Decided on 28October 2022 | National Company Law Tribunal, Kolkata
Facts of the case
A company petition was filed by Trans Sea Transport B.V. under section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC“) for initiation of a Corporate Insolvency Resolution Process (“CIRP“) against Lords Polymer [India] Private Limited (“Corporate Debtor/CD“) before National Company Law Tribunal, Kolkata Bench (“NCLT“).
Operational Creditor (“OC“) contents that CD entered a Fixture note and charter party with OC for the vessel M.V. Dokos (“the Vessel“). CD then proceeded to unilaterally rescind the Charter Party because they received an offer of lower freight from the owners of the Vessel, this unilateral termination of agreement by CD led to a dispute between the CD and OC. To resolve the dispute arbitration proceedings were initiated and an Arbitration Award was passed upholding the OCs claim along with interest. Thereafter, the CD failed to pay the amount awarded to the OC.
CD on the other hand contents that the OC is a foreign company with which it has never entered into any agreement or charter party agreement. They had, however approached the OC with a proposal and negotiations began. These negotiations did not materialise into a binding agreement between the parties. The application filed by OC does not disclose any operational debt. Further, the present application was filed on basis of the New York convention award which has not been declared as enforceable under Arbitration and Conciliation Act, 1996. It has been argued that the said claimant can’t be considered as an OC under IBC.
Further, the enforceability of an award that was passed in the absence of any valid and binding charter agreement itself is the subject of dispute in the arbitration proceedings. Thus, in view of this fact the foreign award without analysing its enforceability can not be a binding decree of the court.
NCLT boiled down the issue of initiation of CIRP against CD based on a foreign award. Relying on judgments passed by the Apex Court in Government of India v. Badanta Limited 2020 SCC OnLine SC 749 wherein it was laid down that a foreign award is not a decree by itself which is executable under Section 49 of the Arbitration and Conciliation Act, 1996 (“ACA“). The enforcement of the said award takes place only after the court is satisfied that the foreign award is enforceable.
In a similar case of Usha Holdings LCC & v. Francorp Advisors Pvt. Ltd. Comp App No. 44 of 2018 dated 30 November 2018 in which the National Company Law Appellate Tribunal (“NCLAT“) held that the NCLT with respect to IBC is only an Adjudicating Authority and not being a Court or ‘Tribunal’ and an ‘Insolvency Resolution Process’ is not litigation, thus, it has no jurisdiction to decide the legality of the foreign decree and findings by NCLT on legality and propriety of foreign decree in question being without jurisdiction is null as per law.
Further, for the enforcement of foreign award in India, an enforcement/ execution petition is required to be filed before the Hon’ble High Court (“HC“), as per the amendment to section 47 of ACA. This process of execution shall be done once the Hon’ble High Court has decided the enforceability of the award having regard to the requirements of Section 47 and 48 of ACA. Subsequently, effective steps will be taken for the execution of the award as held in PEC ltd. v. Austbulk Shipping Sdn. Bhd (2019) 11 SCC 620.
Based on the decisions, the HC only has exclusive jurisdiction to deal with the foreign award and give effect to the same. In view of the same, NCLT dismissed the petition and granted liberty to OC to resort to other remedies that are available under law.
The NCLT held that whilst dealing with a special law i.e. the IBC, its jurisdiction is limited, based on the findings of the higher courts.
NCLT clarified that only the HC has jurisdiction over the matter of enforcement of a foreign award. A foreign award does not automatically become a foreign decree and the enforcement of such an award takes place only after the HC is satisfied that the award is enforceable under Part II, Chapter I of the Arbitration and Conciliation Act, 1996. Once the HC is satisfied, it can take further steps for the execution of the award.