LAW FOR ALL

Wednesday, December 15, 2021

whether the limitation period under Section 13(2)3 of the Consumer Protection Act 1986 could not be extended beyond the statutorily prescribed period of forty-five days as held by New India 1 “NCDRC” 2 Assurance Company Limited v. Hilli Multipurpose Cold Storage Private Limited . = In the present case, before the decision of the Constitution Bench, the delay was condoned by the NCDRC by furnishing reasons for the exercise of such discretion. Having regard to the prospective effect of the judgment of the Constitution Bench in New India Assurance Company Limited (supra) and the orders of this Court in Reliance General Insurance Company Limited (supra) and Bhasin Infotech-2018 (supra), which had recognized an element of discretion pending the reference, we are of the considered view that no case for interference is made in the order of the NCDRC allowing the application for condonation of delay on merits.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 7546 of 2021

Diamond Exports & Anr. ....Appellants

Versus

United India Insurance Company Limited & Ors. .... Respondents

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1 This appeal arises from a judgment dated 25 February 2020 of the National

Consumer Disputes Redressal Commission1

2 While entertaining IA Nos 15390 of 2019, 15391 of 2019 and 18307 of 2019

in Consumer Complaint No 2645 of 2018, the NCDRC has condoned the delay of

100 days in filing a written statement. The order of the NCDRC was a few days

before the judgment of a Constitution Bench dated 4 March 2020, in New India

1 “NCDRC”

Assurance Company Limited v. Hilli Multipurpose Cold Storage Private

Limited 2 which held that the limitation period under Section 13(2)3 of the Consumer

Protection Act 1986 could not be extended beyond the statutorily prescribed period

of forty-five days.

3 The appellants filed a consumer complaint before the NCDRC on 3 December

2018 based on two insurance policies. The claim is on the ground of an alleged fire

that took place at the factory of the appellant. On 6 December 2018, the NCDRC

passed the following order:

“Heard. Complaint is admitted, subject to just exceptions.

Issue notice to Opposite Parties under Section 13(2) of the

Consumer Protection Act, 1986 making it clear that if the

Opposite Parties wish to contest the allegations in the

Complaint, they may file the Written Statements within 30

days of the receipt of notice in the Complaint, failing which

their right to file Written Statement may be closed."

4 The respondent received the summons on 20 May 2019 together with the

order of the NCDRC and a complete set of papers consisting of the consumer

complaint and documents. The respondent filed its written statement on 23

2 (2020) 5 SCC 757 [“New India Assurance Company Limited”] 3 “13 (2) The District Forum shall, if the complaint 54[admitted] by it under Section 12 relates to goods in respect of

which the procedure specified in sub-section (1) cannot be followed, or if the complaint relates to any services,—

(a) refer a copy of such complaint to the opposite party directing him to give his version of the case within a period of

thirty days or such extended period not exceeding fifteen days as may be granted by the District Forum;

(b) where the opposite party, on receipt of a copy of the complaint, referred to him under clause (a) denies or

disputes the allegations contained in the complaint, or omits or fails to take any action to represent his case within the

time given by the District Forum, the District Forum shall proceed to settle the consumer dispute,—

(i) on the basis of evidence brought to its notice by the complainant and the opposite party, where the opposite party

denies or disputes the allegations contained in the complaint, or

(ii) ex parte on the basis of evidence brought to its notice by the complainant where the opposite party omits or fails to

take any action to represent his case within the time given by the Forum;

either dismiss the complaint for default or decide it on merits.”

September 2019 together with IA No 15390 of 2019 for condonation of a delay of

100 days. The appellant filed IA No 15391 of 2019 for the dismissal of the complaint.

5 On 26 September 2019, the NCDRC permitted the appellants to file their reply

to the respondent’s application for condoning the delay. The appellants contested

the respondent’s application for condonation of delay. The NCDRC, by its order

dated 25 February 2020, condoned the delay subject to the respondent paying costs

of Rs 50,000.

6 Mr Salil Paul, learned counsel appearing on behalf of the appellant, has

submitted that given the judgment of the Constitution Bench in New India

Assurance Company Limited (supra), a delay in excess of the period which is

stipulated in Section 13(1)(a) read with Section 13(2)(a) of the Consumer Protection

Act 1986, i.e. thirty days extendable by fifteen days, could not have been condoned.

The provisions of Section 13 are made applicable to proceedings before the NCDRC

by Section 22.

7 On the other hand, it has been urged on behalf of the respondent that (i) the

decision in New India Assurance Company Limited (supra) has been given

prospective effect; (ii) before the decision in New India Assurance Company

Limited (supra) and during the pendency of the reference to the Constitution Bench,

a two-judge bench of this Court in Reliance General Insurance Company Limited

v. Mampee Timbers and Hardwares Private Limited4 held the field in pursuance

4 (2021) 3 SCC 673 [“Reliance General Insurance Company Limited”]

of which the consumer fora were permitted to accept written statements filed beyond

the stipulated time of 45 days in an appropriate case on suitable terms; and (iii) in

the present case, the NCDRC has exercised its discretion while condoning the

delay, prior to the decision of the Constitution Bench; (iv) hence, the order would not

merit interference in appeal. More so because the NCDRC noted that the delay was

occasioned due to the respondent filing a criminal case alleging fraud and forgery

against the second surveyor.

8 The judgment of the Constitution Bench in New India Assurance Company

Limited (supra) has held that the outer limit of time for filing a written statement in

Section 13 of the Consumer Protection Act 1986 is binding. The conclusion in the

decision of the Constitution Bench is extracted below:

“62. To conclude, we hold that our answer to the first

question is that the District Forum has no power to extend the

time for filing the response to the complaint beyond the period

of 15 days in addition to 30 days as is envisaged under

Section 13 of the Consumer Protection Act; and the answer to

the second question is that the commencing point of limitation

of 30 days under Section 13 of the Consumer Protection Act

would be from the date of receipt of the notice accompanied

with the complaint by the opposite party, and not mere receipt

of the notice of the complaint.

63. This judgment to operate prospectively. The referred

questions are answered accordingly.”

Significantly, in paragraph 63, it has been clarified by the Constitution Bench that the

judgment would operate prospectively.

9 Prior to the judgment of the Constitution Bench in New India Assurance

Company Limited (supra), there was a judgment of a three-judge Bench of this

Court in Dr J J Merchant v. Shrinath Chaturvedi5 which held that to ensure a

speedy trial, the legislative mandate of not granting more than forty-five days to

submit the written statement requires adherence, failing which the purpose of the

statute would not be fulfilled. Several conflicting decisions of this Court6 led to a

reference to the Constitution Bench. Eventually, as noted above, the Constitution

Bench in New India Assurance Company Limited (supra) held that the District

Forum has no power to condone a delay beyond a discretionary period of fifteen

days, in addition to thirty days as envisaged in Section 13 of the Consumer

Protection Act 1986. However, given the conflicting decisions which previously held

the field, the judgment has been made prospective.

10 The issue in the present appeal pertains to a situation where prior to the

decision of the Constitution Bench, the NCDRC had condoned a delay for a period

beyond the prescribed statutory outer limit. In the present case, the NCDRC had

exercised its discretion on 25 February 2020 to condone the delay prior to the

decision of the Constitution Bench on 4 March 2020. In Reliance General

Insurance Company Limited (supra), a two-Judge Bench of this Court had, on 10

February 2017, issued directions to the consumer fora as regards applications for

5 (2002) 6 SCC 635 [“Dr. J J Merchant”] 6 Topline Shoes Ltd. v. Corporation Bank, (2002) 6 SCC 33; Kailash v. Nanhku, (2005) 4 SCC 480; Salem Advocate

Bar Assn. (2) v. Union of India, (2005) 6 SCC 344; J.J. Merchant v. Shrinath Chaturvedi, (2002) 6 SCC 635; New

India Assurance Co. Ltd. v. Hilli Multipurpose Cold Storage (P) Ltd., (2015) 16 SCC 20.

condonation during the pendency of the reference to the Constitution Bench. The

Court observed thus:

“5. We consider it appropriate to direct that pending decision

of the larger Bench, it will be open to the Fora concerned to

accept the written statement filed beyond the stipulated time

of 45 days in an appropriate case, on suitable terms,

including the payment of costs, and to proceed with the

matter.”

Similarly, during the pendency of the reference to the Constitution Bench, on 11

February 2016, a two-judge Bench of this Court in Bhasin Infotech and

Infrastructure Private Limited v. Grand Venezia Buyers Association 7 had

permitted parties to file written statements beyond the prescribed limitation period,

subject to payment of appropriate costs:

“4. Stay of the proceedings before the National Commission

would in our opinion not only result in procrastination but also

cause prejudice to the complainant. The proper course in our

opinion is to permit the appellant Company to file its

response, which was delayed by just about one day. We

accordingly permit the appellant to file its reply before the

National Commission within two weeks from today subject to

payment of Rs 50,000 as costs to be paid to the opposite

party. The Commission can upon deposit of costs proceed

with the trial of the complainant on merits after receiving the

reply filed by the respondent. The pendency of present

proceedings shall not be an impediment for the Commission

to do so. This however is subject to the condition that the

respondent complainant is ready and willing to take the

proceedings forward on the conditions aforementioned. In

case the respondent complainants have any objection to the

continuance of the proceedings before the Commission they

shall be free to seek stay of such proceedings pending

7 (2018) 17 SCC 255 [“Bhasin Infotech-2018”]

disposal of these appeals in which event the proceedings

shall remain stayed till disposal of the present appeals.”

11 Subsequently, there was another judgment of a two-judge Bench of this Court

in Daddy’s Builders Private Limited v. Manisha Bhargava8

. The decision was

rendered on 11 February 2021 after the judgment of the Constitution Bench in New

India Assurance Company Limited (supra). That was a case where the NCDRC in

a judgment dated 4 September 2020, had confirmed the order of the Karnataka

State Consumer Disputes Redressal Commission dated 26 September 2018

rejecting an application seeking condonation of delay in filing the written statement.

The decision of the two-judge Bench in Reliance General Insurance Company

Limited (supra) was cited before the Court. Referring to the said decision, this Court

observed that in the order dated 10 February 2017 pronounced in Reliance General

Insurance Company Limited (supra), it was specifically stated that it would be

open to the fora concerned to accept written statements filed beyond the stipulated

period of 45 days in an appropriate case on suitable terms including the payment of

costs. Referring to the above order, this Court in Daddy’s Builders (supra)

observed that ultimately it was left to the concerned fora to accept written

statements beyond the stipulated period of 45 days in an appropriate case. The

Court held that the NCDRC had found no reason to condone the delay on its merits:

“6. Now so far as the reliance placed upon the order passed

by this Court dated 10-2-2017 in Reliance General Insurance

Co. Ltd. [Reliance General Insurance Co. Ltd.v. Mampee

8 (2021) 3 SCC 669 [“Daddy’s Builders”]

Timbers & Hardwares (P) Ltd., (2021) 3 SCC 673] is

concerned, the same has been dealt with in detail by the

National Commission by the impugned order [Daddy's

Builders (P) Ltd. v. Manisha Bhargava, 2020 SCC OnLine

NCDRC 697] while deciding the first appeal. As rightly

observed by the National Commission, there was no mandate

that in all the cases where the written statement was

submitted beyond the stipulated period of 45 days, the delay

must be condoned and the written statement must be taken

on record. In order dated 10-2-2017 [Reliance General

Insurance Co. Ltd. v. Mampee Timbers & Hardwares (P) Ltd.,

(2021) 3 SCC 673] , it is specifically mentioned that it will be

open to the Fora concerned to accept the written statement

filed beyond the stipulated period of 45 days in an appropriate

case, on suitable terms, including the payment of costs and to

proceed with the matter. Therefore, ultimately, it was left to

the Fora concerned to accept the written statement beyond

the stipulated period of 45 days in an appropriate case.”

The Court also referred to the decision of the Constitution Bench in the following

terms:

“7. As observed by the National Commission that despite

sufficient time granted the written statement was not filed

within the prescribed period of limitation. Therefore, the

National Commission has considered the aspect of

condonation of delay on merits also. In any case, in view of

the earlier decision of this Court in J.J. Merchant [J.J.

Merchant v. Shrinath Chaturvedi, (2002) 6 SCC 635] and the

subsequent authoritative decision of the Constitution Bench of

this Court in New India Assurance Co. Ltd. v. Hilli

Multipurpose Cold Storage (P) Ltd. [New India Assurance Co.

Ltd. v. Hilli Multipurpose Cold Storage (P) Ltd., (2020) 5 SCC

757 : (2020) 3 SCC (Civ) 338] , Consumer Fora have no

jurisdiction and/or power to accept the written statement

beyond the period of 45 days, we see no reason to interfere

with the impugned order [Daddy's Builders (P) Ltd. v. Manisha

Bhargava, 2020 SCC OnLine NCDRC 697] passed by the

learned National Commission.”

12 A few months after the decision in Daddy’s Builders (supra), on 8 July 2021,

a two-judge Bench of this Court in Dr A Suresh Kumar v. Amit Agarwal 9

considered a factual situation where the NCDRC summarily dismissed an

application for condonation of delay filed before the decision of the Constitution

Bench in New India Assurance Company Limited (supra). The Court in Dr A

Suresh Kumar (supra) held that since the decision of the Constitution Bench was to

operate with prospective effect, applications for condonation of delay filed before 4

March 2020 ought to be considered on merits:

“2. In our view, since the application for condonation of delay

was filed prior to the judgment of the Constitution Bench,

which was delivered on 4-3-2020 [New India Assurance Co.

Ltd. v. Hilli Multipurpose Cold Storage (P) Ltd., (2020) 5 SCC

757 : (2020) 3 SCC (Civ) 338] , the said application for

condonation of delay ought to have been considered on

merits and should not have been dismissed on the basis of

the Constitution Bench judgment in New India Assurance Co.

Ltd. [New India Assurance Co. Ltd. v. Hilli Multipurpose Cold

Storage (P) Ltd., (2020) 5 SCC 757 : (2020) 3 SCC (Civ) 338]

because the said judgment was to operate prospectively and

the written statement as well as the application for

condonation of delay had been filed much prior to the said

judgment. Accordingly, the impugned order [Amit Agrawal v.

A. Suresh Kumar, 2020 SCC OnLine NCDRC 927] of Ncdrc

deserves to be, and is, hereby set aside.”

The decision in Dr A Suresh Kumar (supra) did not notice the observation of a prior

bench of co-equal strength in Daddy’s Builders (supra).

13 The divergence between the positions in Dr A Suresh Kumar (supra) and

Daddy’s Builders (supra) in interpreting the prospective effect of the decision of the

9 (2021) 7 SCC 466 [“Dr. A Suresh Kumar”]

Constitution Bench in New India Assurance Company Limited (supra) was

recently noticed on 6 December 2021 by a two-judge Bench of this Court in Bhasin

Infotech and Infrastructure Private Ltd. v. Neema Agarwal and Others10. The

Court was considering a consumer complaint and an application for condonation of

delay which were filed before 4 March 2020 but decided after the decision of the

Constitution Bench. The Court noted the conflicting positions in the following terms:

“9. Two contrary views have emerged as regards what would

be meant by the phrase….. “This judgment to operate

prospectively” mandated in the Constitution Bench judgment.

In the case of Daddy's Builders Private Limited (supra), the

application for condonation of delay had been rejected by the

State Commission prior to the Constitution Bench opinion on

the aspect of power and jurisdiction of the consumer fora to

condone delay beyond the stipulated 45 days in filing written

submission/reply. The appeal against that decision was

rejected by the NCDRC on 4th September, 2020, following

the Constitution Bench decision. On prospective operation of

the Constitution Bench Judgment, opinion of the Coordinate

Bench in the case of Daddy's Builders Private Limited (supra)

was that the prospective operation of the judgment would

apply only in cases where delay stood condoned on a date

prior to 4th March, 2020. In expressing this view, the

Coordinate Bench noted that one of the members of the

Bench was also a party to the said Constitution Bench

decision. The position, as regards composition of the Bench

is similar in the case of Dr. A. Suresh Kumar (supra) and in

that judgment, a more liberal approach has been adopted.

The prospectivity of the Constitution Bench decision has been

held to cover cases where an application for condonation of

delay was filed prior to the judgment of the Constitution

Bench, but whose outcome was yet to be determined at the

time the Constitution Bench judgment was delivered.”

10 2021 SCCOnLine SC 1186 [“Bhasin Infotech-2021”]

The two-judge Bench in Bhasin Infotech-2021 (supra) followed the line of

precedent in Dr A Suresh Kumar (supra) and noted that the prospective effect of

the Constitution Bench would preserve the benefit of the position laid down in

Reliance General Insurance Company (supra) concerning applications for

condonation that had been pending or decided as of 4 March 2020:

“10. In our view, the prospective operation of the Judgment in

the case of New India Assurance Company Limited (supra)

ought to cover both sets of the cases in which delay in filing

written reply stood condoned after accepting the application

for condonation of delay in filing written statement/reply as

well as the cases where the decision on condonation of delay

in filing written replies were pending on 4th March, 2020.

Once an application is filed for condonation of delay, there

may be cases where such applications are decided upon on

dates earlier than applications already filed but yet to be

determined. We do not have any laid down administrative

mechanism to decide in what manner applications of this

nature would be decided and the consumer fora or the Courts

apply their own discretion on the basis of various relevant

factors involved in individual cases, to prioritise their hearing.

In our opinion, it would be artificial distinction to distinguish

between applications for condonation of delay already

decided before 4th March, 2020 and the applications for

condonation of delay pending on that date. So far as persons

with pending applications for condonation of delay in filing

written replies are concerned, their right to have their

applications for condonation of delay in filing written replies to

be considered, would stand crystallised on 4th March, 2020.

Such right has also been recognised in the case of Reliance

General Insurance Company Limited (supra). Such right

could be extinguished only by specific legal provisions. In the

event the Constitution Bench judgment had altogether

negated the right to have delay in filing written statement

condoned beyond the period of 45 days, the right of such

applicants could stand extinguished. But as the judgment of

the Constitution Bench is to operate prospectively, in our

understanding of the said judgment, those with pending

applications for condonation of delay would retain their right

to have their applications considered. But we refrain from

expressing any definitive opinion on this point as the two

Benches of equal strength have taken differing views on the

manner in which the prospective application of the

Constitution Bench judgment would be affected. In our

opinion, this issue ought to be decided by a larger Bench.”

However, in view of the conflicting position in Daddy’s Builders (supra), the twojudge Bench in Bhasin Infotech-2021 (supra) sought the reference of the matter to

a larger bench.

14 To recapitulate, in Daddy’s Builders (supra), this Court refused to interfere in

a decision of the NCDRC which had affirmed the judgment of the SCDRC rejecting

the application for condonation. The application for condonation had not been

entertained on merits. However, there are observations in Daddy’s Builders

(supra), based on the decision of the Constitution Bench, which state that a delay

beyond the outer limit prescribed by Section 13 could not have been condoned.

While this is the position which emerges from the decision of the Constitution Bench,

the decision has been made prospective. In Daddy’s Builders (supra) the

application for condonation had been filed before the decision of the Constitution

Bench and had been rejected on merits. Strictly speaking, the observations in

Daddy’s Builders (supra) were not necessary for its decision since, even on merits,

no case for condonation had been found by the NCDRC in that case. As noted

above, this Court in Daddy’s Builders (supra) after noticing the decision in

Reliance General Insurance Company (supra) held that it left the discretion to be

exercised by the fora during the pendency of the reference to the Constitution Bench

and in that case, the NCDRC found no reason to condone the delay. The

subsequent observation of this Court in Daddy’s Builders (supra) which implies that

the principle laid down by the Constitution Bench will even apply to applications for

condonation filed prior to the decision of the Constitution Bench were unnecessary

(once it had been held that even on merits there was no case for condonation).

Moreover, those observations are with respect not consistent with the legal position

that the Constitution Bench gave prospective effect to its decision.

15 The discretion for condonation of delay under Section 13 of the Consumer

Protection Act 1986 is specifically circumscribed by the statute. Similar statutory

provisions exist in the Arbitration and Conciliation Act 2015 and the Insolvency and

Bankruptcy Code 2016 though in a different statutory context – facilitating the

sanctity of the arbitral process in the former and the legislative intent of ensuring

timely disposal and corporate rehabilitation in the latter. The Consumer protection

Act 1986 and its successor are social welfare legislations designed to protect the

interests of consumers. The Constitution Bench had thus noted:

“28. It is true that “justice hurried is justice buried”. But in the

same breath it is also said that “justice delayed is justice

denied”. The legislature has chosen the latter, and for a good

reason. It goes with the objective sought to be achieved by

the Consumer Protection Act, which is to provide speedy

justice to the consumer. It is not that sufficient time to file a

response to the complaint has been denied to the opposite

party. It is just that discretion of extension of time beyond 15

days (after the 30 days' period) has been curtailed and

consequences for the same have been provided under

Section 13(2)(b)(ii) of the Consumer Protection Act. It may be

that in some cases the opposite party could face hardship

because of such provision, yet for achieving the object of the

Act, which is speedy and simple redressal of consumer

disputes, hardship which may be caused to a party has to be

ignored.”

This was owing to the social welfare intention of the consumer protection legislation,

which essentially seeks to protect the rights of consumers who avail of myriad goods

and services. The welfare of litigating consumers has been the guiding principle for

interpreting several procedural and substantive questions arising out of the

Consumer Protection Act 1986. Recently, a two-judge Bench considered the effect

of the Consumer Protection Act 2019 which amended the pecuniary jurisdiction of

consumer fora, on pending proceedings. In arriving at its decision, the Court noted:

“82. It would be difficult to attribute to Parliament, whose

purpose in enacting the Act of 2019 was to protect and

support consumers with an intent that would lead to financial

hardship, uncertainty and expense in the conduct of

consumer litigation….”

A similar principle is inherent in the decision of the Constitution Bench in New India

Assurance Company Ltd. (supra). However, given the conflicting decisions

concerning the nature of such discretion, the Constitution Bench considered it

appropriate to give prospective effect to the decision. It did not make a distinction

between applications for condonation which had been decided and those which

were pending on the date of the decision. Thus, the decision in Daddy’s Builders

(supra) would not affect applications that were pending or decided before 4 March

2020. Such applications for condonation would be entitled to the benefit of the

position in Reliance General Insurance Company Limited (supra) which directed

consumer fora to render a decision on merits. We have expounded on the above

principles in order to adopt a bright-line standard which obviates uncertainty on the

legal position before the consumer fora and obviates further litigation.

16 In the present case, before the decision of the Constitution Bench, the delay

was condoned by the NCDRC by furnishing reasons for the exercise of such

discretion. Having regard to the prospective effect of the judgment of the

Constitution Bench in New India Assurance Company Limited (supra) and the

orders of this Court in Reliance General Insurance Company Limited (supra) and

Bhasin Infotech-2018 (supra), which had recognized an element of discretion

pending the reference, we are of the considered view that no case for interference is

made in the order of the NCDRC allowing the application for condonation of delay

on merits.

17 Learned counsel for the appellant states that the payment of costs of Rs

50,000 could not be effected because of the lockdown, but a demand draft is ready.

The amount shall be transmitted into the account stipulated by the NCDRC within

two weeks.

18 Liberty is granted to the appellants to file their replication within a period of

four weeks.

19 The appeal is accordingly disposed of.

20 Pending applications, if any, stand disposed of.

…….…………………………...............................J.

[Dr Dhananjaya Y Chandrachud]

…….…………………………...............................J.

[Surya Kant]

…….…………………………...............................J.

[Vikram Nath]

New Delhi;

December 14, 2021

Insolvency and Bankruptcy Code = whether, in terms of the provisions of the IBC, the Adjudicating Authority can without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor has initiated the process of settlement with the financial creditors.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No 3325 of 2020

E S Krishnamurthy & Ors. …. Appellants

Versus

M/s Bharath Hi Tech Builders Pvt. Ltd. …. Respondent

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1 Admit.

2 The present appeal under Section 62 of the Insolvency and Bankruptcy Code

20161 has arisen from a judgment of the National Company Law Appellate Tribunal2

dated 30 July 2020, which upheld an order dated 28 February 2020 of the National

Company Law Tribunal3 at its Bengaluru Bench.

1 “IBC” 2 “NCLAT”/“Appellate Authority” 3 “NCLT”/“Adjudicating Authority”

3 On a petition4 which was instituted by the appellants (and others) under

Section 7 of the IBC for initiating the Corporate Insolvency Resolution Process5 in

respect of the respondent, the NCLT declined to admit the petition and instead

directed the respondent to settle the claims within three months. The NCLAT found

no merit in the appeal6 against the NCLT’s order.

4 The issue which arises for adjudication before this Court is whether, in terms

of the provisions of the IBC, the Adjudicating Authority can without applying its mind

to the merits of the petition under Section 7, simply dismiss the petition on the basis

that the corporate debtor has initiated the process of settlement with the financial

creditors.

5 The genesis of the case arises from a Master Agreement to Sell7 which was

entered into between the respondent, IDBI Trusteeship Limited and Karvy Realty

(India) Limited8 on 22 June 2014, in order to raise an amount of Rs 50 crores for the

development of 100 acres of agricultural land. Under the terms of the Master

Agreement, the Facility Agent was to sell the plots to prospective purchasers against

the payment of a lumpsum amount. The respondent was then required to pay

interest at the rate of 25 per cent per annum compounded annually to the purchaser,

under the Master Agreement. It has been stated that in furtherance of the Master

Agreement, the ninth appellant was allotted a plot in the project being developed by

the respondent on the payment of a sum of Rs 12,50,000. Thus, the respondent was

4 C.P(IB)No. 188/BB/2019 5 “CIRP” 6 Company Appeal (AT) (Insolvency) No 649 of 2020 7 “Master Agreement” 8 “Facility Agent”

obligated to convey and register the plots to the ninth appellant within 21 months

from the date of execution of the Master Agreement (i.e., by 21 March 2016).

6 Since the requisite funds could not be generated through the Master

Agreement, a Syndicate Loan Agreement 9 was entered into between the

respondent, IDBI Trusteeship Limited and the Facility Agent on 22 November 2014

for availing a term loan of Rs 18 crores from prospective lenders. Such prospective

lenders were to lend moneys by executing a Deed of Adherence. In accordance with

the terms of the Loan Agreement, the respondent had to utilise the funds raised for

developing the proposed residential layout in its project and it was to pay an assured

return at the rate of 20 per cent annum on the principal amount. Further, the tenure

of the loan was to be 24 months from the execution of the Loan Agreement, and in

the event of default, the respondent was liable to pay an additional interest of one

per cent for every month.

7 The case of the appellants is that during the year 2015-2016, the Facility

Agent acting through its sister concern (Karvy Private Wealth) advised its clients to

extend loans to the respondent. The appellants claim that they (with the exception of

the ninth appellant), along with several others, extended term loans to the

respondent acting on the advice of the Facility Agent and its sister concern. Thus,

requisite Deeds of Adherence were signed. It is alleged by the appellants that

through the Loan Agreement, the respondent raised over Rs 15 crores from nearly

300 investors in the first tranche of loans.

9 “Loan Agreement”

8 By a letter dated 29 February 2016, addressed to one of the original

petitioners in the petition before the NCLT who was allotted a plot under the Master

Agreement, the respondent sought an extension of time till 31 October 2016 for

conveying the plots. It has been alleged that in its letter, the respondent undertook

that in the event of its failure to convey the plots by 31 October 2016, the entire

amount which was paid would be returned, together with interest as agreed in the

Master Agreement itself.

9 Further, on 30 November 2016, the respondent is stated to have extended the

term of the Loan Agreement, due to its alleged inability to refund the principal

amount along with interest. The respondent is also alleged to have sought an

extension of the loan period by 12 months, with an assurance that the principal

amount would be repaid in three equal instalments in the 13th, 14th and 15th months.

10 However, on 26 April 2019, 11 out of the 17 appellants before this Court

(together with 72 other petitioners) instituted a petition under Section 7 of the IBC

before the Adjudicating Authority, due to the respondent’s default in making the repayment of an amount of Rs 33,84,32,493.

11 On 11 September 2019, the Adjudicating Authority adjourned the proceedings

on the ground that the parties were attempting to resolve the dispute. A further

extension of time for exploring the possibility of a settlement was sought on 24

October 2019 by the respondent, which was granted by the Adjudicating Authority

and the petition was posted for 5 November 2019. On 22 November 2019, the

respondent informed the Adjudicating Authority that it was exploring the possibility of

a settlement, following which it was observed that any proposal for settlement

should be furnished to the petitioners well before the next date of hearing. On 20

December 2019, with the respondent having failed to resolve the issue, the

Adjudicating Authority posted the petition for admission on 29 January 2020. On 29

January 2020, on the respondent’s request, the Adjudicating Authority granted a

further opportunity to the respondent to settle the dispute with the petitioners before

it. On 27 February 2020, the respondent filed a memo before the Adjudicating

Authority stating that it had reached a settlement with 140 investors. According to

the appellants, however, out of 83 petitioners who were before the Adjudicating

Authority in the petition, a settlement had been arrived at only with 13 petitioners.

There was, in other words, no settlement with the other 70 petitioners before the

NCLT.

12 Eventually, by its order dated 28 February 2020, the NCLT disposed of the

petition. The Adjudicating Authority noted that “both the learned Counsels have filed

Joint Consent Terms dated 12.02.2020”. Admittedly, however, these consent terms

were arrived at by the respondent with only one of the petitioners before the

Adjudicating Authority, and not with all of the petitioners (including the appellants).

Before the Adjudicating Authority, the respondent submitted that “subsequently they

have settled the claims of about 140 Creditors” and counsel for the respondent also

filed a memo indicating the steps that they had taken to settle the claims of “various

others creditors and clients”. In this backdrop, the Adjudicating Authority observed:

“6. It is not in dispute that the Corporate Debtor with bona fide

intention is exploring the possibility of the settlement in

question and the project is in advanced stage of completion,

and if the Company is put under CIRP, interest of all the

Home Buyers as well as other Creditors will be in jeopardy.

He further submits that the Corporate Debtor is taking all

steps to settle the remaining claims of the Petitioners as well

as other Creditors within a time frame. Lists showing the

number of cases settled and those remaining have been filed.

7. It is a settled position of law that this procedure under the

Code is contemplated to be summary in nature, and it cannot

manage or decide upon each and every case of individual

homebuyers. Lists of Individual cases have been placed on

record which show that 140 investors have been fully settled

by the Corporate Debtor and an amount of Rs.27.25 crore

has been paid to them. 13 claims/Petitioners before us have

been settled, 40 are in the process of settlement and 39

pending settlement. Thus the process of settlement appears

to be progressing in all seriousness. Instead of examining all

the individual claims in detail, we would like to dispose of the

instant case by directing the Corporate Debtor to settle all the

remaining claims sincerely within a definite lime frame.”

Thus, the Adjudicating Authority decided to dispose the petition based on the

following factors: (i) that respondent’s efforts to settle the dispute were bona fide, as

evinced by the fact that they had already settled with 140 investors, including 13

petitioners before it; (ii) the settlement process was underway with 40 other

petitioners; (iii) the procedure under the IBC was summary in nature, and could not

be used to individually manage the case of each of the 83 petitioners before it; and

(iv) initiation of CIRP in respect of the respondent would put in jeopardy the interests

of home buyers and creditors, who have invested in the respondent’s project, which

was in advanced stages of completion. In disposing of the petition, the Adjudicating

Authority issued the following directions:

“a. The Corporate Debtor is directed to settle the remaining

claims as expeditiously as possible, but not later than 3

months, and communicate this decision to all the concerned

parties.

b. If aggrieved by the settlement process of the Corporate

Debtor, the remaining Petitioners, if any, would be at liberty to

approach this Adjudicating Authority again, in accordance

with law.”

13 The order of the Adjudicating Authority was challenged in appeal before the

NCLAT by 7 of the original petitioners, all of whom are appellants before this Court

as well, along with certain other allottees who were not original petitioners before the

NCLT. By its impugned judgment 30 July 2020, the Appellate Authority dismissed

the appeal, noting thus:

“3. It is manifestly clear that the application under Section 7 of

the l&B Code came to be disposed of at the pre-admission

stage and no order of admission or rejection of application

was passed by the Adjudicating Authority keeping in view the

nature of claims which admittedly were relatable to a Housing

Project. The Adjudicating Authority appears to have been

influenced by the fact that claims of the maximum number of

stakeholders have been settled which included some claims

settled at pre-admission stage before the Adjudicating

Authority. In so far as the remaining claims were concerned,

the Adjudicating Authority allowed a definite time frame viz. 3

months giving liberty to the claimant(s} whose claims would

remain unsettled after expiry of the given time frame, to come

back and re-agitate the matter.

4. Viewed in these circumstances, it cannot be said that the

impugned order is of such a nature which is prejudicial to the

rights and interests of any of the stakeholders. The

claimant(s) who may be dissatisfied or whose claims remain

unsettled during the given time frame can approach the

Adjudicating Authority who has not shut its doors. Assailing of

the impugned order in appeal would not be the appropriate

course.

5. It is a fact that the given time frame has already elapsed

but we take judicial notice of the fact that normal business

operations had been adversely affected by the imposition of

lockdown due to outbreak of COVID-19 which has been

declared pandemic. Even after unlocking, the pace of

business operations is far from normal. In these

circumstances, some concession has to be given in

adherence to the timelines set in terms of the impugned

order. Be-that-as-it-may, this situation may also have to be

addressed by the Adjudicating Authority, if approached by a

claimant whose claim has not been settled so far. It is not

disputed that the resolution of disputes relating to claims,

more particularly of Allottees in Housing Projects, has to be

given primacy and pushing the Corporate Debtor into

liquidation would only be the last option.

6. In view of the foregoing discussion and also bearing in

mind that the settlement process set in motion at the preadmission stage is supported by the Consent Terms filed by

some of the stakeholders, though it may not be all

encompassing, this appeal would not lie. We accordingly hold

that the appeal is not maintainable. There being no legal

infirmity in the impugned order, the appeal is dismissed.”

The Appellate Authority’s decision to dismiss the appeal and uphold the Adjudicating

Authority’s order was thus based upon the following considerations: (i) the NCLT

decided to dismiss the petition under Section 7 at the ‘pre-admission stage’ itself,

since the settlement process was underway; (ii) the NCLT protected the rights of all

the appellants/petitioners by setting a time-frame for settlement by the respondent,

and leaving them open the option of approaching it in case their claims remained unsettled; (iii) while the timeframe for settlement had elapsed, the respondent had to

be shown leniency due to the effects of the COVID-19 pandemic on businesses; and

(iv) in disputes of this nature, the claims of the home buyers have to be given

priority, and the respondent should not be pushed into liquidation, until as the last

resort.

14 The NCLAT’s judgment and order dated 30 July 2020 has now been

challenged before this Court by a variety of individuals – some of whom were

original petitioners before the NCLT and went in appeal before the NCLAT, some

who joined the appeal before the NCLAT directly, some who were original

petitioners before the NCLT but did not join the appeal before the NCLAT and others

who have joined the cause before this Court for the first time. A tabular

representation is provided below:

S.No. Name Position before this

Court

Position before

NCLAT

Position before

NCLT

1 Brig. E.S. Krishnamurthy First Appellant Appellant Petitioner

2 Dhwani Nishith Sanghvi Second Appellant Appellant Petitioner

3 Kriti Milind Ranka Third Appellant Appellant Petitioner

4 Marie Therese Lima

Fernandes

Fourth Appellant Appellant Petitioner

5 Nitin Dinkar Palekar Fifth Appellant Appellant Petitioner

6 Sunil Jain Sixth Appellant Appellant Petitioner

7 Bhupesh Dinger Seventh Appellant Appellant Petitioner

8 Battula Satish Eight Appellant Appellant Not a Party

9 Shashi Arora Ninth Appellant Appellant Not a Party

10 Gangasagar Neminath

Hemade

Tenth Appellant Not a Party Petitioner

11 P.V. Lakshminarayana Eleventh Appellant Not a Party Petitioner

12 Shaila S Kothari Twelfth Appellant Not a Party Not a Party

13 Nemmara Raju Dorai

Mahadevan

Thirteenth Appellant Not a Party Not a Party

14 Mayank Gupta Fourteenth Appellant Not a Party Not a Party

15 Manjushri Basu Fifteenth Appellant Not a Party Petitioner

16 Madhukar V. Limaye Sixteenth Appellant Not a Party Petitioner

17 Dipankar Kanjilal Seventeenth Appellant Not a Party Not a Party

During the course of the appeal, there have also been two applications10 seeking

impleadment in the proceedings by ten individuals who are similarly placed to the

appellants. Some of these individuals were also original petitioners before the NCLT.

15 We have heard Mr Srijan Sinha, Counsel for the appellants and Ms

Aakanksha Nehra, Counsel for the respondent.

16 On behalf of the appellants, the principal challenge is on the ground that:

(i) The Appellate Authority as well as the Adjudicating Authority have acted

beyond the scope of their jurisdiction under the IBC, and thus their orders are

liable to be set aside since they were coram non judice. Reliance has been

placed upon the judgment of this Court in Embassy Property Developments

(P) Ltd. v. State of Karnataka11 in support of this proposition;

(ii) The impugned orders are contrary to the mandate of Section 7 of the IBC.

This ground has been sought to be substantiated by urging as follows:

(a) The orders of the Adjudicating Authority and the Appellate Authority are

contrary to the principles enunciated in the judgment of this Court in

Innoventive Industries Ltd. v. ICICI Bank 12 ("Innoventive

Industries”), with respect to the scope and extent of the enquiry which

has to be made in a petition under Section 7 of the IBC. This Court has

held that while entertaining the petition under Section 7, the

Adjudicating Authority has to merely satisfy itself whether a default has

10 IA No 4783 of 2021 and IA No 97193 of 2021 11 (2020) 13 SCC 308 12 (2018) 1 SCC 407, paras 28 and 30

occurred. As such, Section 7(5) only provides the Adjudicating

Authority with two options – to pass an admission order under Section

7(5)(a) or reject the petition under Section 7(5)(b). Thus, unless the

debt has not become due or is interdicted by some law, the

Adjudicating Authority must admit a petition under Section 7;

(b) Admittedly, in the present case, the respondent has committed an act

of default as understood in the provisions of Section 3(12) of the IBC.

This is evident from the fact that it is willing to settle the debt owed to

the appellants, which was also noted by the Adjudicating Authority.

Further, the dispute between the respondent and as many as 70

original petitioners had not been settled, at the time when the

Adjudicating Authority passed its order. In spite of this, the Adjudicating

Authority failed to act in accordance with the provisions of Section

7(5)(a) and issue an order admitting the application; and

petition under Section 7 was disposed of at a ‘pre-admission stage’ by

the Adjudicating Authority. Where the Adjudicating Authority is not

satisfied that the financial debt is owed and a default has occurred,

Section 7(5)(b) provides that it shall reject the application. Thus, an

option to dispose at a ‘pre-admission stage’ is not available to the

Adjudicating Authority;

(iii) The Adjudicating Authority and Appellate Authority have acted beyond the

scope of their jurisdiction in ‘directing’ the parties to settle with the

respondent. To substantiate this argument, it has been urged:

(a) The Adjudicating Authority as well as the Appellate Authority are

creatures of the statute – the IBC – and are bound by its provisions.

Thus, their jurisdiction is limited by the provisions of the IBC;

(b) Hence, once there is an admitted default by the respondent, the

Adjudicating Authority was statutorily bound to admit the petition and

has acted patently beyond its jurisdiction in not entertaining it on the

ground that there was a possibility of a settlement. The Appellate

Authority has merely placed its stamp of approval on the judgment of

the Adjudicating Authority. In doing so, Adjudicating Authority and

Appellate Authority have acted as courts of equity, which is not

prescribed by the IBC. In support of this proposition, reliance has been

placed upon the judgment of this Court in Pratap Technocrats (P) Ltd.

and Others v. Monitoring Committee of Reliance Infratel Limited

and Another13 (“Pratap Technocrats”);

13 had entered into a settlement. As a result, there was no settlement

with the remaining 70 petitioners. Moreover, even in respect of the

financial creditors with whom the respondent had entered into a

13 2021 SCC OnLine SC 569, paras 37, 47 and 50

settlement, the respondent had failed to comply with the settlement

even before the passing of the impugned order;

(d) Further, the direction by the Adjudicating Authority to the respondent to

settle all individual claims is beyond its jurisdiction, as a judicial

authority cannot dispose of a petition with a direction to settle a dispute.

At the highest, a proceeding may be adjourned in order to enable the

parties to explore the possibility of a settlement. In the present case, as

many as four opportunities were granted to the respondent to resolve

the dispute with the petitioners, but to no avail. Hence, once the parties

failed to arrive at a settlement, the judicial authority was duty bound to

decide the case on merits alone; and

(e) Finally, the admission of the petition by the Adjudicating Authority

would not have automatically nullified any potential for settlement. This

Court has held in its judgment in Swiss Ribbons Pvt Ltd and Anr. v.

Union of India and Ors.14 that even after a petition under Section 7 of

the IBC is admitted and before the Committee of Creditors15 is formed,

the parties can settle the dispute. Further, even after the CoC is

formed, Section 12A of the IBC does provide for a mechanism through

which the petition can be withdrawn (if the parties were to reach a

settlement);

14 (2019) 4 SCC 17 15 “CoC”

(iv) The IBC envisages two classes of creditors – financial and operational

creditors. Except some differences in their rights and role in the CIRP, the IBC

confers equal rights upon both the classes of creditors. However, through the

impugned judgment, the Appellate Authority has created a sub-class within

the class of financial creditors by observing that in the resolution of disputes

relating to claims of allottees in housing projects, their rights have to be given

primacy and the project entity/corporate debtor should not be sent into

liquidation only at the behest of the other investors; and

(v) The threshold requirement of 10 per cent allotees of a housing project filing a

petition under Section 7 of the IBC has been upheld by this Court in Manish

Kumar v. Union of India16 ("Manish Kumar”). However, in paragraph 181,

this Court has held that such a requirement only needs to be assessed at the

threshold while admitting the petition. Hence, if subsequent to the admission,

withdrawal applications are preferred and the 10 per cent threshold is

reduced, it shall not affect the maintainability of the original petition. Thus, in

the present case, the 83 original petitioners did meet the 10 per cent

threshold and the petition should have been admitted.

Based on the above submissions, the appellants have prayed that the orders of the

NCLAT and NCLT be set aside, and the original petition under Section 7 of the IBC

be restored for a decision on its admissibility under Section 7(5) of the IBC.

16 (2021) 5 SCC 1

17 On the other hand, the respondent counters by submitting that:

(i) The present appeal has been filed by the appellants to obviate the procedural

requirements of Section 7 of the IBC. It has been urged:

(a) The petition under Section 7 was instituted by the first appellant on

behalf of himself and 82 other petitioners/proposed purchasers. Out of

these 83 petitioners, only 7 of the original petitioners (including the first

appellant) approached the NCLAT in appeal. The present appeal has

been filed by the first appellant on behalf of the following persons:

i. First to seventh appellants, who were parties before the NCLT and

the NCLAT;

ii. Eight and ninth appellants, who were not parties to the original

petition under Section 7 but had filed an appeal before the

NCLAT;

iii. Tenth, eleventh, fifteenth and sixteenth appellants, who were

parties before the NCLT but not before the NCLAT; and

iv. Twelfth to fourteen and seventeenth appellants, who were neither

parties before the NCLT nor the NCLAT;

The reduced number of litigants establishes that the respondent has

made efforts to settle the disputes with many of the proposed

purchasers;

(b) Further, the Parliament has amended Section 7 with effect from 28

December 2019, which was upheld by the judgment of this Court in

Manish Kumar (supra). The amendment has introduced the threshold

requirement (of 10 per cent or 100 home buyers) for filing a petition

under Section 7, with the objective of protecting a corporate debtor

from being dragged into insolvency proceedings by an isolated set of

creditors;

proceedings under Section 7, the threshold requirement would have to

be met. Evidently, with the reduced number of litigants, it is not met;

and

(d) Further, if the appellants have to file a fresh proceeding before the

Adjudicating Authority or if their proceedings are restored before the

Adjudicating Authority at this stage, they would still have to fulfil the

mandatory requirement of bringing together 100 creditors in the same

class or 10 per cent of the total number of such creditors;

(ii) The present proceedings have only been filed by the appellants to arm-twist

the respondent, instead of taking up the settlements offered to them:

(a) The first appellant preferred a petition on behalf of 82 home buyers.

The Adjudicating Authority in its order dated 28 February 2020

recorded that the respondent had fully settled with 140 investors

against a payment of Rs 27.25 crores. Further, it was noted that the

claims of 13 petitioners before the NCLT were settled, 40 were in the

process of settlement and 39 were pending settlements. It was in this

backdrop that the NCLT disposed of the petition, with specific

directions that the appellants could approach it if the respondent did not

settle their claims within three months;

(b) Even after the disposal of the proceedings by the NCLT, the

respondent has continued to settle with proposed purchasers.

However, while numerous efforts have been made to arrive at a

settlement with the appellants, none of the options offered were

agreeable to them;

full to the eighth, fourteenth and sixteenth appellants in November

2020. With respect to the tenth, twelfth, thirteenth and seventeenth

appellants, a settlement was arrived at and cheques have been handed

over by the respondent to them, which have not been encashed; and

(d) The respondent reiterates its commitment to settle with the proposed

purchasers, despite the real-estate industry being severely affected

due to the COVID-19 pandemic; and

(iii) The respondent should not be pushed to insolvency merely because a few of

its alleged creditors are not willing to settle. In any case, the appellants are

merely speculative investors and are not allottees within the meaning of

Section 5(8)(12) of the IBC, and thus they have no claim under Section 7 of

the IBC.

On the above hypothesis, it has been submitted that the appellants are utilising the

process to facilitate recovery whereas the primary focus of IBC is to ensure revival

and continuation of the corporate debtor, and to protect it from corporate death by

liquidation.

18 The rival submissions will now be considered.

19 At the very outset, there is a factual question in relation to the settlements

which have been made by the respondent with the present appellants. The

respondent has alleged that settlements have been reached with the eighth,

fourteenth and sixteenth appellants and agreed amounts have been paid in full.

Further, settlements were arrived at with tenth, twelfth, thirteenth and seventeenth

appellants and cheques have been handed over to them, but they have not been

encashed. However, the appellants note that while a settlement amount was agreed

between the respondent and the fourteenth appellant, it was never actually paid

before the appeal was filed. Further, upon the filing of the present appeal, when the

respondent offered a new settlement amount, it was rejected by the fourteenth

appellant. Similarly, no settlement has been arrived at with the sixteenth appellant.

In respect of the tenth, twelfth, thirteenth and seventeenth appellants, it is submitted

that the cheques were issued in June 2020 but the respondent itself in October 2020

told them not to encash them till the outcome of the present appeal. Presently, the

appellants acknowledge that final settlements have been reached between the

respondent and the eighth, tenth and twelfth appellants. This position has not been

controverted by the respondent.

20 The central question in this appeal then is whether the NCLT and the NCLAT

were correct in their approach of rejecting the appellants’ petition under Section 7 of

the IBC at the ‘pre-admission stage’, and directing them to settle with the respondent

within 3 months. Section 7 of the IBC provides for the initiation of CIRP by a financial

creditor or a class of financial creditors. Section 7, as it stood prior to its

amendments in 201917, is reproduced below:

“7. Initiation of corporate insolvency resolution process

by financial creditor.—(1) A financial creditor either by itself

or jointly with other financial creditors, or any other person on

behalf of the financial creditor, as may be notified by the

Central Government, may file an application for initiating

corporate insolvency resolution process against a corporate

debtor before the Adjudicating Authority when a default has

occurred:

Explanation.—For the purposes of this sub-section, a default

includes a default in respect of a financial debt owed not only

to the applicant financial creditor but to any other financial

creditor of the corporate debtor.

(2) The financial creditor shall make an application under subsection (1) in such form and manner and accompanied with

such fee as may be prescribed.

(3) The financial creditor shall, along with the application

furnish—

(a) record of the default recorded with the information utility or

such other record or evidence of default as may be specified;

(b) the name of the resolution professional proposed to act as

an interim resolution professional; and

(4) The Adjudicating Authority shall, within fourteen days of

the receipt of the application under sub-section (2), ascertain

the existence of a default from the records of an information

17 Through Act 26 of 2019 and Act 1 of 2020

utility or on the basis of other evidence furnished by the

financial creditor under sub-section (3):

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under subsection (2) is complete, and there is no disciplinary

proceedings pending against the proposed resolution

professional, it may, by order, admit such application; or

(b) default has not occurred or the application under subsection (2) is incomplete or any disciplinary proceeding is

pending against the proposed resolution professional, it may,

by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting

the application under clause (b) of sub-section (5), give a

notice to the applicant to rectify the defect in his application

within seven days of receipt of such notice from the

Adjudicating Authority.

(6) The corporate insolvency resolution process shall

commence from the date of admission of the application

under sub-section (5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the

financial creditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the

financial creditor, within seven days of admission or rejection

of such application, as the case may be.”

21 Sub-Section (1) of Section 7 enables the financial creditor to file an

application for initiation of CIRP against the corporate debtor before the Adjudicating

Authority “when a default has occurred”. The expression “default” is defined in

Section 3(12) of the IBC in the following terms:

“(12) “default” means non-payment of debt when whole or any

part or instalment of the amount of debt has become due and

payable and is not paid by the debtor or the corporate debtor,

as the case may be;”

The definition of default adverts to the non-payment of a debt, when it has become

due and payable in whole or in part, by the debtor or the corporate debtor. Since the

definition of “default” incorporates the expression “debt”, it is necessary to advert to

the definition of the latter expression under Section 3(11) of the IBC:

“(11) “debt” means a liability or obligation in respect of a claim

which is due from any person and includes a financial debt

and operational debt;”

Thus, a “debt” is defined to be a liability or an obligation in respect of a claim due

from any person. This includes a financial debt and an operational debt.

22 If the above criteria are met, the financial creditor can make an application

under sub-Section (2) of Section 7, in the manner prescribed, along with the

necessary fees. Sub-Section (3) requires the financial creditor, inter alia, to furnish a

record of the default with the information utility or such other record or evidence of

default as may be specified along with the application. Under sub-Section (4), the

Adjudicating Authority must, within 14 days of the receipt of the application under

sub-Section (2), ascertain the existence of a default from the record of an

information utility or on the basis of other information furnished by the financial

creditor under sub-Section (3).

23 Sub-Section (5) of Section 7 is comprised in two parts: Clause (a), which is

the first part, empowers the Adjudicating Authority to admit the application where it is

satisfied that: (i) a default has occurred; (ii) the application under sub-Section (2) is

complete; and (iii) no disciplinary proceeding is pending against the proposed

resolution professional; Clause (b), which is the second part, empowers the

Adjudicating Authority to reject the application where it is satisfied that: (i) default

has not occurred; or (ii) the application under sub-Section (2) is incomplete; or (iii) a

disciplinary proceeding is pending against the proposed resolution professional.

Under sub-Section (7), the Adjudicating Authority has to communicate its order of

acceptance or rejection to the financial creditor and the corporate debtor or the

financial creditor, as the case may be. In accordance with sub-Section (6), the CIRP

process commences from the date of the admission of the application under subSection (5). Thus, a time limit for the completion of the CIRP within a period of 180

days (under sub-Section (1) of Section 12, subject to a further extension under subSection (3)) commences from the date of the admission of the application to initiate

the process.

24 On a bare reading of the provision, it is clear that both, Clauses (a) and (b) of

sub-Section (5) of Section 7, use the expression “it may, by order” while referring to

the power of the Adjudicating Authority. In Clause (a) of sub-Section (5), the

Adjudicating Authority may, by order, admit the application or in Clause (b) it may,

by order, reject such an application. Thus, two courses of action are available to the

Adjudicating Authority in a petition under Section 7. The Adjudicating Authority must

either admit the application under Clause (a) of sub-Section (5) or it must reject the

application under Clause (b) of sub-Section (5). The statute does not provide for the

Adjudicating Authority to undertake any other action, but for the two choices

available.

25 In Innoventive Industries (supra), a two-judge Bench of this Court has

explained the ambit of Section 7 of the IBC, and held that the Adjudicating Authority

only has to determine whether a “default” has occurred, i.e., whether the “debt”

(which may still be disputed) was due and remained unpaid. If the Adjudicating

Authority is of the opinion that a “default” has occurred, it has to admit the

application unless it is incomplete. Speaking through Justice Rohinton F Nariman,

the Court has observed:

“28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the Explanation

to Section 7(1), a default is in respect of a financial debt owed

to any financial creditor of the corporate debtor — it need not

be a debt owed to the applicant financial creditor. Under

Section 7(2), an application is to be made under sub-section

(1) in such form and manner as is prescribed, which takes us

to the Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the application is made

by a financial creditor in Form 1 accompanied by documents

and records required therein. Form 1 is a detailed form in 5

parts, which requires particulars of the applicant in Part I,

particulars of the corporate debtor in Part II, particulars of the

proposed interim resolution professional in Part III, particulars

of the financial debt in Part IV and documents, records and

evidence of default in Part V. Under Rule 4(3), the applicant is

to dispatch a copy of the application filed with the adjudicating

authority by registered post or speed post to the registered

office of the corporate debtor. The speed, within which the

adjudicating authority is to ascertain the existence of a default

from the records of the information utility or on the basis of

evidence furnished by the financial creditor, is important. This

it must do within 14 days of the receipt of the application. It is

at the stage of Section 7(5), where the adjudicating

authority is to be satisfied that a default has occurred,

that the corporate debtor is entitled to point out that a

default has not occurred in the sense that the “debt”,

which may also include a disputed claim, is not due. A

debt may not be due if it is not payable in law or in fact.

The moment the adjudicating authority is satisfied that a

default has occurred, the application must be admitted

unless it is incomplete, in which case it may give notice

to the applicant to rectify the defect within 7 days of

receipt of a notice from the adjudicating authority. Under

sub-section (7), the adjudicating authority shall then

communicate the order passed to the financial creditor and

corporate debtor within 7 days of admission or rejection of

such application, as the case may be.

[…]

30. On the other hand, as we have seen, in the case of a

corporate debtor who commits a default of a financial

debt, the adjudicating authority has merely to see the

records of the information utility or other evidence

produced by the financial creditor to satisfy itself that a

default has occurred. It is of no matter that the debt is

disputed so long as the debt is “due” i.e. payable unless

interdicted by some law or has not yet become due in the

sense that it is payable at some future date. It is only

when this is proved to the satisfaction of the adjudicating

authority that the adjudicating authority may reject an

application and not otherwise.”

(emphasis supplied)

26 In the present case, the Adjudicating Authority noted that it had listed the

petition for admission on diverse dates and had adjourned it, inter alia, to allow the

parties to explore the possibility of a settlement. Evidently, no settlement was arrived

at by all the original petitioners who had instituted the proceedings. The Adjudicating

Authority noticed that joint consent terms dated 12 February 2020 had been filed

before it. But it is common ground that these consent terms did not cover all the

original petitioners who were before the Adjudicating Authority. The Adjudicating

Authority was apprised of the fact that the claims of 140 investors had been fully

settled by the respondent. The respondent also noted that of the claims of the

original petitioners who have moved the Adjudicating Authority, only 13 have been

settled while, according to it “40 are in the process of settlement and 39 are pending

settlements”. Eventually, the Adjudicating Authority did not entertain the petition on

the ground that the procedure under the IBC is summary, and it cannot manage or

decide upon each and every claim of the individual home buyers. The Adjudicating

Authority also held that since the process of settlement was progressing “in all

seriousness”, instead of examining all the individual claims, it would dispose of the

petition by directing the respondent to settle all the remaining claims “seriously”

within a definite time frame. The petition was accordingly disposed of by directing

the respondent to settle the remaining claims no later than within three months, and

that if any of the remaining original petitioners were aggrieved by the settlement

process, they would be at liberty to approach the Adjudicating Authority again in

accordance with law. The Adjudicating Authority’s decision was also upheld by the

Appellate Authority, who supported its conclusions.

27 The Adjudicating Authority has clearly acted outside the terms of its

jurisdiction under Section 7(5) of the IBC. The Adjudicating Authority is empowered

only to verify whether a default has occurred or if a default has not occurred. Based

upon its decision, the Adjudicating Authority must then either admit or reject an

application respectively. These are the only two courses of action which are open to

the Adjudicating Authority in accordance with Section 7(5). The Adjudicating

Authority cannot compel a party to the proceedings before it to settle a dispute.

28 Undoubtedly, settlements have to be encouraged because the ultimate

purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate

debtor, as distinct from allowing it to go into liquidation. As the Statement of Objects

and Reasons accompanying the introduction of the Bill indicates, the objective of the

IBC is to facilitate insolvency resolution “in a time bound manner” for maximisation of

the value of assets, promotion of entrepreneurship, ensuring the availability of credit

and balancing the interest of all stakeholders. What the Adjudicating Authority and

Appellate Authority, however, have proceeded to do in the present case is to

abdicate their jurisdiction to decide a petition under Section 7 by directing the

respondent to settle the remaining claims within three months and leaving it open to

the original petitioners, who are aggrieved by the settlement process, to move fresh

proceedings in accordance with law. Such a course of action is not contemplated by

the IBC.

29 The IBC is a complete code in itself. The Adjudicating Authority and the

Appellate Authority are creatures of the statute. Their jurisdiction is statutorily

conferred. The statute which confers jurisdiction also structures, channelises and

circumscribes the ambit of such jurisdiction. Thus, while the Adjudicating Authority

and Appellate Authority can encourage settlements, they cannot direct them by

acting as courts of equity. In Pratap Technocrats (supra), a two-judge Bench of this

Court, speaking through Justice DY Chandrachud, held:

“47. These decisions have laid down that the jurisdiction of

the Adjudicating Authority and the Appellate Authority cannot

extend into entering upon merits of a business decision made

by a requisite majority of the CoC in its commercial wisdom.

Nor is there a residual equity based jurisdiction in the

Adjudicating Authority or the Appellate Authority to

interfere in this decision, so long as it is otherwise in

conformity with the provisions of the IBC and the

Regulations under the enactment.

[…]

50. Hence, once the requirements of the IBC have been

fulfilled, the Adjudicating Authority and the Appellate

Authority are duty bound to abide by the discipline of the

statutory provisions. It needs no emphasis that neither

the Adjudicating Authority nor the Appellate Authority

have an uncharted jurisdiction in equity. The jurisdiction

arises within and as a product of a statutory framework.”

(emphasis supplied)

30 In Arun Kumar Jagatramka v. Jindal Steel & Power Ltd.18, a two judge

Bench of this Court issued a note of caution to the Adjudicating Authorities and the

Appellate Authority against judicial interference with the framework created by the

IBC. Speaking through Justice DY Chandrachud, the Court held:

“95…we do take this opportunity to offer a note of caution for

NCLT and NCLAT, functioning as the adjudicatory authority

and appellate authority under the IBC respectively, from

judicially interfering in the framework envisaged under the

IBC. As we have noted earlier in the judgment, the IBC was

introduced in order to overhaul the insolvency and bankruptcy

regime in India. As such, it is a carefully considered and well

thought out piece of legislation which sought to shed away

the practices of the past. The legislature has also been

working hard to ensure that the efficacy of this legislation

remains robust by constantly amending it based on its

experience. Consequently, the need for judicial intervention or

innovation from NCLT and NCLAT should be kept at its bare

minimum and should not disturb the foundational principles of

the IBC…”

18 (2021) 7 SCC 474

31 In the synopsis which has been appended to the paper book, a tabulated

statement has been appended for the purpose of indicating the status of the

settlement process. The statement is reproduced below:

Sl.

No.

Name Settlement

Proposed

Date of

Proposal

Accepted/

Rejected

Defaulted

Settlement

Date of

Default

1 E.S.

Krishnamurthy

Yes 14.12.2019 Rejected N.A. N.A.

2 Dhwani Sanghvi Yes 14.12.2019 Rejected N.A. N.A.

3 Sunil Jain Yes September

2019

Rejected N.A. N.A.

4 Lakshminarayan

P.V.

Yes May 2019 Accepted

then

subsequently

rejected

N.A. N.A.

5 Milind Raka No N.A. N.A. N.A. N.A.

6 Nitin Palekar No N.A. N.A. N.A. N.A.

7 Marie Therese

Lima Fernandes

No N.A. N.A. N.A. N.A.

8 Shashi Arora Yes 30.08.2019 Rejected N.A. N.A.

9 Bhupesh Dinger Yes December

2019

Rejected N.A. N.A.

10 Shaila S Kothari Yes 13.07.2019 Accepted Yes 31.10.2019

11 Nemmara

Mahadevan

Yes 24.06.2019 Accepted Yes August

2018

12 Satish Battula Yes 06.07.2018 Accepted Yes 31.08.2019

13 Mayank Gupta Yes 08.03.2018 Accepted Yes 30.09.2019

14 Gangasagar

Neminath

Hemade

Yes 02.08.2029 Accepted Yes 2019

15 Manjushri Basu No (not till

the passing

of order by

Adjudicatin

g Authority)

Settlement

received

after

passing of

order by

Adjudicatin

g Authority

however no

cheques

provided.

N.A. N.A. N.A.

16 Madhukar V.

Limaye

No (not till

the passing

of order by

Adjudicatin

g Authority)

Settlement

received

after

passing of

order by

Adjudicatin

N.A. N.A. N.A.

g Authority

however no

cheques

provided.

17 Dipankar Kanjilal Yes July 2019 Accepted Yes September

2019

The above statement indicates that a settlement has admittedly not been arrived at

by the respondent with all the appellants. Moreover, in the present appeal,

impleadment applications have also been filed on behalf of an additional set of

individuals claiming non-payment of their dues by the respondent.

32 For the above reasons, we have come to the conclusion that the order of the

Adjudicating Authority, and the directions which eventually came to be issued,

suffered from an abdication of jurisdiction. The Appellate Authority sought to make a

distinction by observing that the directions of the Adjudicating Authority were at the

‘pre-admission stage’, and that the order was not of such a nature which was

prejudicial to the rights and interest of the stakeholders. The Appellate Authority was

cognizant of the fact that even the time schedule for settlement which had been

indicated by the Adjudicating Authority had elapsed, but then noted the impact of the

outbreak of COVID-19 pandemic on the real estate market, including on the

respondent. While acknowledging that the consent terms were “filed by some of the

stake holders though may not be all encompassing”, the Appellate Authority

nonetheless proceeded to dismiss the appeal as not maintainable. The observation

that the appeal was not maintainable is erroneous. Plainly, the Adjudicating

Authority failed to exercise the jurisdiction which was entrusted to it. A clear case for

the exercise of jurisdiction in appeal was thus made out, which the Appellate

Authority then failed to exercise.

33 We may note at this stage that the provisions of Section 7 of the IBC have

been amended with retrospective effect from 28 December 2019 by Act 1 of 2020.

These provisions have been construed in the judgment of this Court in Manish

Kumar (supra). Since we are inclined to restore the proceedings back to the

Adjudicating Authority for a fresh consideration, it is not necessary for this Court to

dwell on any other aspect, save and except for what weighed with the Adjudicating

Authority in disposing of the petition without adjudicating on other issues of

maintainability or merits. We leave open all the rights and contentions of the parties

to be urged before and decided by the Adjudicating Authority.

34 We accordingly allow the appeal and set aside the impugned judgment and

order dated 30 July 2020 of the NCLAT in Company Appeal (AT) (Insolvency) No

649 of 2020 and of the NCLT dated 28 February 2020 in CP (IB) No.188/BB/2019.

The petition under Section 7 of the IBC (i.e., CP (IB) No.188/BB/2019) is accordingly

restored to the NCLT for disposal afresh.

35 The impleadment applications shall stand disposed of, with liberty being

granted to the applicants to adopt appropriate proceedings in accordance with law

before the Adjudicating Authority, or before such other forum as they may be

advised.

36 Pending application(s), if any, shall stand disposed of.

…….…………………………...............................J

[Dr Dhananjaya Y Chandrachud]

…….…………………………...............................J.

[A S Bopanna]

New Delhi;

December 14, 2021

e Arbitration and Conciliation Act, 1996,= The award passed by the Arbitrator awarding the amount/compensation at Rs.45,000/ per km per month up to January, 2008 under claim Nos.1 and 8 is hereby confirmed. The award passed by the Arbitrator awarding the amount/compensation at Rs.45,000/ per km per month from February, 2008 to 31.05.2010 i.e. till the end of the contract is hereby quashed and set aside.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.73797380 OF 2021

State of Haryana ..Appellant (S)

VERSUS

M/s. Shiv Shankar Construction Co. & Anr. ..Respondent (S)

J U D G M E N T

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 03.11.2015 passed by the High

Court of Punjab and Haryana at Chandigarh in FAO No.

4482 of 2011 (O&M), by which the High Court has dismissed

the appeal preferred by the appellant herein under Section

37 of the Arbitration and Conciliation Act, 1996, the State of

Haryana has preferred the present appeals.

2. At the outset it is required to be noted that while issuing

notice in the present appeals, this Court has stayed the

award exceeding Rs.1,03,50,263/ insofar as claim Nos.1

and 8 are concerned.

3. The facts leading to the present appeals in a nutshell are as

under:

3.1 That the appellant herein awarded the contract to respondent

No.1 herein – contractor for strengthening, upgradation and

maintenance of road from Palwal to Hasanpur, Haryana for a

length of 31.17 kilometres on certain terms and conditions as

per the contract entered into between the parties. The

contract was for Rs.5,26,59,688/. That as per the design

calculation data, the specifications as prepared by the

appellant department were meant for 3364 traffic intensity

PCU (Passenger Car Unit)/day. The contract was up to

31.05.2010. That on 05.03.2005 due to the closing of the

Palwal Aligarh Road on account of the construction of the

railway bridge, the entire traffic was diverted from Palwal

Aligarh Road to the present road. That due to this diversion

of traffic from Palwal Aligarh Road, heavy traffic of 24418

PCUS per day was plying on the road as against the design of

3364 PCUS per day, which damaged the road. That according

to the contractor – respondent No.1 herein, he was required

to do heavy repair by incurring additional expenditure.

Disputes arose between the parties. A legal notice was served

upon the appellant making the claims. Disputes were not

resolved and therefore respondent No.1 – contractor invoked

the arbitration clause as per clauses 24 & 25 and

approached the High Court for appointment of an arbitrator

in exercise of power conferred under Section 11 (6) of the

Arbitration and Conciliation Act, 1996.

3.2 Vide order dated 23.04.2007, the High Court appointed Shri

R.S. Jindal, retired Chief Engineer, Delhi Development

Authority as the sole Arbitrator to adjudicate upon all the

disputes between the parties. That the contractor submitted

various claims including claim Nos. 1 and 8. For the purpose

of deciding the present appeals, claim Nos.1 and 8 are

relevant. The sole Arbitrator awarded a total sum of

Rs.1,51,95,400/ with respect to claim Nos.1 and 8.

4. Feeling aggrieved and dissatisfied with the award declared by

the learned Arbitrator, the appellant preferred an application

before the Court under Section 34 of the Arbitration and

Conciliation Act, 1996, which came to be dismissed against

which the appellant – State preferred an appeal under

Section 37 of the Arbitration and Conciliation Act, 1996

before the High Court. By the impugned judgment and order

the High Court has dismissed the said appeal. Hence, the

State of Haryana has preferred the present appeals.

5. Shri Shyam Divan, learned Senior Advocate has appeared on

behalf of the State – appellant and Shri Ranjit Kumar,

learned Senior Advocate has appeared on behalf of the

respondent No.1 – contractor.

5.1 Shri Shyam Divan, learned Senior Advocate appearing on

behalf of the appellant submitted that the appellant has

already paid to respondent No.1 – contractor an amount of

Rs.1,03,50,263/ pursuant to the interim order dated

26.08.2016 passed by this Court.

5.2 Shri Shyam Divan, learned Senior Advocate appearing on

behalf of the appellant has submitted that the arbitral award

is liable to be set aside on the following grounds:

(i) The award is in excess of claim;

(ii) The Arbitrator exceeded the scope of reference;

(iii) The Arbitrator has rewritten the contract with respect to

the amount payable which was specified in the contract.

5.3 Now, so far as ground No.1 that the award is in excess of

claim, it is vehemently submitted by Shri Shyam Divan,

learned Senior Advocate appearing on behalf of the appellant

that the contractor in its statement of claim had claimed an

amount of Rs. 1,03,50,263/ only under the claim Nos.1 and

8. It is submitted that despite the above the Arbitrator has

awarded a total sum of Rs.1,51,95,400/, which is in far

excess of amount claimed. It is submitted that the statement

of claim was never modified by the contractor and therefore,

the Arbitrator ought not to have awarded the sum/amount in

excess of the amount claimed.

5.3.1 It is submitted that the differential amount of

Rs.48,45,137/ is in excess of claim and to that extent the

arbitral award is invalid and liable to be set aside. Reliance

is placed on the decision of this Court in the case of ONGC

Ltd. v. OffShore Enterprises Inc., (2011) 14 SCC 147

(para 16).

5.3.2 It is submitted that as held by this Court in the cases of

Associate Builders v. Delhi Development Authority,

(2015) 3 SCC 49 (para 36) and J.C. Budhraja v.

Chairman, Orissa Mining Corpn. Ltd. & Anr., (2008) 2

SCC 444 (para 3132), making an award in excess of claim

is clear cut an act exceeding the jurisdiction and amounts

to a misconduct of the Arbitrator.

5.4 Now, so far as ground No.2 namely, that the Arbitrator

exceeded the scope of reference, it is contended that the

Arbitrator cannot exceed the scope of reference.

5.4.1 It is submitted that the contractor invoked the arbitration

clause on 06.03.2006. The High Court appointed the sole

Arbitrator on 23.04.2007 and the Arbitrator entered upon

reference on 19.05.2007. It is urged that by allowing the

claims for a period beyond 19.05.2007, the Arbitrator

exceeded the scope of reference.

5.4.2 It is submitted that an amount of Rs.57,96,000/ (approx.)

has been awarded for claims arising between 19.05.2007 to

31.07.2008 (calculated as amount for maintenance of road

@ Rs. 45,000/ per kilometre (km) per month). It is

submitted that it was not permissible for the Arbitrator to

exceed the scope of the reference beyond the date upon

entering reference and as a consequence the award is liable

to be set aside.

5.4.3 Learned senior counsel appearing on behalf of the

appellant has relied upon the decisions of this Court in the

cases of Indian Aluminium Cables Ltd. v. Haryana State

Electricity Board, 1996 (5) SCALE 708 (para 2) and MSK

Projects India (JV) Ltd. v. State of Rajasthan & Anr.

(2011) 10 SCC 573 (para 15), in support of his above

submissions that as the Arbitrator exceeded the scope of

reference and hence the award is liable to be set aside.

5.5 In so far as the ground No.3 is concerned namely, the

Arbitrator has rewritten the contract with respect to the

amount payable which was specified in the contract, it is

submitted that the Arbitrator has rewritten the terms of the

contract by directing the appellant to pay the compensation

to respondent No.1 – contractor at the rate of Rs.45,000/

per km per month instead of mutually agreed contractual

rate of Rs.1,000/ per km per month. It is contended that it

was not open to the Arbitrator to rewrite the terms of the

contract and award the contractor a higher rate for the work

than the rate which was already fixed in the contract. It is

submitted that such an exercise is beyond the competence

and authority of the Arbitrator. Reliance is placed on the

decision of this Court in the case of Satyanarayana

Construction Company v. Union of India and Others

(2011) 15 SCC 101 (para 11).

5.6 It is further contended by Shri Divan, learned Senior

Advocate appearing on behalf of the appellant that even

otherwise, the amount awarded by the Arbitrator at

Rs.45,000/ per km per month beyond the time period of

additional traffic i.e. from 31.07.2008 to 31.05.2010 i.e. till

the end of contract is wholly impermissible. It is submitted

that diversion of traffic on 9.2 km stretch of the road which

gave rise to the cause of action ceased to exist w.e.f. January

2008. It is submitted that however, the Arbitrator has

directed the appellant to make payment at Rs. 45,000/ per

km per month even beyond the time period of additional

traffic. It is contended that the aforesaid is wholly

impermissible.

6. Making the above submissions, it is prayed to allow the

present appeals.

7. Shri Ranjit Kumar, learned Senior Advocate appearing on

behalf of respondent No.1 – contractor, has vehemently

contended that the award passed by the Arbitrator cannot be

said to be (i) in excess of claim; (ii) exceeding the scope of

reference and (iii) rewriting the contract with respect to the

amount payable which was specified in the contract, as

submitted on behalf of the appellant. It is submitted that in

the statement of claim the contractor specifically stated that

the amount has been worked out up to the month of May,

2007 and the details of expenditure beyond May, 2007 will be

submitted during the course of hearing. It is therefore

submitted that it cannot be said that claim Nos.1 and 8 were

restricted to Rs. 1,03,50,263/ only. It is urged that on

appreciation of the evidence on record the Arbitrator has

awarded Rs. 1,51,95,400/ for claim Nos.1 and 8, which in

any case cannot be said to be beyond the amount claimed in

the statement of claim.

7.1 It is next contended that it also cannot be said that the

award passed by the Arbitrator was beyond the scope of

reference. It is submitted that as such cause of action to

claim the additional amount arose due to overexpenditure

owing to maintenance of road due to diversion of traffic from

Palwal Aligarh Road to the present road which continued

even beyond 06.03.2006 and/or 23.04.2007 and 19.05.2007.

It is submitted that the amount awarded by the Arbitrator

under claim Nos.1 and 8 cannot be said to be exceeding the

scope of reference.

7.2 It is further submitted that even the award passed by the

Arbitrator to make payment at Rs.45,000/ per km per

month cannot be said to be rewriting of the contract with

respect to the amount payable which was specified in the

contract. It is urged that at the time when the contract was

written/entered into between the parties the contract rate of

Rs.1,000/ per km per month was agreed against the design

of 3364 PCUS per day. However, after the contract was

entered into and the contractor acted as per the contract

there was diversion of traffic from Palwal Aligarh Road to the

present road and the heavy traffic of 24418 PCUS per day

was plying on the road as against the design of 3364 PCUS

per day and therefore the contractor was required to incur

additional expenditure at Rs.45,000/ per km per month. It

is submitted that the amount awarded by the Arbitrator at

Rs.45,000/ per km per month cannot be said to be rewriting

the contract with respect to the amount payable than what

was specified in the contract i.e. Rs.1,000/ per km per

month.

7.3 However, Shri Ranjit Kumar, learned Senior Advocate

appearing on behalf of the contractor is not in a position to

justify the award by which the Arbitrator has awarded the

payment at Rs.45,000/ per km per month even beyond the

time period of additional traffic i.e. up to 31.05.2010 i.e. till

the end of the contract.

8. We have heard the learned senior counsel appearing on

behalf of the respective parties at length and given our

thoughtful consideration.

9. That the contractor was awarded the contract for

maintenance, etc. The contract amount was for

Rs.5,26,59,688/. The rate of maintenance of the road as

accepted was Rs.12,000/ per km per annum or Rs.1,000/

per km per month. The maintenance contract was valid up to

31.07.2010. When the contract was entered into, the

contract was meant for only 3364 PCUS per day. However,

due to diversion of traffic from Palwal Aligarh Road to the

present road, the contractor was required to incur additional

expenditure on the maintenance due to increase in the traffic

and plying the additional commercial vehicles. Therefore the

contractor claimed the amount towards additional

expenditure for maintenance which was due to increase in

the traffic and plying more commercial vehicles. On

appreciation of evidence the Arbitrator has determined the

loss at Rs.45,000/ per km per month (claim Nos.1 and 8).

9.1 The case on behalf of the appellant that as in the statement

of claim, the claimant claimed an amount of

Rs.1,03,50,263/ under the claim Nos. 1 and 8 and the

Arbitrator has awarded Rs.1,51,95,400/, the same is in far

excess of amount claimed and therefore the award is in

excess of amount claimed has no substance. When the

statement of claim submitted by the contractor is seen, it is

specifically stated by the claimant that the amount of

Rs.1,03,50,263/ has been worked out up to May, 2007 and

the details of expenditure beyond May, 2007 will be

submitted during the course of hearing. It is specifically

stated that expenditure incurred up to May, 2007 works out

to Rs.1,03,50,263/. Therefore, the amount awarded by the

Arbitrator cannot be said to be in excess of the claim.

9.2 Now so far as the submission on behalf of the appellant that

the Arbitrator exceeded the scope of reference while awarding

an amount beyond 19.05.2007 – the date on which the High

Court appointed the sole Arbitrator is concerned, the same

has no substance. The case on behalf of the appellant that

the Arbitrator ought to have restricted the claim either up to

06.03.2006 – the date on which the contractor invoked the

arbitration clause or 23.04.2007, the date on which the High

Court appointed the sole Arbitrator or at least up to

19.05.2007 – the date on which the Arbitrator entered into

reference, is concerned, it is required to be noted that the

claim made by the Arbitrator was till the traffic was diverted

which was up to January, 2008. Therefore, the Arbitrator

was justified in awarding the amount beyond the aforesaid

periods and till the additional traffic was diverted due to the

closure of Palwal Aligarh Road.

9.3 Now the submission on behalf of the appellant is that by

awarding Rs.45,000/ per km per month the Arbitrator has

rewritten the contract with respect to the amount payable

than what was specified in the contract. It is urged that

under the contract mutually agreed contractual rate was

Rs.1,000/ per km per month and therefore any amount

higher than Rs.1,000/ per km per month is beyond the

terms and conditions of the contract, is also without

substance. It is noted that at the time when the contract was

entered into the mutually agreed, the rate fixed was

Rs.1,000/ per km per month and the estimated traffic was

3364 PCUS per day. The cause of action arose subsequently

due to diversion of traffic from Palwal Aligarh Road and

plying of more heavy vehicles due to which the contractor

was required to incur additional expenditure for maintenance

of the road. Therefore, the contractor was entitled to the loss

on account of the additional expenditure incurred for

maintenance of the road due to increase in the traffic

because of the closure of the Palwal Aligarh Road and

diversion of the traffic to the present road. Therefore, by no

stretch of imagination it can be said that there was rewriting

the terms of the contract as submitted on behalf of the

appellant.

9.4 In view of the above findings, none of the decisions of this

Court relied upon by the learned senior counsel appearing on

behalf of the appellant are applicable to the facts of the case

on hand as the same are not of any assistance to the

appellant.

9.5 However, at the same time Shri Divan, learned Senior

Advocate, appearing on behalf of the appellant is justified in

submitting that the Arbitrator ought not to have awarded an

amount of Rs.45,000/ per km per month beyond the time

period of additional traffic. The Arbitrator has awarded the

loss/amount at Rs.45,000/ per km per month up to

31.05.2010 i.e. till the end of the contract which is wholly

impermissible diversion of the additional traffic ceased to

exist w.e.f. January, 2008. Therefore, the Arbitrator ought

not to have awarded any amount beyond the above time

period beyond January, 2008. To that extent the award

passed by the Arbitrator can be said to be perverse and to

that extent the present appeals are required to be allowed.

10. In view of the above and for the reasons stated above, the

present appeals are allowed in part. The award passed by the

Arbitrator awarding the amount/compensation at

Rs.45,000/ per km per month up to January, 2008 under

claim Nos.1 and 8 is hereby confirmed. The award passed by

the Arbitrator awarding the amount/compensation at

Rs.45,000/ per km per month from February, 2008 to

31.05.2010 i.e. till the end of the contract is hereby quashed

and set aside. The amount due and payable has to be worked

out accordingly. The present appeals are partly allowed to the

aforesaid extent. In the facts and circumstances of the case

there shall be no order as to costs.

…………………………………J.

(M. R. SHAH)

…………………………………J.

(B.V. NAGARATHNA)

New Delhi,

December 14, 2021.

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Wednesday, December 15, 2021