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2023 (2) TMI 327 - HC - Insolvency and BankruptcyCIRP - Moratorium is in force - Seeking constitution of an arbitral tribunal in terms of Section 18 of the Credit Information Companies (Regulation) Act 2005 - petitioner alleges that the first respondent placed on its website incorrect information provided by the second respondent in respect of the alleged default by the petitioner in respect of loan facilities extended by the second respondent to the borrower - HELD THAT - When Sections 14 and 19 are read together, it appears that a dispute between a borrower or client, on the one hand, and the credit information company and credit institution, on the other, in relation to the accuracy or completeness of the credit information collected, processed or collated by them would qualify as a dispute relating to the business of credit information. Consequently, such dispute may be referred for arbitration provided no remedy is prescribed in respect thereof by the Act of 2005. Apart from indicating that such disputes may be referred under the applicable ombudsman scheme, learned counsel for the respondents are unable to point out any other remedy that is available to a borrower or client in such circumstances - the present dispute pertains to the business of credit information and, in the absence of any other remedy, resort to arbitration is permissible under Section 18 of the Act of 2005. The first respondent raised the objection that the petitioner did not invoke the arbitration clause after the order - Under Section 18, the RBI is required to appoint the arbitrator or direct parties to constitute the arbitral tribunal as per the Arbitration Act. In this case, by reply dated 01.09.2021, the RBI did not appoint the arbitrator and instead directed the petitioner to approach the Additional Secretary, Department of Agriculture, Cooperation and Farmers Welfare. Therefore, this objection is untenable. The first respondent also contended that the credit information company can correct credit information only upon certification by the credit institution. This could be raised as a defence in arbitration but is not a valid reason to resist the Section 11 petition. The second respondent adverted to the institution of proceedings against the petitioner as personal guarantor before the National Company Law Tribunal at Bombay (the NCLT). Upon initiation of such proceeding, he contended that an interim moratorium is triggered under Sections 95 and 96 of the Insolvency and Bankruptcy Code 2016 (the IBC). Such interim moratorium continues until the petition is admitted and, if admitted, a moratorium would operate thereafter - the interim moratorium applies to any pending legal action or proceeding in respect of any debt and to the initiation of any legal action or proceeding by the creditors of the debtor in respect of any debt. The expression used in Section 96(1) (b) is in respect of any debt and not for recovery of a debt. Although on a purely textual reading, the embargo on fresh proceedings will apply only to creditors of the debtor and not to a guarantor, when interpreted in context, the interim moratorium applies not only to proceedings for recovery of a debt but to proceedings in which the liability of the borrower and guarantor are determined in relation to the credit facility. Turning to the facts of this case, the petitioner seeks the constitution of an arbitral tribunal to adjudicate the dispute pertaining to information put out by the first and second respondents in respect to the alleged default by the borrower and the petitioner. Whether the information provided by the first and second respondents, as the credit information company and credit institution, respectively, is correct or incorrect, in turn, depends on the scope of the personal guarantee provided by the petitioner in relation to credit facilities availed of by the borrower and, consequently, on the liability arising thereunder. Hence, an arbitral tribunal cannot decide whether the information is accurate or inaccurate without examining the scope of the personal guarantee(s) and the liabilities arising thereunder, and the NCLT is seized of the said dispute. Thus, the constitution of an arbitral tribunal, at this juncture, would be premature - After the moratorium ends, in case the petitioner were to succeed in the defence before the NCLT and the NCLT concludes that the petitioner did not guarantee the relevant debts, it would be open to the petitioner to initiate proceedings for the constitution of an arbitral tribunal to adjudicate the dispute relating to the credit information provided by the first and second respondents in terms of Section 18 of the Act of 2005. Petition disposed off.
Issues Involved:
1. Jurisdiction under Section 31 of the Credit Information Companies (Regulation) Act, 2005. 2. Existence of an arbitration agreement. 3. Applicability of Section 18 of the Credit Information Companies (Regulation) Act, 2005. 4. Invocation of the arbitration clause. 5. Interim moratorium under Sections 95 and 96 of the Insolvency and Bankruptcy Code, 2016. Detailed Analysis: 1. Jurisdiction under Section 31 of the Credit Information Companies (Regulation) Act, 2005: The respondents opposed the petition on the ground that Section 31 of the Act of 2005 bars the jurisdiction of courts or authorities in matters referred to in Sections 4, 5, 6, 7, and 18 of the Act. The court clarified that the objective of Section 31 is to prevent parties from seeking redressal through means other than those prescribed in the Act of 2005. Since Section 18 provides for dispute resolution through arbitration, the bar under Section 31 does not apply to proceedings for the constitution of an arbitral tribunal. 2. Existence of an Arbitration Agreement: The third respondent contended that there was no arbitration agreement. The court rejected this objection, stating that Section 18 of the Act of 2005 imports an agreement for arbitration purposes by way of legal fiction, thus fulfilling the requirement of an arbitration agreement under the Arbitration and Conciliation Act, 1996. 3. Applicability of Section 18 of the Credit Information Companies (Regulation) Act, 2005: The respondents argued that Section 18 does not provide for arbitration in this dispute as it does not relate to the business of credit information. The court examined Section 18 and determined that it applies if: (i) A dispute arises among credit information companies, credit institutions, borrowers, and clients. (ii) The dispute relates to the business of credit information. (iii) No remedy is prescribed under the Act of 2005. The court found that the petitioner, being a guarantor, qualifies as a client under Section 2(c) of the Act of 2005. The dispute pertains to the accuracy and completeness of the credit information, which falls under the business of credit information as defined in Section 14. Therefore, the court concluded that the dispute could be referred to arbitration under Section 18. 4. Invocation of the Arbitration Clause: The first respondent objected that the petitioner did not invoke the arbitration clause after the order in O.A.No.485 of 2021. The court noted that under Section 18, the RBI is required to appoint the arbitrator or direct parties to constitute the arbitral tribunal. In this case, the RBI directed the petitioner to approach the Additional Secretary, Department of Agriculture, Cooperation, and Farmers Welfare. Hence, the objection was deemed untenable. 5. Interim Moratorium under Sections 95 and 96 of the Insolvency and Bankruptcy Code, 2016: The second respondent pointed out that proceedings against the petitioner as a personal guarantor before the NCLT triggered an interim moratorium under Sections 95 and 96 of the IBC. The court examined Section 96(1) and concluded that the interim moratorium applies to any pending legal action or proceeding in respect of any debt. This includes proceedings determining the liability of the borrower and guarantor in relation to the credit facility. Since the NCLT is seized of the dispute regarding the personal guarantee, constituting an arbitral tribunal would be premature. The court held that after the moratorium ends, and if the petitioner succeeds in the defense before the NCLT, it would be open to the petitioner to initiate proceedings for the constitution of an arbitral tribunal under Section 18 of the Act of 2005. Conclusion: The petition was disposed of on the terms that the constitution of an arbitral tribunal is premature due to the interim moratorium under the IBC. The petitioner may initiate arbitration proceedings after the moratorium ends and if the NCLT concludes in favor of the petitioner. No costs were ordered.
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