Availability of alternate remedy by way of arbitration doesn’t bar triggering of CIRP by operational creditor : NCLAT

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  • Last Updated on 13 December, 2021

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Corporate insolvency resolution process

Case details: Sodexo India Services Pvt. Ltd. v. Chemizol Additives Pvt. Ltd. - [2021] 128 taxmann.com 271 (NCLAT- New Delhi)

Judiciary and Counsel Details

  • Bansi Lal Bhat | Acting Chairperson and Dr. Ashok Kumar Mishra | Technical Member.
  • Gaurav Mitra, Y.P. Dandiwala, Ms. Khooshunum R. Daviervala, Ms. Yazdi Jijina and Saswat Pattnaik, Advs. for the Appellant.

Facts of the Case

The operational creditor was an employee of a corporate debtor which due to financial crunch expressed its inability to carry out work from its premises, and, requested the operational creditor to work from home. The Operational creditor accordingly started working from home but had not been paid his rightful salary. Therefore, the operational creditor resigned from the job.

Later, the corporate debtor acknowledged dues that it owed to an operational creditor at the time of his resignation and promised to pay the same at the earliest. Despite several reminders for payment and demand notice, the corporate debtor failed to make payments to the operational creditor. Therefore, an operational creditor filed a Corporate Insolvency Resolution Process (CIRP) petition.

The Adjudicating authority rejected the CIRP application on the ground that the corporate debtor was a solvent company and there being already arbitration clause available in agreement, a dispute could be settled down either through mediation and conciliation or through arbitration. On being aggrieved, the operational creditor knocked at the door of NCLAT.

NCLAT Held

The NCLAT stated that section 238, which has an overriding effect over existing laws or any other law or contract, would not admit alternative remedy being a disabling provision for the operational creditor to seek resolution of a dispute regarding operational debt claimed against the corporate debtor by triggering corporate insolvency resolution process.

The NCLAT held that it was immaterial whether it was solvent or insolvent qua other creditors. Therefore, Adjudicating authority should have, in absence of any dispute contemplated under section 8(2) having been raised by the corporate debtor as a pre-existing dispute and claim of an operational creditor having been satisfied. As a result, an application under IBC was admitted.

Case Review

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