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IBCInsolvency & Bankruptcy CodeWhether the IBC proceedings can be invoked where there is a dispute regarding the existence of the debt (IBC)

June 15, 2019by GLC & Partners

dispute

In the case of Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors & Cables Ltd.( CIVIL APPEAL NO. 9597 OF 2018) the Hon’ble Supreme Court dismissed the order of the NCLAT since there was no debt payable in law.

The facts of the case were that the Appellant i.e. Transmission Corporation of Andhra Pradesh Government awarded contracts to the Respondent i.e. Equipment Conductors and Cables for supply of certain goods and services. Later some disputes arose, and the Respondent initiated arbitration proceedings. Of the 82 claims which were filed the Arbitration Council found that Invoice Nos. 1-57 were not payable as they were time barred and  for Invoice Nos. 58- 82 they passed an award in favour of the Respondent. The Respondent then filed an application under section 34 of the Arbitration and Conciliation Act before the Additional District Judge, Chandigarh. The District Judge passed an order remanding the case back to the Arbitral Council for fresh decision[1].

The order was appealed by the Appellant in the Hon’ble High Court of Punjab & Haryana which allowed the appeal and set aside the order of the District Judge. The Respondent then filed an application for clarification/review which was later dismissed. The Appellant then filed an application for clarification of the order of setting aside the order of the Additional District Judge which was later dismissed by the Hon’ble High Court. The Respondent then filed a petition for execution of the arbitral award for Invoice Nos. 58-82 which was allowed. However, they later filed an execution petition for Invoice Nos. 1-57. This was allowed and both petitions were directed to be dealt simultaneously vide orders dated August 17, 2016. The order was challenged by the appellant by filing a Revision Petition before Hon’ble High Court of Judicature at Hyderabad. The Hon’ble High Court allowed the same and held that there was no award in respect of Invoice Nos. 1-57 and therefore it was not permissible for the Respondent to seek execution.[2]

The Respondent then approached the NCLT(Hyderabad Bench) under section 9 of the IBC stating that they served a demand notice and claimed an amount of Rs. 45,69,31,233/-. The petition was dismissed by the NCLT. Against this order they filed an appeal before the NCLAT. The NCLAT without going into the merits of the case held that the amount was payable and stated that a chance to be paid is being given and upon non-payment an order will be passed.

The contention of the Respondent that the Hon’ble High Court of Punjab and Haryana while setting aside the order of the Additional District Judge did not hold the Invoices as time barred and therefore, they had a valid claim cannot be accepted. The Arbitral Council rejected the claim and held that there was no award with respect to Invoices Nos. 1-57.  There is no order of any other court as well qua these invoices.[3] The Hon’ble High Court of Judicature at Hyderabad also held that there was no amount payable as it was time barred.

In the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited[4] the Hon’ble Supreme Court held that the IBC is not intended as a substitute to a recovery forum.

As the debt was time barred the respondent had no right to claim the amount. The Hon’ble Supreme Court held that NCLT was justified in its order and dismissed the Company appeal filed before the NCLAT.

[1] CIVIL APPEAL NO. 9597 OF 2018

[2] CIVIL APPEAL NO. 9597 OF 2018

[3] CIVIL APPEAL NO. 9597 OF 2018

[4] (2018) 1 SCC 353