ltd. [Company Appeal (AT) (Insolvency) No. 30 of 2017], the judgment is crystal clear in terms of the authority to file the insolvency petition. It says:
“38. This apart, if an officer, such as Senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a proceeding for 'Corporate Insolvency Resolution Process' against the person who have taken loan, in such case the 'Corporate Debtor' cannot plead that the officer has the power to sanction loan, but such officer has no power to recover the loan amount or to initiate 'Corporate Insolvency Resolution Process', in spite of default of debt.
39. If a plea is taken by the authorised officer that he was authorised to sanction the loan and had done so, the application under section 7 cannot be rejected on the ground that no separate specific authorization letter has been issued by the 'Financial Creditor' in favour of such officer designate.
40. Given reasons as recorded above, while we hold that a 'Power of Attorney Holder' is not empowered to file application under section 7 of the 'I&B Code', we further hold that an authorised person has power to do so.”
# 41. Therefore, on a plain reading of this decision, it is held that Mr Nirav Gandhi has the proper authority to file the present petition, and the objection raised by the Corporate Debtor holds no water.
# 42. Therefore, the Petition made by the Operational Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is more than minimum amount of one lakh rupees stipulated under section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor.
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