National Company Law Tribunal at Mumbai
Agrocorp International Private (PTE) Limited
National Steel and Agro Industries Limited
[Company Petition (IB) No. 798/MB/C-IV/2019] | Date: 09.06.2020
In the present case, the Petitioner and Respondent entered into a sales contract for sale of whole yellow peas. However, Respondent failed to comply with the terms of the contract because of which matter was referred to Arbitration. The Arbitral Tribunal granted award in favour of Petitioner.
However, Respondent did not comply with the Arbitral Award and failed to make payment of a sum of $930,000 as principal amount, $38,971 as interest at the rate of 4% p.a. and $9,536 as cost. Thereafter, Petitioner filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
The Petitioner contended that payment was not received against the debit note, which was raised by email dated 08.12.2017. Further, even after the Arbitral Award was passed in favour of the Petitioner. The Respondent did not give reply of the demand notice and instead, they contended that the demand notice is defective as it relies on Foreign Arbitral Award passed by a sole arbitrator under GAFTA Rules (Grain and Feed Trade Association Rules) where the seat of the arbitration was London.
Further, they relied upon Section 46 read with Section 48 and 49 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) to show that the present Award has not gained finality on the parties as it is not declared enforceable by Indian Courts. However, this was countered by the Petitioner by arguing that United Kingdom is reciprocating territory under Section 44A of the Civil Procedure Code, 1908 (CPC).
Further, the Respondent has also argued that since the Arbitral Award is not final and binding upon the parties, there is a Pre-existing Dispute between the parties. To counter this, the Petitioner relied on the definition of “Claim” given under Section 3(6) of I&B Code, arguing that claim includes a right to remedy for breach of contract regardless it being reduced down to a judgement. As the merits was already decided by the Arbitral Tribunal, the claim would be binding and final upon the parties.
ISSUES BEFORE THE TRIBUNAL
The issues that came before the Tribunal are as follows:
1. Whether the foreign award is binding upon the parties in India?
2. Whether there is a pre-existing dispute between the parties as the foreign award has not obtained finality?
The Tribunal while concluding the issue of finality of arbitral award in India relied upon Section 44A of the CPC, which stipulates about execution of decree passed by Courts in reciprocating territory. It provides that when certified copy of decree of any reciprocating Court’s has been filed in the District Court, the decree can be executed in India as it was passed by the District Court.
In the instant case, the United Kingdom is where the arbitral award was passed which is a reciprocating territory under Section 44A of the CPC. The Court held that the award would be capable of execution in India.
The Tribunal relied on the various Supreme Court judgments to decide on the issue of Pre-existing Dispute between the parties since the foreign award has not attained finality. The tribunal referred to the case of K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd., wherein it was held that pendency to challenge to an arbitral award qualifies as ‘Pre-existing Dispute” for the purpose of initiating corporate insolvency resolution process by the operational creditor. In the instant case, there was no pending challenge to the arbitral award. Based on this, the bench observed that:
“it is not possible to wait indefinitely for the Corporate Debtor to challenge the Arbitral Award, and that it has to decide the present petition on the basis of the admitted positions, that is to say, there is an Arbitral Award passed by a competent Arbitral Tribunal after the consideration of the positions of both the sides, and there is no challenge to the Arbitral Award dated 16.04.2018 in a manner known to law. Hence the same cannot be considered as a pre-existing dispute, and the objection of the Learned Counsel for the Corporate Debtor on this count is rejected.”
Therefore, the Court concluded by holding that the award has gained finality and is binding upon the parties. Further, there is no Pre-existing Dispute between the parties as the award was never challenged at any higher court by the Respondent. In light of following findings, the Tribunal ordered moratorium under Section 14 of I&B Code.
The present case examines when the arbitral award is final and binding upon the parties and Pre-existing Dispute between the parties. It was observed by the Tribunal that the award under the definition of “claim” under Section 3(6) of I&B Code as it is a foreign award passed by a reciprocating territory under Section 44A of CPC.
The admission of the CIRP petition is based on a claim under Section 9 and the Adjudicating Authority upheld that for the purpose of admission of the petition, the award falls under the claim. The case indicates that a foreign award need not be enforced before approaching the NCLT and for a claim under CIRP proceedings.
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