Usha Holdings LL.C. & Anr. Vs Francorp Advisors Pvt. Ltd. (NCLAT Delhi)
Conclusion –
- The National Company Law Appellate Tribunal concluded that the National Company Law Tribunal (NCLT) is not a ‘Court’ or a ‘Tribunal’ and hence cannot decide legality of a foreign decree. NCLAT held that deciding the legality or illegality of a foreign decree is outside the jurisdiction of NCLT.
- The appellant does not come within the meaning of ‘operational debt’ and thereby the appellant cannot be held to be the ‘operational creditor’.
Facts –
In December, 2012, the appellant filed first suit in US District Court praying for reliefs for money due on account of breach of ‘Licence Agreement’. On the basis of the US District Court judgment, the appellant filed a petition under section 9 of the IBC before the NCLT, demanding the due amount.
The petition filed by the appellant was declined by NCLT on majorly two grounds –
- Foreign decree i.e. US judgment not acceptable since –
- Foreign judgment is not conclusive where it has not been pronounced by a court of competent jurisdiction and founded on an incorrect view of international law.
- In absence of a certified copy of a decree of any of the superior courts of any reciprocating territory, the said decree cannot be executed.
- Appellant do not come within the meaning of ‘operational creditor’ as the amount due has not been regarded as an ‘operational debt’.
Aggrieved by the order of NCLT, the appellant preferred an appeal to NCLAT.
Held –
1. NCLT has no jurisdiction to decide the question of legality and propriety of a foreign decree.
2. Copies of ‘Commercial agreement’ and ‘Licence Agreement’ are only the draft copies and the agreement are undated. Further, the draft agreement neither relates to any sale of goods or services nor to enforce the claims arising out of the same.
3. Since, money claim do not relate to the supply of goods or services and therefore the application u/s 9 by the appellant against the ‘corporate debtor’ is not maintainable.
FULL TEXT OF ORDER OF NCLT
The National Company Law Appellate Tribunal has held that NCLT, the ‘adjudicating authority’ under the Insolvency and Bankruptcy Code, was not a ‘court’ or a ‘tribunal’ and hence cannot decide the legality of a foreign decree.
“we hold that the Adjudicating Authority not being a Court or ‘Tribunal’ and ‘Insolvency Resolution Process’ not being a litigation, it has no jurisdiction to decide whether a foreign decree is legal or illegal. Whatever findings the Adjudicating Authority has given with regard to legality and propriety of foreign decree in question being without jurisdiction is nullity in the eye of law“, held the judgment authored NCLAT Chairman Justice Sudhansu Joshi Mukhopadhyaya.
The appeal was filed against the refusal of the NCLT to admit a petition filed under Section 9 of IBC. The appellant’s claim of being an operational creditor was founded on default of the respondent-company in complying with a money decree passed by a US Court.
The NCLT;s Principal Bench at New Delhi found that the decree was passed in violation of laws prevalent in India and hence not executable by Indian courts as per Sections 13 and 14 of the Code of Civil Procedure. It also found that procedural requirements under Section 44A CPC were also not fulfilled by the foreign decree. The further finding was that the decree did not give rise to any claim of ‘operational debt’. On these grounds, the application was rejected.
In appeal, the NCLAT criticised the approach of NCLT in deciding the legality of foreign decree. Referring to the NCLAT decision in Binani Industries Limited Vs. Bank of Baroda & Anr, the bench, also comprising Justice Bhansi Lal Bhat, held that the objective of IBC was resolution of the corporate debt. It was not a litigation process for adjudicating competing claims. It’s purpose is “maximisation of value of assets of the ‘Corporate Debtor to promote entrepreneurship, availability of credit and balance the interests of all stakeholders”.
The adjudication of merits of foreign decree undertaken by NCLT was held to be not in consonance with the spirit and objectives of IBC.
However, the Appellate Tribunal concurred with the finding that appellant was not an ‘operational creditor’. The money decree did not relate to supply of goods or services and, therefore, the application under Section 9 was not maintainable. Hence, the appeal was dismissed.
This appeal has been preferred by the Appellants against the order dated 11th December, 2017, passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, wherein the Adjudicating Authority by detailed order held: –
(a) In absence of a certified copy of a decree of any of the superior courts of any reciprocating territory, the said decree cannot be executed.
(b) Foreign judgment is not conclusive where it has not been pronounced by a Court of competent jurisdiction and founded on an incorrect view of international law.
(c) The Court shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a Court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction.
2. While holding so, the Adjudicating Authority by impugned order dated 11th December, 2017 also held as follows:
“28. A conjoint reading of Section 44 A of CPC along with Section 13 & 14 CPC would show that the petitioner need to satisfy a number of requirements.
(A) A certified copy is sine qua non for recognizing a decree as valid in India. Moreover, its compliance with the principles of natural justice also need to be shown.
(B) It is required to be executed in the District Court of this Country.
(C) It is also required that the decree should be pronounced by a Court of Competent jurisdiction and on merits.
(D) The decree must not have been obtained by fraud and it runts not be founded on a breach of any law in force in this Country.
29. The petitioner has founded its claim and consequential default on the basis of decree dated 05.10.2015 and the order dated 27.03.2014. Both the documents placed on record are not certified copies of the decree and order. We further find that the decree needs to be made rule of the Court before the District Court in India if at all it is executable. The petitioner has miserably failed to show any notification of the reciprocation between United States and India in terms of Section 44A of CPC.
30. We also find force in the arguments advanced by Mr. Suri that the decree dated 05.10.2015 and the order dated 27.03.2014 is in violation of the law prevailing in India in as much as Section 8 of the Arbitration and Conciliation Act, 1996 has not been followed.”
3. The Adjudicating Authority while rejected the application under Section 9 of the ‘I&B Code’ preferred by the Appellants for the grounds mentioned above, also held that the Appellants do not come within the meaning of ‘Operational Creditor’ as the amount due has not been regarded as an ‘Operational Debt’ within the meaning of Section 5(21) of the ‘I&B Code’.
4. Learned counsel appearing on behalf of the Appellants submitted that the Adjudicating Authority has no jurisdiction to decide the legality and viability of foreign decree and no right finding can be given by it. On the other hand, according to learned counsel for the Respondent, not only the foreign decree is exparte, the said judgment and decree dated 5th October, 2015 cannot be treated to be a decree on merits for the following reasons:
i. The judgement dated 5th October, 2015 is not a decree on merits:
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