K. KISHAN versus M/S VIJAY NIRMAN COMPANY PVT. LTD.

Citation: [2018] 10 S.C.R. 959 · Decided: 14-08-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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959
K. KISHAN
v.
M/S VIJAY NIRMAN COMPANY PVT. LTD.
(Civil Appeal No. 21824 of  2017)
AUGUST 14, 2018
[R.F. NARIMAN AND INDU MALHOTRA, JJ.]
Insolvency and Bankruptcy Code, 2016: s.9 – Invocation of
the Code in respect of an operational debt where an arbitral award
has been passed against the operational debtor which has not yet
been finally adjudicated upon – Arbitration award in favour of
respondent – Notice under s.8 of the Code sent to KCPL to pay the
award amount – Within 10 days, KCPL disputed the invoice and
filed s.34 petition – Thereafter, respondent filed petition under s.9
of the Code – Held: Under the Code, insofar as an operational
debt is concerned, all that has to be seen is whether the said debt
can be said to be disputed – Filing of s.34 petition against an Arbitral
Award shows that a pre-existing dispute which culminates at the
first stage of the proceedings in an Award, continues even after the
Award, at least till the final adjudicatory process under ss.34 and
37 has taken place – Operational creditors cannot use the
Insolvency Code either prematurely or for extraneous
considerations or as a substitute for debt enforcement procedures –
The Code cannot be used in terrorem to extract an amount even
though it may not be finally payable as adjudication proceedings
in respect thereto are still pending – The object of the Code, at least
insofar as operational creditors are concerned, is to put the
insolvency process against a corporate debtor only in clear cases
where a real dispute between the parties as to the debt owed does
not exist – A reading of s.9(5)(ii)(d) of the Code shows that an
application under s.8 must be rejected if notice of a dispute has
been received by the operational creditor – In the instant case, the
entire basis for the notice under s.8 of the Code was the fact that an
Arbitral Award was passed against the appellant and reply to the
notice was given within 10 days, raising the existence of a dispute –
The counter claims were rejected by the Arbitral Tribunal, which
rejection was also the subject-matter of challenge in s.34 petition –
Unlike counter claim nos. 1 and 2, which were rejected by the
959
[2018] 10 S.C.R. 959
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960
SUPREME COURT REPORTS
[2018] 10 S.C.R.
Arbitral Tribunal for lack of evidence, counter claim no.3 which
raised huge amount was rejected on the basis of a price adjustment
clause on merits – Therefore, it cannot be said at this stage of the
proceedings, that no dispute existed between the parties.
Insolvency and Bankruptcy Code, 2016: s.238 – Non-obstante
clause – Held: s.238 of the Code would apply in case there is an
inconsistency between the Code and the Arbitration Act –  In the
instant case, there is no such inconsistency – On the contrary, the
award passed under the Arbitration Act together with the steps taken
for its challenge would only make it clear that the operational debt
happens to be a disputed one – Appellate Tribunal, when it relied
upon Form V Part 5 of the 2016 Rules to state that the operational
debt would, therefore, be said to have been proved, missed the vital
sub-clause (iii) in para 34 of Mobilox Innovations case – Arbitration
and Conciliation Act, 1996.
Allowing the appeal, the Court
HELD: 1. Operational creditors cannot use the Insolvency
Code either prematurely or for extraneous considerations or as
a substitute for debt enforcement procedures. The alarming result
of an operational debt contained in an arbitral award for a small
amount of say, two lakhs of rupees, cannot possibly jeopardize an
otherwise solvent company worth several crores of rupees.  Such
a company would be well within its rights to state that it is
challenging the Arbitral Award passed against it, and the mere
factum of challenge would be sufficient to state that it disputes
the Award.  The object of the Code, at least insofar as operational
creditors are concerned, is to put the insolvency process against
a corporate debtor only in clear cases where a real dispute
between the parties as to the debt owed does not exist. [Para 13]
[969-G-H; 970-B]
Mobilox Innovations Private Limited v. Kirusa Software
Private Limited (2018) 1 SCC 353 – relied on.
Re A Company - Victory House General Partner Ltd. v.
RGB P & C Ltd. [2018] EWHC 1143 (Ch) ; Re Bayoil
SA [1999] 1 WLR 147; Lim PohYeoh (alias Lim Aster)
and TS Ong Construction Pte Ltd. [2016] SGHC 179;
LKM Investment Holdings Pte Ltd. v. Cathay Theatres
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961
Pte Ltd. [2000] SGHC

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