Invoking CIRP Would Not Make The Dispute Non-Arbitrable : Delhi High Court

The bench of Justice Neena Bansal Krishna held that it is settled position of law that jurisdiction of NCLT can be invoked only in respect of determined debts, however, merely because a petition has been by the petitioner asserting that a definite amount is payable by the respondent, would not imply that the claimed amount has been admitted. The Court held that when the respondent has constantly denied its liability to pay, the claimed amount does not transfer into an admitted debt and petitioner can invoke arbitration for resolving the dispute.

The Court also held that since the scope of inquiry before the NCLT and arbitral tribunal is absolutely distinct, therefore, filing of petition before the two forums cannot be called as forum shopping.

It further held that petition under Section 9 of the Act and the willingness of the respondent to resort to arbitration for resolution of disputes therein is sufficient compliance of Section 21 of the Act.

Facts

The parties entered into an agreement dated 19.12.2011 wherein the petitioner was to carry out certain electrical works. Clause 13 of the agreement provided for resolution of disputes by way of arbitration. A dispute arose between the parties related to non-payment or withholding of certain amount on a running account bills and retention of security deposit by the respondent. Accordingly, a demand notice dated 19.04.2019 was served upon the respondent and in its reply to the notice the it denied its liability to make any payments to the petitioner.

Thereafter, the petitioner made a reference before MSME SAMADHAAN, however, no steps were taken in that application and the proceedings became void ab initio for want of statutory limitation. Consequently, the petitioner filed an application under Section 9 of IBC for initiating corporate insolvency against the respondent.

Thereafter, the petitioner filed an application under Section 9 of the A&C Act wherein the respondent agreed to settle the dispute by arbitration, however, resiled later on. Accordingly, the petitioner filed an application under Sections 11 and 9 of the A&C Act for the appointment of the arbitrator and interim relief.

Objections

The respondent raised the following objections to the maintainability of the petition:

• There is no arbitrable dispute as the petitioner has filed an insolvency application which can be filed only for admitted debt, therefore, there survives no arbitrable dispute that requires adjudication by the arbitral tribunal.
• The petitioner has not complied with the pre-arbitral step that provides for an attempt at amicable settlement and then a reference to internal dispute resolution board, however, the petitioner has directly invoked the arbitration clause.
• The petition is not maintainable as the petitioner has indulged in forum shopping and claimed different amounts before various forums.
• The petition is liable to be dismissed for non-compliance with Section 21 of the A&C Act as no notice of arbitration was ever given to respondent.

Analysis by the Court

The Court held that the dispute would not become non-arbitrable merely because the petitioner, before filing the application for appointment of arbitrator, has filed a corporate insolvency application under Section 9 of the IBC. The Court rejected the argument that since the petitioner has filed insolvency application which can only be filed for admitted debt and there can be no arbitration for admitted debts.

The Court held that it is settled position of law that jurisdiction of NCLT can be invoked only in respect of determined debts, however, merely because a petition has been by the petitioner asserting that a definite amount is payable by the respondent, would not imply that the claimed amount has been admitted. The Court held that when the respondent has constantly denied its liability to pay, the claimed amount does not transfer into an admitted debt and petitioner can invoke arbitration for resolving the dispute.

The Court rejected the argument that by filing claims before several forums the petitioner has engaged in forum shopping and that there was difference in the amount claimed before the forums. The Court held that since the scope of inquiry before the NCLT and arbitral tribunal is absolutely distinct, therefore, filing of petition before the two forums cannot be called as forum shopping, moreover, the claims before both the forums were filed at different dates, thereby, the difference in the amount claimed was a natural thing.

The Court also held that the arbitration clause provided for amicable settlement and refence before Regional Read of the respondent only when it pertained to interpretation of clauses, technical specifications, etc, however, the dispute between the parties is not related to those issues but arose in regard to non-payment of dues. Moreover, the petitioner had approached the MSME Samadhan for resolution of disputes which suffices the requirement of an attempt at amicable settlement.

Next, the Court dealt with the objection regarding the non-compliance with the notice of arbitration. The Court observed that the petitioner had given a demand notice wherein it had made a claim and

It further held that petition under Section 9 of the Act and the willingness of the respondent to resort to arbitration for resolution of disputes therein is sufficient compliance of Section 21 of the Act.

Observing that the respondent in its statement in the application filed under Section 9 of A&C Act had agreed to maintain an amount till the adjudication of disputes, the Court directed it to maintain the same amount till the culmination of arbitration proceedings subject to modification, if any, by the arbitral tribunal.

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

Case Title: Brilltech Engineers Pvt. Ltd. v. Shapoorji Pallonji and Co. Pvt Ltd

Citation: 2022 LiveLaw (Del) 1176

Counsel for the Petitioner: Ankur Singhal, Advocate

Counsel for the Respondent: Mr. Manik Dogra, Mr. Haiyesh Bakshshi, Mr. Ravi Tyagi, Mr. Gaurav Mishra, Ms. Mayuri Shukla, Mr. Daman Popli and Ms. Neetu Devrani, Advocates.

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