TaxTMI 
TaxTMI 
2023 (7) TMI 773
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....6.07.2018 passed by West Bengal Micro, Small and Medium Facilitation Council, Kolkata, within 15 days from this order; And/Or (ii) For further issuance of an appropriate order/direction as Your Lordships may deem fit and proper for doing conscionable justice to the petitioner." 3. The present proceedings arise out of execution case instituted by the respondent for execution of arbitration award dated 06.07.2018 under Section 36 of the Arbitration and Conciliation Act, 1996 for a total amount of Rs. 1,59,09,214.33 plus interest @ 3% of bank rate of RBI Compounded with monthly rests. The award was passed by the West Bengal Facilitation Council under the provisions of Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred as 'MSME Act') in case number 330 and 331 of 2014. Admittedly, the award was not challenged under section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act of 1996). The petitioner prayed for dismissal of the execution proceedings and also to pass necessary orders that the executing court had no jurisdiction to entertain the execution petition based on illegal and non-est order passed by t....
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....esolution plan was already approved, their debt was less than 10% of the total debt, their petition was ultimately rejected. 7. Learned counsel for the petitioner has submitted that even if the award was not challenged under section 34 of the Arbitration and Conciliation Act, 1996, objection could have been taken at the stage of its enforcement when it is sought to be enforced under section 36 of the aforesaid Act of 1996. Learned counsel for the petitioner has relied upon a judgment passed by the Hon'ble Supreme Court reported in (2003) 8 SCC 565 para 4, to submit that it has been held by the Hon'ble Supreme Court that the objection in connection with stamping of the arbitral award could have been raised under Section 47 of the CPC at the stage of enforcement of the award under section 36 of the Act of 1996. He has also relied upon the judgment passed by the Hon'ble Supreme Court reported in (2022) 2 SCC 290 para 8 and also the judgment reported in (2018) 18 SCC 165 para 8 to submit that in the execution proceedings, objection under Section 47 of Code of Civil Procedure, 1908 were taken even in execution of arbitral award. He has also relied upon a judgment reported in (2017) 5....
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....roceedings arising out of Arbitration and Conciliation Act, 1996, objection under Section 47 of CPC is not maintainable. He has also submitted that an elaborate reasoned decision with respect to the same point has been rendered by the Hon'ble Patna High Court in the judgment reported in AIR 2016 Patna 202 para15 onwards. The learned counsel submits that such view has been taken considering the fact that there is mandate of expeditious disposal in the matter of Arbitration and Conciliation proceedings and least jurisdictional intervention has been prescribed. He has also referred to Section 5 of the aforesaid Act of 1996. The learned counsel has referred to the judgment passed by the Hon'ble Supreme Court reported in (2018) 1 SCC 407 (Innoventive Industries Limited vs. ICICI Bank & Another) para 29. 12. The learned counsel has referred to the provisions of Section 238 of Insolvency and Bankruptcy Code, 2016 and has submitted that it has to be read with Section 245 to 255 of the Code in view of the fact that there is a specific provision under IBC Code to make specific amendments in corresponding law to ensure that those laws are made subject to Insolvency and Bankruptcy Code, 201....
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....ere sub-judice were kept out of the insolvency resolution process. He has also referred to the list at page No. 87 of the counter-affidavit to submit that the claim under dispute pre corporate insolvency resolution process till 2nd April, 2018 has been enlisted therein and the name of the respondent appears at serial No. 7. 19. The learned counsel has also relied upon the order passed by the Hon'ble Supreme Court in the main petition at page No. 125 to submit that so far as the dues in connection with operational creditors are concerned, the same was to be reconsidered and therefore, it cannot be said that the claim of such creditors stood nullified finally. The resolution plan with respect to NIL payment to operational creditors did not become final. The learned counsel has finally referred to the order passed by the Hon'ble Supreme Court dated 21.01.2022 in Civil Appeal No. 5908/2021 to submit that in the said order, the arbitral proceedings were permitted to be proceeded. 20. The learned counsel has also submitted that so far as the judgment passed in the case of Ghanshyam Mishra (supra) is concerned, it stands on a different footing in view of the fact that in the said ca....
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....rder 22 Rules 1 & 2 CPC read with Sections 2(1)(g) and 36 of the Arbitration and Conciliation Act, 1996. The question before the Hon'ble Supreme Court was as to whether at the threshold, the appellants' objection could be rejected on the ground that they were assignees who acquired the rights prior to passing of the decree. It was held that the objection filed under section 47 of the C.P.C. filed before the executing court was maintainable. This judgement does not apply to the facts and circumstances of this case. 25. In the judgement reported in (2018) 18 SCC 165 (Kohinoor Transporters v. State of U.P.), the issue was as to whether the High Court was right in directing the appointment of a chartered accountant for the purpose of determining as to whether the decretal debt is to be marked as satisfied. It has been held that the High Court had acted in excess of its jurisdiction as the issue as to whether the decree has been discharged or satisfied has to be determined by the executing court under Section 47 CPC. This judgement also does not apply to the facts and circumstances of the case. 26. In the judgement reported in (2003) 8 SCC 565 (M. Anasuya Devi and Another Vs. M. M....
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....ecree is by a court lacking inherent jurisdiction or is a nullity that the same is rendered non est and is thus inexecutable. An erroneous decree cannot be equalled with one which is a nullity. There are no intervening developments as well to render the decree unexecutable." It has been further held that the scrutiny is limited to objections to its executability on the ground of jurisdictional infirmity or voidness and the judgement reported in (1970) 1 SCC 670 was referred to say, that in essence, the law is that only a decree which is a nullity can be subject matter of objection under Section 47 of the Code of Civil Procedure and not one which is erroneous either in law or in facts. Paragraphs 22 and 23 of the aforesaid judgement reported in (2017) 5 SCC 371 (Brakewel Automotive Components (India) (P) Ltd. v. P.R. Selvam Alagappan) is quoted as under: "22. Judicial precedents to the effect that the purview of scrutiny under Section 47 of the Code qua a decree is limited to objections to its executability on the ground of jurisdictional infirmity or voidness are plethoric. This Court, amongst others in Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman in essence enuncia....
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....fter its passing. None of the above eventualities as recognised in law for rendering a decree unexecutable, exists in the case in hand. For obvious reasons, we do not wish to burden this adjudication by multiplying the decisions favouring the same view." In the earlier judgement referred to and quoted in the aforesaid judgement in para 22 above, it has been explained as to when a decree is a nullity and certain instances have been given including where it is passed without bringing the legal representative on the record of a person who was dead at the date of the decree. On the point of objection to execution of decree suffering from inherent lack of jurisdiction, it has been held that objection as to its validity may be raised in an execution proceeding if such objection appears on the face of the record. It has also been held that where the objection as to the jurisdiction of the court to pass the decree does not appear on the face of the record and requires examination of the questions raised and decided at the trial or which could have been raised but not raised, the executing court will have no jurisdiction to entertain an objection as to the validity of the decree even on ....
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....47 of the CPC in execution proceedings in execution of arbitral awards cannot be excluded. Para 18 of the said judgment is quoted as under: "18. In my view, the observations MSP Infrastructure Ltd. and Bharti Cellular Ltd. supra to the effect that the judgments of civil law would not apply to a proceeding under special law as the Arbitration Act, apply to only the proceedings provided for under the Arbitration Act and cannot be extended to the proceedings for execution of an Arbitral Award, as if it were a decree of the Court. Once the Arbitration Act, 1996 itself has conferred on the Arbitral Award the status of a decree of the Civil Court and made the same executable in accordance with the provisions of CPC, I see no reason to apply the aforesaid observations made in an entirely different context i.e., to execution proceedings. To interpret so would be a violation of the express provision of Section 36 (1) of enforcement of the Arbitral Award in accordance with the provisions of the CPC in the same manner as if it were a decree of the Civil Court. If the intent of the legislature while enacting the Arbitration Act, 1996 had been to exclude objections of the nature permit....
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....Court, a three judge Bench of this Court, reversed the judgment of the High Court and held thus "6. A court executing a decree cannot go behind the decree : between the parties or their representatives it must take the decree according to its tenor, and cannot entertain any objection that the decree was incorrect in law or on facts. Until it is set aside by an appropriate proceeding in appeal or revision, a decree even if it be erroneous is still binding between the parties. 8. If the decree is on the face of the record without jurisdiction and the question does not relate to the territorial jurisdiction or under Section 11 of the Suits Valuation Act, objection to the jurisdiction of the Court to make the decree may be raised; where it is necessary to investigate facts in order to determine whether the court which had passed the decree had no jurisdiction to entertain and try the suit, the objection cannot be raised in the execution proceeding." 31. One such example of exercise of such jurisdiction to declare the arbitral award a nullity is the judgement passed by the Hon'ble Supreme Court in Civil Appeal No. 2899 of 2021 (Jharkhand Urja Vikas Nigam Limited....
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....oresaid judgement is quoted as under: "13. The order dated 06.08.2012 is a nullity and runs contrary not only to the provisions of MSMED Act but contrary to various mandatory provisions of Arbitration and Conciliation Act, 1996. The order dated 06.08.2012 is patently illegal. There is no arbitral award in the eye of law. It is true that under the scheme of the Arbitration and Conciliation Act, 1996 an arbitral award can only be questioned by way of application under Section 34 of the Arbitration and Conciliation Act, 1996. At the same time when an order is passed without recourse to arbitration and in utter disregard to the provisions of Arbitration and Conciliation Act, 1996, Section 34 of the said Act will not apply. We cannot reject this appeal only on the ground that appellant has not availed the remedy under Section 34 of the Arbitration and Conciliation Act, 1996. ..........................................Though the learned counsel appearing for the respondents have placed reliance on certain judgments to support their case, but as the order of 06.08.2012 was passed contrary to Section 18(3) of the MSMED Act and the mandatory provisions of the Arbitration and Concili....
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....the considered view that such plea of nullity on the ground of jurisdiction should be of such a grave nature that it is not even capable of being waived by one or the other party. 35. This court is of the considered view that having not challenged the arbitral award under section 34 of the Act of 1996, the law does not contemplate second opportunity to challenge the award particularly when the Act of 1996 is a self-contained code which prescribes the specific grounds and specific mode of challenge to an arbitral award. This would be the position except under the circumstances, where the award cannot be termed as an award in the eyes of law and therefore it is required to be rendered void ab initio /nullity and consequently required to be declared non-est in the eyes of law. This can be done pursuant to such objection raised under section 47 of CPC at the stage of execution of the award. Award which suffers from inherent lack of jurisdiction in the eyes of law, cannot be said to be award and therefore would fall outside the provision of Arbitration and Conciliation Act, 1996 and can certainly be declared as a nullity in an appropriate proceeding including under section 47 of CPC ....
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....was declared to be NIL in terms of the resolution plan read with the orders passed by NCLT/NCLAT/Supreme Court arising out of the proceedings under Insolvency and Bankruptcy Code (IBC). 38. This Court is of the considered view that the point as to whether the realisable value with respect to one or the other creditor was nil or otherwise certainly require close examination of the resolution plan read with the orders passed by NCLT/NCLAT/Supreme Court which itself is a debatable issue on facts as well as on law. In view of the aforesaid situation and in the light of the facts and circumstances of this case, the arbitral proceedings culminating in the award involved in this case, cannot be said to be suffering from inherent lack of jurisdiction. 39. On the point of jurisdiction, it has also been argued by the learned counsel for the petitioner that earlier an arbitrator was appointed by the petitioner for resolution of dispute and the arbitral proceedings also commenced. This was prior to filing of claim by the respondent before the Facilitation Council of west Bengal constituted under MSME Act. It has been argued that once the arbitral proceedings had commenced before the lear....
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....court had become academic ; section 14 proceedings before the learned court at Alipore had become infructuous and disposed of the civil revision application leaving the parties free to urge whatever grounds may be available to the parties before the appropriate forum in accordance with law. 41. Upon perusal of the proceedings of the facilitation council, this court finds that the petitioner had submitted before the facilitating council that the order of the facilitation council on the point of jurisdiction which was decided against the petitioner was challenged before the District Court at Alipore but the petitioner never produced the ad-interim order before the Facilitation Council. Otherwise also, the order of stay passed by the District Court at Alipore has no impact due to the interim order as well as the final order passed by Hon'ble Calcutta High Court in the civil revision application. The interim order passed by the District Court is also not available before this court, which was never produced before the Facilitation Council also to ascertain the nature and extent of the interim order. Such issues are not the issues relating to patent or inherent lack of jurisdiction o....
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....tral Government, any State government or any local authority Financial Creditor [Section 5 (7)] - means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to; Operational Creditor [Section 5 (20] - means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred The Hon'ble Supreme Court in the judgment of Innoventive Industries Limited (supra) has compared the provisions of initiation of Corporation Insolvency Resolution Process by financial creditor under Section 7 and Insolvency Resolution Process by operational creditor under Section 8. The Hon'ble Supreme Court at paragraph 27 to 30 of the said judgment has held as under: - 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we....
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....This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under S....
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....s discussed hereinabove, one of the principal objects of the I&B Code is providing for revival of the corporate debtor and to make it a going concern. The I&B Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code....
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.... obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors. As an example, take the case of a resolution plan which does not provide for payment of electricity dues. It is certainly open to the Committee of Creditors to suggest a modification to the prospective resolution applicant to the effect that such dues ought to be paid in full, so that the carrying on of the business of the corporate debtor does not become impossible for want of a most basic and essential element for the carrying on of such business, namely, electricity. This may, in turn, be accepted by the resolution applicant with a consequent modification as to distribution of funds, payment being provided to a certain type of operational creditor, namely, the electricity distribution company, out of upfront payment offered by the proposed resolution applicant which may also result in a consequent reduction of amounts payable to other financial and operational creditors. What is important is that it is the commercial wisdom of this majority of creditors which is to determine, through negotiation with the prospective resolution applicant, as....
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.... to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors. 49. The learned counsel for the petitioner has not pointed out any such provision in IBC that the claims of all such persons will stand at NIL once they fall within the definition of 'operational creditor' as defined under IBC. Rather, extensive arguments have been advanced on the approved resolution plan by both the parties. 50. This issue requires consideration of the point as to whether the amount claimed by the respondent and pending for adjudication in the arbitral proceedings much prior to insolvency commencement date, was ever declared to be nil in terms of the insolvency resolution plan of the petitioner read with various orders passed by NCLT, Kolkata / NCLAT, New Delhi/Supreme court. This would require examination of the approved insolvency resolution plan. It is not in dispute that the approved insolvency resolution plan was never interfered by the NCLT, ....
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....er to pay a sum of Rs.1,59,09,214/- along with interest in terms of Section 16 of the MSMED Act, 2006 to the instance of the respondent- claimant/decree holder. (x) The arbitral award was not challenged under section 34 of the Act of 1996. (xi) At the stage of execution of the award, a petition was filed without giving the provision of law, but was referrable to section 47 of the CPC, alleging that the arbitral award was a nullity and hence not executable interalia on the ground that the claim of the respondent (decree holder) was already settled at NIL as per the resolution plan read with the various order of NCLT/NCLAT/Supreme Court and therefore nothing was payable to the respondent. 52. It is the case of the petitioner that on 29.03.2018, Resolution Plan was submitted by Vedanta Limited wherein at para 3.8 all claim of operational creditors is settled at "NIL VALUE". On 17.04.2018, the NCLT, Kolkata in C.P. No.361/KB/2017 approved the resolution plan submitted by Committee of Creditor, Bank and other Financial Creditors. The moratorium ends on the acceptance of the Resolution Plan. It was observed in para - 50 of the order passed by the NCLT - "the claims o....
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....Admitted Debt for Financial Creditors aggregates to approximately INR 13,395.25 Cr. Accordingly, the Liquidation Value is not sufficient to cover debt of the Financial Creditors of the Company in full. Therefore, the Liquidation Value of the Operational Creditors or the other creditors or stakeholders of the Company (including dues to employees (other than workmen), government dues, taxes, etc. and other creditors and stakeholders) is NIL and therefore, they will not be entitled to receive any payment. The Dissenting Financial Creditors will be entitled to receive 21.65% of the value of their Admitted Debt ("Priority Payment") which will be paid in priority to any payments to the assenting Financial Creditors." Clause 3.2(xii) of the resolution plan provided as follows:- "(xii) Notwithstanding the above, upon the approval of the Resolution Plan by the NCLT under Section 31 of the IBC, on and from the Effective Date: (A) All pending proceedings relating to the winding-up of the Company shall stand irrevocably and unconditionally abated in perpetuity and all Claims in connection with all violation or breach of any agreement by the Company shall be settled at NIL ....
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....her judicial, regulatory or administrative proceedings against the Company or the affairs of the Company, pending or threatened, present or future and the proceedings (under Section 138 of the Negotiable Instruments Act, 1881, the Top 30 Operational Creditor Claims and the Tax related Claims or liabilities specifically set out in Annexure 3 and Annexure 5) in relation to any period prior to the Effective Date or on account of acquisition of control by Vedanta and/or the SPV over the Company pursuant to this Resolution Plan, shall be settled at NIL value at par with the treatment accorded to the Operational Creditors of the Company as set out in Section 3.4.ii of the Resolution Plan." Annexure-3 of the resolution plan was giving the list of contingent liabilities of the company which has two columns i.e direct tax litigation and indirect tax litigation. Annexure- 5 of the resolution plan gives the list of litigations under different columns i.e Criminal proceedings Civil proceedings Service tax proceedings Central excise matters Customs duty and entry tax matters Income tax matters Arbitration and conciliation ....
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....Udyog Pvt Limited 2.303 20. Hi-Tech Chemicals (P) Ltd 1.379 21. Classic Freight Carriers 0.065 22. Texas Enterorises 0.070 23. Lansea Engineering Pvt. Ltd. 0.359 24. Singh Enterprises 0.525 25. IOT Engineering Projects Limited 1.748 26. Ability Services Private Limited 0.518 27. Primetals Technogies India Private Limited 0.166 28. N.R. Construction Pvt. Ltd. 1.374 29. Dalian Wantong Industrial Equipment 1.558 30. Isha Enterprises 1.030 Total 370.827 57. Thus, the argument of the petitioner that the dues of the petitioner with respect to the pending arbitral proceedings in the instant case before the West Bengal facilitation council was determined to be nil, does not find support from the approved resolution plan placed on record by the petitioner themselves. In such circumstances, there was no occasion for the respondent to challenge the resolution plan. Admittedly, some of the creditors (operational/financial) had challenged the resolution plan with respect to their claim and provisions made in the resolution plan but all such objections /challenges were dismiss....
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....Act of 1996 and as to whether the award could be said to be suffering from patent lack of jurisdiction. The impugned order. 17. The learned court below has rejected the objection to the execution of the arbitral award by recording as follows: - "It is also evident from perusal of case record that the judgment debtor has filed the said petition being aggrieved from the award passed by W.B.M.S.M.E. Facilitation Council, Kolkata, then Judgment debtor had opportunity that he would have filed an application under Section 34 of the Arbitration Act of 1996 for setting aside the said arbitral award within the period given in the same but judgment debtor did not do that. So, in the light of Section 35 of the Arbitration Act of 1996 the award passed by W.B.M.S.M.E. Facilitation Council, Kolkata became final and binding on the parties and in view of Section 5 of the Arbitration Act of 1996, the Executing Court or any competent court of law can not entertain any application save and except so provided in part-I of the Arbitration Act 1996 but judgment debtor didn't also do that. It is also settled principle of law that a court executing a decree cannot go beyond the decree. It h....