2024 (6) TMI 962 - HC - Insolvency and Bankruptcy

Abeyance of arbitration proceedings due to moratorium - whether the impugned orders could be categorised as one, which are so perverse that the only possible conclusion would be that there is patent lack of inherent jurisdiction, in the Arbitrator in passing them, on the face of it, so that the writ jurisdiction of this Court can be invoked? HELD THAT - The debt , is the debt of SMC/ Tarun Kapoor as principal borrowers as well as of the guarantors. The debt , for the purpose of the moratorium, cannot be severed into the debt of the principal borrower or for that matter of one of the guarantors on the one hand, and the debt of the other guarantors, in this case the legal heirs of the original respondent no. 4, Mr. B. L. Passi. Though it can be said that the liability of the original respondent no. 4, late Mr. B.L. Passi, was co-terminus with the principal borrower and the other guarantors, the liability of the present respondents, would be restricted to the assets of late Shri B.L. Passi, to the extent to which they would inherit the same. Be that as may, a distinction cannot be carved out, in respect of the debt , award in respect of which is claimed in the arbitration proceedings, for the purpose of continuation of the arbitral proceedings, between the liability of the principal borrower/ guarantor who have been granted a moratorium and the others who have not approached the NCLT, as the word debt , as used in Sec. 96 of the IB Code, has to be held to be the debt , in its entirety and not otherwise. Sec. 138 of the I B Code and its effect as enumerated in Sec. 139, have no bearing upon the matter which is being considered in the present petition. It is also necessary to note that there is no provision in the A C Act, 1996 for splitting up of arbitration proceedings, by conceiving of a situation of the arbitration proceedings being stayed against some of the parties and going ahead against some. The arbitration proceedings will have to be decided in their entirety against all the parties and the entitlement of the claimant and the liabilities of the respective respondents, will be determined on the basis of evidence which may be led therein, which cannot be on a piecemeal basis. The Arbitral Tribunal, in staying the arbitral proceedings for the duration of the moratorium as granted by the NCLP under Sec. 96 of the IB Code, has not done anything which can be termed as perverse, or would fall within the expression patent illegality , so that the jurisdiction of this Court under Article 226 of the Constitution can be invoked. The petition is therefore not maintainable and is dismissed.

Summary

Issues Involved:
1. Validity of the arbitrator's order to keep proceedings in abeyance due to the moratorium under Section 95 of the Insolvency and Bankruptcy Code (IB Code) 2016.
2. Applicability of moratorium provisions under Section 96 of the IB Code to the arbitration proceedings.
3. Jurisdiction of the High Court under Article 226 of the Constitution to interfere with arbitral orders.

Issue-wise Detailed Analysis:

1. Validity of the Arbitrator's Order to Keep Proceedings in Abeyance:
The petition challenged the arbitrator's order dated 07.10.2022, which kept the arbitration proceedings in abeyance due to the moratorium under Section 95 of the IB Code 2016. The arbitrator's decision was based on the moratorium affecting the debts owed by Mr. Tarun Kapoor, the proprietor of Sterling Motor Company (SMC), and one of the guarantors, Smt. Pavan Kapoor. The petitioner argued that the moratorium should not apply to the legal heirs of the original respondent No. 4, Shri B.L. Passi, and that the arbitration should continue against them. However, the court found that the moratorium under Section 96 of the IB Code covers the entire debt, irrespective of whether the liability is of a guarantor or principal borrower.

2. Applicability of Moratorium Provisions Under Section 96 of the IB Code:
The petitioner contended that the moratorium granted by the NCLT should only favor Mr. Tarun Kapoor and Smt. Pavan Kapoor, and not extend to other respondents. The court referred to the definition of 'debt' under Section 3(11) of the IB Code and clarified that the moratorium applies to "all the debts" and "any debt" of the personal guarantor. The court emphasized that the moratorium under Section 96 is debt-centric and not debtor-centric, meaning it covers the entire debt irrespective of the parties involved. The court cited precedents, including SBI vs. V. Ramakrishnan and Anr. and Dilip B. Jiwrajka vs. Union of India, to support its interpretation that the moratorium under Section 96 stays legal proceedings in respect of the debt, not the debtor.

3. Jurisdiction of the High Court Under Article 226 of the Constitution:
The respondent argued that the petition was not maintainable under Article 226 or 227 of the Constitution and should be challenged under Section 34 or 37 of the Arbitration & Conciliation Act (A & C Act). The court referred to several precedents, including SBP & Co. vs. Patel Engineer Ltd., Deep Industries Ltd. vs. ONGC, and Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd., which established that the High Court's writ jurisdiction is limited to cases of perversity or patent illegality. The court concluded that the arbitrator's order did not exhibit any perversity or patent illegality and thus, the petition was not maintainable.

Conclusion:
The court held that the moratorium under Section 96 of the IB Code applies to the entire debt, affecting all parties involved in the arbitration proceedings. The arbitrator's decision to stay the proceedings was not perverse or patently illegal. Consequently, the petition was dismissed, and the court affirmed the arbitrator's order to keep the arbitration proceedings in abeyance during the moratorium period. The petitioner's request to vacate the order was also rejected.