2020 (6) TMI 125 - HC - Insolvency and Bankruptcy

Termination of Works Contract - Liquidation proceedings pending against the petitioner company - writ petition is filed during the pendency of the liquidation proceeding - Chapter-III read with Section 33 of I B Code - HELD THAT - Section 33 (5) of the Insolvency Bankruptcy Code, 2016 stipulates that when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. Further a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the executing authority. From the reliefs sought for by the petitioner it cannot be inferred that the petitioner is seeking for protection of its fundamental rights. The reliefs as indicate are issues arising out of the contractual obligations entered into by the parties vide agreement dated 16.12.2011. The said agreement as includes an arbitration Clause. Under such circumstance, the power under Article 226 of the Constitution of India is exercised, keeping in view the disputes as raised through this writ petition arose out of the said agreement and as the parties decided their own forum for their redressal in the event of dispute between them. The interim relief is granted for a period of 2 (two) months from today, thereby directing the respondent Nos. 2 to 4 to maintain the status quo as on 05.02.2020 i.e. date on which the interim order was passed in this writ petition in respect of securities and the performance guarantee - petition disposed off.

Summary

Issues:
1. Termination of contract and forfeiture of security deposit.
2. Liquidation proceedings and legal proceedings against corporate debtor.
3. Invocation of arbitration clause and seeking interim relief.

Analysis:
1. The petitioner company was awarded a construction project with an arbitration clause in the agreement. Disputes arose during execution, leading to contract termination and liquidation proceedings initiated by a bank. The petitioner filed a writ petition seeking to set aside the termination order, prevent forfeiture of security deposit, and obtain other reliefs. The court noted that the disputes arose from the agreement containing an arbitration clause. It directed the petitioner to approach the appropriate forum for arbitration and file an application under the Arbitration and Conciliation Act, subject to insolvency law provisions.

2. The court highlighted that the reliefs sought were contractual issues rather than fundamental rights violations. It advised the petitioner to pursue arbitration for dispute resolution, emphasizing the agreement's arbitration clause. The court refrained from intervening under Article 226 of the Constitution, suggesting the petitioner seek arbitration appointment and file necessary applications under the Arbitration Act. The petitioner was instructed to comply with insolvency law requirements before initiating arbitration proceedings.

3. The petitioner sought interim relief to maintain the status quo regarding security deposits and performance guarantees until arbitration proceedings commenced. The court, considering the petitioner's willingness for arbitration, granted interim relief for two months. It directed the respondents to preserve the status quo regarding securities and guarantees. The writ petition was disposed of with the interim order valid for two months from the date of issuance, after which it would stand vacated.