2021 (5) TMI 272 - Tri - Insolvency and Bankruptcy

Maintainability of application - availability of alternative remedy - Seeking reference of dispute or difference to arbitration - HELD THAT - The availability of the alternative remedy cannot be the reason for not considering the application before us as regards to the debt and default of the corporate debtor as laid down by the NCLAT. The existence of pre-existing dispute as laid down by the corporate debtor is being demonstrated that a suit was pending in respect of operational debt, in respect whereof corporate debtor was alleged to have defaulted the adjudicating authority would not be drawing a conclusion in respect of alternative remedy available to the parties for settlement of the matter, even though the agreement between the parties provide for the same. Further, section 238 of the IBC which has an overriding effect over the existing laws or any other law or contract would not admit of the alternative remedy to seek resolution of the dispute in the light of Section 238 of IBC. The Adjudicating Authority is only to satisfy itself whether there is debt and default in the instant application. The alternative remedy that is available may not be of much help to the corporate debtor as long as there is debt and default in regard to the operational debt. Application filed by the corporate debtor/applicant has no substance - application dimissed.

Issues Involved:
1. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996.
2. Overriding effect of Section 238 of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Existence of debt and default by the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996:
The Corporate Debtor filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the dispute to arbitration as per Clause 12 of the agreement between the parties. The Corporate Debtor argued that the agreement mandates arbitration for any disputes arising under it, citing the Supreme Court judgment in P. Anand Gajapathi Raju & Ors. v. P.V.G. Raju (Died) & Ors., which outlines conditions for referring disputes to arbitration. The Corporate Debtor also referenced a similar case adjudicated by NCLT Mumbai, where the parties were directed to arbitration under Section 8.

The Operational Creditor countered that the application under Section 8 is not maintainable, arguing that the IBC, 2016, a subsequent special enactment, prevails over the Arbitration Act. They emphasized that the company petition was filed under the IBC after issuing notices demanding repayment, which the Corporate Debtor failed to respond to or dispute.

2. Overriding effect of Section 238 of the Insolvency and Bankruptcy Code (IBC), 2016:
The Operational Creditor argued that Section 238 of the IBC, which states that the provisions of the IBC shall have effect notwithstanding anything inconsistent in any other law, overrides the Arbitration Act. They contended that the IBC, being a special enactment passed after the Arbitration Act, should prevail in case of any inconsistency between the two.

The Corporate Debtor, however, argued for a harmonious construction of the IBC and the Arbitration Act, suggesting that the arbitration agreement should still be honored. They cited the Supreme Court's emphasis on the importance of arbitration agreements in Smt. Kalpana Kothari v. Smt. Sudha Yadhav and Ors.

3. Existence of debt and default by the Corporate Debtor:
The Tribunal examined whether there was a debt and default by the Corporate Debtor. The Operational Creditor argued that the debt amount exceeded ?1 crore and that the Corporate Debtor had not raised any dispute or paid the amount despite notices. They referenced the NCLAT judgment in Sodexo India Services Pvt. Ltd. v. Chemizol Additives Private Ltd., which held that the existence of an arbitration agreement does not preclude the initiation of CIRP under the IBC.

The Tribunal concluded that the existence of an arbitration agreement does not restrict the NCLT from initiating CIRP if there is a debt and default. They emphasized that Section 238 of the IBC has an overriding effect, and the IBC provisions shall prevail over the Arbitration Act. The Tribunal found that the Corporate Debtor's reliance on arbitration agreements and previous judgments was misplaced and that the IBC's provisions should be applied.

Conclusion:
The Tribunal dismissed the application filed by the Corporate Debtor under Section 8 of the Arbitration and Conciliation Act, 1996, and held that the provisions of the IBC, 2016, take precedence. The Tribunal emphasized that the existence of debt and default is the primary consideration, and the availability of an alternative remedy through arbitration does not preclude the initiation of CIRP under the IBC.

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