The Honorable National Company Law Appellate Tribunal on July 31, 201726 ruled that mere clause of arbitration in an agreement cannot be termed to be an existence of dispute, the dispute under Section 9(5) of the Insolvency and Bankruptcy Code, 2016 hereinafter referred as "code" can be acceded only when arbitration is pending before the Arbitral Tribunal.

BACKGROUND

Achenbach Buschhutten GmbH & Co, the operational creditor hereinafter referred as "ABG" filed an application before Hon'ble NCLT, Chandigarh under Section 8 of the code against Arotectch Limited, the corporate debtor hereinafter referred as "AL" for a debt amounting to Rs. 31,41,13,436. It was noticed by Hon'ble NCLT that ABG filed statement validating debt from Landesbank Baden-Wurttemberg hereinafter refereed as "LBW", a German financial institution as the company was incorporated in Germany but no affidavit from the authorized petitioner of the representative was filed in support even after the 7 days rectification period provided under Section 9(5)(ii) of the code and further a notice invoking arbitration has been served by AL which substantiates dispute hence on the abovementioned grounds the application got rejected. The NCLAT affirmed the order passed by NCLT, Chandigarh but on alternated grounds.

ANALYSIS

The NCLAT after relying on judgment of Honorable Supreme Court27 ruled that Section 9(3) of the Code is a mandatory provision and the same is not complied by ABG as-

  • LBW, a foreign entity is neither a bank in accordance to Section 45-I of Reserve Bank of India Act, 1934 nor a financial institution in consonance to Section 2(72) of the Companies Act, 2013 and a record from either of them is de rigueur relying on Macquarie Bank Limited v. Uttam Galva Metallics Limited.28
  • An arbitration agreement which can be invoked later cannot be taken up as an existence of dispute overruling the grounds taken up by NCLT, Chandigarh.

CONCLUSION

The Honorable National Company Law Appellate Tribunal thereby has bought clarity in construing dispute when there is a pending Arbitration agreement thereby an Arbitration agreement won't come under dispute until it has commenced and further a foreign financial institution or foreign bank cannot verify debt claims under the code.

Footnotes

26 26 Achenbach Buschhutten CmbH & Co V. Arcotech Ltd, Company Appeal (Insolvency), No 97 of 2017, July 31, 2017

27 State of Mysore v. V.K Kangan, (1976) 2 SCC 895, August 21, 1975

28 Company Appeal (Insolvency), No 96 of 2017, July 17, 2017

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