DLF LTD. Vs. IL&FS ENGINEERING AND CONSTRUCTION COMPANY
ARB.P. 1166/2021
Facts:
1.Petitioner entered into cost sharing agreement with Haryana Urban Development Authority (“HUDA”, hereinafter), for external development works for improvement of certain road networks in Gurgaon. The respondent presented itself as a prominent infrastructure development company to the petitioner and based on its representation, the petitioner awarded development works to be carried out
2.Petitioner entered into a separate contract agreement dated June 21, 2012 (“contract”, hereinafter) with the respondent. The term of the contract period was for 24 months and total price of the contract was ₹394,30,00,000/-. However, the said project was not completed because of various defaults on the part of the respondent. A major portion of the works were de-scoped, vide agreement dated May 11, 2018 as the respondent was unable to complete the work on time and further did not carry out the maintenance works; which in terms of the contract, the respondent was liable to do for five years. In november dispute arose between the parties in relation to certain works to be completed / rectified by the respondent with respect to the construction of a culvert near AIT Chowk and Belmonte of HUDA sector road.
3.In the meanwhile UOI filed application before NCLT for praying for stay of institution of suits and arbitral proceedings against IL&FS and its group companies which was declined by the NCLT. Appeal before NCLAT was filed where NCLAT granted stay. Subsequently, the respondent issued a demand notice dated July 15, 2019 under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to the petitioner herein for an amount of ₹32,44,52,926/- which petitioner disputed the claim and denied the existence. On December 02, 2019, the respondent filed a petition against the petitioner under Section 9 of the IBC.
4.On March 05, 2021, the petitioner issued a notice under Section 21 of the Act of 1996 and invoking Clause 20.2 of the
Contract, which deals with Dispute Resolution Procedure and proposed three name of the arbitrator and requesting the respondent to revert within 30 days and respondent stated that the invocation of arbitration is impermissible, inter alia in view of the order dated October 15, 2018 passed by the NCLAT. Petitioner filed this present application for appointment of arbitrator.
5.Petitioner filed reply and contended that there was a pre-existing dispute between the petitioner and the respondent and therefore, the NCLT ought to dismiss the petition and also stated that has filed an application under Section 8 of the Act of 1996 for referring the parties to arbitration.
Issue: Whether the petition is liable to be admitted?
Arguments:
For Petitioner:
1.Counsel for the petitioner contended that the moratorium given by NCLAT vide order dated October 15, 2018 and confirmed by the subsequent order dated March 12, 2020, is not a statutory moratorium under Section 14 of the IBC. In fact, the resolution of IL&FS is not being conducted under the IBC at all but is being done pursuant to the provisions of Sections 241 and 242 of the Companies Act, 2013. The rigours of Section 14 of the IBC are not attracted to the present case at all and this is what distinguishes the present case from a case where a company claims immunity from proceedings on the basis of a statutory provision i.e., Section 14 of the IBC
2.He has also stated that in the scheme of hierarchy NCLAT is subordinate to the High Court and the High Court would exercise supervisory jurisdiction over it. Therefore, NCLAT could not have passed the orders effectively restraining institution and continuation of proceedings before the High Court. He further submitted that the cut-off date for the claims in the resolution process being October 15, 2018, only claims upto that date could be resolved in the resolution process of the respondent. Claims that arise post October 15, 2018 are per se outside the resolution framework of IL&FS. Denying the petitioner its right to arbitrate would result in the petitioner being left remediless.
3.He further contended that the process being followed in the present case is for the sale of the paid-up capital of the respondent held by IL&FS and another IL&FS group company called ILFS Financial Services Limited (IFIL) on a Swiss Challenge Method. Further, even the distribution of the proceeds to be received from the sale of such shares is not to be distributed as is usually done in any IBC case i.e., as per the approved Resolution Plan and the mandate of Committee of Creditors but in a sui generis method. The only commonality between the process under IBC and the IL&FS resolution framework is that there is a clear cut-off date.
4.The claims of the petitioner against the respondent which pertain to or arise after October 15, 2018 are per se outside the resolution framework of IL&FS. Thus, the argument that the issue whether the claims post October 15, 2018 will survive or not will only be known after the completion of resolution of IL&FS, is an attempt to non-suit the petitioner from maintaining its legal claims against the respondent after October 15, 2018.
5.He submitted that in view of the resolution framework and the invitation of claims, the petitioner, without prejudice to its rights and contentions, submitted its claims against the respondent up to October 15, 2018, before the CMA. The CMA has vide email dated June 15, 2022 stated that these claims are already part of arbitration and will be subject to adjudication pursuant to arbitration. The petitioner cannot make a monetary claim under Section 9 of the IBC and the same could only be done in arbitration
For Respondent:
1.Counsel appearing for the respondent has stated at the outset that the instant proceedings is merely an afterthought and a device to thwart the proceedings which have been initiated by the respondent against the petitioner under Section 9 of the IBC, pending before the NCLT, Chandigarh. petitioner has invoked arbitration vide notice dated March 5, 2021, i.e., fourteen months after the NCLT had issued notice in the proceedings under the Section 9 of the IBC. The petitioner also lodged its claims before the CMA on September 24, 2021 by which time the deadline of lodging claims had already concluded. If the intent of the petitioner was not to thwart the proceedings under Section 9 of the IBC and the claims where genuine, it would not have delayed lodging its claims with the CMA.
2.He has also stated that the petitioner cannot short-circuit the moratorium merely because it believes it has claims after the cut-off date. The objective of the resolution process is to arrive at a plan to bring the corporate debtor back into the economic mainstream so as to be able to repay its debts. Therefore, the fate of the petitioners claims post October 15, 2018 can only be decided once a resolution plan of the respondent is finally approved and takes effect.
Decision: Petition was dismissed as non maintainable.
Rationale:
1.Submission that „moratorium‟ granted by the NCLAT is not a statutory moratorium under Section 14 of the IBC and resolution of IL&FS is not being conducted under the IBC, but under Sections 241 and 242 of the Companies Act, 2013 and as such the rigours of Section 14 of the IBC are not attracted to the present proceedings. The challenge to the order dated March 12, 2020 of the NCLAT is pending consideration before the Supreme Court, and as such this Court cannot advert to the legality of the order of the NCLAT
2.The matter being lis pendens before the Supreme Court, it is not for this Court to sit in appeal and comment on the veracity of the order passed by the NCLAT, more so in a petition under Section 11 of A&C act 1996. The purpose and rationale behind granting a moratorium is to ensure that the assets of the corporate debtor are protected, with an intention to keep the company a going concern and to use the period to strengthen its financial position. It means, the intent of the order of the NCLAT is to protect the assets of IL&FS and its group companies in order to make the resolution process effective/purposeful
Order:
