Mere Pendency Of An Insolvency Petition Is Not A Bar To The Appointment Of The Arbitrator: Delhi High Court

The Single Bench of Justice Sanjeev Sachdeva has held that merely because an insolvency petition is pending, it cannot be an embargo on the power of the Court to decide arbitration applications. It is only when the insolvency petition is admitted and the moratorium is declared that the proceedings under the Arbitration Act would be non-maintainable.

The Court further held merits or validity of the demand notice are not to be decided by the Court while exercising power under Section 11 of the A&C Act.

Facts

The parties entered into a collaboration agreement dated 20.10.2014. A dispute arose between the parties and demand and counter-demand notices were exchanged. The agreement had an arbitration clause. On refusal of the respondent to refer the disputes to arbitration, the petitioner filed the application for the appointment of the arbitrator.

Objections Raised By The Respondent

The respondent objected to the maintainability of the application on the following grounds:

• It has already filed a petition under Section 9 of the Insolvency and Bankruptcy Code, which is pending before the adjudicatory authority, therefore, the correct recourse would be to file an application under Section 8 of the A&C Act before the adjudicatory authority.
• The Supreme Court in Indus Biotech v. Kotak India has given precedence to proceedings under the IBC over arbitral proceedings; therefore, the application is non-maintainable as the petition under Section 9 of IBC is pending adjudication.
• The petitioner has not issued any demand notice and merely replied to the demand notice of the respondent; therefore, it cannot seek the appointment of the arbitrator.

Analysis By The Court

The Court held that mere pendency of the insolvency petition is not a bar to the power of the High Court to appoint an arbitrator.

The Court observed that merely because an insolvency petition is filed by the respondent before the NCLT, it cannot be an embargo on the power of the Court to decide the arbitration applications. It is only when the insolvency petition is admitted and the moratorium is declared that the proceedings under the Arbitration Act would be non-maintainable.

The Court observed that the reliance of the respondent on the Supreme Court decision in Indus Biotech (supra) is misplaced as the Court only held that adjudicatory authority has to decide the insolvency application at priority when the application under Section 8 of the A&C Act is also pending and if it is satisfied that a default has happened it shall admit the insolvency petition and the arbitration application would be non-maintainable.

The Court observed that admittedly there is an arbitration agreement between the parties and a dispute has arisen, therefore, the argument that the petitioner has not raised any demand is of no consequence. The Court further held merits or validity of the demand notice is not to be decided by the Court while exercising power under Section 11 of the A&C Act.

Accordingly, the Court allowed the application and appointed the sole arbitrator.

Case Title: MILLENNIUM EDUCATION FOUNDATION V. EDUCOMP INFRASTRUCTURE AND SCHOOL MANAGEMENT LIMITED, ARB.P. 326 of 2022

Citation: 2022 LiveLaw (Del) 449

Date: 13.05.2022

Counsel for the Petitioner: Ms. Ekta Rai and Mr. Aadil Khan, Advocates.

Counsel for the Respondent: Mr. Sanjeev Kumar and Mr. Anshul Sehgal, Advocates.

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