NCLAT Rules Adjudicating Authority Can Enforce Arbitral Award During CIRP Despite MSME and Arbitration Act Objections
- REEDLAW
- 1 day ago
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that the Adjudicating Authority has jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) to enforce an arbitral award obtained under the MSME Act during the Corporate Insolvency Resolution Process (CIRP). The Tribunal emphasised that such enforcement cannot be defeated by objections concerning statutory timelines, stamping requirements, or provisions under the Arbitration and Conciliation Act.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain and Justice Mohammad Faiz Alam Khan (Judicial Members) and Mr. Naresh Salecha (Technical Member), while adjudicating a Company Appeal, held that the Adjudicating Authority, under Section 60(5) of the IBC, possesses jurisdiction to enforce an arbitral award obtained under the MSME Act during the Corporate Insolvency Resolution Process. The Tribunal observed that objections regarding limitation, stamping of the award, and its enforcement under the Arbitration and Conciliation Act do not restrict the Adjudicating Authority’s powers under the IBC.
The National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed by Jindal Lifestyle Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated 30.04.2024 passed by the NCLT, Chandigarh Bench, in IA No. 792 of 2023. The appeal questioned the Adjudicating Authority’s decision directing the enforcement of an arbitral award obtained by the corporate debtor, Arkin Creations Pvt. Ltd., during its Corporate Insolvency Resolution Process (CIRP).
The appellant contended that the arbitral award dated 23.01.2017, passed under the MSME Act, 2006, was not binding and could not be enforced by the NCLT. It argued that the award was ex parte, issued beyond the 90-day statutory period under Section 18(5) of the MSME Act, and was insufficiently stamped, rendering it a nullity. The appellant further claimed that enforcement of the award lay exclusively before a civil court under Section 36 of the Arbitration and Conciliation Act, 1996, and that the Adjudicating Authority lacked jurisdiction under Section 60(5) of the Code. Additionally, it was submitted that the award was never served upon the appellant before the demand notice dated 18.01.2023, and any claim based on it was time-barred under the Limitation Act, 1963.
The respondent, Resolution Professional of the corporate debtor, argued that the Code had an overriding effect under Section 238, and the Adjudicating Authority was empowered under Section 60(5) to adjudicate claims of the corporate debtor during CIRP. It was submitted that the arbitral award was enforceable as a decree, subject to a 12-year limitation period under Article 136 of the Limitation Act. The respondent relied on judicial precedents, including K.S. Oils Ltd. v. State Trade Corporation of India Ltd. and Ugro Capital Ltd. v. Bangalore Dehydration & Drying Equipment Co. Pvt. Ltd., affirming that IBC proceedings could be based on final awards or decrees. The respondent also contended that defects like insufficient stamping were curable and that timelines under the MSME Act were directory and not mandatory.
The Appellate Tribunal held that the arbitral award had attained finality as it was never challenged by the appellant and that the Adjudicating Authority was competent to entertain the application under Section 60(5) of the Code, given the overriding effect of Section 238. The NCLAT observed that allowing a separate civil court proceeding for enforcement would frustrate the time-bound nature of the insolvency resolution process. The Tribunal further held that the 90-day period prescribed under the MSME Act was not mandatory and that insufficiency of stamping did not invalidate the award. It also rejected the appellant’s arguments on limitation and locus.
Concluding that the Adjudicating Authority committed no error in directing enforcement of the award, the NCLAT dismissed the appeal as devoid of merit. No costs were awarded, and all pending applications were closed.
Mr. Sarad Kumar Sunny and Mr. Madhan Binzani, Advocates, represented the Appellant.
Mr. D. Pathak, Ms. Shweta Sharma, Ms. Vaibhavi Pathak, Mohd. Nazim Khan and Mr. Satyendra Sharma, Advocates, appeared for the Resolution Professional.
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