Read Time: 08 minutes

Synopsis

The Supreme Court of India has recently ordered Purvanchal Vidyut Vitran Nigam Ltd. (PVVNL), a state-owned power distribution company in Uttar Pradesh, to deposit  75% of the arbitral award amount in accordance with Section 34 of the Arbitration and Conciliation Act, 1996 read with Section 19 of  Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 within two months.

The court has further warned that failure to comply with the said order will result in insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016.

According to the aforesaid provisions,  if a party challenges an arbitral award before any court under section Section 34 of the Arbitration and Conciliation Act, 1996, they must comply with Section 19 of the MSMED Act, 2006, which mandates a deposit of at least 75% of the award amount before the challenge is entertained.

The instant case arose after Purvanchal Vidyut Vitran Nigam Ltd. (PVVNL) allegedly failed to make payments to SRV Tecno Engineering Pvt. Ltd. Thereafter, the matter was referred to arbitration, wherein an award was granted in favour of SRV Tecno Engineering Pvt. Ltd.  However, PVVNL  challenged the arbitration award before a civil court under Section 34 of the Arbitration and Conciliation Act, 1996.

In view of this, SRV Tecno Engineering Pvt. Ltd. (Operational Creditor) filed a case before the National Company Law Tribunal (NCLT), Allahabad bench under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, seeking insolvency proceedings against PVVNL for non-payment of dues. NCLT however dismissed SRV Tecno’s case on the grounds of a pre-existing dispute.

Following this, SRV Tecno appealed to the National Company Law Appellate Tribunal (NCLAT), which overturned NCLT’s decision and ruled in favour of the contractor. NCLAT found that there was sufficient evidence of a work contract and debt due arising out of the award under the MSED Act, 2006. Thus, there was no ground for dismissal of the S.9 Application filed by the Operational Creditor.

Aggrieved by the appellate tribunal's order, PVVNL filed an appeal before the Supreme Court.

In response, a bench comprising CJI Sanjiv Khanna, Justice PV Sanjay Kumar, and Justice KV Vishwanathan issued the following directions:

Having regard to the facts and circumstances of the present case and as the appellant, Purvanchal Vidyut Vitran Nigam Ltd. has filed objections under Section 34 of the Arbitration and Conciliation Act, 19961, we partly allow and dispose of the present appeal on the following terms:

(i) The appellant, Purvanchal Vidyut Vitran Nigam Ltd., shall deposit 75% of the principal amount, along with the interest accrued thereon, in terms of the Award within two months from today, in the court where the objections under Section 34 of the Act is pending.

(ii) It will be open to the respondent, SRV Techno Engineering Pvt. Ltd., to ask for the release of the aforesaid amount by moving an application, which will be considered and decided by the court, where the objections under Section 34 of the Act are pending within three months from the date the application is filed.

(iii)On deposit of the aforesaid amount within a period of two months from today, the appeal preferred by the respondent, SRV Techno Engineering Pvt. Ltd., shall stand restored to the file of the National Company Law Appellate Tribunal2. The NCLAT will, thereupon, decide the appeal afresh by law.

(iv) In case the aforesaid amount is not deposited within a period of two months, the appeal will be treated as dismissed.

In case any party is aggrieved by the order passed by the NCLAT would be entitled to take recourse to appropriate remedies as provided by law. Recording the aforesaid, the impugned judgment is set aside and the appeal is partly allowed and disposed of in the above terms.

For Appellant(s): Ms Garima Prasad, Sr. A.A.G, Mr Pradeep Misra, AOR, Mr Daleep Dhyani, Adv, Mr Suraj Singh, Adv.

For Respondents: Mr. Krishnendu Datta, Sr. Adv, Mr. Gaurav H Sethi, Adv. Mr. Aditya Giri, AOR, Mr. Rohit Arora, Adv

Case Title: PURVANCHAL VIDYUT VITRAN NIGAM LTD. VERSUS SRV TECHNO ENGINEERING PVT. LTD.