2019 (4) TMI 1728 - HC - Insolvency and Bankruptcy

Principal of natural justice - Petition filed for arbitration as well as insolvency - proceeding u/s 9 of the I B Code, 2016 and application u/s 8 of the Arbitration and Conciliation Act, 1996 - only one heard and disposed off other dismissed - HELD THAT - Perusal of the submissions recorded in para 8 of the impugned order it is evident that arguments of learned counsel for the petitioner has only been heard by the Tribunal only on the application under Section 8 of the Act, 1996. However, the corporate insolvency resolution process initiated against the respondent under Section 9 of the Code itself has been dismissed. In other words, the impugned order has been passed in violation of principles of natural justice inasmuch as the petitioner was not afforded an opportunity of hearing with regard to merits of the claim of the petitioner under Section 9 of the Code. Therefore, it is not necessary for this court to examine the rival contentions made on both the sides. The impugned order is hereby quashed. The tribunal is directed to decide the application preferred by the respondent under Section 8 of the Act as well as issue with regard to entertaining the proceeding under Section 9 of the Code by a speaking order after affording an opportunity of hearing to both the parties, expeditiously, preferably within a period of six weeks from today.

Summary

Issues:
Validity of orders passed by National Company Law Tribunal, Bengaluru under Insolvency and Bankruptcy Code 2016 - Section 8 and Section 9 - Reference to Arbitration - Violation of principles of natural justice.

Analysis:

Issue 1: Validity of orders passed by National Company Law Tribunal under Insolvency and Bankruptcy Code 2016 - Section 8 and Section 9
The petitioner challenged the validity of orders dated 25.07.2018 passed by the National Company Law Tribunal, Bengaluru, regarding a construction contract for a hotel. The respondent failed to pay the outstanding amount to the petitioner, leading to the initiation of corporate insolvency resolution process under Section 9 of the Code. The respondent filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference to arbitration. The Tribunal allowed the respondent's application and rejected the petitioner's application under Section 9. The petitioner contended that the subject matter under Section 9 could not be referred for arbitration, and the impugned order was passed in violation of principles of natural justice as the petitioner was not given an opportunity to be heard on the merits of the claim under Section 9. The High Court quashed the impugned order and directed the Tribunal to decide both applications after affording an opportunity of hearing to both parties.

Issue 2: Reference to Arbitration
The petitioner argued that the subject matter under Section 9 of the Code could not be referred for arbitration. The respondent, however, supported the Tribunal's order and contended that the dispute was not arbitrable as per the Arbitration Agreement, even though the respondent had agreed to refer the matter for arbitration. The High Court held that the impugned order was passed without affording the petitioner an opportunity to be heard on the merits of the claim under Section 9. The Court directed the Tribunal to decide on the reference to arbitration and the initiation of the corporate insolvency resolution process after hearing both parties, ensuring compliance with principles of natural justice.

Conclusion:
The High Court, in the judgment, focused on the violation of principles of natural justice in the Tribunal's order and directed a fresh hearing on the reference to arbitration and the corporate insolvency resolution process. The Court emphasized the importance of affording both parties an opportunity to be heard before making a decision.