Saturday, March 25, 2023

LAW ON FRAMING OF CHARGE

 



LAW on framing of charge

The Code of Civil Procedure contains the process of framing of charge. Section 227 relates to framing of charge against accused in respect of the Sessions trial case, whereas, the charge framing process before the courts of Magistrate are contained in section 239 of Cr.P.C. In F.I.R case, after filing of charge sheet against the accused under section 173 of Cr.P.C, the courts frame charges, if prima facie offence is made out under the provisions of Indian Penal Code and /or under any other provisions of law. After framing of charge the trial of proceeding begins. However, if the court discharges the accused, then the process against the accused culminates. In case charges are framed, then after recording prosecution witnesses, if the case is not made out, then, order of acquittal could be recorded, or else,  and if required the accused may lead defence witnesses. The order of acquittal or conviction could be passed after hearing arguments of prosecution and defence. The principles related to charge with all its requisites shall be delved here-in-below.

POSITION OF LAW

The section 226 of the CrPC corresponds to subsection (1) of the old Section 286 with some changes owing to the abolition of the jury.

Section 226 of the 1973 Code reads thus:

“226. Opening case for prosecution.When the accused appears or is brought before the Court in pursuance of a commitment of the case under section 209, the prosecutor shall open his case by describing the charge brought against the accused and stating by what evidence he proposes to prove the guilt of the accused.”

 

Section 226 of the CrPC permits the prosecution to make the first impression regarding a case which might be difficult to dispel. The prosecution is required to assert its duty under Section 226 of the CrPC. In case an accused contends that there has been non compliance of section 226 of Cr.P.C in as much as case against him is not explained. However, the very fact that the Section 173 (2) of the CrPC report in the case is duly submitted that in itself would give a fair idea of the case. After crossing the stage of section 227, Section 228 is reached, which affords both the prosecution and accused a fair opportunity to put forward their rival contentions.

Section 227:- Discharge

If, upon consideration of the record of the case and the documents submitted therewith, and after hearing the submissions of the accused and the prosecution in this behalf, the Judge considers that there is no sufficient ground for proceeding against the accused, the accused shall be discharged and reasons for this shall have to be recorded.

 


228. Framing of charge

(1) If, after such consideration and hearing as aforesaid, the Judge is of opinion that there is ground for presuming that the accused has committed an offence which

(a) is not exclusively triable by the Court of Session, he may frame a charge against the accused and, by order, transfer the case for trial to the Chief Judicial Magistrate, or any other Judicial Magistrate of the first class and direct the accused to appear before the Chief Judicial Magistrate, or as the case may be, the Judicial Magistrate of the first class, on such date as he deems fit, and thereupon such Magistrate shall try the offence in accordance with the procedure for the trial of warrant cases instituted on a police report;

(b) is exclusively triable by the Court, he shall frame in writing a charge against the accused.

(2) Where the Judge frames any charge under clause (b) of subsection (1), the charge shall be read and explained to the accused and the accused shall be asked whether he pleads guilty of the offence charged or claims to be tried.”

 

The purpose of framing a charge is to intimate to the accused the clear, unambiguous and precise nature of accusation that the accused is called upon to meet in the course of a trial Ref: V.C. Shukla v. State through C.B.I. reported in1980 Supp SCC 92: 1980 SCC (Cri) 695).

The case may be a sessions case, a warrant case, or a summons case, the point is that a prima facie case must be made out before a charge can be framed. Basically, there are three pairs of sections in the CrPC. Those are Sections 227 and 228 relating to the sessions trial; Section 239 and 240 relatable to trial of warrant cases, and Sections 245(1) and (2) with respect to trial of summons case.




LAW

In Union of India v. Prafulla Kumar Samal and another, (1979) 3 SCC 4, the Supreme Court has considered the scope of enquiry a judge is required to make while considering the question of framing of charges. After an exhaustive survey of the case law on the point, this Court, in paragraph 10 of the judgment, laid down the following principles :

“(1) That the Judge while considering the question of framing the charges under section 227 of the Code has the undoubted power to sift and weigh the evidence for the limited purpose of finding out whether or not a prima facie case against the accused has been made out.

(2) Where the materials placed before the Court disclose grave suspicion against the accused which has not been properly explained the Court will be, fully justified in framing a charge and proceeding with the trial.

(3) The test to determine a prima facie case would naturally depend upon the facts of each case and it is difficult to lay down a rule of universal application. By and large however if two views are equally possible and the Judge is satisfied that the evidence produced before him while giving rise to some suspicion but not grave suspicion against the accused, he will be fully within his right to discharge the accused.

(4) That in exercising his jurisdiction under section 227 of the Code the Judge which under the present Code is a senior and experienced Judge cannot act merely as a Post office or a mouthpiece of the prosecution, but has to consider the broad probabilities of the case, the total effect of the evidence and the documents produced before the Court, any basic infirmities appearing in the case and so on. This however does not mean that the Judge should make a roving enquiry into the pros and cons of the matter and weigh the evidence as if he was conducting a trial.”

 

The Supreme Court has further dealt with scope of Court’s powers in respect of the framing of charges in a criminal case in a matter reported as Dipakbhai Jagdishchndra Patel v. State of Gujarat, (2019) 16 SCC 547. The paragraphs 15 of the aforesaid judgment are reproduced for ready reference:

“15. We may profitably, in this regard, refer to the judgment of this Court in State of Bihar v. Ramesh Singh wherein this Court has laid down the principles relating to framing of charge and discharge as follows:

“4…..Reading Sections 227 and 228 together in juxtaposition, as they have got to be, it would be clear that at the beginning and initial stage of the trial the truth, veracity and effect of the evidence which the prosecutor proposes to adduce are not to be meticulously judged. Nor is any weight to be attached to the probable defence of the accused. It is not obligatory for the Judge at that stage of the trial to consider in any detail and weigh in a sensitive balance whether the facts, if proved, would be incompatible with the innocence of the accused or not. The standard of test and judgment which is to be finally applied before recording a finding regarding the guilt or otherwise of the accused is not exactly to be applied at the stage of deciding the matter under Section 227 or Section 228 of the Code. At that stage the Court is not to see whether there is sufficient ground for conviction of the accused or whether the trial is sure to end in his conviction. Strong suspicion against the accused, if the matter remains in the region of suspicion, cannot take the place of proof of his guilt at the conclusion of the trial. But at the initial stage if there is a strong suspicion which leads the Court to think that there is ground for presuming that the accused has committed an offence then it is not open to the Court to say that there is no sufficient ground for proceeding against the accused. The presumption of the guilt of the accused which is to be drawn at the initial stage is not in the sense of the law governing the trial of criminal cases in France where the accused is presumed to be guilty unless the contrary is proved. But it is only for the purpose of deciding prima facie whether the court should proceed with the trial or not. If the evidence which the prosecutor proposes to adduce to prove the guilt of the accused even if fully accepted before it is challenged in cross examination or rebutted by the defence evidence, if any, cannot show that the accused committed the offence, then there will be no sufficient ground for proceeding with the trial….

In Sajjan Kumar v. CBI [(2010) 9 SCC 368 : (2010) 3 SCC (Cri) 1371] , this Court had an occasion to consider the scope of Sections 227 and 228 CrPC. The principles are  noted in para 21 of the said judgment:

(i) The Judge while considering the question of framing the charges under Section 227 CrPC has the undoubted power to sift and weigh the evidence for the limited purpose of finding out whether or not a prima facie case against the accused has been made out. The test to determine prima facie case would depend upon the facts of each case.

(ii) Where the materials placed before the court disclose grave suspicion against the accused which has not been properly explained, the court will be fully justified in framing a charge and proceeding with the trial.

(iii) The court cannot act merely as a post office or a mouthpiece of the prosecution but has to consider the broad probabilities of the case, the total effect of the evidence and the documents produced before the court, any basic infirmities, etc. However, at this stage, there cannot be a roving enquiry into the pros and cons of the matter and weigh the evidence as if he was conducting a trial.

(iv) If on the basis of the material on record, the court could form an opinion that the accused might have committed offence, it can frame the charge, though for conviction the conclusion is required to be proved beyond reasonable doubt that the accused has committed the offence.

(v) At the time of framing of the charges, the probative value of the material on record cannot be gone into but before framing a charge the court must apply its judicial mind on the material placed on record and must be satisfied that the commission of offence by the accused was possible.

(vi) At the stage of Sections 227 and 228, the court is required to evaluate the material and documents on record with a view to find out if the facts emerging therefrom taken at their face value disclose the existence of all the ingredients constituting the alleged offence. For this limited purpose, sift the evidence as it cannot be expected even at that initial stage to accept all that the prosecution states as gospel truth even if it is opposed to common sense or the broad probabilities of the case.

(vii) If two views are possible and one of them gives rise to suspicion only, as distinguished from grave suspicion, the trial Judge will be empowered to discharge the accused and at this stage, he is not to see whether the trial will end in conviction or acquittal.”

 

The law as evolved and discussed below shall further elucidate the principles. In State v. S. Selvi, (2018) 13 SCC 455 : (2018) 3 SCC (Cri) 710, followed in Vikram Johar v. State of Uttar Pradesh, (2019) 14 SCC 207 : 2019 SCC OnLine SC 609 : (2019) 6 Scale 794 and Asim Shariff v. National Investigation Agency, (2019) 7 SCC 148. In the aforesaid judgments it is categorically expressed that the trial court is not expected or supposed to hold a mini trial for the purpose of marshalling the evidence on record. The relevant observations are as under:

18. Taking note of the exposition of law on the subject laid down by this Court, it is settled that the Judge while considering the question of framing charge  under Section 227 CrPC in sessions cases(which is akin to Section 239 CrPC pertaining to warrant cases) has the undoubted power to sift and weigh the evidence for the limited purpose of finding out whether or not a prima facie case against the accused has been made out; where the material placed before the Court discloses grave suspicion against the accused which has not been properly explained, the Court will be fully justified in framing the charge; by and large if two views are possible and one of them giving rise to suspicion only, as distinguished from grave suspicion against the accused, 3 2018(13) SCC 455 4 2019(6) SCALE 794 the trial Judge will be justified in discharging him. It is thus clear that while examining the discharge application filed under Section 227 CrPC, it is expected from the trial Judge to exercise its judicial mind to determine as to whether a case for trial has been made out or not. It is true that in such proceedings, the Court is not supposed to hold a mini trial by marshalling the evidence on record.”

 

In the case of State of Karnataka v. M.R. Hiremath, reported in (2019) 7 SCC 515, this Court held as under:

“ The parameters which govern the exercise of this jurisdiction have found expression in several decisions of this Court. It is a settled principle of law that at the stage of considering an application for discharge the court must proceed on the assumption that the material which has been brought on the record by the prosecution is true and evaluate the material in order to determine whether the facts emerging from the material, taken on its face value, disclose the existence of the ingredients necessary to constitute the offence.

 

Similarly, in State of T.N. v. N.Suresh Rajan, (2014) 11 SCC 709, it s reiterated as under:

“29. … At this stage, probative value of the materials has to be gone into and the court is not expected to go deep into the matter and hold that the materials would not warrant a conviction. In our opinion, what needs to be considered is whether there is a ground for presuming that the offence has been committed and not whether a ground for convicting the accused has been made out”.

Therefore, if it appears to the court on the basis of perusal of materials on record and on the premise of its probative value that the accused might have committed the offence, the charge can be framed. However, in order to record order of conviction, the court has to come to the conclusion that the accused has committed the offence.

It clearly emerges on the basis of the aforesaid discussion that a duty is cast on the trial court to apply its mind at the time of framing of charge and it should not act as a mere post office. However, the material which is required to be evaluated by the Court at the time of framing charge should be the material which is produced and relied upon by the prosecution. No mini trial is envisaged to ascertain the guilt of the accused at the stage of framing charge. What is necessary is that the court must be satisfied that the evidence collected by the prosecution is sufficient to presume that the accused has committed an offence. Even a strong suspicion would suffice.

In Bhawna Bai v. Ghanshyam, (2020) 2 SCC 217) it is held that the material placed before the Court by the prosecution in the shape of final report in terms of Section 173 of CrPC, may be relied upon in entirety, besides, the Court may also rely upon any other evidence or material which is of sterling quality and may have direct bearing on the charge laid before it by the prosecution.

Similarly, in Amit Kapoor Vs Ramesh Chander, (2012) 9 SCC 460, this Court observed in paragraph 30 that the Legislature in its wisdom has used the expression “there is ground for presuming that the accused has committed an offence”. There is an inbuilt element of presumption. It referred to its judgment rendered in the case of State of Maharashtra v. Som Nath Thapa and others, (1996) 4 SCC 659, and to the meaning of the word “presume”, placing reliance upon Blacks’ Law Dictionary, where it was defined to mean “ to believe or accept upon probable evidence”; “to take as true until evidence to the contrary is forthcoming”.

                                  R E M A R K

Thus, to sum it up as clearly narrated at the very onset that framing of charge is an act of court based on the charge sheet submitted as per section 173 of Cr.P.C thereby placing reliance on statement of witnesses u/s 161 of Cr.P.C and that of Section 164 of Cr.P.C (if so recorded), besides the documents, expert opinion, medial report if necessary and if the nature of the case is such besides the case history as set out by the prosecution. The Court at that stage shall have to satisfy itself on prima facie basis, if the charge sheet disclosed offence or offences against accused or a particular accused. The Court shall be required to apply its mind on the allegation in the charge sheet, but the probative value of the allegation shall not be looked into at the stage of framing of charge. However, it is also true that the court shall not act as mere post office and charge sheet shall have to be evaluated on the prima facie basis and in the event the allegation against a particular accused qua the offence is not made out, the accused could be discharged. On the other hand, if on the prima facie evaluation, the offence is made out, then charges shall be framed and trial proceedings shall commence. The allegation in charge sheet shall have to be treated as gospel truth in that point in time and if the allegation raises suspicion /grave suspicion, then charges could be framed. The truth of the matter may come out when the prosecution evidence is led, the witnesses are cross examined by the defence, incriminating material and evidences are put to the accused in terms of Section 313 of the Code, and then the accused is also provided an opportunity to lead defence, if any. It is only upon completion of such steps that the trial concludes with the Court forming its final opinion and delivering its judgment.

                                  ____________

                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

Monday, March 20, 2023

CIRP & ARBITRATION

 


CIRP & ARBITRATION

What will be the implication of a claim raised by a Financial Creditor (FC) or Operational Creditor (OC) if a corporate debtor admitted to Corporate Insolvency Resolution Process (hereafter ‘CIRP’) under the Insolvency and Bankruptcy Code, 2016 (hereafter ‘IBC’) if the claim of such creditors are not part of Resolution Plan. This is of course, with regard to the claim arising out after Insolvency Commencement Date (ICD). No doubt, the creditors can file claim on being aware of the CIRP proceedings either as Operational Creditor (OR) or as Financial Creditor (FC), before the Resolution Professional (RP) so appointed by National Company Law Tribunal (NCLT), as the case may be. Thus, whether all existing as well as future claims against the respondent/ corporate debtor (CD) company, which were not expressly noted in the Resolution Plan shall stand extinguished pursuant to approval of resolution plan by NCLT, after its submission through RP & CoC (Committee of Creditor) are the topic of deliberation herein. If it is indeed extinguished, then what remedy the creditor shall have qua claims post ICD.

 

The issue has generated much heat in view of the fact that the Delhi High Court has recently faced a similar situation in a matter captioned as BHARAT PETRORESOURCES LIMITED (BRPL)  versus JSW ISPAT SPECIAL PRODUCTS LIMITED ARB.P. 1154/2021

 


The hon’ble Delhi High court at the outset, thus, has referred to the common order dated 19.08.2019 passed by the NCLAT in respect of the appeals preferred against the order dated 24.07.2018 passed by the NCLT, Mumbai approving the Resolution Plan in respect of the respondent/corporate debtor  company. The said appeals include Company Appeal (AT) (Insolvency) No. 550 of 2018 preferred by BPRL. The said appeal was dismissed. However, the following paragraphs which prima facie indicate the reasons for dismissing the appeal are relevant:

“30. From ‘I&B Code’, it is clear that on initiation of ‘Corporate Insolvency Resolution Process’ (after admission), the public announcement of the ‘Corporate Insolvency Resolution Process’ is made under Section 15. Thereafter, the ‘Interim Resolution Professional’ is empowered under Section 18(1) (b) to receive and collate all the claims submitted by creditors.

31. The aforesaid claim(s) relates to the debt payable to a creditor(s) before initiation of the ‘Corporate Insolvency Resolution Process’ and do not relate to any amount payable during the ‘Corporate Insolvency Resolution Process’.

32. ‘Bharat Petro Resources Limited’ submitted its claim on 5th January, 2018 towards the ‘operational debt’ amounting to Rs.9,58,88,886/- as on the Insolvency Commencement Date, which has been admitted by the ‘Resolution Professional’. Therefore, any claim of the Appellant towards future claim accrued after the Insolvency Commencement Date, cannot be considered under Section 18(1) (b) by the ‘Resolution Professional’.

33. If any cost incurred during the ‘Corporate Insolvency Resolution Process’ that cannot be treated to be the claim of an ‘Operational Creditor’ and therefore, further claim amounting to Rs.9,92,86,892/- towards future claim made by ‘Bharat Petro Resources Limited’ was rightly not collated by the ‘Interim Resolution Professional’/ ‘Resolution Professional’.

34. For the reason aforesaid merely on the ground that the future claim has not been collated by the ‘Resolution Professional’, the Appellant- ‘Bharat Petro Resources Limited’ cannot assail the order of approval of plan (dated 25th July, 2018) passed under Section 31 of the ‘I&B Code’.

 

It is apparent from the above that NCLAT was of the view that BPRL’s appeal was in respect of claims arising post the ICD and could not be accepted by the Resolution Professional. Therefore, its grievance that the same had not been considered was not sustainable.

The BRPL had invoked arbitration clause between the parties and an application under Section 11 (6) of Arbitration & Conciliation Act 1996 ( In short A & C Act) was filed before the Delhi High Court  for appointment of Arbitrator. Thus, the question whether the liability sought to be enforced by BPRL against the respondent (corporate debtor) stands extinguished after approval of resolution plan or whether claim post ICD could be raised in arbitration, if there are arbitration clause existing and subsisting between the parties is a moot point.  The High Court has noted that it is a contentious issue. The high court had to adjudicate whether arbitration clause between the parties could be invoked, in the light of the contentions that claim of a party post ICD cannot be excluded on the premise that CIRP was approved.  The High Court has deliberated on the issue that if the claim and controversy involved in the above case, arises after ICD, whether the same shall be subject to arbitration clause and if so, whether the arbitration proceedings should be allowed to commence to that extent.



                                           Arbitration clause

In the above backdrop, the high court in Bharat Petro (Supra) had occasion to deal with  19.3 i.e the arbitration clause between the parties. The same is as under:

19.3 Resolution of disputes through Arbitration:

19.3.1 Subject to the provisions of this Agreement, the Parties hereby agree that any controversy, difference, disagreement or claim for damages, compensation or otherwise (hereinafter in this Clause referred to as a “Dispute”) arising between the Parties in relation to, arising under or arising out of this agreement including termination or validity of this Agreement, which cannot be settled amicably, may be referred to an arbitral tribunal for final decision as hereinafter provided.

19.3.2 Any Party desiring to refer any such difference for arbitration shall send a notice in writing to the Party against whom such dispute is raised, along with a Statement, specifying therein the facts, issues & claims for appointment of an Arbitrator to the Arbitral Tribunal under the provisions of Art. 19, along with a copy of the said notice to the Operator.

19.3.3 The arbitral tribunal shall consist of odd number of Arbitrators in total. Each Party to the dispute shall appoint one arbitrator and the Party or Parties shall so advise the other Parties to the dispute. However, in the case of even number of Parties to the dispute, the Arbitrators so appointed shall appoint another Arbitrator, in order to make the total number of Arbitrators to the Arbitral Tribunal odd in number.

19.3.4 If any Party fails to appoint an Arbitrator within thirty (30) days of receipt of the written request to do so, or if the Arbitrators, so appointed by or on behalf of the Parties fail to agree on the appointment of the next Arbitrator within thirty (30) days of the appointment of the last arbitrator to the Arbitral Tribunal and if the Parties do not otherwise agree, at the request of either Party, the next arbitrator shall be appointed in accordance with Arbitration and Conciliation Act, 1996.

19.3.5 If any of the arbitrators fails or is unable to act, his successor shall be appointed by the Party who originally appointed such in the manner set out in this Article as if he was the first appointment.

19.3.6 The Arbitrators to the Arbitral Tribunal shall, from amongst themselves select a Presiding Arbitrator for conducting the arbitration proceedings. Arbitration proceedings shall be conducted in accordance with the rules for arbitration provided in the Arbitration and Conciliation Act, 1996 or any amendment or further enactments thereto.

19.3.7 The fees and expenses of the Arbitrator shall be payable as per schedule of Indian Council of Arbitration, Delhi, and shall be shared in equal proportion by the parties to the dispute.

19.3.8 The parties shall freeze the claim of interest, if any, and shall not claim the same for the period the proceedings are pending before the arbitral tribunal.

19.3.9 The decision of the arbitral tribunal shall be pronounced within four (4) months of the appointment of the last arbitrator to the Arbitral Tribunal unless otherwise extended by the Parties or by arbitral tribunal. The arbitral tribunal shall give a reasoned award in English in writing.

19.3.10 This arbitration agreement shall be governed by the Arbitration and Conciliation Act, 1996 and any amendments thereto or further enactments thereof prior to submitting a dispute to arbitration, the Parties may by mutual agreement submit the matter for conciliation as per Art.19.2.1 of this Agreement and in accordance with Part III of the Arbitration and Conciliation Act,1996 and any amendments thereto or further enactments thereof.

19.3.11 The venue of the arbitration proceedings pursuant to this Article, unless the Parties agree otherwise, shall be New Delhi, India and shall be conducted in the English language.

19.3.12 The right to arbitrate disputes under this Agreement shall survive expiry or the termination of this Agreement and the Contract. Insofar as practicable, the Parties shall continue to implement the terms of this Contract notwithstanding the initiation of proceedings before the Joint Experts Committee (JEC) or Arbitral Tribunal and any pending claim or dispute.

 


                                                  LAW

The judicial  precedents are varied as may be noted below:

1.   The Supreme Court in Ghanshyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction  Company: 2021 SCC OnLine SC 313, was pleased to set aside the order of the NCLAT granting permission to an operational creditor to file a suit in respect of a claim which was not included in the resolution plan. The moot point is whether the Court had reiterated the “Clean Slate” principle, which postulated that not only all claims but also all causes of action against the company admitted to CIRP would stand extinguished on approval of the Resolution Plan. The decision of the Supreme Court in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta: (2020) 8 SCC 531 is also to the aforesaid effect.

2.    In recent decision in Mohammed Masroor Shaikh v. Bharat Bhushan Gupta & Ors: Civil Appeal No. 874 of 2022, decided on 02.02.2022 while referring to the decision in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 held that “the Court by default would refer the matter when contentions relating to non arbitrability are plainly arguable.”

3.     In Andhra Bank v. M/s. F.M. Hammerle Textile Limited: Company Appeal (AT) (Insolvency) No. 61 of 2018, decided on 13.07.2018 It is held that the scope of examination under Section 11 of the A&C Act was limited and it was not necessary for the high court to examine the disputes between the parties, if the arbitration agreement was not disputed. Thus, an arbitrator or Arbitral tribunal as the case may be, should be constituted. What is also relevant in the context is that whether the NCLT, had expressly indicated that that only the liabilities and obligations of the respondent prior to the ICD were extinguished. There is no dispute that a creditor is precluded from initiating any proceedings in respect of a claim which is not a part of the Resolution Plan or one that was not preferred at the relevant time. However, the said principle is not applicable to claims that become due after the ICD. Thus, if  the claims raised by BPRL related to a period after the ICD, it cannot be deemed to be precluded from seeking adjudication of its claim and recovery of the amounts claimed by it. All future claims of a corporate debtor arising after the ICD cannot be considered by the Resolution Professional and outlet to that effect may be stipulated. Reference in this regard may be have to the decision of the NCLAT in Andhra Bank (Supra) it is held by the NCLAT that the claims arising after the ICD would not be automatically extinguished.

4. That the Delhi High Court in a matter reported as Nitin Fire Protection Industries Limited v. Gail (India) Limited: OMP (COMM) 332/2017, decided on 05.09.2017 has held that forfeiture of the participating interest of the respondent did not absolve the respondent of its liability.

It is well settled that in terms of sub-section (6A) of Section 11 of the A&C Act, the scope of examination under Section 11 of the A&C Act is limited to the existence of an arbitration agreement between the parties. Notwithstanding the same, in cases where it is ex facie clear that the disputes cannot be entertained, the courts would refrain from entertaining the petition to appoint an arbitrator as the same would be an exercise in futility. (Ref: Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, N. N. Global  Mercantile Private Limited v. Indo Unique Flame Limited & Ors.: 2021 SCC OnLine SC 13 and Bharat Sanchar Nigam Limited and Anr. v. Nortel Networks India Pvt. Ltd.: 2021 5 SCC 738).

5. The Delhi High Court in this context has in NCC Limited v. Indian Oil Corporation Limited: (2019) SCC OnLine Del 6964, set out the principle in the following words:

“107. In my view, the scope of examination as to whether or not the claims lodged are Notified Claims has narrowed down considerably in view of the language of Section 11(6-A) of the 1996 Act. To my mind, once the Court is persuaded that it has jurisdiction to entertain a Section 11 petition all that is required to examine is as to whether or not an arbitration agreement exists between the parties which is relatable to the dispute at hand. The latter part of the exercise adverted to above, which involves correlating the dispute with the arbitration agreement obtaining between the parties, is an aspect which is implicitly embedded in sub-section (6-A) of Section 11 of the 1996 Act, which, otherwise, requires the Court to confine its examination only to the existence of the arbitration agreement. Therefore, if on a bare perusal of the agreement it is found that a particular dispute is not relatable to the arbitration agreement, then, perhaps, the Court may decline the relief sought for by a party in a Section 11 petition. However, if there is a contestation with regard to the issue as to whether the dispute falls within the realm of the arbitration agreement, then, the best course would be to allow the arbitrator to form a view in the matter”.

It is also held in para 108 in the above judgment that:

“Thus, unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the court concerned hearing Section 11 petition should follow the more conservative course of allowing parties to have their say before the Arbitral Tribunal.”

 

It is also trite law that it is only in exceptional cases where it is absolutely clear that the disputes cannot be entertained that the court will decline to entertain a petition under Section 11 of the A&C Act. The standards of examination under Section 11 of the A& C Act do not permit the court to carry out any adjudicatory exercise in respect of any contentious issue.

6. That in a recent decision of the Supreme Court in Inter Continental Hotels Group (India) Pvt. Ltd. & Anr. v. Waterline Hotels Pvt. Ltd: Arbitration Petition (Civil) No. 12 of 2019, decided on 25.01.2022, had highlighted that as a matter of default, the parties must be referred to arbitration and it is only in cases where it is clear that the disputes are deadwood that the courts would refrain from appointing an arbitrator. The court had once again reiterated the principle ‘when in doubt refer’.

It is apparent from the above that NCLAT was of the view that BPRL’s appeal was in respect of claims arising post the ICD and could not be accepted by the Resolution Professional. Therefore, its grievance that the same had not been considered was not sustainable.

The Delhi High Court has thus held that the question whether the liability sought to be enforced by BPRL against the respondent stands extinguished is a contentious issue and therefore, the high court has held that it is unable to accept that the controversy involved in the present case falls within the standards of examination under Section 11 of the A&C Act and the controversy be relegated to the arbitration for a decision.

7. The Supreme Court in Mohammed Masroor Shaikh v. Bharat Bhushan Gupta & Ors: Civil Appeal No. 874 of 2022, decided on 02.02.2022 while referring to the decision in Vidya Drolia v. Durga Trading Corporation (supra) held that “the Court by default would refer the matter when contentions relating to non arbitrability are plainly arguable.”

                                  CONCLUSION

What therefore clearly emerges from the above discussion that the basic rule is that the claim which is not part of approved Corporate Insolvency Resolution Process (CIRP) cannot be claimed further. What also emerges however is that claim after Insolvency Commencement Date (ICD) shall not be included in CIRP. Any claim of a Financial Creditor or Operational Creditor thus emerges subsequent to ICD shall not pass muster CIRP. If this is to be accepted as finality, the losses to all such claimants which may arise after ICD shall be completely negated. This may cause colossal loss to such claimant. Therefore, it evolves that claim, post ICD, though cannot be part of CIRP, but a party/claimant cannot be relegated to suffer the peril, if the cause of action is post ICD and therefore, the claim of such party beyond CIRP should be adjudicated.  If there are arbitration clause in an agreement between the parties, the said clause could be invoked. It is also settled proposition in law that arbitration clause shall survive even post termination of agreement. The appointment of Arbitrator as per the clause of the agreement therefore can be prayed for and the claim post ICD could be adjudicated by Arbitrator if duly appointed or by such other forums. When a party to the lis seeks appointment of Arbitrator as per Section 11 (6) of A & C Act, the Court is not required to examine and adjudicate any contentious issue and the parties must be relegated to the forum of their choice for adjudication of their disputes. It is so, as the NCLT or NCLAT order approving resolution plan could not possibly encompass the claim of operational creditor post ICD. If there is an agreement between parties and if arbitration clause is admitted the same should be left on the domain of arbitrator to adjudicate on merit and all contentious issues post ICD could be raised in arbitral proceedings.

                                           -------

Anil k Khaware

Founder & Senior Partner

Societylawandjustice.com

 


 


 

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