Gujarat High Court
Sunstar Overseas Ltd vs Grace Agrifields Pvt Ltd on 23 October, 2019
Author: J. B. Pardiwala
Bench: J.B.Pardiwala
C/FA/2994/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2994 of 2019
With
R/FIRST APPEAL NO. 2995 of 2019
With
R/FIRST APPEAL NO. 2996 of 2019
With
R/FIRST APPEAL NO. 2997 of 2019
With
R/FIRST APPEAL NO. 2998 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI Sd/
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1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
CIRCULATE THIS ORDER IN THE SUBORDINATE
JUDICIARY
================================================================
SUNSTAR OVERSEAS LTD
Versus
GRACE AGRIFIELDS PVT LTD
================================================================
Appearance:
MR MIHIR H PATHAK(5261) for the Appellant(s) No. 1
NOTICE UNSERVED(8) for the Defendant(s) No. 1,2
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI
Date : 23/10/2019
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C/FA/2994/2019 JUDGMENT
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. Since the issue raised in all the captioned First Appeals is the same, those were heard analogously and are being disposed of by this common judgment and order.
2. For the sake of convenience, the First Appeal No.2994 of 2019 is treated as the lead matter.
3. This is an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, 'the Act, 1996') read with Section 13(1) of the Commercial Courts Act, 2015 (for short, 'the Act, 2015') at the instance of the original applicant of the Commercial Civil Misc. Application No.36 of 2019 filed in the Commercial Court at the City Civil Court, Ahmedabad, seeking condonation of delay of 42 days in preferring the application under Section 34 of the Act, 1996, for the purpose of questioning the legality and validity of the arbitral award passed by the arbitrator.
4. The facts giving rise to this appeal may be summarised as under :
"That the appellant is a company registered under the Companies Act 1956 and is engaged in the business of interalia processing, packing and distribution of premium export quality branded basmati rice as well as non branded bastmati rice.
That the respondent is a trading company engaged in the Page 2 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT business of interalia trade of basmati rice in whole and semi wholesale market, having its place of business as mentioned in cause title.
That after coming into contract with the appellant and after preliminary discussions and on invitation from the claimant company, vide their email dated 11.7.2017, the representative of the respondent company visited the processing unit of the appellant on 15th July 2017. A meeting was held between the parties on 15.7.2017 and terms and conditions of business were discussed and decided by and between the parties to this proceedings.
That thereafter the respondent herein vide their email dated 20.7.2017 have agreed to the terms and conditions of the business except for the payment of security cheque of Rs.1,50,00,000/- but they agreed to make the payment of goods within 30 days. They further confirmed that minimum quantity which they will be placing order for will be minimum of 5000 quintals per month.
That on getting assurance and keeping businessman faith in the respondent, the appellant confirmed the order placed by the respondent and supplied branded and non-branded basmati rice on regular basis from time to time.
That when the appellant observed that payment was not forthcoming from the respondent regularly and that a sum of Rs.24,65,38,299/- was outstanding to be recovered from the respondent company by the claimant at the end of 31st Page 3 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT August 2017, the appellant sent an e-mall dated 20.9.2017 and requested the respondent to make the due payment as per terms of payment i.e. 30 days after raising of the invoice.
That in order to maintain business relations, the appellant continued to supply the goods to the respondent even after 20.9.2017 as per requirements of the respondents, resultantly, the due amount increased to the tune of Rs.20,32,28,352/-.
That despite repeated requests and reminders by the appellant, the respondent did not make the payment on one pretext or other.
That vide email dated 7.10.2017 the appellant once again requested the respondents to pay the due amount of Rs.51,64,09,720/- immediately. The appellant finally requested the respondents vide letter dated 17.10.2017 to make the entire due payment.
That to the utter shock and surprise of the appellant, the respondent wrote a letter dated 25.10.2017 thereby showing their inability to make the payment on account of financial crunch due to some dispute in their family. The respondents further admitted/assured to make the payment and clear all outstanding as soon as possible. The appellant waited as per version of the respondents and when the respondents did not make any payment, the appellant sent yet another letter dated 14.11.2017 thereby calling upon the Page 4 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT respondents to make the due payment within 7 days otherwise the appellant shall initiate legal action against the respondents.
That the appellant sent a legal notice dated 19.3.2018 for invoking arbitration which was accepted by the respondents vide their reply letter dated 24.3.2018.
That after receiving the summons, the respondent filed their reply and admitted their liability. The respondent No.2 also admitted its liability and promised to make the entire payment and further showed its willingness if an Award is passed against them.
That thereafter the appellant also given its No Objection for passing the Award against the respondent No.2 only believing upon the versions of the respondents.
That Ld. Arbitral Tribunal vide its Award dated 15.05.2018 was pleased to pass an Award against the respondent No.2.
That however after passing of said Award, the appellant came to know through a publication dated 25.4.2018 in newspaper that the respondent No.2 is undergoing a corporate insolvency resolution process pursuant to an order of Hon'ble National Company Law Tribunal, Ahmedabad, dated 21.12.2017 but the respondents in collusion and connivance with each other, by concealing the said fact, consented for passing of Award dated 15.05.2018 against the respondent No.2 only.Page 5 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019
C/FA/2994/2019 JUDGMENT That in these circumstances, the Award dated 15.05.2018 is required to be modified and the appellant filed objections under Section 34 of the Arbitration and Conciliation Act. The appellant also filed an application for seeking condonation of delay in filing the objections. In the said application for condonation of delay, it was inter alia pleaded as under :
a. That various bankers have filed insolvency petition against the appellant company before National Company Law Tribunal, New Delhi, and IRP has already been appointed on 20th July 2018.
b. That the objector have filed the present objections under section 34 of Arbitration and Conciliation Act, 1996 on 26.09.2018 and the same are within limitation period, after excluding the period, from the date or appointment of IRP upto filing of present objection, as per provisions of Section 60(6) of the Insolvency and Bankruptcy Code, 2016.
c. That sufficient time was also consumed in collecting the relevant documents and arranging the records in order to file the present objections. It is also pertinent to mention here that various employees of the appellant have already left their jobs and in their absence, it became very difficult for the appellant to organize the entire records pertaining to present case.
d. That the Application filed by ICICI Bank Ltd. before the National Company Law Tribunal, New Delhi Bench Page 6 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT was admitted on 20.7.2018, whereby a moratorium under Section 14 of the Code was declared.
e. It is submitted that upon initiation of the Corporate Insolvency Resolution Process of the Appellant Company, the powers of the management are vested with the Resolution Professional under Section 17 of the Code.
f. It is further pertinent to mention here that in terms of Section 25(1)(b) of the Code, the Resolution Professional shall represent and act on behalf of the Corporate Debtor in judicial, quasi-judicial or arbitration proceedings.
g. That furthermore, it is pertinent to mention here that Section 60(6) of the I & B Code, 2016 provides as under :
"Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being In force, In computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium Is In place shall be excluded"....
h. That in view of the aforesaid moratorium order passed by the Hon'ble National Company Law Tribunal dated 20.7.2018, the period of 20.7.2018 to 26.9.2018 be excluded under Section 60(6) of the Code for the purpose of calculation of the limitation period Page 7 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT under Section 34 of the Arbitration and Conciliation Act, 1996.
It is stated the date of Award was 15-05-2018. It is stated that before expiry of 90 days for filing objections under section 34 of Arbitration and Conciliation Act, 1996 i.e. on 15-08-2018 and before expiry of additional grace period of 30 days which expires on 15-09-2018, it is submitted that the Interim Resolution Professional was appointed on 20-07-2018. Therefore the balance days for filing objections available to the appellant were 55 days after the expiry of the moratorium period (which is in operation till date).
It is therefore can be inferred that the Objection petition is well within limitation and the aforesaid dismissal is illegal and the award should be checked on merits in the interest of justice.
i. That the Resolution Professional is casted under the I & B Code various duties i.e. including taking custody/control of assets, inviting resolution plan for the corporate debtor, represent and act on behalf of the corporate debtor and time being essence of the Code, the Resolution Professional is carrying out his duties as per the provisions of the Code."
5. The Commercial Court, while rejecting the application Exh.5, observed as under :
Page 8 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019C/FA/2994/2019 JUDGMENT "3. I have considered the submissions of the Learned Counsel for the applicant and perused the record. Perusal of the record reveals that the Learned Sole Arbitrator was pleased to pass the Award on 15th May, 2018. It further transpires from the record that being aggrieved by the said Award, the applicant has challenged the same by way of filing the objections. Since the applicant has not filed the objections, within the prescribed time limit, the applicant has moved the present application for condonation of delay, being Commercial Civil Misc. Application Lodging No.74 of 2018, on 27th September, 2018, which subsequently came to be final numbered as Commercial Civil Misc. Application No.36 of 2019.
4. To deal with the issue on hand, it would be profitable to go through the relevant provision to condone the delay. The application/objection under section 34 of the Arbitration Act, is required to be preferred within a period of 3 months as provided in section 34(3) of the Arbitration Act. In the said provisions, it is also provided that if the Court is satisfied that the applicant was prevented by sufficient cause for not making the application within three months, then the Court may entertain the application for condonation of delay, within a further period of thirty days, but not thereafter.
In the instant case, the present application for condonation of delay in filing the objections, has been filed on Page 9 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT 27th September, 2018, meaning thereby, to avail the benefit of section 34(3) of the Arbitration Act, the applicant ought to have filed the present application, on or before 14th September, 2018 but the applicant has miserably failed to file the the same within further period of thirty days as provided under the law. For the sake of ready reference, the relevant extract of section 34(3) of the Arbitration Act, is reproduced hereinbelow:-
"Section 34(3).- An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter."
5. Thus, from the above discussions, it is clear that the applicant has failed to file the objections within the prescribed time limit under the law. Hence, without going into the merits of the case, I am of the view that the present application must fail as same is not filed within further period of 30 days. Therefore, the present application is liable to be dismissed and accordingly, I pass the following order :-
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ORDER
1. The present application for condonation of delay is hereby dismissed.
2. No orders as to cost."
6. Mr.Pathak, the learned counsel appearing for the appellants, vehemently submitted that the court below committed a serious error in passing the impugned order. According to Mr.Pathak, the court below failed to take into consideration the provision of Section 60(6) of the Insolvency and Bankruptcy Code, 2016 (for short, 'the Code 2016'). According to Mr.Pathak, the period of moratorium should have been excluded by the Commercial Court for the purpose of calculating the period of limitation for the purpose of filing an application under Section 34 of the Act, 1996.
7. Having heard the learned counsel appearing for the appellants and having gone through the materials on record, the only question that falls for our consideration is, whether the court below committed any error in passing the impugned order.
8. The solitary contention raised by the learned counsel appearing for the appellant as regards the applicability of Section 60(6) of the Code, 2016, is absolutely misconceived and not tenable in law.
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9. Section 60 of the Code, 2016, reads as under :
"60. Adjudicating Authority for corporate persons.--(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.
(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corporate debtor liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor shall be filed before such National Company Law Tribunal.
(3) An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.Page 12 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019
C/FA/2994/2019 JUDGMENT (4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2).
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of--
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.
(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded."Page 13 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019
C/FA/2994/2019 JUDGMENT
10. Section 60 stipulates that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof, shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. As per provisions contained under Section 60 of the IBC, 2016 the National Company Law Tribunal shall be the Adjudicating Authority for insolvency resolution and liquidation of corporate debtors and also lays down the criteria for establishing the territorial jurisdiction of the Tribunal. The insolvency resolution or bankruptcy proceedings relating to a personal guarantor of a corporate debtor shall also be filed before the National Company Law Tribunal.
11. Sub-section (5) of Section 60 empowers the National Company Law Tribunal (Adjudicating Authority) to entertain or dispose of any application or proceeding by or against the Corporate Debtor or Corporate Person; any claim made by or against the Corporate Debtor or Corporate Person including claims by or against any of its subsidiaries situated in India;
apart from any question of priority or any question of law and facts arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor or corporate person under the code.
12. From sub-section (6) of Section 60 it is clear that after period of moratorium, a suit or application can be filed against the Corporate Debtor for which an order of moratorium has been Page 14 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT made under the Part II and in such case, the period during which such moratorium is in place shall be excluded for the purpose of counting the limitation.
13. In the case of K.Kishan v. M/s.Vijay Nirman Company Pvt. Ltd. (Civil Appeal No.21825 of 2017, decided on 14 th August 2018), the Supreme Court was called upon to decide the following question :
"whether the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "the Code") can be invoked in respect of an operational debt where an Arbitral Award has been passed against the operational debtor, which has not yet been finally adjudicated upon. "
14. The Supreme Court observed in paragraphs 18, 19 and 20 respectively as under :
"18) We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 & 37 has taken place.
19) We may hasten to add that there may be cases where a Section 34 petition challenging an Arbitral Award may Page 15 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019 C/FA/2994/2019 JUDGMENT clearly and unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period of 90 days plus the discretionary period of 30 days has clearly expired, after which either no petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It is only in such clear cases that the insolvency process may then be put into operation.
20) We may hasten to add that there may also be other cases where a Section 34 petition may have been instituted in the wrong court, as a result of which the petitioner may claim the application of Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into operation without an adjudication on the applicability of Section 14 of the Limitation Act. "
15. Thus, the argument of Mr.Pathak as regards sub-section (6) of Section 60 of the Code, 2016, deserves to be outright rejected. Sub-section (6) of Section 60 has nothing to do with the period of limitation as prescribed under Section 34 of the Act, 1996. Sub-section (6) of Section 60 merely clarifies that a suit or application can be filed against the corporate debtor for which an order of moratorium has been made under Part-II, and in such case, the period during which such moratorium is in place shall be excluded for the purpose of counting the limitation.
16. In our opinion, no error, not to speak of any error of law, could be said to have been committed by the court below in passing the impugned order.
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17. In the result, all the Appeals fail and are hereby ordered to be dismissed with no order as to costs.
(J. B. PARDIWALA, J.) (VIRESHKUMAR B. MAYANI, J.) /MOINUDDIN Page 17 of 17 Downloaded on : Fri Oct 25 21:25:00 IST 2019