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Enforcement Of Foreign Award Under Insolvency And Bankruptcy Code

Claims arising out under the Arbitration and Conciliation Act, 1996 (Arbitration Act) has always behaved as the unbalancing power with the Insolvency and Bankruptcy Code, 2016 ('IBC'). The highest judicature of India i.e., Honorable Supreme Court in 2018, in the case of K. Kishan v. Vijay Nirman Company Pvt. Ltd[1] settled the issue of whether a pending arbitral award challenged under section 34 of the Arbitration Act falls within the ambit of a pre-existing dispute.

The Honorable Supreme Court held that the challenge of an existing arbitral award signifies that the dispute still exists in relation to the unsettled amount claimed by the operational creditor(s. The court also held that the unsettled amount claimed by operational creditors(s) could not become the basis to start the Corporate Insolvency Resolution Process ('CIRP') under the IBC.

In this context, it must be noted that the National Company Law Tribunal, Mumbai Bench (NCLT) on dated June 9, 2020, in the matter of Agrocorp International Private (PTE) Limited v National Steel and Agro Industries Limited[2] passed an order admitting a petition for the initiation of the CIRP under section 9 of the IBC. The NCLT held that a foreign-seated arbitral award is an adequate proof of a claim under section 9 of the IBC, even though the foreign award had not undergone enforcement proceedings in India.

Brief Background
In this case, the Agrocorp International Private (PTE) Limited (Operational Creditor) entered a contract with National Steel and Agro Industries Limited ('Corporate Debtor') for sale and purchase of yellow peas. During the time of dispute between the Operational Creditor and Corporate Debtor, they were referred for the arbitration in London. The arbitral tribunal passed a decision in favor of the Operational Creditor.

The award passed by the foreign tribunal, the Operational Creditor used it as a proof of claim against the Corporate Debtor for initiation of the CIRP under section 9 of the IBC, without having any proceedings for the enforcement of the said foreign award under Part II of the Arbitration Act.

Issue raised
There are two issues:
  1. Firstly, whether the award passed by the foreign court was binding upon the parties in dispute in India.
  2. Secondly, whether there was a pre-existing dispute between the parties as to the foreign award had not been enforced.

Arguments presented
  • The Corporate Debtor raised an objection against the petition on the initiation of CIRP by inter alia contending that the foreign award yet not to be recognized as the decree in India. The foreign award is not binding upon the parties because the enforcement proceeding under the Arbitration Act is still pending.
     
  • The Corporate Debtor relied on the decisions of the Bombay High Court in Noy Vallesina Engineering Spa v Jindal Drugs Ltd[3] and the Calcutta High Court in Sea Stream Navigation Ltd v LMJ International Ltd[4].Both of which analyzed under sections 46, 47, 48 and 49 of the Arbitration Act, and consequently held that a foreign award is considered to be binding on the parties in India only when it is found to be enforceable under Part II of the Arbitration Act, and once the foreign award satisfies the tests mentioned in section 48 of the Arbitration Act, the award would be deemed to be a decree of the court.
     
  • The Corporate Debtor also relied on that the foreign award was the subject matter of a pre-existing dispute, the claims is not undergone challenged proceeding. Corporate Debtor relied on the decision in K Kishan v M/s Vijay Nirman Company Pvt Ltd[5]. In this case, the Supreme Court refused to uphold the allowance of a CIRP petition which based its claim on an arbitral award, because the award was pending proceedings under Section 34 of the Arbitration Act.
     
  • The Operational Creditors refused the contentions by stating that, United Kingdom (UK) is a reciprocating territory under section 44A of the Code of Civil Procedure, 1908 (CPC), i.e., decrees passed by a court in UK are deemed to be decrees of a court in India, unless proven otherwise. The foreign award is binding on the parties and can be used by way of defense or any other proceeding in India under section 46 of the Arbitration Act.

NCLT Views
  • After hearing the contentions of the parties, the National Company Law Tribunal, Mumbai Bench admitted the petition filed by the Operational Creditors for intimation of CIRP. The NCLT held that the foreign award is a valid source of a 'claim' as defined in Section 3(6) of the IBC. The foreign award is passed in the UK, which is a reciprocating territory in terms of section 44A of the CPC. Consequently, the NCLT specifically held that the foreign award was capable of being executed in India.
     
  • The NCLT relied on K. Kishan v. Vijay Nirman Company Pvt. Ltd and held that only when there is a pending challenge against the foreign award, shall be considered as a pre-existing dispute. In the present case, Corporate Debtor had not challenged the award and the tribunal opined that:
    It was not possible to wait indefinitely for the Corporate Debtor to challenge the Arbitral Award.

Our Views
Keeping in record, this case is in the context of a foreign award which is obviously passed in a country which is known as the reciprocating territory notified under section 44A of the CPC.

In this case, NCLT refer section 44A of the CPC to hold the foreign award is capable to execute in India. Apart from this the National Company Law Appellate Tribunal, in the case of Usha Holdings LL.C. & Anr. v Francorp Advisors Pvt. Ltd. held that the adjudicating authority is not a court which can decide upon the validity or jurisdiction of a foreign decree.

However, India is the old signatory of Recognition and Enforcement of Foreign Arbitral Awards, 1958 (New York Convention) as well as the Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (Geneva Convention) and in this case foreign award is given by the United Kingdom which is a signatory in the New York Convention and the Geneva Convention which is also notified by the Government of India.

The petition admitted by the NCLT is correct if we see section 9 of the IBC. Section 9 application is filed by the operational creditors upon the certain claims.

Under the IBC, Claim means:
  1. a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
     
  2. right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured.
Further, there was no pre-existing dispute related to foreign awards same the petition is filed by the Operational Creditor. The foreign award falls within the definition of claim but only if we set aside the enforcement proceeding. The absence of any objections to enforcement proceedings or challenge proceeding in the UK is evidentiary of the lack of a pre-existing dispute.
As per our understanding, the question related to the validity of a foreign award in the absence of proper enforcement proceedings is not touched and discussed by the NCLT.

Through this NCLT, open the route for creditors under the IBC, who have claims against Indian debtors which are crystallized by way of foreign arbitral awards. Technically need to undergo in an enforcement proceeding is not discussed in this case which also indicates that the IBC mechanism does not require a foreign operational creditor to undergo enforcement proceedings in the concerned High Court and obtain a valid enforcement order before approaching the NCLT with a claim and CIRP proceedings.

End-Notes:
  1. Civil appeal no. 21825 of 2017
  2. CP(IB) No. 798/MB/C-IV/2019
  3. 2006 5 Bom CR 155
  4. 2013 SCC Online Cal 1940
  5. (2018) 4 Comp LJ 168 (SC)

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