NCLT Chandigarh (06.10.2021) In Phoenix Arc Pvt. Ltd. & Ors. Vs. GPI Textiles Ltd.& Ors. [CA Nos. 259/2019, 261/2019 & 650/2019 In CP (IB) No. 35/Chd/HP/2018] held that;
that once it is shown that the claim of the applicant is backed by an award passed by the MSME Facilitation Council and that there was no stay against the same either in the appeal filed under Section 34 of the Arbitration and Conciliation Act, 1996 or from any other court, the action of the Resolution Professional in rejecting the claim of the applicant on the ground that there was no due shown in the books of the corporate debtor against the applicant is unsustainable.
Award passed by the MSME Facilitation Council is a public document and on the face of it the rejection of the claim of the applicant is not tenable.
In view of the settled principle of law that the time prescribed for submission of the claims is not mandatory whereas it is only directory, we are inclined to direct the respondent-Resolution Professional to consider the claim of the applicant, in accordance with law. It is also to be seen that the delay in submission of the claim of the applicant cannot be treated as abnormal.
Excerpts of the order;
CA No. 259/2019
#2. Corporate Insolvency Resolution Process (CIRP) proceedings were initiated against the corporate debtor M/s GPI Textiles Limited when CP (IB) No. 35/Chd/HP/2018 filed by M/s Phoenix Arc Pvt. Ltd., a financial creditor was admitted by this Adjudicating Authority on 06.07.2018 when an IRP was appointed on 12.07.2018. The applicant submitted its claim to the respondent- Resolution Professional in the prescribed Form B on 24.06.2018. When the applicant came to know from the website of the corporate debtor about rejection of its claim, it has filed the instant CA.
#3. Heard Mr. Rishabh Gupta, the learned counsel for the applicant and Mr. Abhishek Anand, the learned counsel for the respondent-Resolution Professional and perused the pleadings on record.
#4. The applicant submits that since the respondent-corporate debtor failed to pay the dues, it has obtained an award dated 26.11.2014 from the Madhya Pradesh Micro and Small Enterprises Facilitation Council, Bhopal vide award dated 26.11.2014. The petition filed by the respondent-corporate debtor under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the said Award is pending as on date and that no stay of the award was granted in the said petition filed by the respondent-corporate debtor. The applicant submits that in spite of the award of the MSME Facilitation Council in its favour and that though there was no stay on the said award, the respondent-Resolution Professional illegally and arbitrarily rejected its claim. On the other hand, the respondent-Resolution Professional while not disputing the existence of the award passed by the MSME Facilitation Council in favour of the applicant and the pendency of appeal under Section 34 of the Arbitration and Conciliation Act, 1996 and the fact of non-granting of any stay against the award of the MSME Facilitation Council however, submits that since as per the books of the corporate debtor no due was shown against the applicant, it was not entitled for admission of its claim.
#5. It is to be seen that once it is shown that the claim of the applicant is backed by an award passed by the MSME Facilitation Council and that there was no stay against the same either in the appeal filed under Section 34 of the Arbitration and Conciliation Act, 1996 or from any other court, the action of the Resolution Professional in rejecting the claim of the applicant on the ground that there was no due shown in the books of the corporate debtor against the applicant is unsustainable. Award passed by the MSME Facilitation Council is a public document and on the face of it the rejection of the claim of the applicant is not tenable.
#6. In these circumstances and for the aforesaid reasons, the instant CA No. 259/2019 is allowed and the respondent-Resolution Professional is directed to consider the claim of the applicant, in accordance with the Code and Regulations made thereunder.
#7. Accordingly, CA No. 259/2019 is disposed of.
CA No. 650/2019
#12. M/s Tanmay Pure Spun, an operational creditor of the respondent corporate debtor M/s GPI Textiles Limited filed the instant CA under Section 60(5) of IBC 2016 questioning the action of the respondent-IRP in rejecting its claim.
#13. Heard Mr. Rishabh Gupta, the learned counsel for the applicant and Mr. Abhishek Anand, the learned counsel for the respondent-Resolution Professional and perused the pleadings on record.
#14. The applicant questions the rejection of its claim on the ground that it has obtained an award from the MSME Facilitation Council however, no copy of the award is filed either with its claim or with the instant CA. However, the applicant has given the details such as the number and date of the award. Though the applicant in the claim Form at Sr. No. 11 mentioned that the Arbitral Award dated 26.11.2014 in MSMEFC No. 502/2013 was enclosed to the claim but even when the respondent in its reply to the CA specifically contended that no copy of any such award was enclosed to the claim, the applicant has not chosen to file the copy of the award by filing any rejoinder by enclosing the copy of the said award.
#15. The respondent while submitting that the applicant failed to furnish a copy of the award said to have been passed by the MSME Facilitation Council in its favour further submitted that the claim of the applicant was belated and hence, there is no illegality in its action in rejecting the claim.
16. In view of the settled principle of law that the time prescribed for submission of the claims is not mandatory whereas it is only directory, we are inclined to direct the respondent-Resolution Professional to consider the claim of the applicant, in accordance with law. It is also to be seen that the delay in submission of the claim of the applicant cannot be treated as abnormal.
17. Though in normal circumstances, it is the duty of any claimant to furnish all the required documents but since the applicant furnished the details of the award i.e. number and date and since the non-submission of the copy of the award is the main reason for rejection of its claim, we dispose of this CA permitting the applicant to furnish the copy of the award passed in its favour by the MSME Facilitation Council within two weeks from today, to the respondent- Resolution Professional and if the applicant submits the copy of the award within the said specified period, the respondent shall consider the same in accordance with the Code and Regulations made thereunder.
18. In these circumstances and for the aforesaid reasons, the instant CA No. 650/2019 is disposed of permitting the applicant to submit the copy of award passed by the MSME Facilitation Council in its favour within two weeks from today to the Resolution Professional and in such an event the Resolution Professional shall consider the claim of the applicant, in accordance with the Code and Regulations made thereunder.
19. Accordingly, CA No. 650/2019 is disposed of.
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Blogger’s Comments; Following are some rulings in respect of disputed claims and claims pending appeal against awards under Section 34 of the Arbitration Act ;
NCLT (PB) New Delhi.(21.03.2018) in Grasim Industries Limited vs. Tecpro Systems Ltd. [CA -19(PB) /2018 in (IB) -197(PB)/2017] held that,
A perusal of the aforesaid Regulation makes it clear that he is under mandatory duty to verify every claim and maintain the list of creditors containing their names along with the amount claimed by them and the amount of their claim admitted. This is exactly what the RP has done in this case. Such a claim is not verifiable from the books of accounts of the Corporate Debtor. Moreover, the same amount is subject matter of arbitration before the Arbitral Tribunal and there is a specific bar created by the admission order in terms of Section 14 of the Code. According to the Moratorium imposed by this Court in the admission order the continuation of pending suits or proceedings against the corporate debtor including execution of any decree and the proceedings before the arbitration panel are to remain stayed. The object of the moratorium clearly is to provide a cool period of 180 days extendable by 90 days to the IRP/RP and the COC to conclude the corporate insolvency resolution process. In the present case, there is no verifiable claim before the IRP and the dispute is pending in arbitration proceedings which could not proceed on account of moratorium. Allowing the disputed claim to be taken into account at this stage would unnecessarily hamper the insolvency resolution process and defeat the very purpose of admitting the petition.
SCI (15.11.2019) in CoC of Essar Steel India Limited vs. Satish Kumar Gupta & Ors. (Civil Appeal No. 8766-67 OF 2019) Held that;
# 102. So far as Dakshin Gujarat Vij Co. (Respondent No. 11 in Civil Appeal Diary No. 24417 of 2019), State Tax Officer (Respondent No. 12 in Civil Appeal Diary No. 24417 of 2019), Gujarat Energy Transmission Corporation Ltd. (Respondent No. 17 in Civil Appeal Diary No. 24417 of 2019) and Indian Oil Corporation Ltd. 162 (Respondent No. 18 in Civil Appeal Diary No. 24417 of 2019) are concerned, the resolution professional admitted the claims of the abovementioned respondents notionally at INR 1 on the ground that there were disputes pending before various authorities in respect of the said amounts. However, the NCLT through its judgment dated 08.03.2019 directed the resolution professional to register the entire claim of the said respondents. The NCLAT in paragraphs 43 and 196 of the impugned judgment upheld the order passed by the NCLT as aforesaid and admitted the claim of the abovementioned respondents. We therefore hold that this part of the impugned judgment deserves to be set aside on the ground that the resolution professional was correct in only admitting the claim at a notional value of INR 1 due to the pendency of disputes with regard to these claims.
HC Calcutta (07.05.2021) in Sirpur Paper Mills Limited Vs. I.K. Merchants Pvt. Ltd. [A.P. 550 of 2008] held that,
# 21. The next issue which would naturally fall for consideration is whether the respondent could have lodged and pursued its claim before the NCLT when the impugned Award was challenged by the Award-debtor/petitioner in this Court on 31st October, 2008. The respondent/ Award-holder contends that there was no scope for the respondent to approach any other forum since the impugned Award was automatically stayed upon filing of the Section 34 application. The respondent has relied on Section 34 of the 199 Act as it stood prior to amendment of 2016 which came into effect from 23rd October, 2015. The merit of the stand taken must be seen in the light of Section 36 which has been modified and added by the 2016 amendment.The new Section 36 and sub-section (2) thereunder requires the Court to grant an order of stay of the operation of the Arbitral Award in accordance with Section 36(3) on a separate application for stay taken out by the Award-debtor. Section 36(2) marks a significant departure from the erstwhile provision in clarifying that filing of an application for setting aside of an Award under Section 34 shall not by itself make the Award unenforceable unless the Award is stayed by an order of Court in an application made in the manner provided under Section 36(3) of the Act. In Board of Control for Cricket in India vs Kochi Cricket Pvt. Ltd.; (2018) 6 SCC 287 the Supreme Court held that Section 36, prior to the amendment, can only be seen as a “clog” on the right of a decree-holder who is unable to execute the Award in his favour in the absence of the conditions set forth in Section 36. The Supreme Court further clarified that the aforesaid does not translate to a corresponding right in the judgment debtor to stay the execution of the Award. The most significant clarification of the Supreme Court in Kochi Cricket was expressed in the following words:-
“Since it is clear that execution of a decree pertains the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applications on the date of commencement of the amendment Act.”
The dictum hence is clear with regard to Section 34 applications which were pending at the time of the judgment in Kochi Cricket; namely that such pending applications would also be governed by the new Section 36, as amended. In other words, the petitioner/Award-debtor would not have the benefit of the Award being automatically stayed upon filing of the application and the Award-holder would be free to enforce the Award against the Award-debtor in the absence of an application for stay of the award under the amended Section 36 of the Act. The opinion of the Supreme Court in Kochi Cricket would also militate against the argument that the Award Holder/ Respondent before this Court was rendered immobile in the matter of pursuing its claim in respect of the Award under the 1996 Act or before a forum contemplated under the IBC or otherwise. The decisions cited on behalf of the respondent in Swiss Ribbons Pvt. Ltd. vs Union of India; (2019) 4 SCC 17 has therefore to be seen in the context as discussed above.
# 22. Since this court had placed reliance on K. Kishan in the judgment dated 10th January, 2020, the said decision should be referred to at this stage. The thrust of the decision in K. Kishan was that the provisions of the IBC should not be used “in terrorem” (in the words of the Supreme Court) against a corporate debtor where there was a pre-existing ongoing dispute between the parties. The concern of the Supreme Court was against the use of the IBC by an operational creditor to extract its due despite an adjudication pending for setting aside of an Award under Section 34 of the 1996 Act on the date of initiation of the corporate insolvency resolution process. The Supreme Court relied on paragraphs 38 and 51 of Mobilox Innovations to opine that one of the objects of the IBC is to ensure that the amount of an operational debt does not enable operational creditors to put the corporate debtor prematurely into the insolvency resolution process or initiate the same for extraneous considerations. The Supreme Court sought to create a protective barrier around corporate debtors in cases where the provisions of the IBC were invoked by an operational creditor by jettisoning an ongoing and pending dispute for setting aside of an Arbitral Award under the 1996 Act. The facts of the present case are quite the opposite to that of K. Kishan. The corporate debtor/Award-debtor before this court seeks to take recourse in the culmination of the CIRP and the approval of the Resolution Plan whereas the Award-holder/operational creditor seeks to proceed with the application for setting aside of the Award. As stated above, the view of this court as to a “pre-existing dispute” in the judgment of 10th January, 2020 must be revisited -and revised- in the light of both Essar and Edelweiss.
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