The Hon’ble National Company Law Tribunal, Cuttack Bench (“NCLT”) in the matter of Jaldhi Overseas Pte. Limited v. Steer Overseas Private Limited [TP No. L8/CTB/2019], held that a foreign award is not sufficient to initiate insolvency proceedings against the corporate debtor under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Facts

Steer Overseas Private Limited (“Corporate Debtor”) engaged Jaldhi Overseas Pte. Limited (“Operational Creditor”), a company incorporated under the laws of Singapore, for availing its vessel services for carrying its cargo of iron-ore fines from Haldia and Vizag port to a port in China. In the course of transportation of goods from the vessel which was taken on hire by the Corporate Debtor from the Operational Creditor, detention and demurrage charges became payable at Vizag and China port respectively. The amount of charges to be payable became disputed between the Corporate Debtor and the Operational Creditor. Consequently, the dispute was referred to arbitration by the Operational Creditor which was duly contested by the Corporate Debtor and upon completion of hearing and pleadings, the partial foreign award was passed by the arbitrator against the Corporate Debtor on January 20, 2017 (“Foreign Award”).

The Operational Creditor thereafter applied before the High Court of the Republic of Singapore for leave of the court to enforce the Foreign Award which was duly accepted and allowed by the High Court of Singapore by judgment dated December 1, 2017. Thereafter, the Operational Creditor had raised a demand notice demanding payment in respect of the Foreign Award. However, the Corporate Debtor failed to repay the debt. Consequently, the Operational Creditor filed an application under Section 9 (Application for initiation of corporate insolvency resolution process by operational creditor) of the IBC for initiation of corporate insolvency resolution process (“CIRP”) against the Corporate Debtor.

Issue

Whether a foreign award is sufficient to initiate insolvency proceedings against the Corporate Debtor under the IBC.

Arguments

Contentions raised by the Corporate Debtor:

The Corporate Debtor contended that the enforcement of Foreign Award through NCLT is impermissible and a CIRP under the IBC cannot be initiated on the basis of a foreign award. It further contented that the NCLT is not a civil court and nor an executing court for enforcement of Foreign Award. Lastly, the Corporate Debtor contented that since there is a pre-existing dispute between both the parties, the Foreign Award cannot be enforced and the petition is not maintainable as the claim is not an “operational debt”.

Contentions raised by the Operational Creditor:

The Operational Creditor submitted that its claim is based on the Foreign Award which was passed in its favour by an arbitral tribunal based in Singapore. The High Court of the Republic of Singapore, after rejecting objections raised by the Corporate Debtor, by its judgement dated December 1, 2017, also enforced the Foreign Award in favour of the Operational Creditor. Lastly, it contended that since the Foreign Award was recognised by the High Court of Singapore against the Corporate Debtor and the Corporate Debtor failed to repay the debt, even after repeated demand notice, the Foreign Award should be recognised as an operational debt and CIRP should be initiated against the Corporate Debtor under the IBC.

Observations of the National Company Law Tribunal

The NCLT stated that foreign awards are different from domestic awards. Unlike a domestic award, a foreign award has to undergo certain test to become an enforceable award/deemed decree and cannot directly constitute debt to initiate proceedings against the corporate debtor under the IBC. The NCLT, by citing the judgment of the Hon’ble Supreme Court in Government of India v. Vedanta Limited [2020 SCC online SC 749], further elaborated this by stating that the mere production of Foreign Award is not enough to give an effect. Part II, Chapter I of Arbitration and Conciliation Act, 1996 (“1996 Act”) deals with enforcement of foreign awards in India and as per explanation to Section 47 (Evidence) of the 1996 Act, ‘the court’ refers to only High Courts. Therefore, relying on Section 47 of the 1996 Act, the NCLT stated that the High Courts in India alone have the exclusive jurisdiction to deal with enforcement of foreign awards.

The NCLT further stated that to enforce foreign awards in India, the party in whose favour award stands shall file the documents referred in Section 47 (l) and (2) of the 1996 Act, and the enforcement of foreign award is subject to the satisfaction of the concerned High Court and only after the satisfaction of the High Court, the foreign award becomes enforceable and shall be deemed to be a decree as per Section 49 (Enforcement of foreign awards) of the 1996 Act.

The NCLT concluded by stating that Section 47 of the 1996 Act makes it clear that only the concerned High Court has the exclusive jurisdiction to deal with Foreign Award and give effect to the same and in this case, the NCLT cannot act upon the Foreign Award under the presumption that an undisputed debt amount is due towards the Corporate Debtor and as such an exercise would amount to bypassing/violating the procedures laid down in Part II, Chapter I of the 1996 Act.

Decision of the National Company Law Tribunal

In view of the above, the NCLT rejected the application of the Operational Creditor.

VA View:

In this judgement, the NCLT, by analysing the provisions of the 1996 Act, rightly opined that a foreign award is insufficient to initiate insolvency proceedings against the Corporate Debtor under the IBC. As highlighted by the NCLT, a foreign award cannot be considered as an operational debt under the IBC as it is not considered as deemed decree of the court.

To enforce a foreign award, one has to follow the procedure laid down in Part II, Chapter I of the 1996 Act. A foreign award is not an automatically recognised debt under the IBC and has to undergo certain test to become enforceable award/deemed decree. This judgment brings further clarity towards treatment of foreign awards under the IBC and would be helpful to parties looking to enforce foreign awards to claim their debt from Indian debtors.

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