Whether pendency of a case before a Court under Section 34 of the Arbitration and Conciliation Act, 1996 can be termed to be ‘dispute in existence’ for the purpose of subsection (6) of Section 5 of the ‘IBC’- NCLAT in case of Ksheeraabad Constructions Pvt. Ltd. (Corporate Debtor) Vs. Vijay Nirman Company Pvt. Ltd.

Brief about decision:

The provision under the ‘I&B Code’ with regard to finality of an Arbitral Award for initiation of ‘Corporate Insolvency Resolution Process’ will prevail the provisions of the ‘Arbitration and Conciliation Act, 1996’. No person can take advantage of pendency of a case under Section 34 of the Arbitration and Conciliation Act, 1996 to stall ‘Corporate Insolvency Resolution Process’ under Section 9 of the ‘I&B Code’.

Analysis of the case:

Sections 9 and 238 of the Insolvency and Bankruptcy Code, 2016 read with Sections 34 & 36 of the Arbitration and Conciliation Act, 1996 – Application for Initiation of Corporate Insolvency Resolution Process (CIRP) by the Respondent.

Facts of the case:

The question arises for consideration before the NCLAT is:  “Whether pendency of a case before a Court under Section 34 of the Arbitration and Conciliation Act, 1996 can be termed to be ‘dispute in existence’ for the purpose of subsection (6) of Section 5 of the ‘I&B Code’.”

NCLAT verdicts:

It is true that under Section 36 of the Arbitration and Conciliation Act, 1996, an Arbitral Award is executable as a decree. It can be enforced only after the time for filing the application under Section 34 has expired and/or, if no application is made or such application having been made has been rejected. Therefore, for the purpose of Arbitration and Conciliation Act, 1996, an Arbitral Award reaches its finality after expiry of  enforcement time or if the application under Section 34 is filed and rejected. However, for the purpose of ‘l&B Code’ no reliance can be placed on Section 34 of the Arbitration and Conciliation Act, 1996, for the reasons stated below.

The ‘I&B Code’ being a Complete Code will prevail over all other Acts including Arbitration and Conciliation Act, 1996. As per, Section 238, provision of ‘I&B Code’ is to override other laws, including Arbitration Act, 1996 as quoted below:

“238. Provisions of this Code to override other laws. – The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

Therefore, the provision under the ‘I&B Code’ with regard to finality of an Arbitral Award for initiation of ‘Corporate Insolvency Resolution Process’ will prevail the provisions of the ‘Arbitration and Conciliation Act, 1996’.

For the purpose of Section 9 of the ‘I&B Code’, the application to be preferred under Form-5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as “Rules, 2016”) as per which, the order passed by Arbitral panel/Arbitral Tribunal has been treated to be one of the documents/records and evidence of default, as apparent from Part V of Form 5.

The aforesaid provisions made in the Form-5 if read with subsection (6) of Section 5 and Section 9 of the ‘I&B Code’ it is clear that while pendency of the suit or Arbitral Proceeding has been termed to be an ‘existence of dispute’, an order of a Court, Tribunal or Arbitral Panel adjudicating on the default (commonly known as Award), has been treated to be a “record of Operational Debt”.

In view of the aforesaid provisions of law and mandate of ‘I&B Code’, we hold that no person can take advantage of pendency of a case under Section 34 of the Arbitration and Conciliation Act, 1996 to stall ‘Corporate Insolvency Resolution Process’ under Section 9 of the ‘I&B Code’. 

In view of the findings above, no interference is called for against the impugned order dated 29th August, 2017. In absence of any merit, the appeal is dismissed. However, in the facts and circumstances of the case, there shall be no order as to cost.

Case Reference: NCLAT in case of Ksheeraabd Constructions Pvt. Ltd. Vs. Vijay Nirman Company Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 167 of 2017, Date of Order: 20.11.2017.

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