ARBITRATION AND IBC PROCEEDINGS CANNOT PROCEED CONCURRENTLY

KK Ropeways Limited

VS

M/s. Billion Smiles Hospitality Private Limited

 

KK Ropeways Limited (“Operational Creditor”) entered into Lease Deed for the leasing of a shop situated at “Savoy Green”, Bengaluru (“Leased Property”) for operating a “Food Court” under the name and style of “UPSOUTH” to Billion Smiles Hospitality Private Limited (“Corporate Debtor”). The parties agreed to arbitration proceedings in case of any dispute with regard to the lease deed. The Corporate Debtor failed to pay the lease rentals and as a last resort for recovery of the said sum the Operational Creditor initiated arbitration proceedings. An Ex-parte Award was passed in favour of the Operational Creditor on November 29, 2018. The Corporate Debtor aggrieved by the award preferred an appeal, before the Hon’ble High Court, Delhi as per the provisions of the Arbitration and Conciliation Act, 1996 assailing the Award.

 

In this backdrop of a pending appeal before the Hon’ble Delhi High Court, Operational Creditor approached Hon’ble National Company Law Tribunal, Bengaluru Bench (“NCLT”) for initiation of the Corporate Insolvency Resolution Process (“CIRP”) of Corporate Debtor with the sole intent to recover the amount awarded by the Arbitral Award amounting to Rs. 26,33,022/-. The NCLT dismissed the application filed by the Operational Creditor and relied on the judgment passed by Hon’ble Supreme Court in K. Kishan v. Vijay Nirman Co. (P) Ltd., (2018) 17 SCC 662. The NCLT held that the application filed under IBC Code is not maintainable when the arbitral award in question is disputed by way of an appeal under the Arbitration and Conciliation Act, 1996 and the said appeal is pending. Aggrieved by the order passed by NCLT, Operational Creditor preferred an appeal before the Hon’ble National Company Law Appellate Tribunal, Chennai (“NCLAT”).

 

The Primordial question that aroused for determination during the instant appeal, was “whether the application filed by the Operational Creditor for initiation of CIRP is per se maintainable, for the purpose of “Executing the Award?”

 

While deciding the matter NCLAT expanded the scope of dispute to mean and include raising a “Dispute” before a “Court of Law” or an “Arbitral Tribunal” prior to receipt of “Notice” and stated that an Arbitral Award if it is challenged in accordance with the provisions of the Arbitration and Conciliation Act, 1996 is a dispute in existence and falls within the preview of the definition of dispute. Thus, NCLAT held that Arbitration proceedings and IBC proceedings cannot proceed concurrently and dismissed, as the appeal sans merits.

 

References

1. Hon’ble NCLAT, Chennai in KK Ropeways Limited vs M/s. Billion Smiles Hospitality Private Limited Comp. App (AT) (CH) (INS.) No. 246 / 2021
2. Hon’ble Supreme Court in K. Kishan v. Vijay Nirman Co. (P) Ltd., (2018) 17 SCC 662.
3. Hon’ble Supreme Court, in Gujarat Urja Vikas Nigam Ltd Vs. Mr. Amit Gupta and others (2021) SCC Online, SC 194
4. Section 34 of the Arbitration and Conciliation Act, 1996
5. Section 5(6), 9 of the Insolvency and Bankruptcy Code, 2016

 

By CS Sakshi Jain, Senior Associate- Corporate and Commercial Laws, and Ms. Lavanya Ravi, Intern

 

Note: This article is not intended to create an attorney-client relationship and is intended for general information purposes only. You are advised not to act or rely on any information in this document and consult a professional legal services provider before acting on the same.