2017 (12) TMI 1660 - HC - Indian Laws

Initiation of the corporate insolvency resolution - financial creditor - Section 7 of the Insolvency and Bankruptcy Code 2016 - Held that - The fact the petitioners did file a counter claim before the learned arbitrator, admittedly, is disallowed. An extreme scenario would be allowing of such counter claim but in that eventuality Section 14 (1) (a) of the Code would immediately come into play and the decree would not be executable against the corporate debtor. However in apprehension of such an eventuality the proceedings under Section 34 of the Act cannot be kept in abeyance, especially when such counter claim has been rejected by the Learned Arbitrator and the claim of the corporate debtor being upheld. The continuation of these proceedings shall cause no harm to either party‟s rights to seek determination of issues under section 34 of the Act and object of the code shall be preserved rather than defeated. The question posed is thus answered. Second limb of objection raised is once the moratorium is declared the decision to continue with the objections need to be taken only be the Resolution Professional, since per Section 17 of the Code from the date of the appointment of the interim resolution professional, the management of the affairs of the corporate debtor shall vests with the interim resolution professional and hence in the peculiar circumstances of this case where a counter claims was preferred by the objector, though rejected, it would be appropriate if the interim resolution profession be made aware of these proceedings and he consents to its continuation. Thus consent/permission of interim resolution professional be obtained and be filed in this Court within four weeks from today.

Summary

Issues Involved:
1. Whether the proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 need to be stayed per Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016?

Analysis:
1. The petition seeks to set aside an arbitral award in favor of the respondent. A question arises whether the proceedings under Section 34 need to be stayed due to an application filed under Section 7 of the Insolvency and Bankruptcy Code, seeking initiation of corporate insolvency resolution against the respondent.

2. The respondent argues that staying the proceedings would hinder its ability to recover dues, affecting its financial condition. The interpretation of the term "proceedings" in Section 14(1)(a) of the Code is crucial, whether it includes all legal proceedings or only specific types like debt recovery actions.

3. The court examines the purpose of the Code, aiming to protect the assets of the corporate debtor during insolvency resolution. The term "proceedings" in Section 14(1)(a) is analyzed in the context of the statute as a whole to determine its scope and applicability.

4. Referring to related provisions of the Code, it is established that the moratorium applies to actions that may endanger the assets of the corporate debtor. Proceedings beneficial to the debtor, like those under Section 34, do not fall under the moratorium's purview.

5. The court relies on the Bankruptcy Law Reforms Committee's report, emphasizing that the moratorium is intended to prevent additional stress on the debtor's assets. It distinguishes between proceedings against the debtor and those in its favor.

6. The judgment concludes that Section 14(1)(a) does not restrict proceedings like those under Section 34, which do not impact the debtor's assets negatively. The court clarifies the distinction between objections to an award and its enforceability, ensuring the object of the Code is preserved.

7. Another objection raised pertains to the involvement of the Resolution Professional post-moratorium declaration. The court suggests obtaining consent from the interim resolution professional for further proceedings, emphasizing compliance with Section 17 of the Code.

8. In light of the above analysis, the court determines that the continuation of proceedings under Section 34 does not contravene Section 14(1)(a) of the Code, safeguarding the parties' rights and upholding the Code's objectives.

9. The matter is listed for further orders, with a directive to seek consent from the interim resolution professional within a specified timeframe for continued proceedings.