M/s JAI BALA JI INDUSTRIES VS. D. K. MOHANTI : CASE SUMMARY
The Supreme Court in M/S Jai Balaji Industries Vs D. K. Mohanti (2021 ) SCC Online SC 3104 reiterated that in case of Application under Section 9 IBC , the Adjudicating Authority is supposed to examine prima facie if dispute truly existed between parties and the same was not patently feeble or imaginary. The Supreme Court also held that when a suit or appeal is dismissed in default and restored , such restoration would revive the proceedings to their status before dismissal and doctrine of relation back would come into play.
FACTS OF THE CASE
Jai Balaji Industries (Appellant) is engaged in business of manufacturing sand supply of iron and steel products, having its plants in the States of West Bengal and Chhatisgarh. Orissa Minerals Development Company Ltd (Respondent Company ) agreed to supply 1 lakh and 7 lakh metric tons of iron ore per month vide two MoU dated 13.08.2003 and 11.03.2004.
Dispute ensued between the parties and appellant invoked the arbitration clause. Two arbitral awards dated 22.02.2010 and 15.02.2010 were passed in relation to respective MOUs and Respondent Company were held liable to make payment of Rs. 4.44 Crores and 2,79 Crores respectively.
Respondent Company challenged the award under Section 34 of Arbitration Act, which was dismissed. An appeal was filed under Section 37 of the Arbitration Act, which was dismissed in default. An application for restoration was filed which was allowed by High Court. Both appeals were pending before the High Court.
In the meantime the Appellant sent two demand notices under Section 8 of IBC claiming operational debts of Rs. 7,75,13, 684 and Rs. 5,62,01,258/- under respective arbitral awards. The Respondent Company replied that the matter of debt owed is sub judice and no operational debt was payable to the appellant. Subsequently, the Appellant filed two applications under Section 9 of IBC for initiating CIRP. NCLT admitted the application on the ground that no appeal under Section 37 of the Arbitration and Conciliation Act was pending before High Court. The NCLT also observed that after receipt of demand notice, the Respondent No. 2 filed restoration application before High Court only to delay the legitimate dues of the Corporate Debtor.
The Respondent No. 2 filed appeals before NCLAT wherein NCLAT observed that once appeal is restored to its original number, the interlocutory orders stood revived. Once appeal under Section 37 was restored, it related back to the original date. NCLAT held that it is a clear case of pre-existing dispute and set aside the orders of NCLAT.
FINDINGS OF THE SUPREME COURT
The Supreme Court observed that entire approach of the appellant seems to be based on misconception that IBC has provided another avenue for enforcing money recovery. IBC is a beneficial legislation to put the Corporate Debtor on its feet and not merely a recovery legislation for the creditors.
The Supreme Court relying on Mobilox Innovations Pvt. Ltd. V. Kirusha Software Pvt. Ltd. (2018) 1 SCC 353 observed that adjudicating authority was not required to examine the merit of the dispute but it was supposed to examine only prima facie if a dispute truly existed between the parties and the same was not patently feeble or arbitrary. If the answer to the aforesaid was in the affirmative, the Adjudicating Authority was required to reject the Application.
The Supreme Court also relied on K. Kishan Vs Vijjay Nirman Company Pvt. Ltd. (2018) 17 SCC 662 wherein it has been held that challenge to the arbitral award shows a pre-existing dispute which continues at least until final adjudicatory process has taken place in terms of Section 34 and 37 of the Arbitration and Conciliation Act, 1996.
The Supreme Court noted that in the instant case Appellant chose to serve notices under Section 8 of Code on 14.02.2020, arbitration award has not attained finality. Even appeals before the High Court had been dismissed in default, the Respondent Company has moved restoration with advance notice to the Appellant. On the date of issuance of demand notice, the appellant was aware that Appeal under Section 37 has not been decided and application for restoration has been moved.
The Supreme Court also observed that when a suit or appeal is dismissed in default and is restored and Court is satisfied on the cause shown for default, such restoration will revive the proceedings to their status before default dismissal, and doctrine of relation back will come into play in the manner that proceedings shall continue in their original status, unless otherwise stated fin the order of restoration or coming out by necessary implication.
The real issue in the case is about ‘pre-existing” dispute as regards money claimed by Operational Creditor. The default dismissal of appeals could only be regarded as partial eclipse, which momentarily puts the dispute in hibernation. There can be a case where restoration is declined , which might put an effective end to the dispute but when restoration of appeal is granted , it re-activates the dispute. Even pendency of an application for restoration is sufficient to bring the matter within the four corners of “pre-existing dispute”.
The NCLAT took note of the fact that Section 9 Applications, though sworn on 29.02.2020 were filed only on 02.03.2020. The NCLT failed to appreciate that on the date of filing application, appeals stood restored.
The Supreme Court affirmed the view of the NCLAT and dismissed the appeals.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.