NCLT Delhi Admits Allegis Plea Against Olive Telecom, Holds Arbitral Award Crystallises Operational Debt

The New Delhi Bench of the National Company Law Tribunal (NCLT) on 11 June admitted the Section 9 application filed by Allegis Services (India) Pvt. Ltd against Olive Telecommunication Pvt. Ltd, commenced Corporate Insolvency Resolution Process (CIRP), declared moratorium under Section 14, and appointed Harmeet Kaur as Interim Resolution Professional (IRP).

Judicial Member Bachu Venkat Balram Das and Technical Member Ravindra Chaturvedi held that an arbitral award arising from an operational transaction only crystallises the liability and does not alter the operational nature of the debt for the purposes of Section 9 of the Insolvency and Bankruptcy Code, 2016. The Bench observed:

“...where the underlying claim arises from provision of goods or services, and the liability arising therefrom is crystallised by an arbitral award, the award does not change the basic nature of the claim. The award only crystallises the liability arising out of the underlying operational transaction. In the present case, the underlying transaction is the provision of sales and marketing services by the Operational Creditor to the Corporate Debtor. Thus, the debt continues to retain its operational character”

The dispute arose from a Master Services Agreement dated 1 December 2010 under which Allegis, through its division Market Source, provided sales and marketing services to Olive. Six invoices aggregating Rs 60.38 lakh were raised, of which only one was paid, leaving Rs 50.43 lakh outstanding.

It proceeded to arbitration, resulting in an award dated 30 April 2014 directing payment of Rs 50.43 lakh with 15% interest per annum from the invoice dates along with costs. The Section 34 challenge to the award was dismissed on 19 April 2021, and no material was shown indicating any pending proceedings under Section 37 or any stay of the award.

Allegis thereafter issued a statutory demand notice and had earlier initiated winding-up proceedings before the Delhi High Court, which were later transferred to the NCLT and treated as a Section 9 application under the Insolvency and Bankruptcy Code pursuant to the Companies (Transfer of Pending Proceedings) Rules, 2016.

It contended that the arbitral award crystallised the debt and that the Corporate Debtor could not reopen adjudicated issues under the plea of “pre-existing dispute” in insolvency proceedings. The total liability, including interest, was stated to exceed Rs 1.52 crore, thereby satisfying the threshold under Section 4 of the Code.

The Corporate Debtor opposed admission, contending that the agreement had expired in February 2011 and that invoices thereafter were invalid. It further argued that disputes regarding expiry of contract, alleged non-performance, overpayment, and counterclaims constituted pre-existing disputes. It was also contended that the principal award amount fell below Rs 1 crore, interest could not be added absent contractual stipulation, and that the award was unstamped, requiring the Operational Creditor to proceed only through execution.

Relying on K. Kishan v. Vijay Nirman Company Private Limited, the Bench reiterated that a pending challenge under Section 34 indicates subsistence of a pre-existing dispute until final adjudication under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996.

It noted that the Section 34 challenge had already been dismissed and no material was placed showing any pending appellate proceedings or stay of the award. It held that once Section 34 proceedings conclude without setting aside the award, the Corporate Debtor cannot reagitate the same disputes in Section 9 proceedings.

On inclusion of interest for computing the threshold under Section 4, the Bench held that interest awarded under an arbitral award forms part of the crystallised liability and is not a unilateral computation. It observed:

“The interest in the present case flows from an Arbitral award. The interest component is part of the crystallised liability under the Arbitral Award and is not a unilateral or self-serving computation made for the first time in the Section 9 application.

Thus, for the purposes of Section 4 of the Code, what is relevant is the amount of default. If interest has become due and payable under an adjudicated award, and such award has not been stayed or set aside, such interest cannot be treated as a mere unilateral or disputed invoice claim. It forms part of the liability in respect of the claim and, consequently, part of the amount in default.”

Therefore, the Tribunal held that the total default of Rs 1.52 crore exceeded the statutory threshold under Section 4 of the Code.

Further, the Bench rejected the objection regarding stamping of the arbitral award, holding that insolvency proceedings cannot be used to reopen the merits of an adjudicated award on such grounds. It observed that the IBC is not merely a recovery mechanism and that availability of execution proceedings does not bar initiation of CIRP once statutory conditions are met.

Accordingly, the NCLT admitted the Section 9 application.