According to a decision made by the Delhi High Court, the Arbitral Tribunal is authorised by Section 31(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) to issue an interim award based on admissions made by a party before the Interim Resolution Professional (IRP) in CIRP proceedings brought under the Insolvency and Bankruptcy Code, 2016 (IBC) against the opposing party.
The bench of Justices Suresh Kumar Kait and Neena Bansal Krishna rejected the appellant’s argument that the admissions made before the IRP cannot be treated as an admission in the arbitral proceedings, noting that Order XII Rule 6 of the Code of Civil Procedure, 1908 (CPC) is written in the broadest terms and allows taking into account the admissions made in the pleadings before the Court or “otherwise”.
Every oral or written admission made by the parties at any stage of the proceedings may be subject to review by the Courts under Order 12 Rule 6. Such an acknowledgment may be stated verbally or in writing in the pleading.
Facts –
The respondent (claimant) exercised the arbitration provision when disagreements emerged between the appellant, Bharat Heavy Electricals Ltd, and the respondent, M/s. Zillion Infraprojects Pvt Ltd, under the terms of a Contract. The corporate Insolvency Resolution Process (CIRP) was started against the respondent under the Insolvency and Bankruptcy Code, 2016 after the arbitral procedures began (IBC). A claim against the respondent (the debtor) was made in Form B according to Section 7 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Procedure for Corporate Persons) Rules, 2016 by the appellant (the operational creditor), Bharat Heavy Electricals, who appeared before the IRP. The appellant acknowledged in the aforementioned Form B that a certain amount might be deducted as set off from the total amount owed to it by the respondent.
According to Section 31(6) read with Section 17 of the A&C Act, the respondent (claimant), Zillion Infraprojects, submitted an application to allow an interim Award in terms of the acknowledged amount, specified as set off by the appellant in Form B before the IRP. The Respondent (Claimant)’s application was approved, and the Sole Arbitrator issued an interim Award for the acknowledged sum. The appellant filed a petition with the District Court under Section 34 of the A&C Act contesting the interim Award, but the motion was denied. In response, Bharat Heavy Electricals, the appellant, appealed this decision to the Delhi High Court under Section 37 of the A&C Act.
The appellant, Bharat Heavy Electricals, argued before the High Court that until the alleged admissions are decided alongside the Claims before the Arbitral Tribunal, they cannot be regarded as a fixed sum or an unambiguous admission. These allegations were listed as set off in Form B, which was submitted before the IRP in the CIRP proceedings. The appellant argued that the Arbitrator’s interim Award’s monetary award violates the standards outlined in Order XII Rule 6 of the CPC, which stipulates that the admission must be unambiguous, explicit, and categorical.
Judgment –
The bench ruled that in accordance with Section 31(6) of the Act, 1996, the learned Arbitrator has wisely utilized its authority to provide an interim Award based on the admission made by the appellant in Form B by way of set-off. The District Judge accepted the learned Arbitrator’s conclusions, and there is no illegality, perversity, or irrationality in them.
Analysis –
The Court noted that equitable set-off is distinct from legal set-off, citing the Supreme Court’s ruling in Union of India v. Karam Chand Thapar & Bros. (Coal Sales) Ltd. and the Delhi High Court’s ruling in Amit Kumar Chopra v. Narain Cold Storage & Allied Industries Pvt Ltd. 2014. Equitable set-off is distinct from CPC rules, although legal set-off is covered under Rule 6 Order VIII of the CPC. Mutual debts and credits or cross-demands must have originated from the same transaction or must be related in terms of their nature and circumstances in order to be eligible for extinction by equitable set-off.
The Court noted that the equitable set-off defense cannot be asserted as a matter of right and that it is up to the judge to decide whether to consider and accept it. The bench took notice that an equitable set-off is not permitted when a prolonged investigation is required to determine the amount owing. It noted that equitable set-off is predicated on the fundamental values of equity, justice, and good conscience. The bench reached the conclusion that the aforementioned set-off results from the same commercial dealings between the parties after considering the case’s circumstances. Moreover, it has been raised in the processes involving the claims and counterclaims that the parties have brought against one another.
In rejecting the appellant’s argument and maintaining that the counterclaim was filed as an independent lawsuit that required independent adjudication, the court stated that simply because the set-off appears in the counterclaim or other documents submitted by the appellant does not change the fact that it is an admission of liability. The appellant’s contention that the set-off cannot be considered until the claims and counterclaims have been decided is baseless and unpersuasive.
Moreover, the appellant, Bharat Heavy Electricals, stated in court that Form B, which contains the set-off amount, was submitted with the IRP rather than the arbitrator and cannot be regarded as an unambiguous acknowledgment in the arbitral proceedings. “The law on judgements on admissions as established in Order XII Rule 6 CPC, 1908 is couched in fullest language to allows examining the admissions made in the pleadings or “otherwise,” the bench said. The Court stated that the admissions made by the appellant in Form B regarding the set-off amount are clear and correctly served as the foundation for the interim Award. They are not accompanied by any justification, explanation, or denial.
