2022 (5) TMI 759 - HC - Insolvency and Bankruptcy

Reference of disputes arising out of collaboration agreement to arbitration - appointment of an Arbitral Tribunal - Effect of proceedings under IBC for admission of application for initiation of CIRP - demand notice issued for recovery of dues by Operational Creditor - HELD THAT - It is observed that there is no dispute with regard to the execution of the collaboration agreement or the fact that it contains an arbitration clause. Respondent had issued a demand notice demanding certain payment of unpaid operational dues from the petitioner by its demand letter dated 31.12.2021 - the demand letter was responded to by the petitioner by its reply-cum-notice of dispute dated 13.01.2021. In the said reply while disputing the claim of the respondent, petitioner had in paragraph 4(i) called upon the respondent to pay a sum of Rs.1,97,70,192/- to the petitioner and thereafter, in the last paragraph contended that clearly the disputes had arisen and consequently proceeded to appoint an Arbitrator under clause 17 of the collaboration agreement. It clearly cannot be held that no demand was made by the petitioner on the respondent. The merits of the demand or the validity of the same are not to be adjudicated in a petition under Section 11 and as such the same is not being commented upon. However, what is clear, from the notice of demand sent by the respondent and the reply by the petitioner, is that there are disputes between the parties with regard to the entitlement either of the respondent or the petitioner to receive certain amount from the other side. In view of the judgment in INDUS BIOTECH PRIVATE LIMITED VERSUS KOTAK INDIA VENTURE (OFFSHORE) FUND (EARLIER KNOWN AS KOTAK INDIA VENTURE LIMITED) OTHERS 2021 (3) TMI 1178 - SUPREME COURT , the proceedings under the Insolvency and Bankruptcy Code would take precedence and any moratorium issued therein would automatically bind the proceedings under the Arbitration Act - In case the petition filed before the NCLT is admitted and moratorium comes into play, the legal consequences of the same would automatically apply to the proceedings under the Arbitration Act There is no merit in the objection raised by the respondent on the appointment of an Arbitral Tribunal - Petition disposed off.

Summary

Issues:
1. Reference of disputes to arbitration and appointment of an Arbitral Tribunal.
2. Jurisdiction for resolving disputes between the parties.
3. Applicability of Section 8 of the Arbitration and Conciliation Act.
4. Interpretation of the arbitration clause in the collaboration agreement.
5. Validity of demand notice and response.
6. Authority to appoint an Arbitrator under the collaboration agreement.
7. Conflict between Insolvency and Bankruptcy Code proceedings and Arbitration Act.

Analysis:
1. The petitioner sought reference of disputes to arbitration and appointment of an Arbitral Tribunal based on a collaboration agreement. The respondent had filed a petition under Section 9 of the Insolvency and Bankruptcy Code, arguing that the petitioner should file a Section 8 application before the NCLT for reference to arbitration. However, the court held that the parties had agreed to resolve disputes through arbitration as per the collaboration agreement.

2. The respondent claimed that no demand was raised by the petitioner, but the court noted that disputes arose from a demand notice and response, leading to the appointment of an Arbitrator under the collaboration agreement. The court clarified that the merits of the demand were not to be adjudicated in the current petition.

3. The respondent relied on a Supreme Court judgment to argue for filing a Section 8 application before the NCLT. However, the court found this argument to be without merit, emphasizing that the arbitration clause in the collaboration agreement allowed the petitioner to appoint an Arbitrator.

4. The court interpreted the arbitration clause in the collaboration agreement, highlighting the parties' agreement to resolve disputes through arbitration under the Arbitration Act. The petitioner's appointment of an Arbitrator was deemed valid, although the petitioner was not entitled to appoint an Arbitral Tribunal based on a specific Supreme Court judgment.

5. The court examined the demand notice issued by the respondent and the petitioner's response, noting the existence of disputes between the parties regarding payment obligations. The court emphasized that the disputes fell within the purview of the arbitration clause in the collaboration agreement.

6. The court addressed the conflict between the Insolvency and Bankruptcy Code proceedings and the Arbitration Act, citing a Supreme Court judgment that prioritized the former. The court clarified that if the NCLT admitted the petition under the Insolvency and Bankruptcy Code, the proceedings under the Arbitration Act would be affected.

7. In conclusion, the court appointed a retired Judge as the sole Arbitrator to adjudicate the claims and counterclaims of the parties. The fees of the Arbitrator were determined as per the Fourth Schedule of the Arbitration and Conciliation Act, with the Arbitrator required to provide disclosures within two weeks of entering the reference. The petition was disposed of in accordance with the above terms.