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NCLT jurisdiction in directing parties to go for arbitration.
NCLT in the case of Sodexo India Service (P) Ltd. v. Chemizol Additives (P) Ltd.[1], observed that the “I&B Code would not permit the Adjudicating Authority to make a roving inquiry into the aspect of solvency or insolvency of the Corporate Debtor except to the extent of the Financial Creditors or the Operational Creditors, who sought to trigger of Corporate Insolvency Resolution Process.”
Bench notes that the appellant's application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 has not been admitted or rejected by the Adjudicating Authority (NCLT, Bengaluru Bench).
Adjudicating Authority disposed of the application directing the respondent to make efforts to resolve an outstanding debt, failing which the appellant would be at liberty to invoke the arbitration clause in the Agreement.
The above finding of the Adjudicating Authority was found to be unique and not in conformity with the provisions embodied in Section 9 (5) of the I&B Code. Hence it cannot be supported.
Section 9(5) of the I&B Code, 2016:
“9(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order—
(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,—
(a) the application made under sub-section (2) is complete;
(b) there is no repayment of the unpaid operational debt;
(c) the operational creditor has delivered the invoice or notice for payment to the corporate debtor;
(d) , the operational creditor has received no notice of dispute, or there is no record of conflict in the information utility; and
(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any.
- ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if—
(a) the application made under sub-section (2) is incomplete;(b) there has been repayment of the unpaid operational debt;(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor, the operational creditor has received (d) notice of dispute or there is a record of conflict in the information utility; or(e) any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating authority.”
The above provisions state that the adjudicating authorities have two options: accepting the application or rejecting the same.
Tribunal further added to its reasoning that.
“In absence of pre-existing dispute having been raised by the Corporate Debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt, in respect whereof, Corporate Debtor was alleged to have committed default, the Adjudicating Authority would not be justified in concluding in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the Appellant.”
Adjudicating Authority landed in error by observing that the course adopted by it was warranted on the principle of ease of doing business, ignoring the fact that such approach was not available to it, ease of doing business only being an objective of the legislation.
Hence, while allowing the appeal and setting aside the impugned order, Tribunal directed the Adjudicating Authority to pass an admission order.
[1] 2021 SCC OnLine NCLAT 18.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre shall not be responsible for any errors caused due to human error or otherwise.
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