TaxTMI 
TaxTMI 
2021 (10) TMI 1459
X X X X Extracts X X X X
X X X X Extracts X X X X
....after also referred to as 'NCLT' or 'the Tribunal'. in admitting the application made by the Appellant for initiation of Corporate Insolvency Resolution Process 'CIRP' for short. concerning the Respondent No. 2 company. 2. Having regard to the questions sought to be raised, elaboration on all the factual aspects pertaining to the claim of the Appellant and the dispute raised by the Respondents is not necessary. Only a brief reference to the relevant background would suffice. 3. The Appellant M/s. Jai Balaji Industries is engaged in the business of manufacturing and supply of iron and steel products, having its plants in the States of West Bengal and Chhattisgarh. The Appellant is also referred hereinafter as 'the operational creditor', as per the context. The Respondent No. 2 Orissa Minerals Development Company Limited is a company engaged in the business of selling iron ore, having its mines in the State of Orissa. The Respondent No. 2 company is also referred hereinafter as 'the Respondent company' or 'the corporate debtor', as per the context. The Respondent No. 1 is the Managing Director of this company. 3.1. The Appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....14.02.2020, claiming operational debts to the tune of Rs. 7,75,13,684/- and Rs. 5,62,01,258/- under the respective arbitral awards, for the appeals having been dismissed by the High Court. 5.1. In terms of Section 8(2)(a) of the Code, the Respondent company sent its replies to the demand notices on 25.02.2020, asserting, inter alia, that there existed a dispute and the matter was pending in arbitration proceedings, which pre-dated the receipt of demand notice. Substantiating this assertion, the Respondent company stated that the applications for restoration of appeals were pending in the High Court, which were filed much before the receipt of demand notices and with advance notice to the Appellant. Thus, the Respondent company asserted, within 10 days of service of the demand notices, that the matter of debt owed was sub judice and no operational debt was payable to the Appellant. 6. Notwithstanding the replies so sent by the Respondent company, the Appellant proceeded to move the National Company Law Tribunal, Kolkata Bench, Kolkata, seeking initiation of Corporate Insolvency Resolution Process against the Respondent company for non-payment of the aforementioned operational ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts in this proceeding, it is clear that on the date on which the Corporate Debtor was served with demand notice Under Section 8 of the Insolvency and Bankruptcy Code, 2016 or on the date on which the application is filed against the Corporate Debtor, no arbitration proceedings was pending challenging the award. 7.3. The NCLT also referred to the decision of this Court in the case of K. Kishan v. Vijay Nirman Company Pvt. Ltd. (2018) 17 SCC 662 and observed that the enunciations therein rather operated in favour of the operational creditor, because the operational debt became due and payable when the award was confirmed by the District Judge; and even though an appeal was filed by the corporate debtor, the same was dismissed in default; and notice was given by the creditor only 90 days after dismissal of the appeal. The NCLT even sensed mala fide in the corporate debtor's application for restoration and observed that its officers were using the proceedings in law either to delay or to avoid the legitimate dues. The NCLT, inter alia, observed as under: 10. It has been held by the Apex Court that if it is shown that the application Under Section 34 of A & C Act, 199....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tribunal (NCLAT) Under Section 61 of the Code contending, inter alia, that the applications Under Section 9 of the Code were actually filed only on 02.03.2020 but, on that date, the appeals had been restored by the High Court and such restoration related back to the date of filing of appeals. On the other hand, it was contended on behalf of the Appellant that on the date of issuance of the demand notice (14.02.2020), no arbitration proceedings were pending as the appeals were restored only on 02.03.2020 and, therefore, the Adjudicating Authority had rightly admitted the applications for CIRP in the present case. 8.1. The core of rival contentions came to be noticed by the Appellate Tribunal in the following words: 6. Subsequently, the Application for restoration, filed on 17.12.2019 was restored on 02.03.2020. It is the case of the 'Operational Creditor' that 'as on the date of the issuance of the Demand Notice' Under Section 8 of the Code i.e. on 14.02.2020 there was no Arbitration proceeding pending, as the Appeal Under Section 37 was restored only on 02.03.2020. As against these submissions, Learned Solicitor General representing the 'Corporate D....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the proceedings for execution of award also cropped up, to which, the NCLAT observed that the execution would come into picture if the appeals Under Section 37 had been decided; and 'money recovery' and 'triggering of insolvency' were not parallel proceedings. The NCLAT also observed that, in fact, IBC discourages recovery proceedings; and the practice of using this Code towards execution of decree or money recovery is rather deprecated. 8.4. Moving on, the Appellate Tribunal referred to Section 8 of the Code and observed that the requirement was to see as to whether there existed a dispute or record of pendency of the suit or arbitration proceedings; and with reference to the facts of the present case, construed that a dispute was in existence prior to the issuance of demand notices. It was also observed that the applications for restoration were filed with advance notice to the operational creditor. Having said that, the Appellate Tribunal referred to the enunciations of this Court in the case of Mobilox Innovations and K. Kishan (supra) and held that it was a clear case of a pre-existing dispute between the parties prior to the issuance of demand notice an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vt. Ltd.' (Supra) has clearly laid down that 'the test for determination for the Adjudicating Authority is to see at the stage of Admitting/rejecting the Application is whether there is a plausible contention which requires further investigation and that the 'Dispute' is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster'. It is observed that the Adjudicating Authority does not need to be satisfied whether the defence is likely to succeed so long as a Dispute truly Exists in fact and is not spurious, hypothetical or illusory. In the instant case, the Existence of a 'Dispute' is evident in the Arbitration Proceedings pending from 2004 till 29.11.2019... 17. The ratio in the aforenoted Judgment is squarely applicable to the fact of the instant case as it can be seen from the record that the entire basis for the Section 8 Notice is that the Appeals preferred by the 'Corporate Debtor' Under Section 37 of the A&C Act, 1996 were dismissed for default on 22.11.2019... 18. There is a possibility ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the case that the interim order was revived automatically upon restoration of the suit; and has failed to appreciate the other observations in the majority judgment itself, positing that all interim orders cannot be put on the same pedestal. It is further submitted that the minority view in Vareed Jacob (supra), dealing with the issue pertaining to the legal treatment of rights accrued in the interregnum, i.e., between dismissal of proceedings in default and restoration, could not have been ignored for the reason that such an issue was not dealt with by the majority judgment. Further, a decision of this Court in the case of Addagada Raghavamma and Anr. v. Addagada Chenchamma and Anr. AIR 1964 SC 136 has also been referred, to submit that the doctrine of relation back cannot be invoked without limitations, and retroactivity must not affect any vested rights. 10. Having given thoughtful consideration to the submissions made on behalf of the Appellant and having examined the record with reference to the law applicable, we are clearly of the view that these appeals remain totally bereft of substance and do not merit admission. 11. In comprehension of the relevant background asp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... extraneous considerations or as a substitute for debt enforcement procedures; and the object of the Code is to allow the insolvency process against the corporate debtor to be taken up at the instance of an operational creditor only in the clear case, where a real dispute between the parties as to the alleged debt does not exist. 13. As regards legal principles applicable to the questions at hand, we may usefully refer to the relevant provisions of law before adverting to the decisions of this Court. 13.1. Part II of the Code deals with insolvency resolution and liquidation of corporate persons and Chapter II thereof deals with Corporate Insolvency Resolution Process. The root provisions relating to insolvency resolution by operational creditor are contained in Sections 8 and 9 of the Code. The inclusive definition of the expression "dispute", for the purpose of Part II, as contained in Section 5(6) of the Code, reads as under: 5(6). "dispute" includes a suit or arbitration proceedings relating to-- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; The rele....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... form and manner and accompanied with such fee as may be prescribed. (3) The operational creditor shall, along with the application furnish- (a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor; (b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; (d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and (e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed. (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder Section 8 of the Code and in response thereto, the Appellant maintained that there existed serious and bona fide disputes and the notice was issued as a pressure tactic. Thereafter, the Respondent filed an application before the Adjudicating Authority Under Section 9 of the Code, stating that operational debt was owed by the Appellant. The Adjudicating Authority dismissed this application by holding that the claim of the operational creditor was hit by Section 9(5)(ii)(d) of the Code since the payment was being disputed by the corporate debtor. However, the Appellate Tribunal allowed the appeal preferred by the operational creditor and remitted the matter to the Adjudicating Authority to consider admission of the application if it was otherwise complete. The order so passed by the Appellate Tribunal was challenged in appeal before this Court. 14.2. In the backdrop as aforesaid, this Court traversed through the scheme of the Code and particularly, the provisions relating to insolvency resolution by an operational creditor, including the history of making of such provisions. Thereafter, this Court summarised the course of action by the Adjudicating Authority on receiving an a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of the dispute but it was supposed to examine only prima facie if a dispute truly existed between the parties, and that the same was not patently feeble or imaginary. If the answer to the aforementioned was in the affirmative, the Adjudicating Authority was required to reject the application. This Court, inter alia, held and laid down as under: 51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application Under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g Authority, by its order dated 29.08.2017, admitted the petition on the grounds that the amount was admitted by counsel for the Respondent, which rendered the factum of pendency of Section 34 petition irrelevant; and that the award had not been stayed. These findings of the Adjudicating Authority were affirmed by the Appellate Tribunal while additionally holding that the non-obstante Clause in Section 238 of the Code would override the Act of 1996. Being aggrieved, the corporate debtor preferred an appeal before this Court. 15.2. It was observed by this Court that one of the counterclaims was rejected on merits and the same was pending adjudication in the petition filed Under Section 34 of the Act of 1996 and hence, it could not be said that no dispute existed between the parties. While iterating the enunciations in Mobilox Innovations (supra) that the dispute must preexist the date of receipt of demand notice, it was emphasised by this Court that on its objectives, the Code was not a substitute of recovery proceedings; and an operational debt in an arbitral award could not be allowed to jeopardise a solvent company, which could state that the award was being challenged. This C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an arbitral award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an award, continues even after the award, at least till the final adjudicatory process Under Sections 34 and 37 has taken place. 28. We may hasten to add that there may be cases where a Section 34 petition challenging an arbitral award may clearly and unequivocally be barred by limitation, in that it can be demonstrated to the court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition Under Section 34 has been filed or a belated petition Under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation. 29. We may hasten to add that there may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the Petitioner may claim the application o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the applicability of Section 14 of the Limitation Act. The same analogy would apply, rather with more emphasis and force, in relation to a default dismissal where there had not been any adjudication on merits and where the prayer for restoration is pending consideration. We have no hesitation in saying that in such a case, without a final decision on the prayer for restoration, the insolvency process at the instance of an operational creditor cannot be put into operation. 18. For what has been discussed hereinabove, other aspects relating to the principles that restoration would revive the proceeding to the original status are not even required to be gone into, because the fact of moving an application for restoration of appeal Under Section 37 of the Act of 1996 and bringing it to the notice of the operational creditor is, in our view, sufficient to bring the matter within the four corners of "preexisting dispute", so as to effectively negate any attempt by the operational creditor to seek insolvency resolution. However, having regard to the issues sought to be raised, we deem it appropriate to also deal with the ancillary submissions of the Appellant. 19. In order to counte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l decree was passed on 21.05.1964 whereunder, Defendant No. 6 was granted recovery of certain items. On 25.06.1969, the Defendant No. 3 in the said suit filed another suit, being Suit No. 209 of 1969, for setting aside the decree dated 21.05.1964. In the later suit, on 25.06.1969, the Court issued a temporary injunction restraining the decree-holder from executing the decree dated 21.05.1964. On 02.04.1973, the said Suit No. 209 of 1969 was dismissed in default. However, it was restored on 20.12.1974 and then, was dismissed on merits on 21.03.1975. The appeals thereagainst were also dismissed by the first Appellate Court and by the High Court. Then, on 18.03.1981, an execution petition was filed, seeking execution of the decree dated 21.05.1964 in Suit No. 332/1122 wherein, the judgment-debtor raised the objection of limitation with the submissions that the execution petition was not filed within 12 years from the date of decree, i.e., 21.05.1964. The Executing Court as also the High Court held that the decree-holder was precluded from executing the decree during the period 25.06.1969 to 21.03.1975, i.e., the date when temporary injunction was granted in Suit No. 209 of 1969 and un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ave been noticed with approval, while holding that the decree-holder was entitled to exclude the entire period during which temporary injunction was in operation; and it was obviously taken that when a suit, which had been dismissed in default, stood restored, the interlocutory order of temporary injunction was also restored because nothing to the contrary was indicated in the order of default dismissal or the order of restoration. 20.4. We need not elaborate that in the matters relating to divergence of views in the Bench, it is the view of the majority that prevails and is to be taken as laying down binding principles and declaration of law by this Court in terms of Article 141 of the Constitution of India. It is too far stretched to contend, as attempted on behalf of the Appellant, that any observation occurring in the minority opinion as regards any question or issue which has not been dealt with by the majority, may be read as having force of law or persuasive value. The submissions are not correct and deserve to be rejected. 21. We may also observe that the substance of the submission sought to be based on the aforesaid decisions in Addagada Raghavamma and Vareed Jacob ....