2020 (4) TMI 773 - Tri - Insolvency and Bankruptcy

Tribunal asserts jurisdiction over Insolvency and Bankruptcy Code application, rejects arbitration argument, appoints Interim Resolution Professional

The Tribunal asserted jurisdiction to entertain the application under the Insolvency and Bankruptcy Code, rejecting the Respondent's arguments based on ... Initiation of corporate insolvency resolution process - operational creditor - pre-existing dispute - interim measures under section 9 of the Arbitration and Conciliation Act, 1996 - financial service provider exclusion from 'corporate person' - jurisdiction of adjudicating authority under the IBC - moratorium under section 14 of the IBC - appointment of interim resolution professionalFinancial service provider exclusion from 'corporate person' - initiation of corporate insolvency resolution process - Maintainability of an application under section 9 of the IBC against a respondent holding RBI registration as an NBFC/financial service provider - HELD THAT: - The Tribunal found on record that the respondent holds a valid Certificate of Registration from the RBI to carry on business as a non banking financial institution and that its memorandum contemplates financial activities. However, the Tribunal also found that, for the transaction under dispute, the respondent executed KYC and dealt with the applicant in the capacity of a Private Limited Company and that the RBI registration was not disclosed to the applicant at the time of executing the KYC or in the reply to the statutory demand. Having regard to those facts, the Tribunal held that the respondent cannot avoid liability in respect of the transaction under consideration by invoking the status of NBFC; accordingly the petition under section 9 of the IBC is maintainable against the respondent in respect of that transaction. [Paras 19, 28, 29]Application under section 9 is maintainable against the respondent in respect of the transaction despite its RBI registration as an NBFC.Pre-existing dispute - interim measures under section 9 of the Arbitration and Conciliation Act, 1996 - existence of dispute - Whether filing of an application under section 9 of the Arbitration and Conciliation Act for interim relief, without commencement of arbitral proceedings or a notice invoking arbitration, constitutes a pre-existing dispute barring admission under section 9 of the IBC - HELD THAT: - The Tribunal examined the scope of interim relief under section 9 of the Arbitration Act and the jurisprudence requiring that a notice or plausible contention of a dispute be brought to the operational creditor's notice to constitute a pre existing dispute. The respondent had filed an application under section 9 of the Arbitration Act seeking interim protection, but did not show commencement of arbitral proceedings or service of a notice invoking arbitration under section 21. The demand notice was delivered on 16 3 2018 and the respondent's reply arrived on 5 4 2018; the Tribunal treated the section 9 filing for interim measures as only an intention to initiate arbitration and not as establishing the existence of a dispute. Applying the test in Mobilox Innovations and related authorities, the Tribunal concluded that the contention based solely on the pending interim application was a patently feeble legal argument unsupported by evidence and did not amount to a pre existing dispute that would require rejection of the IBC application. [Paras 30, 31, 34]The interim application under section 9 of the Arbitration Act did not establish a pre existing dispute; it did not bar admission of the section 9 IBC petition.Jurisdiction of adjudicating authority under the IBC - overriding effect of the IBC - Whether this Tribunal has jurisdiction to entertain the section 9 application - HELD THAT: - The Tribunal noted that the registered office of the corporate debtor is situated in Jaipur and therefore the Tribunal has territorial jurisdiction to entertain and try the application. The Tribunal also observed the overriding effect of the Code vis a vis the Arbitration Act as relevant to adjudication of the application. [Paras 35]This Tribunal has jurisdiction to hear and decide the application under the IBC; the Code has overriding effect where applicable.Appointment of interim resolution professional - moratorium under section 14 of the IBC - Admission of the section 9 application and consequential orders including appointment of IRP and invocation of moratorium - HELD THAT: - Finding the application otherwise complete and not defeated by any established pre existing dispute or jurisdictional infirmity, the Tribunal admitted the section 9 petition. The Tribunal appointed an Interim Resolution Professional and directed him to carry out duties prescribed under the Code. The moratorium under section 14 was declared to be in effect for the corporate debtor and consequential directions regarding claims, publication and cooperation from management were issued. The applicant was directed to deposit funds to defray IRP expenses as ordered. [Paras 36, 37]The section 9 application is admitted; IRP appointed and moratorium under section 14 is invoked.Final Conclusion: The Tribunal admitted the operational creditor's petition under section 9 of the IBC, holding the application maintainable against the respondent despite its RBI registration as an NBFC in view of the respondent's conduct in the specific transaction; it rejected the respondent's contention that an interim application under section 9 of the Arbitration Act constituted a pre existing dispute barring admission, found the Tribunal to have jurisdiction, appointed an IRP and directed invocation of the moratorium and related consequences. Issues Involved:1. Jurisdiction of the Tribunal2. Existence of Debt and Default3. Pre-existing Dispute4. Status of Respondent as a Financial Service Provider5. Appointment of Interim Resolution Professional (IRP)Issue-wise Detailed Analysis:1. Jurisdiction of the Tribunal:The Respondent argued that as per clause 45 of the Client Registration Form, any dispute should be settled by arbitration, thus the Tribunal has no jurisdiction. However, the Tribunal noted that arbitration is not the sole remedy and the right under the Insolvency and Bankruptcy Code (IBC) is in addition to and not in derogation of the Arbitration and Conciliation Act, 1996. Therefore, the Tribunal held that it has jurisdiction to entertain the application.2. Existence of Debt and Default:The Applicant claimed an outstanding amount of Rs. 28,83,058.80 plus interest @24% per annum from the Respondent, who had availed services and opened a trading account. The Respondent denied any outstanding amount and claimed that Rs. 63,31,706.90 was due from the Applicant. The Tribunal found that the Respondent had executed the KYC form in its own name for trading in securities and had not provided evidence of the alleged deposit amount due from the Applicant. Thus, the Tribunal accepted the Applicant's claim of debt and default.3. Pre-existing Dispute:The Respondent contended that a case was pending before the Court of Additional District and Sessions Judge, Jaipur, and thus there was a pre-existing dispute. The Tribunal referred to the Supreme Court's judgment in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., which stated that the existence of a dispute must be plausible and not a patently feeble legal argument. The Tribunal found that merely filing an application under section 9 of the Arbitration and Conciliation Act, 1996 for interim measures does not establish the existence of a dispute. Therefore, the Tribunal concluded that the dispute raised by the Respondent was not sufficient to reject the application.4. Status of Respondent as a Financial Service Provider:The Respondent argued that it was a Non-Banking Financial Company (NBFC) and thus excluded from the definition of a Corporate Debtor under the IBC. The Tribunal noted that the Respondent had a Certificate of Registration from the RBI to carry on the business of a non-banking financial institution. However, the Tribunal found that the Respondent had entered into the transaction with the Applicant in the capacity of a Private Limited Company and had not disclosed its NBFC status during the execution of the KYC form. Therefore, the Tribunal held that for the transaction under consideration, the Respondent falls under the definition of a Corporate Debtor.5. Appointment of Interim Resolution Professional (IRP):The Tribunal appointed Mr. Vijendra Bangar as the Interim Resolution Professional (IRP) to take over the affairs of the Corporate Debtor and perform duties as required under the IBC. The IRP was directed to take steps as per sections 15, 17, 18, 19, 20, and 21 of the Code. The Tribunal also invoked a moratorium as envisaged under section 14 of the IBC, which will be in effect during the Corporate Insolvency Resolution Process (CIRP).Conclusion:The Tribunal admitted the application under section 9 of the IBC, 2016, initiating the Corporate Insolvency Resolution Process against the Respondent. The IRP was appointed, and a moratorium was invoked, with the Tribunal affirming its jurisdiction and rejecting the Respondent's claims of pre-existing dispute and NBFC status as a defense.