Case: Alchemist Asset Reconstrution Vs M/S. Hotel Gaudavan Pvt. Ltd
Date of Judgement: October 23, 2017
Petitioner: Alchemist Asset Reconstruction
Respondent: M/S. Hotel Gaudavan Pvt. Ltd.
Statute Referred: Arbitration and Conciliation Act, 1996
Facts:
- Hotel Gaudavan Private Limited (“Corporate Debtor”) was given a loan of Rs 24,00,00,000 (Rupees Twenty Four Crore only) and limited credit of INR 1,00,00,000 (Rupees One Crore only) by the State Bank of India (“Financial Creditor”) on January 4, 2008.
- The Corporate Debtor became irregular on repaying the loan and interest amount.
- Subsequently, the bank looking at the irregularity gave notice to the Corporate Debtor calling back the loan amount. A petition was filed before the Debt Recovery Tribunal, Jaipur, to recover the amount of loan.
- State Bank of India through an assignment agreement under Section 5 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 assigned the debt of the Hotel Gaudavan Private Limited to a company named as Alchemist Asset Reconstruction Company Limited.
- In effect, the Financial Creditor had replaced State of India in the ongoing proceedings in Debt Recovery Tribunal, Jaipur.
- The Financial Creditor then approached the Principal Bench of the National Company Law Tribunal at New Delhi by making an application under Section 7 of Code. This application was take up and admitted by the bench and the tribunal state Moratorium against Corporate Debtor under Section 14 of Code.
- Once the Moratorium was declared, the Corporate Debtor invoked the arbitration clause between the Financial Creditor and the Corporate Debtor and appointed an arbitrator as per the loan agreement.
- The bench decided that the appointment of an arbitrator and the arbitration proceeding were unlawful and not tenable. Moreover, the bench controlled from holding any arbitration proceeding against the Corporate Debtor.
- Even after the above ruling, the Corporate Debtor filed an appeal before the District Court of Jaisalmer, Rajasthan under Section 37 of the Arbitration and Conciliation Act, 1996 and the court passed an order for the appeal to be registered and a notice seeking reply was issued
- It was against the admission of this application that an appeal was preferred before the Supreme Court.
Issus involved:
- Whether Arbitration proceedings can be instituted against an entity after a moratorium under Section 14 (1) (a) of the Code has been imposed on that entity?
Contention of Petitioner:
- Petitioner contended that after the assignment of debts by SBI to the Petitioner company, all the accounts and documents were transferred to Delhi.
- The statements of accounts of HGPL are maintained by SBI at Delhi.
- The letter of consent dated March 20, 2014 for substitution under Section 5(5) of the Act and the NPS certificate have been issued by SBI from New Delhi and thus not only part of cause of action but entire cause of action took place at Delhi and thus this Court has territorial jurisdiction to entertain the present writ petition.
Contentions of Respondent:
- Respondent contended that the loan was sanctioned at Jodhpur by SBI Branch, Jodhpur, the registered office of borrower is at Jaipur, the property in question was situated at Jaisalmer, the proceedings occured at DRT, Jaipur culminating in the order dated May 06, 2015.
- Reference is made to the decision reported as (2007) 6 SCC 769 Ambica Industries v. Commissioner of Central Excise.
Judgement:
The Court mention that the directive of the Code is that the moment an insolvency petition is admitted, the moratorium period stands begin under Section 14 (1) (a) of the Code, and then it bars any admission of fresh proceedings or carrying on of any pending suit against a Corporate Debtor.
Hence, the present appeal was dismissed.
Conclusion:
In this case, it laid down the explanation of the provision of Section 14 as incorporated under the Code.
The court held that, when the moratorium period is foist then in such case certain activities as prescribed under the Act has been kept on stay particularly during this time the corporate debtor shall not initiate the Arbitration proceeding.
Drafted By: Sangeeta N, Presidency University, Bangalore
Edited By: Tanvi Mahajan, Publisher, Law Insider
Published On: February 23, 2022 at 21:04 IST