Will the claim of the awardee be extinguished upon approval of the award debtor’s resolution plan under the IBC? Yes, rule the High Court of Calcutta

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The Calcutta High Court on Friday settled an important arbitration law issue, to know, whether the claim of a beneficiary of an arbitration award would be extinguished upon approval of a resolution plan for the recovery of the debtor from the award, when he was not pressed during the process of resolving the award. corporate insolvency (CIRP).

Based on the Supreme Court decisions of 2020, Judge Moushumi Bhattacharya judged that the complaint would be extinguished once the resolution plan has been accepted by the National Company Law Tribunal.

Judging in this sense, the Court observed,

“This can be seen as a necessary and inevitable consequence of the IBC in order to avoid, in the words of the Supreme Court, that a ‘hydra head’ arises” and makes the management of the affairs of a debtor company uncertain. by a resolution requester. Essentially, an operational creditor who does not file a claim with the CIRP has literally failed to get on the claims bus for seeking the fruits of an award, even when a challenge to the award is pending in a civil court. “

Facts

An award debtor requested the High Court to withdraw its earlier claim to the High Court under section 34 of the Arbitration and Conciliation Act (Arbitration Act). In 2008, the Debtor Award requested the Court to quash an arbitration award issued on July 7, 2008.

Declaring that the procedure under Article 34 was unsuccessful, the debtor of the auction asserted that the claim of the owner of the auction is extinguished upon the approval of the resolution plan which entrusted the control of the debtor of the auction. adjudication to another entity. The CIRP leading to the Resolution Plan lasted from September 18, 2017 to May 16, 2018.

Senior lawyer Jishnu Saha for the debtor of the award / the claimant invoked Essar Steel India Limited Creditors Committee v. Satish Kumar Gupta claim that all existing claims against the judgment debtor are extinguished upon approval of the resolution plan.

Lawyer Sudip Dev, who represented the Award Holder / Respondent, said the same arguments were made by the Award Debtor twice also in 2020, when they sought to withdraw their request to quash the arbitral award. He argued that res judicata would apply since the facts were the same.

Counsel Dev also argued that, according to the law in effect prior to the 2016 Amendment to the Arbitration Law, once a Section 34 claim is made, the arbitration award is automatically suspended. Therefore, there was no “claim” within the meaning of the Insolvency and Bankruptcy Code that the holder of the stock exchange could assert before the insolvency resolution professional, he said. .

How the Court Applied Essar Steel and Ghanshyam Mishra

The Court first considered whether the principle of res judicata would apply since the applicant had applied to the tribunal with the same prayer in a previous proceeding.

Judge Bhattacharya, in her judgment, limits the functioning of res judicata asserting that the principle should be “Read in the appropriate cases where the orders are likely to be modified or modified with the emergence of new facts or new situations”.

Highlighting two Supreme Court decisions issued following the applicant’s earlier dispute, Essar Steel India Limited Creditors Committee v. Satish Kumar Gupta, Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited.

In Essar, the Supreme Court said that a resolution plan, once approved under Article 31 of the IBC, binds the debtor company and its employees, members, creditors, guarantors and other stakeholders, stressed the Court. Ghanshyam adopted the principle set out in Essar, further specifies the stop.

Justice Bhattacharya explained that the view of the Supreme Court in these cases was that the successful resolution applicant who takes over the business of the debtor company must begin to manage the business of the debtor company on a “fresh slate“.

Since there had been a significant change in law between the applicant’s earlier dispute and the case at issue, the Court held that res judicata would not apply.

The judgment specifies,

“A decision-making process must be in phase with a legal dynamic landscape shaped by legislative interventions and judicial decisions. The most predictable aspect of the law is its constant evolution. So it would be show judicial myopia, even stubbornness, in sticking to an opinion when the law, in the meantime, has turned into a different avatar. “

The Court goes on to say: “The principle is essentially to protect the court against abuse of process when the same issue, which had been heard and ultimately decided by a court, is again contested between the same parties. This is different from the present case because the question of the maintainability of the request under article 34 of the law of 1996 can be examined at any time on the legal aspect and in particular on the issuance of a relevant decision. in the matter. “

Has the scholarship holder been prevented from asserting his request in light of the former “automatic suspension” of scholarships after submitting a request under Article 34

On the question of whether an automatic stay of enforcement of an arbitral award prevented the holder of the respondent award from making its claim, the Court relied on Cricket Control Board in India v. Kochi Cricket Private Limited & Ors. argue that this would not be the case. In BCCI, the Supreme Court ruled that pending section 34 applications would be governed by amended section 36, which removed the “automatic stay” that existed before the amendment.

Since the award under Article 34 of the awarded debtor was pending during this period and the CIRP was pending, the scholarship holder could have asserted its claim during the CIRP under the CIRP Regulations, the court concluded.

“These facts show that from the date of admission of the request for the opening of the CIRP against the applicant, namely 18e September 2017 until the approval of the resolution plan on 16e May 2018, the respondent, as the winner had sufficient opportunities to approach the NCLT for an appropriate remedy… The holder of the scholarship was therefore under the obligation to take active measures under the IBC instead of waiting for the judgment of the claim under Article 34 of the Law of 1996. “

These are further observations which the Court makes at the end of the judgment, on whether or not the application should be considered under Article 34 –

“Any litigant has the right to assert that an action brought in a a court or a statutory forum cannot be maintained because of the law existing on that date. A challenge to the maintainability of an action must be examined by the court before deciding the dispute on the merits on the background. A court must also decide whether the argument relating to maintainability is such that the whole procedure is rendered unsuccessful. This procedure is precisely a case in which to decide on the merits of the claim, i.e. whether the award should be set aside or supported, would be a total waste not only of judicial time the parties since the claim of the Holder of the scholarship was approval of the resolution plan under Article 31 of the IBC. A new decision on the legality of the Award under appeal cannot lead to its logical conclusion and would therefore be irrelevant. The parties would not be forced to follow the path of the rest of the proceedings (appeal, execution etc.) without a final point in dispute resolution or any consequence relief to either party. This certainly cannot be the goal of any proceedings in any court. “

Under these conditions, the section 34 request was deemed unsuccessful.

CASE: Sirpur Paper Mills Limited v. IK Merchants Pvt. Ltd. (formerly IK Merchants)

LAWYER: Senior lawyer Jishnu Saha, lawyers Sakabda Roy, Trisha Mukherjee for the applicant. Takes Mr. Sudip Deb, Deepak Jain and R. Ghosh for the respondent.


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