Electrosteel Steel Limited vs Ispat Carriers Private Limited
CMP 376 of 2023
Facts:
1.Execution case instituted by the respondent for execution of arbitration award dated 06.07.2018 under Section 36 of the Arbitration and Conciliation Act, 1996 for a total amount of Rs. 1,59,09,214.33 plus interest @ 3% of bank rate of RBI Compounded with monthly rests passed by the West Bengal Facilitation Council under MSME act.
2.Petitioner prayed for dismissal of the execution proceedings and also to pass necessary orders that the executing court had no jurisdiction to entertain the execution petition based on illegal and non-est order passed by the West Bengal State Small and Medium Enterprises Facilitation Council on account of various orders and proceedings before the National Company Law Tribunal (NCLT), Kolkata / National Company Law Appellate Tribunal (NCLAT), New Delhi.
3.District court passed the order whereby and whereunder application dated 14.05.2019 filed by the judgment debtor was dismissed and the judgment debtor was directed to comply the Award dated 06.07.2018 passed by West Bengal Micro, Small and Medium Facilitation Council, Kolkata, within 15 days from this order.
4.Judgment Debtor or the Petitioner is challenging the order passed by the District Court.
Issue: Whether on facts, the Facilitation Council lost its jurisdiction to proceed and pronounce the arbitral award in view of insolvency resolution plan of the petitioner which was duly approved under section 31 of the IBC?
Arguments:
For Petitioner:
1.Counsel for petitioner argued that Decree of nullity can be assailed in execution or co-lateral proceedings. It was also contended that provisions of Insolvency and Bankruptcy Code, 2016 have overriding effect and the dues of the operational creditor including the respondent was taken as NIL. Therefore, the Facilitation Council under MSME Act lost its jurisdiction to pass any award.
2.Counsel for the petitioner has referred to the resolution plan approved by the National Company Law Tribunal, Kolkata to submit that it was a conscious decision to render the operational creditors to NIL payment and the resolution proposal was finally accepted, therefore, nothing was payable to the respondent and this happened during the pendency of the matter before Facilitation Council constituted under MSME Act and consequently, the award under execution is a nullity in the eyes of law.
3.Counsel submitted that even if the award was not challenged under section 34 of the Arbitration and Conciliation Act, 1996, objection could have been taken at the stage of its enforcement when it is sought to be enforced under section 36 of the aforesaid Act of 1996.
3.Counsel also submitted that plea of the respondent in the counter affidavit that, objection under section 47 of Code of Civil Procedure is not at all applicable to enforcement of arbitral award, is misplaced.
For Respondents:
1.Counsel for the respondent has submitted that considering the scope of Article 227 of the Constitution of India, the impugned order does not call for any interference. He submits that there is no illegality or perversity in the impugned order.
2.Counsel has referred to the provisions of Section 238 of Insolvency and Bankruptcy Code, 2016 and has submitted that it has to be read with Section 245 to 255 of the Code in view of the fact that there is a specific provision under IBC Code to make specific amendments in corresponding law to ensure that those laws are made subject to Insolvency and Bankruptcy Code, 2016. There is no such corresponding provision, so far as the MSME Act and Arbitration and Conciliation Act, 1996 are concerned.
3.Counsel has further submitted that so far as the binding effect of Section 31 of Insolvency and Bankruptcy Code, 2016 is concerned, the same does not bar the legal remedy available to the party for realization of its debt. He has also submitted that the bar to legal remedy is not to be inferred unless it is specifically provided.
4.Counsel submitted that the grounds which have been raised through the objection petition filed before the learned court below are essentially the grounds which could have been raised by the petitioner under Section 34 of the Act of 1996. Having not challenged the award, the same grounds are sought to be raised by stating that the award itself is a nullity by filing a petition under Section 47 of CPC, which is not maintainable.
5.Counsel submitted on facts that what was declared to be NIL qua the operational creditor like the respondent was not in relation to the arbitral proceedings pending before the Facilitation Council, but it was in relation to another arbitral proceedings. But, so far as the MSME proceedings are concerned, the same was not included in the list of the pending litigation settled as NIL.
Decision: Hon’ble High Court uphled the order passed by the Commercial Court and dismissed the Writ Petition.
Rationale:
1.Hon’ble High Court Upon reading up the various judgements, which have been cited by the parties passed by this Court as well as the Hon’ble Supreme Court, noted that if the decree/arbitral award has been passed by court which has no jurisdiction to the extent that it can be held to be void-ab-initio/nullity/suffering from inherent lack of jurisdiction on the fact of the record, such objection can be raised and entertained under Section 47 of the Code of Civil Procedure. This Court is of the considered view that under such extreme circumstances i.e., the award being nullity / void -ab-initio/ suffering from inherent lack of jurisdiction, the award does not exist in the eyes of law at all.
2.This Court is also of the considered view that what could have been a ground for challenge to award under Section 34 of the Act of 1996 and the aggrieved party having not challenged the award, cannot be permitted to object to its execution by alleging it to be a nullity or without jurisdiction unless the award suffers from inherent lack of jurisdiction apparent on the face of record and the jurisdiction error goes to the root of the matter and is apparent on the face of the records.
3.Court noted that counsel for the petitioner has not pointed out any such provision in IBC that the claims of all such persons will stand at NIL once they fall within the definition of „operational creditor‟ as defined under IBC.
4.Hon’ble court relying on clause 3.8 of the resolution plan, ,with regard to the ongoing litigation noted that what were to be settled at NIL amongst the list at annexure-3 and 5, were only the Tax related Claims or liabilities specifically set out in Annexure 3 and Annexure 5 but the claim of the respondent was enlisted at serial no. 25 in annexure- 5 under Arbitration and conciliation and cannot be termed as Tax related Claims or liabilities.
4.Court noted that argument of the petitioner that the dues of the petitioner with respect to the pending arbitral proceedings in the instant case before the West Bengal facilitation council was determined to be nil, does not find support from the approved resolution plan placed on record by the petitioner themselves.
5.In the facts of this case, there is no conflict between the proceedings/ final award passed by the facilitation council on the one hand and the manner of dealing with the claim of the respondent under IBC/ approved resolution plan on the other hand.
Order Copy:
