The Delhi High Court held the Petitioner meets sufficient compliance with Section 21 of the Arbitration and Conciliation Act, 1996.
The Single Judge Bench of Delhi High Court on Friday was hearing an interesting Petition and held that The petition under Section 9 of the Act of 1996 and the willingness of the respondent to resort to arbitration for the resolution of disputes was sufficient compliance with Section 21 of the Arbitration and Conciliation Act, 1996.
In the present case, the Petitioner filed an Application under section 9 of IBC and simultaneously filed an Application under section 9 of the A&C Act, 1996. Besides, Another Petition was also filed under section 9 of the A&C Act, 1996 for the attachment of the amount of Rs. 2,58,03,143/- lying in hands of Respondent No. 2, who was indebted to pay the amount in order to enable Respondent No. 1 to release the amount in favour of the petitioner.
Facts:
It was an admitted case that Respondent No. 2 (AWHO) had awarded a Contract dated 11.03.2011 for the construction of Twin Tower residential accommodation at Greater Noida. It was also not in dispute that the respondent vide Work Order dated 19.12.2011 awarded the electrical work to the petitioner. The petitioner has asserted that as per its Ledger Account, a sum of Rs. 59,76,574/- along with interest @ 24% was liable to be paid by the respondent and in terms of Clause 13 of the Work Order dated 19.12.2011, the matter is referred to the arbitration.
Respondent's Submission:
The respondent in its Reply has taken preliminary objection that the matter has already been submitted before the NCLT, Mumbai under Section 9 of the Insolvency and Bankruptcy Code, 2016 as an Operational Creditor. It is a trite law that proceedings under Section 9 of the Code can be initiated only when the disputes between the parties are non-arbitrable. Hence, the petitioner has expressly rejected any remedy available under the Arbitration Agreement.
The Counsel for the Respondent submitted that the petitioner in its rejoinder had specifically stated that "there were absolutely no disputes between the parties but the Corporate Debtor has delayed the release of payments to the petitioner." There was a clear admission on behalf of the petitioner that there were no disputes between the parties for arbitration and therefore, the present petition was not maintainable.
The Counsel for the Respondent further submitted that according to Clause 13 of the Work Order which contains the mechanism for dispute resolution, the first step was mutual discussion and thereafter the matter was to be referred to the Regional Head and in case the disputes were still not resolved, the matter could be referred to the arbitration. The petitioner had failed to follow the pre-conditions for referral of disputes to the Arbitration and therefore, the petition was not maintainable.
The respondent has further asserted that the mandatory Notice under Section 21 of the Act invoking the arbitration has not been served upon the respondent to date. Only a Demand Notice dated 19.04.2019 under Rule 5 of the Code, 2016 had been served upon the respondents expressing its intent for initiating the corporate insolvency resolution process. It has chosen to approach the NCLT. The petitioner has not specified the date on which arbitration was invoked as per the provisions of the Act which was in contravention of the law as laid down by the Courts. In the absence of the Notice of Invocation of Arbitration, the present petition was liable to be dismissed.
The Counsel for the Respondent submitted that the petitioner was required to approach the respondent for reconciliation of accounts but the petitioner to date has not submitted the Final Bill and any reference to it in the present petition, was denied.
It was further asserted by the Respondent that the petitioner has been continuously resorting to various Demand Notices to the respondent and Letters to Respondent No. 2 before various Courts and has been filing petitions before various forums of law submitting the claims indifferent amount. It is a clear indication that the petitioner is resorting to forum shopping and his acts are mala fide. It was re-asserted that there is no arbitrable dispute and the present petition was liable to be dismissed.
Analysis:
The first objection taken on behalf of the respondent was that there were no arbitrable disputes between the parties. A reference has been made to the rejoinder filed by the petitioner in its petition before the NCLT wherein it was asserted that there are no arbitrable disputes and had claimed that the debt amount was liable to be paid by the respondent.
Learned counsel on behalf of the respondent has argued that a petition before the NCLT was maintainable only in cases of disputes in respect of determining undisputed amounts as debts. Since the petitioner itself has chosen to invoke the jurisdiction of NCLT, it was quite evident that there were no arbitrable disputes and the present petition was not maintainable.
It is a settled proposition of law that the jurisdiction of NCLT can be invoked only in respect of determining debts. However, merely because a petition has been filed by the petitioner asserting that a definite amount was payable by the respondent, would not imply that the claimed amount has been admitted by the respondent but was only expressing its inability to be able to pay the claimed amount. The Respondent has consistently taken a stand in its Reply dated 08.05.2019 to the Demand Notice and in the other proceedings including the Section 9 petition as well as in the reply to the present petition that the amounts have been claimed by the petitioner wrongly and the same were not due and payable by the respondent.
In the present case, though a proceeding may have been initiated by the petitioner before the NCLT asserting that there is an admitted debt as has been pointed out by the respondent, a mere assertion would not make it into an admitted liability especially when the respondent has been refuting it at every forum and in every proceeding.
The High Court noted that it was quite evident that there was a consistent stand of the respondent challenging the amounts claimed by the petitioner. Clearly, there were arbitrable disputes in regard to the claimed amounts and the objection taken by the respondent in regard to the non-existence of arbitrable disputes, was not tenable.
The High Court has taken notice that different amounts have been claimed by the petitioner in different proceedings. The claim before the MSME forum was of Rs.20.87 lakhs while under Section 8 of IBC it was Rs. 99 lakhs. In the present case, the claim has been made for Rs. 2.50 crores. It was quite evident from the fluctuating amounts that nothing was due and it was only forum shopping which was being indulged in by the petitioner.
It can be seen from the various proceedings which have been initiated by the petitioner that different amounts had become due and payable at different times and also interest component which was being claimed, was a variable. The petitioner has given an explanation for claiming the amounts before various forums depending upon when it had approached that particular forum. Merely because the petitioner has approached different forums for redressal of its claims, cannot be said to be a ground to hold that this was a case of forum shopping. Each of the provisions invoked by the petitioner has its own individual scope and it cannot be said that resorting to one has the effect of ousting the other forums or that it was a case of forum
shopping.
According to Clause 13 of the terms of the Contract, all disputes or differences of opinion on account of the interpretation of clauses, technical specifications, etc. were to be first resolved through direct and mutual discussions at the site level. In case the difference of opinion still persisted, the matter was to be referred to Regional Head and even if thereafter the parties failed to reach an amicable settlement, the matter was to be referred to Arbitration. It may be observed that the mutual discussions and referral to Regional Head essentially pertained to differences/disputes in regard to the interpretation of clauses, technical specifications, etc. The dispute between the parties arose in regard to the payments and not in respect of any technical specifications. Moreover, the petitioner had also approached MSME Samadhan for the resolution of disputes. Therefore, it cannot be said that the procedure as prescribed under Clause 13 of the terms of the Contract was not followed by the petitioner.
The High Court observed that the respondent vide its reply dated 08.05.2019 disputed the claim of the petitioner and asserted that there were pre-existing disputes and differences between the respondent and the petitioner with respect to the work and the quality of work as well as non-performance by the petitioner and in respect of several deductions and debits to be made from the bills of the petitioner. It was also claimed that the respondent had caused severe losses and damages which have already been communicated to the petitioner.
In the present case, the scope of enquiry in the proceedings before the NCLT and before the Arbitrator is absolutely distinct. Merely because the petitioner approached NCLT before seeking an appointment of Arbitration, it cannot be said that he was indulging in Forum Shopping.
The High Court noted that it needed to be considered if the petitioner has met the prerequisite requirement of service of Notice under S.21 of the Act. First and foremost, the intention of approaching the appropriate forum for recovery of its claims had been indicated in the Demand Notice itself. It was also stated that in case the claims of the petitioner were not satisfied, it would be compelled to approach the NCLT. In response thereto, the respondent had clearly indicated that there was no ground to approach the arbitration or NCLT. It was quite evident that from the Notice and the Reply thereto, the intention of invoking the legal proceedings which included arbitration was expressly conveyed. The sole purpose of Section 21 is to put a party to notice the intention of approaching the arbitration which was sufficiently conveyed through the Demand Notice and the reply of the respondent.
Even if for the sake of arguments, it was accepted that the Demand Notice failed to meet the requisite requirements of Section 21 of the Act, it cannot be overlooked that in the proceedings under Section 9 vide Order dated 21.10.2020, the respondent had agreed to the referral of the disputes between the parties to the arbitration. The petition under Section 9 of the Act and the willingness of the respondent to resort to arbitration for the resolution of disputes was sufficient compliance with Section 21 of the Act.
The objection now being taken on behalf of the respondent of there being no proper Notice under Section 21 of the Act, loses its significance in view of the proceedings that have transpired between the parties.
The High Court noted that prima facie, it has been shown that there were arbitral disputes between the parties and in terms of Clause 13 of the Work Order dated 19.12.2011, the disputes between the parties were referable to Arbitration.
Thus, the Petition under Section 11 of the Arbitration and Conciliation Act, 1996 was allowed.
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