Judgment Name: Trafigura India Private Limited v. TDT Copper Limited

Citation: MANU/NL/0738/2022

Court: National Company Law Appellate Tribunal, New Delhi

Coram: Anant Bijay Singh, J. Member (J) and Shreesha Merla, Member (T)

Date: 15th September 2022.

Keywords: IBC, Arbitration, NCLT, CIRP, Adjudicating Authority

Overview:

The National Company Law Appellate Tribunal (“NCLAT”), upon hearing an order passed by the National Company Law Tribunal (“NCLT”), held that the jurisdiction of the Adjudicating Authority under Section 9 of the Insolvency & Bankruptcy Code, 2016 (“IBC”) is very limited and it does not extend to referring parties to the arbitration.

Facts:

Trafigura India Private Limited (“Trafigura”) and TDT Copper Limited (“TDT”) entered into a Master Sale Agreement (“MSA”) dated 27th January 2016 as per which TDT agreed to buy a specified quantity of copper cathodes from Trafigura. The rights and obligations of the parties were governed by the terms of the MSA. As per the Agreement, Trafigura agreed to raise invoices on TDT in respect of the provisional price payable for the copper cathodes, and TDT agreed to make payment within 30 days of receiving such invoice. Trafigura supplied copper cathodes to TDT; however, TDT defaulted on invoices raised by Trafigura. Upon further negotiations, the parties entered into a Settlement Agreement on 20th November 2018 and arrived at a settlement for the amounts that were due and payable. However, when TDT defaulted on the terms of the settlement agreement, Trafigura initiated Corporate Insolvency Resolution Process (“CIRP”) against TDT under Section 9 of the IBC. During the proceedings, TDT made two arguments. Firstly, they did not owe an “operational debt” qua Section 9 hence the Adjudicating Authority must not initiate CIRP against TDT. Secondly, the appropriate relief would be to approach an arbitral tribunal in pursuance of the dispute resolution clause in the Settlement Agreement. The Adjudicating Authority accepted TDT’s first submission; however, while highlighting the limited powers of the Adjudicating Authority under Section 9, It rejected TDT’s plea to refer the matter to an arbitral tribunal. The NCLAT agreed with both the findings made by the Adjudicating Authority and reaffirmed the Adjudicating Authority’s order in its entirety.

Issue:

Whether matters could be referred to arbitration by the Adjudicating Authority under Section 9 of the IBC?

Analysis

The NCLAT stated that the Adjudicating Authority has a very minimal role to play in IBC adjudication and that it has no power to refer parties to arbitration under Section 9 of the IBC. This ruling is in line with the well-established jurisprudence on the jurisdiction of the NCLT in hearing matters under Sections 7, 9 & 10 of the IBC. The Supreme Court of India (“SC”), on this matter, has held that the role of the adjudicating authority when hearing applications under Section 9 is restricted to two tasks. Firstly, NCLT must ascertain the existence of a debt incurred by the corporate debtor. Secondly, if the result of the foregoing inquiry is made in the affirmative, then the Adjudicating Authority ought to admit the corporate debtor into CIRP; however, if the result of the foregoing inquiry is made in the negative, the application to admit the corporate debtor into CIRP is rejected. Moreover, in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. and Ors. the SC even frowned upon the practice of NCLTs engaging in judicial innovation to broaden their own powers under Sections 7, 9 & 10. The Court held that such practices must be kept to the minimum and the adjudicating authority should focus on its sole role to ascertain the existence of a debt.

Conclusion:

While the ratio of this judgment is quite limited in its application, it clarifies the position of law on the powers of the adjudicating authority under the IBC One must not construe the order of the NCLAT as a bar on a party’s rights to recover money vide arbitration and being forced to admit such a debtor into CIRP. The ruling merely pertains to the NCLT’s powers under Section 9 of the IBC and does not address the arbitrability of monetary reliefs in case of a breach of a contract. The NCLAT, in its judgment, even stated that the corporate debtor is free to approach the court of competent jurisdiction to hear the plea of referring parties to the arbitration.

[This case note has been authored by Ryan Joseph, an Editor at Mapping ADR.]