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NCLAT: Arbitral Awards And “Existence Of Dispute” Under IBC

In M/s Annapurna Infrastructure Pvt. Ltd. & Anr. v. M/s. SORIL Infra Resources Ltd., Disputes arose between Annapurna Infrastructure Pvt. Ltd. (Annapurna) and SORIL Infra Resources Ltd. (SORIL) relating to non-payment of rent by SORIL (the lessee) to Annapurna and others (the lessors). 

Arbitration clause in the lease deed between the parties was invoked and an arbitral award was passed in favour of Annapurna and others. The arbitral award was challenged by SORIL in an application under Section 34 of the A&C Act, which was dismissed by the Hon’ble High Court of Delhi. Soon thereafter, the award holders, which included Annapurna, issued Demand Notices on SORIL under Section 8 (1) of IBC as operational creditors of SORIL, demanding the amounts stated in the arbitral award. 

A reply was issued by SORIL under Section 8 (2) of IBC, stating that there is an “existence of dispute” between the parties, principally on the ground that an appeal under Section 37 of the A&C Act had been filed and was pending against the Dismissal Order. It may be noted that the appeal against the Dismissal Order was filed by SORIL only after receipt of the Demand Notice but before the reply was issued. It was also pointed out in the reply that execution proceedings to recover the award amount were pending. Subsequent thereto, Annapurna and others filed a Section 9 application under IBC before the Learned National Company Law Tribunal, Principal Bench, New Delhi (Adjudicating Authority), seeking initiation of CIRP of SORIL.

The Adjudicating Authority dismissed the Section 9 application on the ground that a dispute between the parties had already been subject to arbitration, which had yet to attain finality (as the appeal against the Dismissal Order under Section 37 of the A&C Act was still pending). The Adjudicating Authority also observed that as execution proceedings had already been initiated, a party could not invoke more than one remedy simultaneously and indulge in forum shopping.

On appeal, NCLAT overruled the decision of the Adjudicating Authority on the ground that the Adjudicating Authority had arrived at an erroneous conclusion regarding “existence of dispute”.

NCLAT observed that the language in Part V of Form 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 includes an order of an arbitral panel adjudicating on the default under the heading “Particulars Of Operational Debt [Documents, Records And Evidence Of Default]”. On this basis, NCLAT opined that an arbitral award has been specified as a document which can evidence debt and non-payment of the awarded amount amounts to 'default' of the debt.

NCLAT further opined that under Section 8 (2) of IBC, while pendency of “arbitration proceedings” has been included as “existence of dispute”, pendency of an application under Section 34 or Section 37 of the A&C Act has not been included as “existence of dispute”.

Quoting various authorities on arbitration, NCLAT added that arbitral award reaches finality after expiry of time allowed for filing an application under Section 34 of the A&C Act or if application under Section 34 is filed and rejected. Basis this, the NCLAT held that pendency of the appeal by SORIL against the Dismissal Order under Section 37 of the A&C Act would not constitute an “existence of a dispute” between Annapurna and SORIL.



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