Referring a
matter to Arbitration under Section 8 of the Arbitration and Conciliation Act
is beyond the scope of Section 9 of the IBC: NCLAT
The NCLAT
Principal Bench comprising of Justice Anant Bijay Singh, Judicial Member and
Ms. Shreesha Merla, Technical Member in the matter of Trafigura V. TDT Copper Ltd. (Company Appeal (AT)
(Insolvency) No. 742 of 2020) arising out of order dated 15.07.2020 in
Company Petition (IB) No. 2817/ND/2019 passed by the Adjudicating Authority
(National Company Law Tribunal, New Delhi Bench Court-V) adjudicated on the issue whether a matter can be referred to arbitration by the Adjudicating Authority while exercising
its power under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”).
Facts
The Appellant
and the Respondent entered into the Master Sale Agreement (MSA) dated
27.01.2016 under which the Respondent agreed to buy and the Appellant agreed to
sell on the terms and conditions set out in the MSA, a specified quantity of
copper cathodes (‘Material’). Invoices issued by the Appellant for the supply
of Material were required to be paid by the Respondent within 30 days from the
date of the invoice with an interest on the unpaid amount at the rate of 4% per
annum from (and including) the due date for payment to (and including) the date
of receipt of such unpaid amount by the Appellant.
As, the Respondent
failed to make payment to the Appellant, the parties had to enter into a
Settlement Agreement on 20.11.2018 whereby the Respondent has unequivocally
acknowledged and admitted that an amount of Rs. 63,81,63,368/- was due and
payable which the Respondent acknowledged to pay along with interest at the
rate of 10.9% per annum compounded monthly to the Appellant by 30.04.2019 as
per the Payment Schedule appended to the Settlement Agreement.
As the
Respondent till 10.12.2018 only paid an amount of Rs. 12,30,59,615/- to the
Appellant, by way of Extension Notice dated 30.04.2019 addressed by the
Appellant to the Respondent, the deadline of 30.04.2019 provided under clause
5(c) of the Settlement Agreement was extended to 15.05.2019. However, the
Respondent failed to pay the Appellant the entire amount due to which Appellant
sent a Demand Notice under the Code for a recovery of outstanding dues of Rs. 64,13,59,330/
i.e., the total amount along with interest. As, the Respondent denied the sums
owned by it to the Appellant.
Subsequently,
the Appellant filed the Application under Section 9 of the Code against the
Respondent seeking the initiation of the CIRP in respect of the Respondent as
on 24.10.2019 an amount of Rs. 59,72,40,162/- was due and payable by the
Respondent to the Appellant. The Adjudicating Authority dismissed the
Application on the ground that unpaid amounts under a Settlement Agreement do not
constitute ‘operational debt’ under Section 5(21) of the IBC and hence, the
Appellant filed the present appeal.
Contentions of
the Appellant
The Appellant
contended that the Respondent vide the Settlement Agreement clearly
acknowledged its liability to pay an amount of INR 63.81 crores and agreed to
pay the same along with 10% interest per annum compounded annually by
30.04.2019 (extended to 15.05.2019).
The claims
arising under the MSA are covered under the definition of ‘operational debt’
under Section 5(21) of the IBC and debts arising under Settlement Agreement
have to be treated as ‘operation debt’ and Corporate Insolvency Resolution
Process should be initiated against the Respondent.
Contentions of
the Respondent
The Respondent
contended that the claims arising under the Settlement Agreement are not
‘operational debt’ and that Section 9 is not triggered as the debt did not
become ‘due’ and consequently there has been no ‘default’. The Settlement
Agreement provided that the Respondent shall reduce the outstanding amount from
Rs. 63,81,63,368/- to 52,50,00,000/- by 30.11.2018 failing which the entire
outstanding amount shall become due and payable immediately further, in the
event the parties fail to conclude a further contract for supply of material
for 2019 by 21.12.2018. Hence, the Respondent paid an amount of Rs. 12.3 crores
to the Appellant reducing its exposure to less than INR 52,50,00,000/- by
30.11.2018. It is further submitted that since the Respondent had complied with
the terms of the Settlement Agreement, the amounts claimed by the Appellant did
not become due and payable as on 30.04.2019.
Held
The Bench held
that the Adjudicating Authority rightly concluded that default of instalment of
Settlement Agreement does not come within the definition of ‘operational debt’
as it does not fall within the definition of additional debt as per Section
5(21) of the IBC.
Moreover, with
respect to the prayer sought by the Appellant that the matter be referred to
Arbitration under Section 8 of the Arbitration and Conciliation Act, the Bench
held that held that as the role of National Company Law Tribunal is very
limited while exercising its power under Section 7, 9 and 10 of the IBC, 2016, referring
the matter to arbitration is beyond the scope of Section 9 of the IBC.
This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner).
You can direct your queries or comments to the author at info@factumlegal.com
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