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NCLAT Chennai Sets Aside NCLT Order, Directs Admission of Posco International's IBC Petition
The , has delivered a significant ruling clarifying that an in a contract cannot override the available under the . Setting aside an order of the , the appellate tribunal directed the admission of a petition filed by .
When a Settlement Turns Sour
The dispute arose from an international shipment contract for 300 metric tonnes of Indian raw cotton. After quality disputes, the parties entered into a on , under which Mohana Cotton agreed to pay USD 74,342 by . Despite repeated assurances, the amount remained unpaid, leading Posco International to issue a under and subsequently file a application before the .
The NCLT rejected the application on three grounds: the existence of an in the contract, the appellant not being an as it had not directly supplied goods or services, and the presence of a .
Statutory Rights vs. Private Contracts
Posco International argued that the NCLT erred in holding that the barred IBC proceedings, contending that statutory remedies cannot be ousted by private agreements. It also submitted that the debt arose from the supply of goods, making it an , and that the alleged was raised only in the reply to the , which cannot defeat a petition.
Mohana Cotton countered that the was executed only to maintain business relations and did not constitute an . It claimed that Posco International had breached the purchase agreement by soliciting business directly from its buyers, giving rise to a that required arbitration.
Clearing the Ground: Arbitration No Hurdle to IBC
The NCLAT, comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member), rejected all three grounds of the NCLT.
On the
, the tribunal held that it is
"an absolute misinterpretation of the settled law"
to treat an
as a bar to IBC proceedings. Relying on the
's decision in
Indus Biotech Pvt Ltd v. Kotak India Venture (Offshore) Fund & Ors.
() 6 SCC 436, the NCLAT observed that the IBC overrides other laws, and the existence of an arbitration agreement does not prevent the initiation of where are established.
Regarding the appellant's status as an , the tribunal clarified that the definition of under includes claims arising from the supply of goods. Since the debt in question originated from the cotton supply contract, the appellant qualified as an , regardless of whether it directly supplied goods to the respondent.
On the issue of , the NCLAT noted that Mohana Cotton raised the dispute for the first time in its reply to the . Citing its own decision in , the tribunal held that a dispute raised after the service of a cannot be considered a .
Key Observations from the Bench
The NCLAT made several pivotal observations:
"Any arrangement for resolving of a dispute by way of anwhich is a, will not deprive the Appellant to invoke a, which is otherwise reserved to the party, under the intention of law to be availed by person, who seeks to recover the defaulted amount."
"The mere existence of anin a contract cannot create a cloud over abestowed by the Code."
The Final Verdict
Allowing the appeal, the NCLAT quashed the impugned order of the , and directed it to admit the application and proceed in accordance with law after imposing . This ruling reinforces the principle that IBC proceedings are statutory in nature and cannot be thwarted by private arbitration agreements, providing clarity for operational creditors seeking to recover debts through the insolvency process.
