TaxTMI 
TaxTMI 
2018 (9) TMI 1533
X X X X Extracts X X X X
X X X X Extracts X X X X
.... necessary to appreciate the controversy at hand are as follows:- i) In the present case, M/s Vijay Nirman Company Pvt. Ltd. (the Respondent) entered into a sub-Contract Agreement with one M/s Ksheerabad Constructions Pvt. Ltd. (for short 'KCPL') on 01.02.2008, to undertake 50% of Section 2 work of 'Construction and widening of the existing two lane highway to four lanes on NH 67 at KM 190000 to KM 218215 admeasuring a total of 28.215 KM for and on behalf of KCPL.' ii) Apart from this Agreement, a separate agreement of the same date was entered into between the said KPCL and one M/s SDM Projects Private Limited, Bangalore, as a result of which, a tripartite Memorandum of Understanding was entered into on 09.05.2008 between KCPL, M/s SDM Projects Pvt. Ltd. and the Respondent. iii) During the course of the project, disputes and differences arose between the parties and the same were referred to an Arbitral Tribunal, which delivered its Award on 21.01.2017. One of the claims that was allowed by the said Award was in favour of the respondent for a sum of Rs. 1,71,98,302/- which arises out of certain interim payment certificates. Another claim that was allowed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sed a dispute in its replies dated 06-02-2017 & 05-06-2017 to the notice issued U/Sec.8(2) of the code by the applicant. 11. I respectfully submit that a dispute had been raised by the respondent company even before the present application has been filed, in the arbitration proceedings by way of a counter claim and presently the same is sub judice before the Hon'ble Commercial Court cum XXIV Additional Chief Judge, City Civil Court at Hyderabad in petition filed U/Sec. 34 of the Act. Copy of the section 34 application filed and pending before the Hon'ble Court is enclosed herewith as Annexure R-6." vii) The NCLT, by its order dated 29.08.2017, referred to the aforestated facts, and also referred to the fact that the Award which was challenged under Section 34 specifically stated that learned counsel for the first Respondent (i.e. the corporate debtor) was fair enough to admit that the claimant is entitled to the said sum of Rs. 1,71,98,302/-. According to the NCLT, the fact that a Section 34 petition was pending was irrelevant for the reason that the claim stood admitted, and there was no stay of the Award. For these reasons, therefore, the Section 9 petit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cement process under the Arbitration Act and the application of Sections 8 & 9 of the Code. In fact, according to the learned Senior Advocate, the fact of pending proceedings, whether they be proceedings culminating in an Award, or challenge proceedings thereafter, would, in fact, show that there is a dispute insofar as an operational debt that is stated to be owed, and that therefore, the Arbitration Act can be relied upon for this purpose, there being nothing inconsistent between it and the Code. 4) Dr. P.V. Amarnadha Prasad, learned Advocate, appearing on behalf of the respondent has argued in reply that according to the law in the United Kingdom, and Practice Directions thereunder, an insolvency process does not get stultified because an application to set aside the judgment, order or decision is pending in an appeal or otherwise. He also referred to the law in Singapore, and relied upon a judgment of the Singapore High Court to the effect that once it is found that there is a primary adjudication between the parties which indicates the existence of a debt, any further dispute which may be pending in appeal or otherwise over the debt could not be said to be bona fide dispute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he notice under Section 8 of the Code is the fact that an Arbitral Award was passed on 21.07.2017 against the Appellant. As has been pointed out by us, this clearly appears from the gist of the case that was filed along with the insolvency petition. The fact that the reply of 16.02.2017 to the notice given under Section 8 was within 10 days, and raised the existence of a dispute, also cannot be doubted. 6) However, learned counsel appearing on behalf of the Respondent strongly relied on the fact that this is not an ordinary case inasmuch as the amount of Rs. 1.71 Crores which was awarded was admitted by Mr. Banerji's client in the arbitral proceedings to be a debt due, and that this being so, there can be no dispute regarding the same. We are afraid that we are unable to agree. As was correctly pointed out by Mr. Banerji, counter claims for amounts far exceeding this were rejected by the learned Arbitral Tribunal, which rejection is also the subjectmatter of challenge in a petition under Section 34 of the Act. It is important to note that unlike counter claim Nos. 1 and 2, which were rejected by the Arbitral Tribunal for lack of evidence, counter claim No.3 which amounts to Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act. (Para 34). 12) In para 38, this Court cautioned: "We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties. Finally, the law was summed up as follows:- "51. It is clear, therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ute between the parties as to the debt owed does not exist. 14) Mr. Banerji referred us to certain judgments of the English and Singapore Courts. In Re A Company - Victory House General Partner Ltd. vs. RGB P & C Ltd. [2018] EWHC 1143 (Ch), the Chancery Division of the High Court, in a situation where a debt has to be "bona fide" disputed in order to attract the winding up jurisdiction of the Courts in the UK, made it clear that even in a case where a judgment debt is no longer a disputed debt, as it has been finally adjudicated upon, yet if there be a cross-claim which is being adjudicated upon, or which may not even have reached the adjudicatory process at all, would be sufficient to stave off a winding up order. The learned Judge referred to the judgment in Re Bayoil SA [1999] 1 WLR 147 as follows, and concluded:- "27. This, of course, is not a case of a disputed debt. There is a judgment debt and it can be enforced immediately. However, Mr. Chivers draws attention to Re Bayoil SA [1999] 1 WLR 147, which deals with a case not involving a disputed debt but involving a cross-claim by the company, the subject of the petition or the intended petition, where the amount of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the amount of debt, the insolvency process will not be put against such debtor. It also referred to the Supreme Court Practice Directions to the same effect. (see paras 43 & 45 of the said judgment) 16) We now come to some of the judgments referred to by learned counsel for the respondent. It is important to note that both the Practice Directions referred to in the U.K. judgment and the Singapore High Court judgment, referred to in LKM Investment Holdings Pte Ltd. vs. Cathay Theatres Pte Ltd. [2000] SGHC 13, are in situations where the debt needs to be bona fide disputed, which is not the situation under our Code. For this reason, it is not possible to agree with learned counsel for the Respondent that a pending proceeding challenging an award or decree of a tribunal or Court would not make the debt contained therein a debt that is disputed. 17) The Australian High Court judgment also relied upon by the respondent in Ramsay Health Care Australia Pty Ltd vs. Adrian John Compton [2017] HCA 28 was relied upon to show, in para 111 thereof, that where a judgment debt has been obtained after testing of the merits in adversarial litigation, then in the absence of some evidence of fr....