TaxTMI 
TaxTMI 
2021 (10) TMI 1459
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....; 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 Appellant and the Respondents entered into two Memora....
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.... 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 debts and filed two applications Under Section 9 of the C....
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.... 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, 1996 is pending or Appeal Under Section 37 of the Act is pending, then insolvency proceed....
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....r 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 Debtor' submitted that once the Application for restoration is allowed, it relates back to the original....
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....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 and hence, the operational debt cannot be said to be an undisputed one. The relevant part of observations and findings of the Ap....
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....mitting/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 that the 'Corporate Debtor' may succeed on any claim or part of the claim. Hence, it is apposite to observe that the 'Operational Debt' he....
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....ment 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 aspects of the present case, it is clear that the Appellant asserts itself to be an operational creditor, for the reason of having a claim against the Respondent company....
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....en 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 relevant provisions concerning insolvency resolution by an operational creditor, as contained in Sections 8 and 9 of the Code, read as under: 8. Insolvency resolution by operational creditor.-(1) An operational credit....
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....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) The Adjudicating Authority shall, within fourteen days of the receipt of the application Under Sub-section (2), by an order- (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,- (a) the application made Under Sub-section (2) is complete; (b) there is no payment of the....
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....ional 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 application Under Section 9 of the Code and the questions to be determined as follows: 34. Therefore, the adjudicating authority, when examining an application Under Section 9 of the Act will have to determine: (i) Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable a....
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....ng 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 from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. (underlining supplied for emphasis) 14.5. This Court, thereafter,....
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....ppeal 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 Court further observed that mere factum of challenge would be sufficient to state that the award was in dispute, rendering it to be a case of a pre-existing ongoing dispute; and that the object of the Code, insofar as operational creditors are concerned, is to put the insolvency process against a corporate debtor only in clear cases where a real dispute between the parties as to the debt owed does not exist. This Court exposited in clear terms as follows: 22...it becomes clear that operational creditor....
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.... 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 of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act. (underlining supplied for emphasis) 16. We are clearly of the view that the aforesaid enunciations are squarely applicable to the facts of the present case. As noticed, on the date when the Appellant chose to serve the notices Under Section 8 of....
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.... 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 counter the reasoning of NCLAT that restoration of appeal relates back to the date of its filing, reference is made on behalf of the Appellant to a decision of this Court in Addagada Raghavamma (supra). The question of applying the doctrine of relation back arose in the said case in the wake of a question as to the date from which severance in status would be deemed to have taken place in the event of declaration by a member of Joint Hindu Family of his intention to live separate. The Court found that there were two ingredients of such a declaration: o....
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.... 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 until that suit was finally dismissed on merits; and if that period was excluded, the execution petition was well within time. The question that arose in appeal before a 3-Judge Bench of this Court was as to whether there was an automatic revival of interlocutory orders with the restoration of the suit. 20.2. In relation to the aforesaid question, the learned Judges forming majority referred to several decisions to hold that the question, as to whether restoration revives ancillary orders passed before dismissal of the suit, would depend upon the terms ....
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....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 is that vested rights are required to be protected. This submission proceeds on a fundamental fallacy that on default dismissal of the appeals filed by the Respondent company Under Section 37 of the Act of 1996, some vested right was created in the Appellant in its capacity as an operational creditor. The real issue in the present case is about the "pre-existing dispute" as regards the money sought to be claimed by the operational creditor; and when pendency of the appeal is admittedly answering to the description of pre-existing dispute, its default dismissal....