R.F.NARIMAN,J. - (1.) The present appeals raise an important question as to whether the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code") can be invoked in respect of an operational debt where an Arbitral Award has been passed against the operational debtor, which has not yet been finally adjudicated upon.
(2.) The brief facts necessary to appreciate the controversy at hand are as follows:- i) In the present case, M/s Vijay Nirman Company Pvt. Ltd. (the Respondent) entered into a sub-Contract Agreement with one M/s Ksheerabad Constructions Pvt. Ltd. (for short 'KCPL') on 01.02.2008, to undertake 50% of Section 2 work of 'Construction and widening of the existing two lane highway to four lanes on NH 67 at KM 190000 to KM 218215 admeasuring a total of 28.215 KM for and on behalf of KCPL.' ii) Apart from this Agreement, a separate agreement of the same date was entered into between the said KPCL and one M/s SDM Projects Private Limited, Bangalore, as a result of which, a tripartite Memorandum of Understanding was entered into on 09.05.2008 between KCPL, M/s SDM Projects Pvt. Ltd. and the Respondent. iii) During the course of the project, disputes and differences arose between the parties and the same were referred to an Arbitral Tribunal, which delivered its Award on 21.01.2017. One of the claims that was allowed by the said Award was in favour of the respondent for a sum of Rs.1,71,98,302/- which arises out of certain interim payment certificates. Another claim that was allowed related to higher rates of payment in which a sum of Rs.13,56,98,624/- was awarded. Three cross claims that were made by the Respondent were rejected. iv) It is pertinent to note that, at this stage, a notice dated 06.02.2017 was sent by the Respondent to KCPL to pay an amount of Rs.1,79,00,166/-. This notice was stated to be a notice under Section 8 of the Code. Within 10 days, by a letter dated 16.02.2017, KCPL disputed the invoice that was referred to in the said notice, stating that the said amount was, in fact, the subject-matter of an arbitration proceeding, and as per KCPL's accounts, the Respondent was liable to pay larger amounts to them. v) It may be noted that after the notice and reply, on 20.04.2017, a Section 34 petition was filed by KCPL under the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") challenging the aforesaid Award. Needless to add, this petition was filed within the period of limitation set down in Section 34(3) of the Act. vi) It is only thereafter that a petition was filed under Section 9 of the Code, on 14.07.2017. In the gist of the case presented to the National Company Law Tribunal ('NCLT'), it was clearly stated as follows:- "The above amount was included in the Statement of Claims filed before the Arbitral Tribunal duly constituted on 17.8.2014 along with other claims. The Tribunal gave its award on 21.1.2017 and upheld the above claim of VNCPL and awarded the above amount in favour of VNCPL and against KCPL. (Award copy enclosed) Thus, the above amount has become an 'Operational Debt' to be paid by the corporate debtor M/s KCPL as defined u/Sec. 3(11) of the I&B Code 2016. A notice in Form-3 U/Sec. 8(1) of the I&B Code 2016 has already been served on the Corporate Debtor, M/s KCPL and a reply received from KCPL is also enclosed herewith for ready reference." In the Counter Affidavit before the NCLT, it was stated: "10. I respectfully submit that the case of the petitioner in short is that since an award has been passed against the respondent here in an arbitration proceeding, though a petition U/Sec 34 of the Arbitration and Conciliation Act, has been filed by the respondent before the competent court challenging the award the present application is maintainable U/Sec. 9 of the code though the respondent had raised a dispute in its replies dated 06-02-2017 and 05-06-2017 to the notice issued U/Sec.8(2) of the code by the applicant. 11. I respectfully submit that a dispute had been raised by the respondent company even before the present application has been filed, in the arbitration proceedings by way of a counter claim and presently the same is sub judice before the Hon'ble Commercial Court cum XXIV Additional Chief Judge, City Civil Court at Hyderabad in petition filed U/Sec. 34 of the Act. Copy of the section 34 application filed and pending before the Hon'ble Court is enclosed herewith as Annexure R-6." vii) The NCLT, by its order dated 29.08.2017, referred to the aforestated facts, and also referred to the fact that the Award which was challenged under Section 34 specifically stated that learned counsel for the first Respondent (i.e. the corporate debtor) was fair enough to admit that the claimant is entitled to the said sum of Rs. 1,71,98,302/-. According to the NCLT, the fact that a Section 34 petition was pending was irrelevant for the reason that the claim stood admitted, and there was no stay of the Award. For these reasons, therefore, the Section 9 petition was admitted. viii) An appeal filed to the Appellate Tribunal met with the same fate, as according to the Appellate Tribunal, the non-obstante clause contained in Section 238 of the Code would override the Arbitration Act. Also, according to the Appellate Tribunal, since Form V of Part 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 requires particulars of an order of an arbitral panel adjudicating on the default, this would have to be treated as "a record of an operational debt", as a result of which the petition would have to be admitted, as was correctly done by the NCLT. The appeal was, accordingly, dismissed.
(3.) Mr. Gourab Banerji, learned Senior Advocate, appearing on behalf of the appellant has relied upon certain observations made in our judgment in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353 and argued that the object of the Code is to replace debt adjudication and enforcement under other Acts including the Arbitration Act, 1996. He has relied, in particular, on para 51 under which, according to him, the moment there is a real dispute between the parties, which need be a "bona fide dispute" which is likely to succeed in point of law, the Insolvency Code cannot be applied. In the present case, according to him, the very fact that a Section 34 petition is pending is reflective of a real dispute between the parties, which was pre-existing, and which culminated in an Arbitral Award which has yet to attain finality. Also, according to the learned Senior Advocate, the cross-claims that were rejected by the learned Arbitral Tribunal far exceeded the amounts awarded against his client, and if any one of them were to be held to be wrongly dismissed, in particular, counter claim No.3 of Rs. 19,88,20,475/-, it is obvious that his client would owe any sum of money to the operational creditor. He also relied upon certain judgments, which we will discuss later. To further buttress his submissions, he argued that all that is necessary is that there be a dispute in some form which would include cross claims made by the corporate debtor against the operational creditor. According to him, the Appellate Tribunal was wholly in error in applying Section 238 of the Code as, according to Mr. Banerji, there is nothing inconsistent between the adjudication and enforcement process under the Arbitration Act and the application of Sections 8 and 9 of the Code. In fact, according to the learned Senior Advocate, the fact of pending proceedings, whether they be proceedings culminating in an Award, or challenge proceedings thereafter, would, in fact, show that there is a dispute insofar as an operational debt that is stated to be owed, and that therefore, the Arbitration Act can be relied upon for this purpose, there being nothing inconsistent between it and the Code.;