On June 09, the National Company Law Tribunal (NCLT), Mumbai Branch passed an Order in a Company Petition filed by Agrocorp International Pvt (PTE) (operational Creditor) u/s 9 of Insolvency and Bankruptcy Code 2016 (IBC) against National Steel & Agro Industries (Corporate Debtor) seeking initiation of Corporate Insolvency Resolution Process (CIRP). The cause of action arose on non- honoring of Arbitral Award (governing a 2017 sales contract between the two) passed against Corporate Debtor who was liable to pay specified amount of sum to Operational Creditor.
As per the claims of the Petitioner, the Petitioner entered into a Sales Contract with the Corporate Debtor for sale of 30,000 MT of whole yellow peas, but, after having made such a Contract, the Respondent did not respond to repeated representations made by the Petitioner, thus forcing the Petitioner to resell the cargo at a decreased rate of $ 250 per MT as compared to $ 281/ MT (in the Sales Contract), to some other entity. The Petitioner thus issued a Debit Note to the Respondent to compensate the loss of $31/ MT. The Note was however not allegedly honoured, leading the Petitioner to initiate an Arbitral Proceeding which concluded in its favour. The Arbitral Award so passed was also not honoured by the Corporate Debtor (as per the petitioner’s claim), paving way for issuance of a Demand Notice u/s 8 of IBC and eventually the present petition.
The reply of the Respondent Corporate Debtor however, claimed averments in the Petitioner’s pleadings to the effect that the petition is defective for want of Board Resolution (of the Petitioner) required for initiating CIRP. It was also the case of the Respondent that the Petitioner’s Demand Notice based on Foreign (England) Arbitral Award of Sole Arbitrator under Grain and Feed Trade Association Rules (GFTAR), was not a Decree per se, unless and until it was expressly declared to so in India. The Sales Contract was also termed as a mere ‘Draft Agreement’ pending confirmation by the Respondent.
The NCLT identified three major averment or objection of Respondent and the first & foremost was the ‘applicability of Foreign Arbitral Awards unless it is enforceable by Competent Authority under Arbitration & Conciliation Act 1996 (the Act).’
Finding of NCLT on the issues of applicability of Foreign Arbitral Award
The Respondent, in this regard, made reference to Sec 46 of the Act, the Tribunal thus looked into the provisions of this section and came to the conclusion that reliance on Foreign Award of England “without it being declared enforceable under applicable Indian Law is incorrect.” The National Tribunal further noted that a combined reading of Ss. 46, 48 & 49 of the Act makes it clear that such an Award can be made enforceable for the purpose of execution as a Decree or placing reliance on it for any other purpose, only after it is declared enforceable under Chapter I, Part II of the Arbitration Act, by adducing evidence in terms of Sec 47. Reliance was placed on the following two decisions of Bombay HC & Supreme Court, respectively, to resonate the above made observations; Noy Vallesina Engineering Spa v. Jindal drugs Ltd. (2006 5 Bom CR 155) and Sea Stream Navigation Ltd. v. LMJ International Ltd. (2013 SCC Online Cal 1940)
In response to the Respondent’s submission to the effect that enforcement of Foreign Judgments in India creates two situations, namely; (a) a reciprocating territory; and (b) a non- reciprocating territory, the NCLT ventured into scope of such Foreign pronouncements under Code of Civil Procedure, 1908 (CPC). The provisions governing ‘reciprocating territory’ u/s 44A CPC, were reiterated by the Tribunal. The Petitioner Operational Creditor in this regard, cited precedents to contend that; “adjudicating Authority has no jurisdiction to decide the question of legality and propriety of a foreign judgment and decree in an application under Sections 7 or 9 or 10 of the I&B Code” and “it is well settled that foreign decree either of reciprocating or non-reciprocating territory not passed on merits or not satisfying the requirements of Section 13 of CPC cannot be the basis of winding up petition” which is equivalent to ‘insolvency proceedings’ under IBC.
After having heard the parties, the Tribunal noted that ‘reciprocating territories’ are those countries/ territories (outside India) which are declared to be so in the Official Gazette by the Central Government and the pronouncements of which are considered as ‘Decrees passed by District Courts.’ England is a reciprocating territory (since 1953), thus, the Tribunal held the Arbitral Award passed by the Sole Arbitrator of GFTAR as valid.
Findings on ‘pre-existing’ dispute b/w parties since Foreign Award; didn’t obtain Finality
It was the Respondent’s case that there was absence of valid contract between the parties, as the purported Sales Contract was awaiting confirmation to its terms by the Respondent and the same was raised before the Foreign Arbitrator, thus, making such an award as non-final. It was also claimed that the options of preferring an Appeal in London or seeking un-enforcement u/s 48 of Arbitration Act, were open to the respondent and therefore, the matter was not covered under the definition of ‘claims/ debt under IBC.’
The NCLT observed that these objections regarding non-existing contract were raised by the Respondent before the Foreign Arbitrator, and the Arbitral Award was passed after considering these objections on merit and no appeal (known under law) has yet been preferred. With respect to definition of claim/ debt under IBC, the Tribunal held that “a claim is defined to include a right to a remedy for breach of contract, if such breach gives rise to a right of payment, whether or not such a right has been reduced to a judgment. Thus, a claim includes a judgment, being an award passed by a court of competent jurisdiction.” Thus, this contention of the Respondent was answered in negative.
Findings on Defective Petition
The Respondent submitted that the Board of Resolution authorized ‘A’ for filing the present petition however ‘B’ signed the power of Attorney. To this submission the Tribunal held that the law as laid down in the case of Palogix Infrastructure Pvt Ltd. v ICCI Bank makes it legal for a person ‘authorized’ to institute CIRS. It was held that B was duly authorized by the Petitioner and therefore legally entitled to initiate CIRS.
Decision of NCLT
Admitting the Petition, the NCLT held that there would be a moratorium u/s 14 IBC regarding; institution or continuation of suits/ proceedings against the Respondent (Corporate Debtor); transfer/ deposit of assets by Respondent; action for foreclosure, recovery & enforcement of Respondent’s security (including action under SARFAESI Act) and recovery in possession of Respondent. It was also held that during the moratorium period, supply of essentials to Corporate Debtor would not be interrupted, the CIRP would be made as per Sec. 13 of IBC & Regulation 6 of IB Regulations and the control and management of Corporate Debtor would be handed over to Interim Resolution Professional as proposed by the Operational Creditor.
Case Details
Before: The National Company Law Tribunal, Mumbai Bench- IV
Quorum: Hon’ble Member (Judicial) Mr. Rajasekhar V. K. & Hon’ble Member (Technical) Mr Ravikumar Duraisamy
Case Title: Agrocorp International Private (PTE) Limited v National Steel and Agro Industries Limited
Case No. CP(IB) No. 798/MB/C-IV/2019
Date of Decision: 09.06.2020
Read Order/ Judgment @LatestLaws. Com
