Delhi District Court
Bharat Heavy Electricals Limited vs M/S Zillion Infra Projects Pvt Ltd ... on 10 November, 2020
In the Court of Shri Sanjiv Jain,
District Judge (Commercial Court)03, Patiala House Courts
New Delhi
OMP Comm No. 72/2020
BHARAT HEAVY ELECTRICALS LIMITED
Bhel House, Siri Fort,
New Delhi110049.
... Petitioner/objector
versus
M/S ZILLION INFRA PROJECTS PVT LTD (ZIPL)
5th Floor, Anushka Shopping Mall,
Plot Number. 2, Garg Trade Centre,
Sector11, Rohini, New Delhi110085
... Respondent/claimant
Date of institution : 21.09.2020 Date of reserving judgment : 12.10.2020 Date of decision : 10.11.2020 JUDGME NT
1. This petition under Section 34 of the Arbitration & Conciliation Act, 1996 (hereinafter called the Act) has been filed for setting aside the interim Arbitral Award dated 13.08.2020 and order dated 02.12.2019, passed by the Ld. Arbitrator.
OMP Comm No.72/20 BHEL Vs. ZIPL Page No.1 of 302. Briefly the facts leading to the above petition are that the petitioner had invited tenders for erection, testing, commissioning and trail operation of boilers including ESP, rotating machine & piping of 2 X 270 MV Units (Unit I & II) at GVK, Goindwal Thermal Power Station, Dist Tarantaran, Punjab. The contract was awarded to the respondent/claimant for Rs. 38,00,00,000/ vide letter of intent dated 09.04.2010. Certain disputes arose between the parties with respect to the contract no. 718 of 2010 and the respondent invoked the arbitration in terms of Clause 33 of the contract. Ld. Arbitrator commenced the hearing on 05.11.2018 and thereafter, adjourned the proceedings sine die vide order dated 11.02.2019 in view of initiation of CIRP proceedings against the respondent. The proceedings were thereafter resumed. The respondent filed its statement of claims on 27.09.2019 for an amount of Rs. 22,24,10,826/. The petitioner was given time to file the statement of defense / counter claims, if any on or before 30.10.2019. The petitioner thereafter wrote a letter to the Arbitrator on 12.11.2019 that in view of Section 14 of the Insolvency and Bankruptcy Code 2016, no pending proceedings may be continued after the admission of the petition against the Corporate Debtor / Respondent by NCLT and requested that the arbitral proceedings be adjourned sine die till the continuation of resolution process by the Adjudicating Authority. The Arbitrator on 02.12.2019, passed an order inter alia as under:
"Admittedly an IRP has been appointed by the NCLT for the Claimant Company. In view of Section 14 of Insolvency and Bankruptcy Code, the Respondent would not be in a position to file its counter claim, if any, in view of the existing OMP Comm No.72/20 BHEL Vs. ZIPL Page No.2 of 30 moratorium. There is however no bar on the Claimant continuing with the proceedings."
3. The petitioner filed its claims in Form B under Section 7 of Insolvency and Bankruptcy Code of India, Regulations, 2016 before the Interim Resolution Professional (IRP) on 14.12.2019 under various heads including Head No. 8 i.e. "Details of any mutual credit, mutual debts, or other mutual dealings between the corporate person and the operational creditor which may be setoff against the claim". The petitioner also filed its statement of defence before the Arbitrator on 01.01.2020. The total amount claimed by the petitioner in Form B was Rs. 2,28,92,436.82 along with an amount of Rs. 35,27,560.51 (under head of BOCW) total amounting to Rs. 2,64,19,997.33. The amount of setoff pleaded by the petitioner under Sl. No. 8 of Form B was Rs. 69,03,671.85. It denied the respondent's claim with respect to final bills etc and stated that the final amount for the executed work done is Rs. 33,15,90,688/ against which Rs. 32,77,45,131/ have already been paid and the net payable amount to the respondent is Rs. 38,45,557.88. It was also stated that an amount of Rs. 15,58,113.97 under the head of PVC and Rs. 15,00,000/ under the head of ORC are also payable to the respondent (total Rs. 69,03,671.85). It was stated that in its proof of claim in Form B before the IRP, the petitioner has pleaded setoff of the above amount as per the statutory provisions, which stipulated that the details of setoff be given in Sl. No. 8 of Form B.
4. The respondent / claimant then filed an application under OMP Comm No.72/20 BHEL Vs. ZIPL Page No.3 of 30 Section 31(6) r/w Section 17 of the Act on 06.07.2020 before the Arbitrator treating the amount pleaded to be setoff as an admission in the proof of claims filed by the petitioner in Form B before the IRP. The petitioner filed its reply, denying all the allegations of admitted liability stating that pleading setoff is a defence given to it by the statute itself and until setoff is adjudicated, it does not become binding on the party. It was also stated that setoff as pleaded in the proof of claims in Form B cannot be treated as an admission on which an award can be passed.
5. The Arbitrator passed the impugned interim award by allowing the application of the respondent vide dated 13.08.2020 with the direction to the petitioner to make payment of an amount of Rs. 69,03,671.85 to the respondent recording inter alia that under Section 19 (4) of the Act, the Arbitral Tribunal has the power to determine the admissibility, relevance, materiality and weight of any evidence. Under Section 17, the interim measures, which may be ordered by the Arbitral Tribunal are wide and far ranging. They are by an large the same powers which are vested with the Court for the grant of interim relief. Power to make an interim award is implicit in these provisions as per Section 2 (c) of the Act, Arbitral Award includes an interim award. Provisions of Order 12 Rule 6 CPC were discussed and it was observed that in Numero Uno International Ltd Vs. Prasar Bharti, (MANU/DE/0199/2008, the High Court while noting the provisions of Section 31 (6) of the Act has held that the Arbitral Tribunal is clearly empowered to make an interim award; In Gammon India Ltd Vs. Sankaranarayana Construction (Banglore) OMP Comm No.72/20 BHEL Vs. ZIPL Page No.4 of 30 Pvt Ltd (MANU/TN/3737/2009), it was held that the power under Section 31 (6) of the Act cannot be artificially restricted to exclude from its purview the power to pass an interim award on admission; to say that one cannot read a power akin to Order 12 Rule 6 of the Civil Procedure Code into Section 31 (6) as it would miliate against the very object of the Act. There is no doubt that if a setoff if claimed along with the written statement has to be adjudicated upon, but in this case the facts are different. The provisions of order 8 Rule 6 CPC were discussed and it was observed that the word 'Court' appearing in Order 8 Rule 6 (1) & (2) essentially means the same court which has to decide the claim and counter claim. It cannot be a different fora. This Tribunal is dealing with the claim and the defence filed by the respondent (petitioner herein). The setoff which has been claimed for the amount allegedly due to the respondent (petitioner herein) has been filed as a proof of claim and is pending adjudication before the IRP, which will decide the claim as to whether this amount is due & payable to the claimant (respondent herein). This setoff cannot be pleaded before this Tribunal because of a legal bar operating under the Code qua the claimant company which is in insolvency. The respondent (petitioner herein) is estopped from legally pleading a setoff before the Tribunal. The proceedings before the IRP are distinct and different from the proceedings before the Tribunal. The question of setoff cannot be adjudicated by the Tribunal and it can only decide the claim of the claimant. In the instant case, this Tribunal only has the jurisdiction to deal with the claim and setoff has to be decided by a different OMP Comm No.72/20 BHEL Vs. ZIPL Page No.5 of 30 body. It was held that in these circumstances, the admission made by the respondent (petitioner herein) that a sum of Rs. 69,03,671.85 is an amount which is due and payable to the claimant (respondent herein) be paid to the claimant. It was also remarked that if at the conclusion of the arbitral proceedings, any amount is eventually held payable between the parties, the Arbitrator can make adjustments and direct the payment of amounts between one party or the other party as the case may be; the final award could take care of this to be able to justice between the parties.
6. The petitioner challenged the impugned award on the following grounds:
A) That the impugned award is against the principles laid down in Order XII Rule 6 of CPC, which states that the admission should be clear, unequivocal and categorical.
However, in this case, there has been no unequivocal admission on the part of the petitioner. It clearly states that the defendant has a right of pleading setoff as a defence and further Order VIII provides defences to a defendant / petitioner in a civil suit namely, written statement, setoff and counter claim and further it provides that defendant as a right of pleading can claim setoff against the total demand made by the petitioner and that the ascertained amount which is legally recoverable and sought to be setoff has to be mentioned by the defendant / petitioner in its written statement B, C, D, F, G & H) That the Tribunal has erred by overlooking that until a setoff that has been pleaded as a defence by reiterating the details of proof of claims filed before the IRP in the statement of defence has been adjudicated, it does not attain finality and therefore, is not binding on the party. That until the setoff has either been accepted or rejected, it does not become an admission in any OMP Comm No.72/20 BHEL Vs. ZIPL Page No.6 of 30 manner and interim award cannot be passed to that effect. That the aforementioned amount has been stated only to substantiate the setoff plea of the petitioner which must first be adjudicated upon.
E) That the Tribunal failed to consider that the operational creditor being the petitioner herein, due to division between FORA had to file its proof of claims which includes setoff before the IRP in Form B, which it reiterated in the statement of defence for consideration of the Arbitrator for deciding the claims of the respondent.
L) That the Tribunal erred in not taking into consideration that the right of pleading setoff provided in CPC has to be adjudicated upon first and only then a judgment can be passed on the same. It ignored the judgment of Jharkhand Bijili Vitran Nigam Ltd Vs. IVRCL Ltd. (Company Appeal (AT) (Insolvency) No. 285 of 2018) in which the National Company Appellate Tribunal (NCLAT) after agreement of both parties held that as the claim of the Corporate Debtor can be determined only after determination of counter claim, both the claim and the counter claim of parties should be heard together by the Arbitral Tribunal in absence of any bar under Insolvency and Bankruptcy Code, 2016.
M) That the Tribunal failed to consider that the interim award granted under Section 31 (6) of the Act cannot be passed based on a setoff which has been alleged as an admission and the Claimant has to prove its claim in accordance with law for an interim award.
S & W) That the order dated 02.12.2019 is liable to be set aside as the claims of the respondent being interlinked and having bearing upon the counter claims of the petitioner, both the claims and counter claims must be adjudicated together and not segregated. That the Tribunal overlooked the judgment SSMP Industries Ltd Vs. Perkan Food Processors Pvt Ltd (MANU/DE/2362/2019), wherein it has been held that in case a counter claim raised against the corporate debtor, is integral to the recovery sought by the Counter claimant and is related to the same transaction, then both the claims and counter claims ought to be adjudicated comprehensively by OMP Comm No.72/20 BHEL Vs. ZIPL Page No.7 of 30 the same forum. Additionally, it was held that till the defence is adjudicated, there is no threat to the assets of the corporate debtor and the continuation of the counter claim would not adversely impact the assets of the corporate debtor. Further, once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered.
7. In reply to the petition, it is submitted on behalf of the respondent that the petitioner has already complied with the said order by filing claims in Form B vide dated 13.12.2019 before the IRP and thus, the challenge to the order is an afterthought nor there is any valid reason to condone the delay.
8. It is stated that the order of the NCLAT in K. S. Oil Ltd Vs. State Trade Corporation of India Ltd & Anr, Company Appeal (AT) No. 284 of 2017 relied upon by the petitioner is not applicable in this case as in the case supra, the arbitration claim was filed by the operational creditor, but in the present case the arbitration claim has been filed by the Resolution Professional of the company under insolvency who has the moratorium under Section 14 applicable for any claim against it. The Tribunal has rightly applied the principles of Rule 14 of IBC Code, which provides for moratorium for company under insolvency proceedings and not against the creditors of the company.
9. Qua the interim award vide dated 13.08.2020, it is stated that the interim award passed by the Tribunal is squarely covered by the judgment in the case of Nimbus Communication Ltd Vs. Prasar OMP Comm No.72/20 BHEL Vs. ZIPL Page No.8 of 30 Bharti & Ors, (MANU/DE/0821/2016), Numero Uno International Ltd (supra) and Gammon India Ltd (supra) stating that pendency of counter claim does not bar the Arbitral Tribunal from passing an interim award and the claimant is entitled for Interim award in respect of admitted amount, where the opposite party has admittedly adjusted the outstanding in its counter claim. The scope of Order 12 Rule 6 CPC should not be unduly narrowed down. In this case, the admissions made are judicial admissions which cannot even be retracted. It is stated that in the case of Nimbus Communication Ltd (supra), it was held that setoff is like a cross suit or cross action. Even a counter claim can be ordered to be tried by way of a separate suit. Pendency of a counter claim does not bar the Tribunal from making an interim award to the extent of admission. These are the matters of discretion. It is also stated that in Numero Uno (supra), it was held that legal nature and character of a counter claim and it pendency does not denude the arbitrator of the power to make an interim award in the original suit/claim if such an interim award is otherwise justified. The making of the interim award ensures to the party in whose favour the same is made the payment of an amount which is an admitted position payable to it. There is no reason why the payment of what is admittedly due should await the determination of other disputes which may take years before they are finally resolved. The making of the interim award in no way prevents the arbitrator from making adjustment of the amount in the final award and doing complete justice between the parties. There is therefore, no inherent illegality or perversity in the making of the OMP Comm No.72/20 BHEL Vs. ZIPL Page No.9 of 30 interim award by the arbitrator so as to call for interference under Section 34 of the Act.
10. It is stated that the petitioner has categorically admitted the outstanding of Rs. 69,03,671.85 payable by the petitioner to the claimant / respondent which amount has been deducted after proper analysis of the claim of the respondent according to their own calculations, though the claims of the respondent are much more than what are admitted. Para 8 Form B filed by the petitioner against the claimant / respondent shows categorical admission by the respondent of an amount of Rs. 69,03,671.85 payable to the claimant against the contract as on date. It is stated that in view of the categorical admission and the judgments supra, which clearly cover the issue under consideration, this petition is liable to be dismissed.
11. In rejoinder, it is stated on behalf of the petitioner that an order passed in an Arbitration Proceeding can be challenged along with an award under Section 34 of the Act. He referred the case of Harinarayan G. Bajaj Vs. Sharedeal Financial Consultants Pvt Ltd & Anr, 2002 SCC Online Bom 1186.
12. I have heard the arguments advanced by Ld. Counsel Sh. Atul Shanker Mathur for the petitioner and Sh. Sumit Kumar, Ld counsel for the respondent/claimant.
13. Ld. Counsel for the petitioner vehemently argued that decree cannot be passed in terms of Order 12 Rule 6 in isolation. Claims OMP Comm No.72/20 BHEL Vs. ZIPL Page No.10 of 30 and counter claims are to be adjudicated together to avoid conflicting view on the same transaction. Reference of the judgments in the case of Ludhiana Improvement Trust Vs. Mapletree Property & infrastructure Pvt Ltd & Ors (MANU/DE/2059/2015), Jharkhand Bijili Vitran Nigam Ltd Vs. IVRCL Ltd (Company Appeal (AT) (Insolvency) No. 285/2018, SSMP Industries Ltd Vs. Perkan Food Processors Pvt Ltd (MANU/DE/2362/2019) and S. M. Asif Vs. Virender Kumar Bajaj (MANU/SC/0860/2015) is made. Ld. Counsel submitted that the Arbitrator has arbitrarily held that the petitioner is liable to pay the respondent, the impugned sum solely on the basis of statements made before another forum i.e. before the IRP, neither of which was filed in the pleadings before the Arbitrator. It was the Arbitrator, who refused to entertain the counter claim of the petitioner vide order dated 02.12.2019. Ld. Counsel stated that the respondent company is undergoing insolvency proceedings and therefore, the petitioner filed its proof of claim in Form B before the IRP instead before the Arbitrator. The statement made in Form B cannot be taken as admission without looking at the contents of the Form B as a whole. Ld. Counsel stated that proof of claims, once submitted by the operational creditor are to be verified by the IRP. Ld. Counsel stated that right of pleading setoff provided in Order 8 Rule 6 CPC has to first be adjudicated upon and only once the set off has been adjudicated and is found to be payable, judgment can be passed on the same. A setoff cannot be treated as an admission until it is adjudicated upon in civil proceedings. Ld. Counsel stated that there is no unequivocal admission on the part of the petitioner. Ld. OMP Comm No.72/20 BHEL Vs. ZIPL Page No.11 of 30 Counsel stated that in Form B total amount claimed is Rs. 2,28,92,436.82 plus Rs. 35,27,560.51 and the amount of setoff pleaded is Rs. 69,03,671.85 and thus the total recovery after deducting the amount of setoff from the total claim is Rs. 1,59,88,765/ plus Rs. 35,27,560.51. Ld. Counsel stated that if the petitioner succeeds in getting a final award in its favour, irreparable loss would be caused to the petitioner since, the respondent company has been undergoing insolvency proceedings as it will not be able to recover the said amount. Ld. Counsel submitted that the fact of the case of Nimbus Communication Ltd (supra), Numero Uno International Ltd (supra) are distinguishable. In the case Nimbus (supra), the counter claims were before the Tribunal pending to be adjudicated by it, however, in this case, the Arbitrator refused to entertain any counter claim. In the case of Numero Uno International Ltd (supra), the interim award was passed on the basis of admission forming part of the pleadings but in this case, neither there is any admission nor there is any correspondence.
14. Per contra, Ld. Counsel for the respondent reiterated what has been stated in reply to the petition and also referred the case laws to contend that the petitioner has categorically admitted the outstanding of Rs. 69,03,671.85 payable by the petitioner to the claimant / respondent in Para 8 of Form B submitted before the IRP, which amount has been deduced after proper analysis of the claim of the respondent, according to its own calculation, though the claims of the respondent are much more than what has been admitted.
OMP Comm No.72/20 BHEL Vs. ZIPL Page No.12 of 3015. Ld. Counsel for the respondent and Ld. Resolution Professional Sh. Harish Taneja vide proceedings dated 22.10.2020 submitted that the respondent and the Resolution Professional have no objection, if the petitioner file the counter claims along with the setoff before the Arbitrator and the same be decided together by the Arbitrator.
16. I have considered the submissions as above and gone through the impugned award and the relevant documents as well as the case laws (supra).
17. In the case of SSMP Industries Ltd (supra), the plaintiff company had gone into insolvency and a Resolution Professional was appointed. The question arose whether the adjudication of the counter claim would be liable to be stayed in view of Section 14 of the Code. It was held as under:
8. The Court has considered the plaint and the written statement/counter claim. The adjudication of the plaint, defences in the written statement and the amounts claimed in the counter claim would have to be considered as a whole in order to determine as to whether the suit or the counter claim would be liable to be decreed. A counter claim would be in the nature of a suit against the Plaintiff which in this case is the `corporate debtor'. Under Section 14(1)(a) of the Code, strictly speaking, a counter claim would be covered by the moratorium which bars `the institution of suits or continuation of pending suits or proceedings against the corporate debtor‟. A counter claim would be a proceeding against the corporate debtor. However, the counter claim raised in the present case against the corporate debtor ie., the Plaintiff, is integral to the recovery sought by the Plaintiff and is related to the same transaction.Section 14 has created a OMP Comm No.72/20 BHEL Vs. ZIPL Page No.13 of 30 piquant situation i.e., that the corporate debtor undergoing insolvency proceedings can continue to pursue its claims but the counter claim would be barred under Section 14(1)(a).
When such situations arise, the Court has to see whether the purpose and intent behind the imposition of moratorium is being satisfied or defeated. A blinkered approach cannot be followed and the Court cannot blindly stay the counter claim and refer the defendant to the NCLT/RP for filing its claims.
9. The nature of a counter claim is such that it requires proper pleadings to be filed, defences and stands of both parties to be considered, evidence to be recorded and then issues have to be adjudicated. The proceedings before NCLT are summary in nature and the RP does not conduct a trial. The RP merely determines what payment can be made towards the claims raised, subject to availability of funds. The NCLT/RP cannot be burdened with the task of entertaining claims of the Defendant which are completely uncertain, undetermined and unknown. Moreover, the question as to whether the Defendant is in fact entitled to any amounts, if determined by the NCLT, prior to the adjudication of the plaintiff's claim for recovery, would result in the possibility of conflicting views in respect of the same transaction. Under these circumstances, this court is of the opinion that the Plaintiff's and the defendant's claim ought to be adjudicated comprehensively by the same forum. At this point, till the defence is adjudicated, there is no threat to the assets of the corporate debtor and the continuation of the counter claim would not adversely impact the assets of the corporate debtor. Once the counter claims are adjudicated and the amount to be paid/recovered is determined, at that stage, or in execution proceedings, depending upon the situation prevalent, Section 14 could be triggered. At this stage, due to the reasons set out above, the counter claim does not deserve to be stayed under Section 14 of the Code. The suit and the counter claim would proceed to trial before this Court.
18. In the case of Jharkhand Bijli Vitran Nigam Ltd (supra), question arose, whether a counter claim can proceed during the period of 'moratorium' while the Adjudicating Authority (NCLT) OMP Comm No.72/20 BHEL Vs. ZIPL Page No.14 of 30 allowed the Corporate Debtor to pursue the claim before the Arbitral Tribunal. It was held by the National Company Law Appellate Tribunal, New Delhi that as the claim of the Corporate Debtor can be determined only after determination of counter claim made by the appellant in the same very arbitral proceeding and if counter claim or part of it is setoff with the claim made by the Corporate Debtor, they are of the view that both the claim and the counter claim of parties should be heard together by the Arbitral Tribunal in absence of any bar under Insolvency and Bankruptcy Code, 2016. However, on determination, if it is found that the Corporate Debtor is liable to pay certain amount, in such case, no recovery can be made during the period of moratorium.
19. In the case of Ludhiana Improvement (supra), where the case of Uttam Singh Duggal & Co. Vs. United Bank of India & Ors, 2000 (7) SCC 120, was relied upon and it was held that the Court cannot base its decision to decree (or not to grant a decree) in a suit in terms of Order XII Rule 6 CPC only on the basis of a particular pleading or admission; the overall effect of the pleadings and documents of the concerned parties are to be judicially weighed. In other words, the Court has to keep in mind the fact that what seems plainly an admission could well be explained by the litigant making it, during the course of the trial. Moreover, the controlling expression under Order 12 Rule 6 is that Court "may". It is important to analysis this aspect because admissions either in the pleadings or in a document or in the course of the statement cannot be viewed in isolation. In the OMP Comm No.72/20 BHEL Vs. ZIPL Page No.15 of 30 case of S. M. Asif Vs. Virender Kumar Bajaj, AIR 2015 SC 3678, it was held that the words in Order XII Rule 6 CPC "may" and "make such order..." show that the power under Order XII Rule 6 CPC is discretionary and cannot be claimed as a matter of right. Judgment on admission is not a matter of right and rather is a matter of discretion of the Court. Where the defendants have raised objections which go to the root of the case, it would not be appropriate to exercise the discretion under Order XII Rule 6 CPC. The said rule is an enabling provision which confers discretion on the Court in delivering a quick judgment on admission and to the extent of the claim admitted by one of the parties of his opponent's claim.
20. In the case of Nimbus Communication Ltd, it was held:
30. We highlight once again that Nimbus India and Nimbus Singapore admitted their liability to pay `22,77,67,422/ and were claiming a right to adjust an amount, which as we would be highlighting hereinafter is an unascertained amount and in respect of which Nimbus India's plea of equitable set off is exfacie untenable.
37. Setoff is like a cross suit or cross action. It is well settled that even a counter claim can be ordered to be tried by way of a separate suit. Its hearing can also be deferred.
Pendency of a counter claim does not bar the Tribunal from making an interim award to the extent of admissions as was held in the decision dated February 08, 2008 in FAO (OS) No.507/2007 Numero Uno International Ltd. Vs. Prasar Bharati. These are matters of discretion. The Arbitral Tribunal exercised the discretion based on the facts and circumstances of the case and gave cogent reasons for that.
42. The judgment of the Supreme Court in the decision reported as (2000) 7 SCC 120 Uttam Singh Duggal Co. Ltd. vs. United Bank of India Ltd & Ors. lays down that the scope of Order 12 Rule 6 of the Code of Civil Procedure should not OMP Comm No.72/20 BHEL Vs. ZIPL Page No.16 of 30 be unduly narrowed down. A decree on admissions is to be passed if it is impossible for the party making the admission to succeed in the face thereof. In this case the admissions made are judicial admissions which cannot even be retracted.
21. In the case of Cofex Exports Limited Vs. Canara Bank, AIR 1997 Del 355, it was held:
12. Setoff is entirely distinct from payment. Payment is satisfaction of a claim made by or on behalf of a person against whom the claim is brought. The person paying performs the obligation in respect of which the claim arises,which thereby becomes extinguished. Setoff exempts a person entitled to it from making any satisfaction of a claim brought against him, or of so much of the claim as equals the amount which he is entitled to setoff and thus to the extent of his setoff he is discharged from performance of the obligation in respect of which the claim arises. Where there has been payment, the party against whom the claim is brought pleads payment or accord and satisfaction, which in effect alleges that the claim no longer exists. On the other hand, a plea of setoff in effect admits the existence of the claim, and sets up a cross claim as being ground on which the person against whom the claim is brought is excused from payment and entitled to judgment on the plaintiff's claim.
Until judgment in favour of the defendant on the ground of setoff has been given the plaintiff's claim is not extinguished.
22. There is no denial of the legal proposition that the Arbitral Tribunal has power to determine the admissibility, relevance, materiality and weight of any evidence and can pass an interim award, like interim relief by the Court, under Section 31 (6) of the Act. In Gammon India Limited (supra), It was held that the power under Section 31 (6) of the Act cannot be artificially restricted to exclude from its purview the power to pass an interim award; to say OMP Comm No.72/20 BHEL Vs. ZIPL Page No.17 of 30 that one cannot read a power akin to Order 12 Rule 6 of the CPC into Section 31 (6) of the Act as it would mitigate against the very object of the Act. As per Order 8 Rule 6 (1) & (2) of CPC, the Court decides the claims and counter claims.
23. It is true that in the instant case, setoff, which has been pleaded, for the amount allegedly due has been filed as a proof of claim in Schedule Form B and is pending adjudication before the IRP but now the parties vide dated 22.10.2020 in view of the judgment in the case of SSMP Industries Limited (supra), stated that the claims and the counter claims including setoff be adjudicated together by the Arbitral Tribunal. While passing the impugned award, it was observed by the Tribunal that in the instant case, this Tribunal only has the jurisdiction to deal with the claim and the set off has to be decided by a different body but now by virtue of the submissions made vide dated 22.10.2020 and in view of the judgment in the case of SSMP Industries Limited (supra) and Jharkhand Bijli Vitran Nigam Ltd (supra), I am of the view that both the claims and counter claims including setoff, of the parties be heard together by the Arbitral Tribunal.
24. In the case of Numero Uno International Ltd (supra), it was held that if at the conclusion of the arbitral proceedings, the defendant were to succeed in his claim, either wholly or partially and if after adjustment of the amounts found payable to the plaintiff, any amount is eventually held payable to one or the other party, the OMP Comm No.72/20 BHEL Vs. ZIPL Page No.18 of 30 arbitrator can undoubtedly make such an adjustment and direct payment of the amount to one or the other party, as the case may be. The final award would in any such case also take into consideration the payments, if any, made under the interim award. Suffice it to say that the making of the interim award in no way prevents the arbitrator from making adjustments of the amount in the final award and doing complete justice between the parties.
25. It is also true that the pendency of counter claim does not bar the Arbitral Tribunal from passing the impugned award in respect of the admitted amount and scope of Order 12 Rule 6 CPC should not be unduly narrowed down. A decree on admission is to be passed if it is impossible for the party making the admission to succeed in the face thereof; Setoff is like a cross case or cross action. Even a counter claim can be ordered to be tried by way of a separate suit; Pendency of a counter claim does not bar the Tribunal to make an interim award to the extent of admissions as held in the case of Nimbus Communications Ltd (supra). It was held in the case of Numero Uno International Limited (supra) that the legality of an interim award may be tested by reference to the material on which it is based rather than the areas of dispute that may still call for adjudication between the parties. If an interim award on the basis of material available on record is not justified, the Court may set aside the same under Section 34 of the Act. No interference with an interim award would, however, be permissible only because the defendant has made a counter claim or because some areas of dispute independent of the area covered by the interim award OMP Comm No.72/20 BHEL Vs. ZIPL Page No.19 of 30 remains to be resolved.
26. It is relevant to discuss the claims filed by the respondent before the arbitrator in the statement of claims: Sr. Particulars Amount in INR No. A. Final bills/Running Bills/Retention Rs. 4,07,42,119/ Balance as on 30.06.2018 B. i)T & P & Opportunity cost Rs. 7,59,40,600/ Rental charges
ii) Extra wages/salaries paid Rs. 7,63,60,179/
iii) Bank charges/interest in Bank Guarantee Interest on bank guarantee (01.08.2012 to 30.06.2018) Rs. 38,49,517/ Interest on final bills amount from 01.03.2014 to 30.06.2018 Rs. 2,55,18,410/ Total recoverable (A +B) Rs. 22,24,10,826/
27. The petitioner under Regulation 7 of the Insolvency and Bankruptcy Board of India Regulations, 2016 has filed the claims in Form B before IRP due from the respondent/claimant: Sr. Particulars (claims) Amount No.
1. Amount withheld by Customer (M/s GVK) Rs. 1,73,32,108/ on account of defects in work of claimant
2. (i) Manday calculation cost to rectify punch Rs. 42,20,455/ points
ii) Loss of issued plant material Rs. 5,80,000/
3. TDS deposited on account of claimant Rs. 7,59,873/ OMP Comm No.72/20 BHEL Vs. ZIPL Page No.20 of 30
4. Labour compliance according to BOCW Act Rs. 35,27,560.51 (1% of executed contract value) Total claim Rs. 2,64,19,997.33
28. The petitioner also denied the claims of the claimant in Para wise reply to the Statement of Claim under Para 21 (D) of the Statement of Defence filed before the Arbitrator.
29. The petitioner in Schedule Form B being operational creditor vide dated 13.12.2019, while submitting the proof of claims before the IRP, claiming Rs. 2,28,92,436.82 + Rs. 35,27,560.51 for labour compliance stated that after assessing the value of work completed by Corporate Debtor i.e. claimant, a payment of Rs. 69,03,671.85 is due therein. Net recovery due after deducting the amount payable is arrived at Rs. 1,59,88,765/ + Rs. 35,27,560.51. It was also stated that the bank guarantee equivalent to a sum of Rs. 95,75,000/ furnished has been got encashed on 13.12.2019 and final recoveries due against corporate debtor would be Rs. 64,13,765/ + Rs. 35,27,560.51. In Para 8, details of mutual credit/mutual debts or other mutual dealings between the corporate debtor and creditor which may be setoff against the claim, have been given. It was stated that having regard to the calculations arrived at by Material Reconciliation Statement signed by both the parties, final executed contract value is arrived at Rs. 33,15,90,688.88 out of which amount of Rs. 32,77,45,133 has already been paid. Net payable is Rs. 38,45,557.88. Further amount of Rs. 15,58,133.97 under head of PVC and amount of Rs. 15,00,000/ under head of ORC become OMP Comm No.72/20 BHEL Vs. ZIPL Page No.21 of 30 payable. Hence, a total amount of Rs. 69,03,671.85 is payable to Corporate debtor M/s ZIPL against this contract as on date, which can be setoff against recoveries due therefrom.
30. In the case of Gammon India Ltd. (supra), the petitioner was awarded a contract for the construction of a Masonry Dam by PWD of the Government of Tamilnadu. The part of work was assigned to the respondent by way of subcontract. Dispute arose between the parties. Matter was referred to Arbitration, where, the Arbitrator passed an interim award dated 16.12.2006 directing the petitioner to deposit Rs. 56,63,990/. The petitioner challenged the award but it was returned for want of jurisdiction. In the meantime, the respondent initiated the execution and the petitioner being left with no alternative, deposited the entire interim amount. Thereafter, it filed the petition.
In that case, the interim award was passed for Rs. 55,63,990/, on the Statement of Claims filed by the respondent for a sum of Rs. 241.71 lakhs, which included payment pending corresponding to be received by Gammon India Ltd from PWD as detailed in various letters & statement enclosed. The petitioner had filed a Statement of Defence and counter claims. It was stated that withholding of the bills adjusting the same as the amount due to the respondent is in order. It was also stated that the amount of bill due to the claimant / respondent works out to Rs. 56,63,990/. It was stated that as a matter of fact, an amount of Rs. 131,80,266/ is due from the claimant vide details furnished in the counter claim. In the light of stand taken by the petitioner in the Statement of Defence, the claimant filed an application OMP Comm No.72/20 BHEL Vs. ZIPL Page No.22 of 30 before the Arbitrator seeking an interim direction to the petitioner to pay Rs. 68.84 lakhs for the work done. The petitioner raised the objection. The Arbitrator after taking into account the rival pleadings, arrived at a conclusion that there was an admission on the part of the petitioner to the extent of Rs. 56,36,989.50. The Arbitrator also verified the details of amount set out in the final status bill to the defence statement and passed the interim award. Reference was made of the case Satwant Singh Sodhi Vs. State of Punjab, 1999 (3) SCC 487, wherein it was held:
"The question whether an interim award is final to the extent it goes or has effect till the final award is delivered will depend upon the form of the award. If the interim award is intended to have effect only so long as the final award is not delivered it will have the force of the interim award and it will cease to have effect after the final award is made. If, on the other hand, the interim award is intended to finally determine the rights of the parties it will have the force of a complete award and will have effect even after the final award is delivered.
31. It was held in the case of Gammon India (supra) that the power conferred by Section 31 (6) cannot be artificially restricted to exclude from its purview the power to pass an interim award on admission. The very object of the Act is to provide an alternative dispute resolution mechanism for the purpose of speedy resolution of disputes. Therefore, to say that one cannot read a power akin to Order XII Rule 6, Code of Civil Procedure into Section 31 (6), would militate against the very object of the Act. It was observed that as a matter of fact, same argument was raised before a Single Judge in Numero Uno International Ltd Vs. Prasar Bharti that the provisions of Order 12 Rule 6 CPC were not applicable to arbitral OMP Comm No.72/20 BHEL Vs. ZIPL Page No.23 of 30 proceedings. But the Single Judge repelled the contention. When the matter was taken up to the Division Bench, this contention was given up, however, the question as to whether the pendency of a counter claim was sufficient to disentitle the claimant from an interim award on admission was raised and the Division Bench answered the question in negative and held as follows:
No interference with an interim award would, however, be permissible only because the Defendant has made a counter claim or because some area of dispute independent of the area covered by the interim award remains to be resolved.
32. It was therefore, held that an Arbitral Tribunal is empowered to pass an interim award under Section 31 (6) of the Act on admission. In Para 30, it was observed:
I do not think that there can be any admission, which is more clear, more positive and more unequivocal, than what is stated in Paragraph 15.1 and in the various portions of their Statement of Defence and Counter Claim filed before the Arbitrator. As a matter of fact, in my opinion, what is stated by the petitioner is actually more than a mere admission..... I hold that the petitioner has clearly and categorically admitted its liability to the extent of Rs. 56,63,990/ before the Arbitrator and hence, the Arbitrator was right in passing an interim award on the strength of such admission. It was observed that in the case of Uttam Singh (supra), it was observed that Order 12 Rule 6 CPC is enacted for the purpose of and in order to expedite the trials, if mere is any admission on behalf of defendants or an admission can be inferred from the facts & circumstances of the case without any dispute; that then in such a case in order to expedite and dispose of the matter such admission can be acted upon.
33. The Court also dealt with the distinction between adjustment, setoff and counter claim and referred the case of Cofex Exports Ltd (supra) and Union of India Vs. Karam Chand Thapar & Bros. 2004 OMP Comm No.72/20 BHEL Vs. ZIPL Page No.24 of 30 (3) SCC 50 and held that the distinction between an adjustment and a setoff / counter claim has no bearing upon the interim award passed by the Arbitrator on the admitted position.
34. In the case of Nimbus Communication Limited (supra), Nimbus India and Nimbus Singapore admitted their liability to pay Rs. 22,77,67,422/ and were claiming a right to adjust an amount, which is an ascertained amount. It was held that the Nimbus India's plea of equitable setoff is exfacie untenable. It was observed that setoff is like a cross suit or cross action. Even a counter claim can be ordered to be tried by way of a separate suit. Its hearing can also be deferred. Pendency of a counter claim does not bar the Tribunal from making an interim award to the extent of admission as held in the case of Numero Uno International (supra). Case of Uttam Singh Duggal (supra) was referred wherein it was held that the scope of Order 12 Rule 6 CPC should not be unduly narrowed down. A decree on admission is to be passed, if it is impossible for the parties making admission to succeed in the face thereof.
35. In the case of Numero Uno International Ltd (supra), the question arose whether the pendency of a counter claim made by the appellant before the Arbitrator was sufficient to disentitle the respondent from claiming even the admitted amount due from the appellant by way of an interim award in its favour. It was observed that there is no gainsaying that the making of a counter claim is tantamounting to institution of an independent suit for adjudication OMP Comm No.72/20 BHEL Vs. ZIPL Page No.25 of 30 of the claim of the defendant. Not only court fee is payable on the counter claim but the counter claim remains unaffected by the withdrawal of the original suit evidently on the principle that the counter claim is a suit in itself. So also the Court has the power to direct a setoff or counter claim being tried separately from the original suit. Such being the legal nature and character of a counter claim, its pendency does not denude the arbitrator of the power to make an interim award in the original suit / claim if such an interim award is otherwise justified. What is significant is that the legality of an interim award may be tested by reference to the material on which it is based rather than the areas of dispute that may still call for adjudication between the parties. If an interim award on the basis of material available on record is not justified, the Court may set aside the same under Section 34 of the Act. No interference with an interim award would, however, be permissible only because the defendant has made a counter claim or because some areas of dispute independent of the area covered by the interim award remains to be resolved. The issue can be viewed from yet another angle. The making of the interim award ensures to the party in whose favor the same is made, the payment of an amount which is an admitted position payable to it. There is no reason why the payment of what is admittedly due should await the determination of other disputes which may take years before they are finally resolved. If at the conclusion of the arbitral proceedings, the defendant was to succeed in his claim, either wholly or partially, and if after adjustment of the amounts found payable to the plaintiff, any OMP Comm No.72/20 BHEL Vs. ZIPL Page No.26 of 30 amount is eventually held payable to one or the other party, the arbitrator can undoubtedly make such an adjustment and direct payment of the amount to one or the other party, as the case may be. The final award would in any such case also take into consideration the payments, if any, made under the interim award. Suffice it to say that the making of the interim award in no way prevents the arbitrator from making adjustments of the amount in the final award and doing complete justice between the parties. By that logic even if we assume that the Prasar Bharti was to fail in substantiating its further claims which are disputed and the appellant were to succeed wholly in the counter claim that it has made, all that it would result in is an award in favor of the appellant. There is, therefore, no inherent illegality or perversity in the making of the interim award by the arbitrator so as to call for interference by this Court under Section 34 of the Act.
36. In the instant case, in reply to the claims of the respondent, although, the petitioner has denied the claims and its liability and made the counter claims in Para 22 but did not refer about the claims filed before the IRP in Schedule Form B on 13.12.2019 having reference of a total recovery of an amount of Rs. 2,28,92,436.82 plus Rs. 35,27,560.51 totaling upto Rs. 2,64,19,997.33 due from the corporate debtor (respondent) and the net recovery due after deducting the amount payable to the corporate debtor Rs. 2,28,92,436.82 - Rs. 69,03,671.85 = Rs. 1,59,88,765/ + Rs. 35,27,560.51. In Para / Srl. 8 of Schedule Form B, it was categorically mentioned, though being repeated but it is relevant:
OMP Comm No.72/20 BHEL Vs. ZIPL Page No.27 of 30Having regard to the calculations arrived at by Material Reconciliation Statement signed by both the parties, final executed contract value is arrived at Rs. 33,15,90,688.88 out of which amount of Rs. 32,77,45,133 has already been paid. Net payable is Rs. 38,45,557.88. Further an amount of Rs. 15,58,133.97 under head of PVC and amount of Rs. 15,00,000/ under head of ORC becomes payable. Hence, a total amount of Rs. 69,03,671.85 is payable to Corporate debtor M/s ZIPL against this contract as on date, which can be set off against recoveries due therefrom.
37. The aforesaid claim made in Schedule Form B before the IRP is a clear admission, which under no terms can be said that it is unambiguous, unequivocal, unclear and uncategorical. The aforesaid sum is the sum ascertained by the petitioner itself, which cannot be denied and no adjudication on this ascertained sum would be required. The other sums, which have been claimed by the petitioner in Schedule form B and also reiterated in reply to the Statement of Claims are the unascertained sums, which need to be adjudicated on merits. It is true that the proceedings before the IRP are distinct and different from the proceedings before the Arbitral Tribunal as the Arbitral Tribunal has the power to take evidence, both oral & documentary, which is not so before the IRP as he can only examine, whether the proof of claim submitted by the party before him, is legally admissible or not. It is also true that even till the time, the claim is adjudicated and found to be tenable by the IRP, it will only remain as a claim.
38. In view of the above discussions and the findings given in the case of Numero Uno International (supra) and Gammon India OMP Comm No.72/20 BHEL Vs. ZIPL Page No.28 of 30 (supra) and clear admission on behalf of the petitioner in the Schedule Form B filed before the IRP and the provisions under Order 12 Rule 6 CPC and under Order 8 Rule 6 (1) & (2), I do not find any illegality in the impugned interim award passed by the Ld. Arbitrator. Ld. Arbitrator has considered all the aspects and passed the interim award in accordance with law. It is also relevant to quote the observations made by the Ld. Arbitrator, while passing the impugned award:
There is no gainsaying in stating that at the conclusion of the arbitral proceedings any amount payable between the parties, the Arbitrator can make adjustment and direct the payment of amount between one party or the other as the case may be; the final amount would take care of this to be able to justice between the parties. Following the observations in the case of Numero Uno International Ltd (supra).
39. For the aforesaid discussions, I am of the view that the impugned award is not against the principles laid down in Order 12 Rule 6 CPC. It is based on the ascertained amount, which the petitioner has admitted as due and sought to the setoff from the counter claim in the reply / written statement. The counter claims filed by the petitioner require adjudication on merit. Further, this is an interim award, which can be adjusted at the time of passing of the final award. Further, till the defence is adjudicated, there is no threat to be assets of the Corporate Debtor and the continuation of the counter claim would not adversely impact the assets of the Corporate Debtor. Once the counter claims are adjudicated and the amount to OMP Comm No.72/20 BHEL Vs. ZIPL Page No.29 of 30 be paid / recovered is determined, at that situation prevalent, Section 14 could be triggered (SSMP Industries Ltd supra).
40. In the light of the judgment in the case of SSMP Industries Limited (supra) and Jharkhand Bijli Vitran Nigam Ltd (supra), I am also of the view that both the claims and counter claims including setoff, of the parties be heard and adjudicated comprehensively together by the Arbitral Tribunal. It is ordered accordingly.
I am also of the view that the interim award passed by the Tribunal is squarely covered by the judgment in the case of Nimbus Communication Ltd (supra), Numero Uno International (supra), wherein it was held that pendency of counter claim does not bar the Arbitral Tribunal from passing an interim award and the claimant, is entitled for interim award in respect of admitted amount, where the opposite party has admittedly adjusted the outstanding in their counter claim. The objections filed against the impugned interim award dated 13.08.2020 under Section 34 of Arbitration & Conciliation Act, 1996 are accordingly dismissed.
41. The petition is accordingly disposed of with no order as to costs.
42. File be consigned to record room.
Announced in open court
today i.e. 10th November, 2020 (Sanjiv Jain)
District Judge (Commercial) 03
Patiala House Courts, New Delhi
OMP Comm No.72/20 BHEL Vs. ZIPL Page No.30 of 30