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TMI Blog2024 (11) TMI 838X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor approached the Financial Creditor, seeking financial assistance, by sanction letter dated 26.08.2015, loan against the Property for an amount of Rs.12,50,00,000/- was sanctioned. ii. Corporate Debtor created Security Interest by hypothecation of assets and equitable mortgage in favour of the Financial Creditor, State Bank of India and Canara Bank, being factory, land 9.34 acres, building and other constructions. iii. Corporate Debtor failed to maintain financial discipline and made several defaults. First default occurred on 01.05.2019, last part payment was made on 10.02.2020. Corporate Debtor expressed its acknowledgement of outstanding liability vide letter dated 22.08.2019 and 25.05.2022. iv. An Application under Section 7 was filed by the Financial Creditor for Financial Debt of Rs.16,89,54,976.03/-. Financial Creditor, unilaterally appointed an Arbitrator to adjudicate dispute between the Parties on 26.07.2019. Sole Arbitrator vide Order dated 26.10.2021 terminated the Arbitration Proceeding, taking the view that appointment of Arbitrator is contrary to the law laid down by the Hon'ble Supreme Court. On 23.06.2023, Financial Creditor filed an Application under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r itself has initiated the Arbitration Proceeding. The observation of the Adjudicating Authority that default per se is not arbitrable is unsustainable. Arbitral tribunal is not powerless to determine whether default in payment has occurred or not. Reliance on the Judgment of the Hon'ble Supreme Court in the matter of `Booz Allen & Hamilton INC' Vs. SBI Home Housing Finance Ltd. & Ors.', reported in Civil Appeal No. 5440 of 2002, is not applicable. Adjudicating Authority committed error in rejecting the Application filed by the Appellant. 6. Learned Counsel for the Respondent refuting the submission of the Counsel for the Appellant submits that Application seeking reference to Arbitration was not maintainable. Appellant had already filed a Reply to the Petition under Section 7 on 28.12.2023, whereas Application was filed under Section 8 of the Arbitration Act on 12.03.2024. Application was filed by the Corporate Debtor only to delay the proceeding under Section 7. Arbitration Proceeding which was initiated by the Financial Creditor were terminated by the Arbitrator, and even if for the sake of argument, it is assumed that Arbitration initiated in 2019 is still alive, same could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement on the substance of the dispute may file the Application. Section 8 of the Arbitration Act is as follows: "8. Power to refer parties to arbitration where there is an arbitration agreement.- [(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.] (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof: [Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under subsection (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for settling the outstanding debt which clearly shows that intent, acknowledgment, and continuance of debt on part of the Corporate Debtor. It is relevant to mention that said acknowledgments were made before expiry of limitation of 3 years and in terms provisions 18 of the Limitation Act, 1963 a fresh period of limitation shall be computed from the date of last acknowledgment i.e., 25.05.2022." 12. Application under Section 7 was filed by the Financial Creditor in the Year 2023. The thrust of submission of the Appellant is that Financial Creditor itself has initiated Arbitration Proceeding by unilaterally appointed an Arbitrator on 26.07.2019, hence Section 7 Application ought not to have been proceeded and the Adjudicating Authority ought to have allowed the Application filed by the Corporate Debtor under Section 8 of the Arbitration Act. There is no dispute to the fact that Financial Creditor has unilaterally appointed a sole Arbitrator and sole Arbitrator, however, terminated the Arbitration Proceeding on 26.10.2021 holding that appointment of Arbitrator is contrary to the law laid down by the Hon'ble Supreme Court in `Perkins Eastman Architects DPC & Anr.' Vs. `HSCC (Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial. The remedy under Section 7 is a special remedy, keeping the object and purpose of the IBC Code. When it is brought in the notice of the Adjudicating Authority that a Corporate Debtor needs a resolution it having committed default in payment of debt, the Court is obliged to consider the Section 7 Application to find out as to whether there is a debt and default. The Insolvency Resolution of a Corporate Debtor which needs Insolvency Resolution can await adjudication of Arbitration Proceedings nor the Application under Section 7 can be kept pending till the adjudication of Arbitration Proceeding is completed. Allowing the Application under Section 8 filed by the Corporate Debtor amounts to asking the Adjudicating Authority to wait till Arbitration Proceedings are decided which is not in accord with the scheme of the IBC and shall defeat the entire purpose and object of the IBC. Adjudicating Authority in the Impugned Order has rightly rejected Application under Section 8 filed by the Corporate Debtor for referring to the dispute between the parties to the Arbitrator. 15. As noted above, the Application under Section 8 was filed much subsequent to the filing of the Reply by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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