In December 2010, Athena Demwe Power Ltd hired a contractor, Abir Infrastructure, to build a 1,750-MW hydroelectric project in Arunachal Pradesh. It paid in advance ₹758 crore, for which Abir gave a corporate guarantee.

Years rolled by. The project didn’t come through, but Abir Infra found itself in an insolvency court. A resolution professional (RP) was appointed in 2019.

Athena Demwe wanted its money back. So it filed a claim with the RP, calling itself a ‘financial creditor’. The RP, however, said that it could not be called a ‘financial creditor’.

Athena then filed another claim, this time as an ‘operational creditor’. The RP said it was not an operational creditor either, and asked the company to claim as ‘other creditor’. The RP further said he would accept Athena’s claim as ‘other creditor’ only if it agreed that it was neither a financial creditor nor an operational creditor. Athena approached the National Company Law Tribunal.

In the meantime, the RP finalised a resolution plan, excluding Athena’s claim. The NCLT approved the plan. Athena found itself out in the cold.

What made matters worse was that, under its agreement with Abir, the advance was to be adjusted in the running bills. But Abir could not do its work because Athena had not provided a site for it. The contract was never implemented.

Athena went to the National Company Law Appellate Tribunal (NCLAT), New Delhi bench.

Athena’s lawyer argued that the RP was not right in adjudicating on Athena’s claim. Conversely, Abir’s lawyer argued that a ‘mobilisation advance’ was not a financial debt.

The point of law here was whether ‘corporate guarantee’ was a financial debt within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, or ‘operational debt’ within the meaning of Section 5(21).

NCLAT examined the matter in the light of an earlier judgment of the Supreme Court in Consolidated Construction Consortium Ltd vs Hitro Energy Solutions, where Consolidated Construction had paid an advance to Hitro for a job that was never undertaken.

The Supreme Court had noted that Section 5(21) defines ‘operational debt’ as a “claim in respect of the provision of goods or services” and the words “in respect of” had to be interpreted in a “broad and purposive manner, in order to include all those who provide or receive operational services from the corporate debtor”.

Based on this precedent, NCLAT said: “We are of the view that claim of the appellant is to be treated as an operational debt, and the resolution applicant is under obligation to include the claim of the appellant as an operational debt and make payment to the appellant also as an operational creditor.” It directed the RP to include Athena in the resolution plan.

IBC prevails over Customs Act: Apex Court

In a landmark decision, the Supreme Court of India said that the Insolvency and Bankruptcy Code, 2016, will prevail over the Customs Act, 1962. The apex court said this in its judgment in Sundaresh Bhatt vs Central Board of Indirect Taxes & Customs.

The appeal was filed by the liquidator of ABG Shipyard Ltd (corporate debtor), challenging the order of the National Company Law Appellate Tribunal (NCLAT), wherein, inter alia, the NCLAT held that the goods lying in the customs bonded warehouses are not the assets of the corporate debtor as it had failed to take control of its assets by neglecting to pay customs duties and, hence, deemed to have relinquished its title to the goods under the Customs Act.

The question before the Supreme Court was whether the provisions of the code will prevail over the provisions of the Customs Act and whether the customs authority is empowered to confiscate the goods of the corporate debtor, which is undergoing liquidation under the code.

The Supreme Court held that after the imposition of moratorium, no proceedings could have been initiated or pursued by the customs authority against the corporate debtor.

The Supreme Court further held that the customs authority, after the imposition of the moratorium, was only required to assess the duties payable and thereafter file its claim with the resolution professional or interim resolution professional or liquidator (whichever applies) with respect to the outstanding custom duties, which would be dealt with according to the provisions of the code.

It was held that the title to the goods does not pass to the customs authority and it cannot confiscate the goods, which are the assets of the corporate debtor, as a means of recovering customs duties. The court held that the IRP or resolution professional or liquidator has the right to take control of the assets belonging to the corporate debtor in terms of the code.

Arbitration: Designated venue is the ‘seat’

The Bombay High Court, in Priya Malay Sheth vs VLCC Health Care, has held that if a place has been designated as the ‘venue’ at which the arbitration proceeding shall be held, then that venue is also the ‘seat’ of the proceedings.

The dispute between Sheth and VLCC was over an agreement whereby Sheth was to be an ‘infrastructure provider’ for VLCC’s services in Mumbai. Sheth invested to undertake the development of a VLCC centre. The arbitration clause stipulated that the “venue of the arbitration shall be Delhi”.

Differences arose in September 2019 regarding the functioning of the centre. Sheth invoked arbitration and nominated a former judge of the Bombay High Court to adjudicate the dispute. VLCC responded by stating that the arbitrator could only be appointed by VLCC, and the proceedings should be held in Delhi.

Sheth approached the Bombay High Court for the appointment of an arbitrator.

Relying on the precedent of Perkins Eastman Architects DPC vs HSCC (India) Ltd and TRF Ltd vs Energo Engineering Projects Ltd, the Bombay High Court concluded that VLCC could not have unilateral authority to appoint an arbitral tribunal.

The court said that once a place is designated as the “venue” of the arbitration proceedings, and the arbitration clause uses the expression “shall be held”, then that place is also the “seat” of the arbitration. On this basis, the court held that the courts in Delhi would have the requisite jurisdiction.

Set aside, but not modified

In National Highways Authority of India vs P Nagaraju, the Supreme Court said that an arbitral award can be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, on limited grounds, but it cannot modify the award.

NHAI issued notification under the National Highways Act, 1956, for land acquisition and a ‘special land acquisition officer’ was appointed to determine the compensation for land acquired.

A dispute arose between NHAI and Nagaraju over the quantum of compensation.

The arbitrator increased the amount of compensation to be paid to the appellant. On appeal, both the District and Sessions Court as well as the Karnataka High Court upheld the award. The appellant then approached the Supreme Court.

The Supreme Court allowed the appeal and relied on National Highways Authority of India vs M Hakeem.

The Supreme Court held that since the scope of interference by a court is limited, it would not be open to modifying an award or altering the compensation payable.

The appropriate course in such an event is to set aside the award and remit the matter back to the tribunal in terms of Section 34(4) of the Act, it said.