2017 (12) TMI 1318 - AT - Insolvency and Bankruptcy

Corporate insolvency procedure - Application under Section 9 of the I & B Code was filed with regard to default pursuant to different agreements - Held that - Clause for arbitration exists in both the agreements. However, such disputed question of facts cannot be determined in this appeal particularly the Appellant or the Respondents having not taken such plea before the Adjudicating Authority. While we are not inclined to interfere with the impugned order dated 19th July, 2017 passed by the Adjudicating Authority in view of the proper appreciation of law i.e. Section 21 of the Arbitration and Conciliation Act, 1996, as per which the Arbitration proceeding commence on the date request for the dispute to be referred to arbitration is received by the Respondent, we give liberty to the Appellant to move before appropriate forum, in respect to any agreement if there is no clause of agreement and arbitration proceeding has not commenced. With the aforesaid observation the appeal stands disposed of.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of a Corporate Resolution Process.
2. Dismissal of the application by the Adjudicating Authority based on the initiation of arbitration proceedings by the Operational Creditor.
3. Interpretation of Section 21 of the Arbitration and Conciliation Act, 1996 regarding the commencement of arbitration proceedings.
4. Applicability of Section 5(6) of the Insolvency and Bankruptcy Code in relation to ongoing arbitration proceedings.
5. Consideration of the existence of arbitration clauses in the agreements between the parties.

Analysis:
1. The Appellant, an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code seeking the initiation of a Corporate Resolution Process against the Respondent. The Adjudicating Authority dismissed the application on the grounds that the Operational Creditor had already initiated arbitration proceedings before issuing a Demand Notice under Section 8(2) of the Code.

2. The Adjudicating Authority's decision was based on the fact that the Operational Creditor had commenced arbitration proceedings before demanding repayment from the Corporate Debtor. The Operational Creditor argued that the arbitration proceedings were not officially initiated as no arbitrator was appointed or claim filed. However, the Tribunal referred to legal precedents to establish that the commencement of arbitration proceedings is triggered upon the receipt of a request for dispute resolution.

3. The Tribunal cited cases such as State of Goa v. Pravin Enterprises and Milkfood Ltd. v. GMC Icecream Pvt. Ltd. to support the notion that the date of receiving a request for arbitration marks the beginning of arbitration proceedings. Additionally, the Tribunal referenced the Kirusa Software Pvt. Ltd. v. Mobilex Innovations Pvt. Ltd. case to emphasize that disputes under the Insolvency and Bankruptcy Code must align with the nature specified in Section 5(6) of the Code.

4. The Tribunal highlighted the relevance of Section 5(6) of the Insolvency and Bankruptcy Code, which defines "dispute" to include suits or arbitration proceedings related to the existence of debt, quality of goods or services, or breach of representation or warranty. This provision was crucial in determining the applicability of ongoing arbitration proceedings to the insolvency matter at hand.

5. The parties also debated the presence of arbitration clauses in their agreements, with the Respondents claiming that such clauses existed in both agreements. However, the Tribunal noted that the specific issue of arbitration clause existence was not raised before the Adjudicating Authority, and therefore, could not be addressed in the appeal. Ultimately, the Tribunal upheld the dismissal of the application but granted the Appellant liberty to pursue appropriate action if arbitration clauses were absent in any agreement.

In conclusion, the judgment delves into the intricate interplay between arbitration proceedings, insolvency matters, and contractual obligations, providing a detailed analysis of the legal principles governing such disputes.