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NCLT: An award debtor cannot claim “pre-existing dispute” on the ground that the award that has not been enforced
June 9, 2020Agrocorp Intl. Pvt Ltd Vs National Steel & Agro Ind. Ltd (Order dated 9 June 2020)
The Mumbai bench of the NCLT, while admitting an insolvency petition u/s 9 of the I&B Code, rejected the contention of the corporate debtor (CD) that the foreign award which was in favour of the operational creditor (OC) was yet to be found ‘enforceable’ by a competent Indian court and therefore there was a pre-existing dispute which barred the admission of the operational creditor’s claim under section 9 of the I&B Code.
In the instant case a foreign arbitral award was passed by a Sole Arbitrator under GAFTA Rules against the CD and in favour of the OC. On failure of the CD to make payments under the award, the OC filed a CIRP under section 9 of I&B Code . The CD opposed the application under section 9 on the grounds that :
- A foreign award is not binding upon parties in India when it is yet to be found to be enforceable by the competent court under the Arbitration and Conciliation Act, 1996;
- There is a pre-existing dispute between the parties since the foreign award has not obtained finality;
- The petition is defective in as much as the signatory to the petition is not authorised by the board of directors of the Operational Creditor.
- Draft agreement and not a final contract between the parties.
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The Tribunal relied on decisions of the Supreme Court which held that as per sections 46, 48 and 49 of the Arbitration Act, a foreign award per se is not binding. It would only be binding if it passes the standards/tests of enforceability set down in section 48. The Tribunal noted that in the instant case there was no pending challenge to the award by the CD. Further, as the award was from a country notified as a Convention country by India, it would be enforceable in India as a decree. Once it becomes binding it can be relied on by the parties by way of defence, set off or otherwise in any legal proceedings in India. The award was ‘final’ if under the laws of the country in which it is made, it is no longer open to challenge on merits.
The Tribunal agreed with the OC that a claim is defined under section 3(6) of the IB Code to include a right to a remedy for breach of contract, if such breach gives rise to a right to payment, whether or not such a right has been reduced to a judgement. Thus a claim includes a judgement, being an award passed by a court of competent jurisdiction.
While the Tribunal acknowledged that the pendency of challenge to an arbitral award qualifies as ‘pre-existing dispute’ for the purposes of initiating corporate insolvency resolution process by the operational creditor, as held by the Supreme Court in K. Kishan Vs M/S Vijay Nirman Company Pvt. Ltd.[1], however, in the present case, as there was no pending challenge to the Arbitral Award it would not be possible to wait indefinitely for the Corporate Debtor to make a challenge. It held that the Tribunal has to decide the petition on the basis of the admitted position that an Arbitral Award had been passed by a competent Arbitral Tribunal from a reciprocating territory after consideration of the positions of both the sides. Hence, the same cannot be considered as a pre-existing dispute.
The Tribunal found the Operational Creditor’s petition to be complete in all respects as required by law. It clearly showed that the Corporate Debtor was in default of a debt due and payable, and the default was more than the minimum amount of one lakh rupees stipulated under section 4(1) of the IB Code. It therefore admitted the section 9 petition.
Footnote
[1] Civil Appeal No. 21824 Of 2017
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