National Company Law Appellate Tribunal, Chennai: While upholding the order passed by the Adjudicating Authority, a Division Bench comprising of M. Venugopal, J. and Ms. Shreesha Merla* (Technical Member), held that despite the presence of an arbitration clause in the agreement, there is no embargo on the Operational Creditor to file an application under S. 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
In the instant matter, the Corporate Debtor executed a ‘C&F Agreement’ (the Agreement with Respondent-Operational Creditor to act as Carrying & Forwarding Agent (C&F Agent) and sell the products for the Corporate Debtor. The respondent raised an allegation against Corporate Debtor and issue Payment Notice’ dated 28-06-2022 instead of the remedy available in the Agreement. The respondent, instead of resolving the dispute under Clause 32 of the Agreement, which is an Arbitration Clause, preferred an application under S. 9 IBC. The Adjudicating Authority vide order dated 05-01-2023 admitted S. 9 IBC application filed by the respondent. Aggrieved by the impugned order passed by the Adjudicating Authority, the appellant who is a Suspended Director of the Corporate Debtor preferred an appeal challenging the same before this Tribunal.
Moot Point–
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Whether the Corporate Debtor was given a fair opportunity to file a Counter before NCLT?
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Can Operational Creditor file an application under S. 9 of the IBC, despite the existence of an arbitration clause in the agreement?
While examining whether the Corporate Debtor was given a fair opportunity to file a counter before the Adjudicating Authority, NCLAT observed that based on the order sheet there is no substantial grounds to interfere with the impugned order as the appellants were very much aware of the matter in hand. NCLAT further observed that though the Adjudicating Authority does not have the power to review its order; it can recall the order based on the facts and circumstances of the case.
“Though, the ‘Adjudicating Authority’ does not have the ‘Power of Review’ it can, based on the facts and circumstances of the case, `Recall the ‘Order’.”
While negating appellant’s contention that the respondent instead of resolving the dispute under the Arbitration Clause of the Agreement preferred an application under S. 9 IBC, NCLAT observed that presence of an arbitration clause in an agreement does not bar an operational creditor to file an application under S. 9 IBC.
“There is no embargo on the ‘Operational Creditor’, to file Section 9 Petition, under I & B Code, 2016, even if there is an ‘Arbitration Clause’, in the ‘Agreement’.”
NCLAT dismissed the appeal on not finding any ‘illegality’ or ‘infirmity’, in the impugned order passed by the Adjudicating Authority.
[Shahi Md. Karim v. Kabamy India LLP, 2023 SCC OnLine NCLAT 180, decided on 25-01-2023]
*Judgment by Ms. Shreesha Merla
Advocates who appeared in this case :
Mr. E. Om Prakash (Senior Advocate) and Ms. Priyanka Das, Counsel for the Appellants;
Mr. Asad Hussain, Counsel for the Respondents.
