NCLAT clarifies the stance on Section 7 applications when Award is already in process of Execution

Principal Bench of The National Company Law Appellate Tribunal, in the case of Shaikh Mohammed Tariq v. Aegis Forging Ltd.[1]passed an Order on November 15^th, 2022 has clarified the stance on how applications under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) are to be dealt with when an Arbitration Award is already in the process of execution pertaining to the same matter.

On the basis of the Personal Guarantee provided by the Appellant, the investors of the Creditor had provided funds to the Corporate Debtor. On the basis of the same personal guarantee, an Arbitration Award dated 11.11.2013 was passed in favour of the Appellant.

The Appellant had already filed for the execution of the award in a matter which was still pending. During the pendency of the matter, the Appellant had sought to initiate Corporate Insolvency Resolution Process under Section 7 of the IBC on the ground that the Guarantee provided by him fell within the ambit of Financial Debt as per Section 5 (8) (i) of the IBC. However, the petition filed under Section 7 of the Act was not admitted by the National Company Law Tribunal.

Upon being aggrieved with the non-admission of the aforementioned petition, the Appellant filed an appeal before the NCLAT. The Appellate Authority while relying on the case of Vidarbha Industries Power Ltd. v. Axis Bank Limited[2] observed that it was not obligatory for NCLT to admit petitions merely on proof of debt and default in the repayment of debt.

The Apex Court had held in the above-mentioned case of Vidarbha Industries that the power of the NCLT under Section 7 (5) of the IBC was not obligatory and merely discretionary. It was also held that Section 7 (5) was not straitjacketed and that the admission of a petition should only be made upon the application of mind by the NCLT after the aforementioned precursors have been met with.

The NCLAT acknowledged that an Arbitration Award of INR 3,64,58,785 along with added interest had been passed in favour of the Appellant and the Corporate Creditor and that the latter had already filed for execution of the same thereof. Relying on the case of Vidarbha Industries and the pendency of the execution of the Arbitration Award, the Appellate Authority dismissed the captioned appeal and affirmed the dismissal of the original petition by the NCLT.

[1] Writ Petition No. 11164 of 2022; November 17, 2022

4Company Appeal (AT) (Ins.) No. 1342 of 2022; November 15, 2022

[1](2022) 8 SCC 352

[2](2022) 8 SCC 352