Insolvency and Bankruptcy Code, 2016 – ss. 8, 9, 62 – Arbitration and Conciliation Act, 1996 – The appellant and respondent no.2 entered into Memorandums of Understanding, whereby the respondent no.2 agreed to supply, 1 lakh and 7 lakh metric tons of iron ore per month to the appellant – Dispute arose between the parties as regards the requisite supply and payment – Arbitration clause was invoked – In arbitral awards the respondent company was held liable to make payment – Respondent company filed petition u/s. 34 of the 1996 Act, which were dismissed by the District Court – Appeals were filed before the High Court u/s.37 of the 1996 Act – On 22.11.2019, the appeals were dismissed in default for non-appearance of the respondent – On 17.12.2019, the respondent filed restoration applications – These applications were allowed on 02.03.2020 by the High Court – Before such restoration of appeals, the appellant had sent two demand notices u/s.8 of the 2016 Code on 14.02.2020 – Appellant moved NCLT u/s. 9 seeking initiation of CIRP against respondent company – NCLT took the view that on the day the appellant served demand notices to the respondent u/s. 8 and the date when the application u/s. 9 was filed, no proceedings were pending and hence no dispute was pending – Therefore, the NCLT admitted applications made by the appellant u/s.9 of the Code in its capacity as an operational creditor; initiated CIRP in relation to the respondent company – However, the NCLAT held that a dispute was in existence prior to the issuance of demand notices and applications for restoration were filed with advance notice to the appellant- operational creditor – On appeal, held: On facts, it remains indisputable that even if appeals were dismissed in default on 22.11.2019, the respondent company indeed moved an applications for restoration on 17.12.2019 with advance notice to the appellant – Thus, on date of issuance of demand notices (i.e.14.02.2020), the appellant was well aware that appeals u/s. 37 of the 1996 Act had not been decided on merits – This moving of application for restoration of appeal u/s.37 of the 1996 Act and bringing it to the notice of the operational creditors is sufficient to bring the matter within the four corners of ‘pre-existing dispute’, so as to negate any attempt by the operational creditor to seek insolvency resolution – Also, the default dismissal of the appeal could only be regarded as a partial eclipse, which momentarily puts dispute in hibernation – When restoration of appeal is granted, it definitely re-activates the dispute – For the purpose and in scheme of the Code, even pendency of an application for restoration is sufficient to bring the matter within the four corners of “pre-existing dispute” – The applications moved by the appellant for initiation of CIRP were required to be rejected in terms of s.9(5)(ii)(d) of the 2016 Code – The NCLAT had rightly set aside the orders passed by the NCLT.
Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.: (2018) 1 SCC 353 : [2017] 10 SCR 1006; Swiss Ribbons Private Limited & Anr. v. Union of India & Ors.: (2019) 4 SCC 17: [2019] 3 SCR 535 – relied on. K. Kishan v. Vijay Nirman Company Pvt. Ltd.: (2018)
17 SCC 662 : [2018] 10 SCR 959; Vareed Jacob v. Sosamma Geevarghese & Ors.: (2004) 6 SCC 378 :
[2004] 1 Suppl. SCR 534; Addagada Raghavamma &
Anr. v. Addagada Chenchamma & Anr.: AIR 1964 SC
136 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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