Supreme Court says arbitral award not operational debt

Is an arbitration award against which a challenge is pending under the Arbitration and Conciliation Act, 1996, sufficient to commence insolvency proceedings under the Insolvency and Bankruptcy Code, 2016? “No”, said the Supreme Court in K Kishan v Vijay Nirman Company Private Limited.

Vijay Nirman, the respondent, had entered into a sub-contractor agreement with the appellant, KCPL, an engineering and construction services company, for undertaking 50% of construction and widening of National Highway No 67. However, during the execution, there were disputes, which were referred to arbitration. The arbitral tribunal upheld two claims of Vijay Nirman – one claim for ₹17.1 million (US$166,000) and the other for ₹135.6 million. In arbitration, KCPL raised three counter-claims that were rejected. KCPL challenged the award before the commercial court in Hyderabad.

While this challenge was pending, Vijay Nirman claiming to be an operational creditor by virtue of the award, sent a statutory notice to KCPL claiming ₹17.9 million. KCPL disputed its liability as the claim amount formed the subject matter of arbitration proceedings against which KCPL’s challenge was pending in court; and as per its books Vijay Nirman was liable to pay much higher amounts. The respondent’s petition was admitted by the National Company Law Tribunal (NCLT). NCLT noted that as per the award KCPL’s counsel had admitted that the ₹17.1 million claimed by Vijay Nirman was due.

Karthik Somasundram is a partner and Sneha Jaisingh is a managing associate at Bharucha & Partners.