Status as on- 06/07/2020
The Hon’ble Supreme Court in K Kishan v Vijay Nirman Company Private Limited denied the holder of Arbitral Award to proceed as Operational Creditor and initiate CIRP. However, in a strange turn of events the National Company Law Tribunal has paved the way for operational creditors to revive their debt and proceed as decree holder.
The recovery of time-barred debt was a challenging task up until now. The NCLAT has however provided a new way or change in basic assumptions for the operational creditors. It has in the matter of G. Shivramkrishna vs Isgec Covema Ltd. & Anr went on to lay down the mechanism to be followed to proceed as decree holder before the NCLT to institute insolvency proceedings under Section 9 of the IBC.
Factual Matrix of the Case
The appeal challenged the order dated 16th September, 2019 passed by the National Company Law Tribunal, Hyderabad in CP(IB) No. 277/9/HDB/2019 whereby it admitted the petition filed by M/s Isgec Covema Limited (Operational Creditor) under Section 9 of the code. This resulted in the institution of insolvency proceedings against G. Shivramkrishna vs Isgec Covema Ltd. & Anr (Corporate Debtor). The NCLAT was faced with the question of determining-
- Can an Operational Creditor Proceed with an Arbitral Award proceed as a Decree Holder?
- The period of limitation will be computed from which date in that case?
The NCLAT while determining the above-mentioned question answered as follows:
- The appellate forum answered the first question in affirmation by concluding that the word ‘Creditor’ as defined under Section 3(10) of IBC includes a secured creditor and unsecured creditor and a decree-holder. Therefore, the operational creditor can proceed as decree holder. Further it went on to explain that the Arbitral Award means that the amount has been crystallized and by default in payment and by not honoring the Award, the amount became due and payable.
- On dealing with the second question the NCLAT concluded that the period of limitation would be computed from the date of conclusion of the final adjudicatory process. This brought the NCLAT to conclusion that in case of an Arbitral Award where appeal is preferred and Order is passed under Sec. 34 of the Arbitration and Conciliation Act, 1996. The period of limitation would commence from expiry of period as provided under Article 116 of the Limitation Act of preferring Second Appeal under Sec. 37 of the Arbitration Act before the Hon’ble High Court.
The observation made by NCLAT adds another dimension to the recourse available to Operational Creditor under Insolvency and Bankruptcy Code, 2016. It provides them an option warranted by a precedent to enforce the recovery of any amount due by way of Arbitral Awards. To proceed this way would mean to proceed as a decree holder. It also provided the clarity on point that right to sue therefore accrues when a default occurs. Thus, when a second appeal lies from an Order it would accrue only expiry of the period of limitation to prefer the appeal.
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