The Bombay High Court in the case, Bholashankar Ramsuresh Dubey Versus Dinesh Narayan Tiwari and Ors. (Writ Petition No. 17174 of 2024) held that the dispute cannot be denied referral to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, merely because there are basic or simple allegations of fraud. Referral can only be refused if there are serious fraud allegations that fundamentally affect the partnership deed which includes the arbitration clause.
Background of the case:
🔸 The present Petitioner alongwith Narayan Tiwari, the predecessor-in-tile of Respondent Nos. 1 and 2, and Respondent No.3 had entered into a partnership under the name and style of M/s Tiwari Enterprises i.e Respondent No.4.
🔸 Upon the demise of Narayan Tiwari, the Respondents called upon the Petitioner to ascertain and determine the deceased’s share in the partnership firm. However, the Petitioner, in alleged collusion with Narayan Tiwari’s son, Yogesh Tiwari, is stated to have fabricated documents with a view to portraying Yogesh Tiwari i.e, Respondent No.2 as a partner of the firm.
🔸 Consequently, the Respondents instituted a suit seeking rendition of accounts and determination of the share of the late Narayan Tiwari. In response, the Petitioner, relying on the arbitration clause contained in the partnership deed dated 2003, purportedly in the possession of the Plaintiffs, filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, praying for a reference of the dispute to arbitration.
🔸 By an order dated 19.12.2023, the Civil Judge (Senior Division) in Kalyan rejected to refer the matter to Arbitration, citing that the Respondents had raised serious allegations of fraud and forgery, which fell outside the jurisdiction of an Arbitrator. Dissatisfied with this decision, the Petitioner filed an appeal under Section 37 of the Arbitration and Conciliation Act. However, the District Judge dismissed the appeal on a separate ground, noting that Defendant No.2 had himself disputed the existence and enforceability of the original Partnership Deed which contained the arbitration clause and instead relied on a Reconstitution Deed. Challenging the decision of the District Judge, the Petitioner filed the present Petition.
Contentions raised by the parties:
🔸 The Petitioner contended that the Trial Court erred in refusing to refer the dispute to arbitration solely on the basis of allegations of fraud. It was argued that, in light of the evolving jurisprudence which emphasizes party autonomy, the mere invocation of fraud cannot serve as a pretext to bypass the arbitration mechanism, as such an approach would undermine the very purpose and spirit of the Arbitration and Conciliation Act.
🔸 It was further submitted that the assertion regarding the reconstitution of the firm—whereby Narayan Tiwari and Rakesh Tiwari purportedly retired and Respondent No.2 was inducted as a partner does not, in itself, constitute a denial by the Petitioner of the existence of the partnership or the underlying Partnership Deed containing the arbitration clause.
🔸 In response, the Respondents contended that them being the legal representatives of deceased partner Narayan Tiwari, are not bound by the arbitration agreement embodied in the original Partnership Deed.
Observations of the Court:
🔸 The court observed that due to the fraud and forgery allegations, the Civil Judge declined arbitration. However, in light of the law, this was erroneous, as the Court’s jurisdiction under Section 8 of the Arbitration Act is limited.
🔸 The court further relied on the Hon’ble Supreme Court of India’s judgments like Afcons Infrastructure Ltd. V/s. Cherian Varkey Construction Co. (P) Ltd and Ayyasamy V. A. Paramasivam.
🔸 It was further held that, in keeping with the principles of minimal judicial intervention and the importance of party autonomy, mere allegations of fraud are no longer sufficient to render a dispute non-arbitrable. The law now distinguishes between serious allegations of fraud, which may warrant judicial intervention, and mere or superficial claims of fraud, which cannot be used as a tactic to avoid or delay arbitration proceedings.
🔸 The Court held that, in the present matter, the allegations of fraud relate specifically to the execution of the Deed of Reconstitution and not to the original Partnership Deed containing the arbitration clause. Since these allegations do not involve issues of public interest and are confined to civil disputes, they are amenable to resolution through arbitration. Consequently, the learned Civil Judge erred in refusing to refer the parties to arbitration on the basis of the fraud and forgery claims.
🔸 The Court further held that the Respondents, being the legal heirs of the deceased partner, are bound by the arbitration clause in the Partnership Deed. The binding nature of arbitration on non-signatories was found to be inapplicable in this context.
🔸 In conclusion, the Court noted that Section 40(1) of the Arbitration and Conciliation Act clearly provides that an arbitration agreement is not rendered ineffective by the death of a party, and remains enforceable by or against the legal representatives of the deceased.
The National Company Law Appellate Tribunal, Principal Bench, held that if no other claims have been received in the Corporate Insolvency Resolution Process (CIRP) and a full settlement has been reached between the parties, then it is not mandatory to file a Section 12A application under the IBC i.e, withdrawal of application for initiation of CIRP
The National Company Law Appellate Tribunal, Principal Bench, in the matter of Sachin Malde v. Hemant Nanji Chheda & Anr. [Company Appeal (AT) (Insolvency) No. 123 of 2024] held that if no other claims have been received in the Corporate Insolvency Resolution Process (CIRP) and a full settlement has been reached between the parties, then it is not mandatory to file a Section 12A application under the IBC i.e, withdrawal of application for initiation of CIRP.
Background of the case:
🔸 The appeal was preferred by the corporate debtor, challenging the order of the Adjudicating Authority admitting the Section 7 application filed by the Financial Creditor. The appellant argued that the Corporate Insolvency Resolution Process (CIRP) was initiated without affording the corporate debtor an adequate opportunity to present its case. It was further submitted that an application seeking modification of the said admission order was still pending consideration before the Adjudicating Authority.
Contentions raised by the parties:
🔸 The appellant contended that it was not afforded sufficient opportunity to present its defence before the Adjudicating Authority. Furthermore, following the admission of the Section 7 application, the Resolution Professional issued a public invitation for claims; however, no claims were received other than that of the Financial Creditor.
🔸 The appellant’s counsel argued that, in light of the fact that no other claims have been submitted and the Financial Creditor’s claim has already been settled, the requirement for filing an application under Section 12A would be a mere procedural formality and therefore unnecessary.
Observations of the Court:
🔸 The Tribunal placed reliance on the Hon’ble Supreme Court of India’s ruling in GLAS Trust Company LLC Vs. BYJU Raveendran & Ors. Wherein the tribunal invoked its inherent power to close the proceedings.
🔸 The Tribunal held that, as no claims had been received other than that of the Financial Creditor, and a complete settlement had been reached between the parties, the filing of a Section 12A application under the Insolvency and Bankruptcy Code, 2016 was not mandatory. Taking into account the settlement placed on record, the Tribunal held that the insolvency proceedings against the Corporate Debtor were liable to be closed.
The National Company Law Tribunal (NCLT), New Delhi, rejected a Section 9 Application filed by the operational creditor under the Insolvency & Bankruptcy Code, 2016, holding that Default occurring out of settlement agreements are not “operational debts” under Section 5(21) of the Code
The NCLT New Delhi, in the matter of Harji Engineering Works Pvt. Ltd. V/s M/s Enerture Technologies Pvt. Ltd., [CP (IB) No. 63 (ND)/ 2025], rejected a Section 9 Application filed by the operational creditor under the Insolvency & Bankruptcy Code, 2016, holding that Default occurring out of settlement agreements are not “operational debts” under Section 5(21) of the Code.
Background of the case:
🔸 On 23.01.2024, the Operational Creditor and the Corporate Debtor executed a Memorandum of Understanding (MoU) for the establishment of a 100-megawatt solar power generation facility across India, which also included provisions for its operation and maintenance for a period of three years.
🔸 In the course of their business dealings, various disputes arose between the parties. To resolve these issues, the parties entered into a second Memorandum of Understanding (MoU) dated 01.06.2024. Under the terms of this MoU, the parties mutually agreed that the Corporate Debtor would pay a sum of Rs. 5,00,00,000/- to the Operational Creditor within four months from the date of execution of the second MoU, i.e., by 01.10.2024.
🔸 In compliance with the terms of the MoU, the Corporate Debtor initially issued two post-dated cheques to the Operational Creditor; however, both cheques were dishonoured upon presentation. Subsequently, on 19.11.2024, the Corporate Debtor issued two additional cheques, which were also dishonoured.
🔸 As a result, the Operational Creditor issued a legal notice dated 23.11.2024 to the Corporate Debtor under Section 138 of the Negotiable Instruments Act, 1881, due to the dishonour of the cheques.On the same date, the Operational Creditor also served a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, for the unpaid amount. Since the Corporate Debtor failed to respond to the demand notice within the statutory period, the Operational Creditor proceeded to file a Application under Section 9 of the Code seeking initiation of insolvency proceedings against the Corporate Debtor.
Observations of the Court:
🔸 The Tribunal observed that, for an insolvency application under Section 9 of the Insolvency and Bankruptcy Code to be maintainable by an Operational Creditor, there must be an existing Operational Debt.
🔸 It further noted that, as per Section 5(21) of the Code, an “Operational Debt” refers to a claim in respect of:
- the provision of goods,
- the provision of services (including employment), or
- a debt arising under any statute and payable to the government or a local authority.
Hence accordingly, the Tribunal held that since the claim made by the Operational Creditor does not fall within any of the above categories, it cannot be classified as an Operational Debt.
🔸 The Tribunal relied on the decision of NCLT Indore in the matter namely, Permali Wallace Pvt. Ltd. vs Narbada Forest Industries Pvt. wherein it was held that an amount arising out of some settlement agreement cannot be termed as operational debt within the meaning of Section 5(21) of the IBC, 2016.
🔸 The Tribunal further noted that certain disputes between the parties had already arisen prior to the filing of the application under Section 9.
🔸 The Tribunal while relying on the ruling of the National Company Law Appellate Tribunal in the case of M/s. Sumilon Polyester Private Limited vs M/s. Parikh Packaging Private Limited, where it was held that the existence of a genuine dispute between the parties constitutes valid grounds for the rejection of an application filed under Section 9 of the Insolvency and Bankruptcy Code, rejected the present Application filed under Section 9 of Insolvency and Bankruptcy Code, 2016.
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