For the payment of a specific amount of money by one M/s Ksheeraabd Constructions Private Limited ("KCPL"), an arbitral award dated January 21, 2017 was made in favour of M/s Vijay Nirman Company Private Limited ("Respondent"). The Respondent served KCPL with a notice on February 6, 2017, in accordance with section 8 of the IBC. Due to the fact that the disputed amount was the subject of an arbitration procedure, the aforementioned notice was contested. The aforementioned arbitral award was subsequently challenged by KCPL in a petition submitted on April 20, 2017, in accordance with Section 34 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act").
In the instant case titled V. K. Kishan v. M/S Vijay Nirman Company Pvt. Ltd.,the issue raised for clarification before the Supreme Court was:
Whether an operational debt be discharged under the Insolvency and Bankruptcy Code, 2016 ("IBC") where an arbitral award has been rendered against the operational debtor but has not yet received a final decision?
With regard to this issue, it was mentioned that an application under Section 8 shall be denied if the operative creditor has received notice of a disagreement, according to section 9(5)(ii)(d) of the Code. According to the Supreme Court, the purpose of the IBC is to only initiate the insolvency procedure against a corporate debtor in situations where there is no genuine dispute between the parties over the amount owed, at least as it relates to operational creditors. Reference was also made to the Supreme Court's ruling in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353, which determined that operational creditors may not substitute the IBC for debt collection procedures or use it prematurely or for unrelated purposes. A pre-existing dispute that results in an award at the first stage of the proceedings persists even after the award, at least until the final adjudicatory process under sections 34 and 35 of the Arbitration Act, the court further held. This is because filing a Section 34 petition against an arbitral award demonstrates that the debt can be said to be disputed.
The petition under Section 34 of the Arbitration Act contesting an arbitral judgement may occasionally be expressly and absolutely barred by restriction, it was further held. Only in these obviously obvious instances may the insolvency procedure thereafter be used. In other situations, a Section 34 petition might have been filed in the incorrect court, in which case the petitioner might argue that Section 14 of the Limitation Act of 1963 should be applied to overcome the statute of limitations imposed by Section 34(3) of the Arbitration Act. It is evident in such situations as well that the insolvency procedure cannot begin without a decision regarding the applicability of Section 14 of the Limitation Act, 1963.
The Court categorically stated that,
"We repeat with emphasis that under our Code, insofar as an operational debt is concerned, all that has to be seen is whether the said debt can be said to be disputed, and we have no doubt in stating that the filing of a Section 34 petition against an Arbitral Award shows that a pre-existing dispute which culminates at the first stage of the proceedings in an Award, continues even after the Award, at least till the final adjudicatory process under Sections 34 & 37 has taken place”.