IBC | Sec. 9 Petition For Implementation Of Arbitral Award Is Not Maintainable : NCLAT Chennai

The National Company Law Appellate Tribunal (“NCLAT”), Chennai Bench, comprising of Justice M. Venugopal (Chairperson) and Ms. Shreesha Merla (Technical Member), while adjudicating an appeal filed in M/s. KK Ropeways Limited v M/s. Billion Smiles Hospitality, has upheld that a petition filed under Section 9 of IBC for implementation of an Arbitral Award is not maintainable and not in tune with the objective of IBC. The Bench has further held that arbitration and IBC proceedings cannot go on together.

BACKGROUND FACTS

A dispute with respect to a Rent Agreement broke out between M/s. KK Ropeways Limited (“Operational Creditor”) and M/s. Billion Smiles Hospitality (“Corporate Debtor”), and the matter was referred to arbitration. On 29.11.2018, the Arbitral Tribunal passed an ex-parte Award in favour of the Operational Creditor for an amount of Rs.26,33,022/- along with interest @ 15% pa. The Corporate Debtor filed an appeal under Section 34 of the Arbitration and Conciliation Act, 1996 challenging the Award, which is pending adjudication.

The Operational Creditor filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. The amount in default was based on the Arbitral Award.

The NCLT rejected the petition, while holding that filing of appeal against the ex-parte Award prima facie proves the existence of Pre-existing Dispute. It was further held that the petition was filed for implementing the Arbitral Award which is not in tune with the objective of IBC.

The Operational Creditor filed an appeal before the NCLAT against the NCLTs order.

ISSUE

Whether petition under Section 9 of IBC is maintainable for the purpose of executing an Arbitral Award?

NCLAT VERDICT

The Bench opined that the ‘existence of dispute’, which is a ground for rejection of Section 9 petition under IBC, includes raising a dispute before a Court of Law or an Arbitral Tribunal prior to receipt of Demand Notice under Section 8 of IBC. Further, dispute continues at stage where challenge to an Arbitral Award in an appeal is projected by a Party. If the dispute raised by the Party is not spurious, imaginary or hypothetical, then the Adjudicating Authority must reject the petition filed under IBC.

“It is to be remembered, that an Arbitration Proceedings, and I & B Code Proceedings, cannot go on together, in the considered opinion of this Tribunal”, the Bench held.

It has been observed that since the Award was passed based on the Rental Dispute and the Appeal was filed by the Corporate Debtor against the Award, then the Operational Debt can only be considered to be under dispute.

The Bench held the operational debt to be in dispute since the Award it is based on has been challenged by the Corporate Debtor.

“It cannot be gainsaid that, for initiating a Corporate Insolvency Resolution Process, against the Corporate Debtor, there ought to be no real dispute, existing between the respective Parties, to the Debt, owed in question. So long as the Arbitration Award, was challenged under the relevant Section of the Arbitration and Conciliation Act, 1996, the Operational Debt, in the instant Appeal, is considered to be under Dispute, as opined by this Tribunal.”

The Bench concluded that NCLT had correctly dismissed the application which was filed by the Operational Creditor for recovering the sum awarded in Arbitration Proceedings.

The appeal has been dismissed.

Case Title: M/s. KK Ropeways Limited v M/s. Billion Smiles Hospitality

Case No.: Comp. App (AT) (CH) (INS.) No. 246 / 2021

Counsel For Appellant: Mr. Manu Kulkarni, Advocate, For Mr. Madhur A. Kalyanshetty, Advocate.

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