“GOVERNING LAW” CLAUSE OF AN AGREEMENT CANNOT RESTRICT THE JURISDICTION OF NCLT: NCLAT

CASE SUMMARY

EXCEL METAL PROCESSORS LIMITED – Appellant

Vs

BENTELER TRADING INTERNATIONAL GMBH AND ANR. – Respondents

 (Company Appeal (AT) (Insolvency) No. 782 of 2019)

Judgment dated 21.08.2019

by Justice S. J. Mukhopadhaya and Justice A.I.S. Cheema

1. Issue in Consideration:

Whether the Adjudicating Authority (“NCLT”) has jurisdiction to entertain the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), when the agreement between the parties stipulate that any suit or case is maintainable only in the Court at Germany?

2. Brief Facts of the Case:

  • Benteler Trading International GMBH (Private) Limited, (“Operational Creditor”) filed an application with the National Company Law Tribunal (“NCLT”) under sections 8 & 9 of the IBC to initiate Corporate Insolvency Resolution Process (CIRP) against M/s Excel Metal Processors Private Limited (“Corporate Debtor”) alleging that Corporate Debtor committed default in making the payment to an extent of USD $1,258,219.42 inclusive of interest @ 15% p.a.

  • Since, the Corporate Debtor failed to repay the outstanding dues, the Petitioner issued Demand Notice in Form-3 under Section 8 of the IBC on 06.03.2018 demanding the repayment. The Corporate Debtor neither replied to the same nor repaid the outstanding amount.

  • The Operational Creditor and the Corporate Debtor have entered into a Debt Acknowledgement and Settlement Agreement on 13.03.2017 wherein it is agreed that the substantive laws of the Federal Republic of Germany shall govern the agreement and any dispute arising out of or in connection with the agreement shall be referred to Arbitration.

  • The Corporate Debtor opposed the application filed by the Corporate Debtor on the ground that the application of the laws of Federal Republic of Germany are made mandatory in the agreement to resolve any dispute between the parties, if so arise, and hence, by virtue of the said clause, a bar is imposed, restraining the application of Indian laws, including the IBC.

  • The NCLT dismissed the objection of the Corporate Debtor and admitted the application filed by the Operational Creditor.

  • Aggrieved by the same, the Corporate Debtor preferred appeal before the National Company Law Appellate Tribunal.

3. Arguments:

Appellant:

  • Any dispute arising out of or in connection with the Agreement shall be finally decided in accordance with the arbitration rules of “Die Deutsche Institution für Schiedsgerichtsbarkeit e.V. (DIS)” to the exclusion of the ordinary courts of law by one or more arbitrators appointed in accordance with these rules.

  • It was also submitted that the application of the laws of Federal Republic of Germany are made mandatory to resolve any dispute between the parties if so arise and by virtue of the same, a bar is imposed, restraining the application of the IBC.

Respondent:

  • As per the clause of debt acknowledgement and settlement agreement, the Petitioner has not initiated any proceedings under the Arbitration and has not raised any dispute under the Arbitration clause. Under the said agreement it is also stated that one remedy is available to the Petitioner independently invoke the any court of law.

Conclusion:

The NCLAT relied on its order passed in Binani Industries Limited vs. Bank of Baroda and Anr. wherein it was held that ‘Corporate Insolvency Resolution Process’/ insolvency proceedings is not a ‘suit’ or a ‘litigation’ or a ‘money claim’ for any litigation;

As per Section 60(1) of the IBC, “The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located”.

As the Registered Office of the Corporate Debtor is in Mumbai, it was held that the NCLT, Mumbai Bench has the jurisdiction to entertain an application under Section 9 of the IBC and the Appellant cannot derive advantage of the terms of the Agreement reached between the parties. Accordingly, the appeal was dismissed.

Hence, it can be drawn from the above that the clause on governing law has no bearing during the IBC proceedings and the jurisdiction of the NCLT cannot be questioned on this ground.

Mr Prakul Thadi is a Company Secretary and Cost Accountant and holds a Masters degree in Law. He co-founded VirtuaLaw in 2017 and is currently the Chief-Editor of the blog at VirtuaLaw. After having gained an industry experience of 3 years he’s currently pursuing Graduate Insolvency Programme (GIP) at the Indian Institute of Corporate Affairs (IICA), Manesar. His interests spread across varied fields of law and majorly corporate laws.