By Nihit Nagpal and Devika Mehra
The Hon’ble Delhi High Court vide its order dated May 13, 2022, in Millennium Education Foundation Vs Educomp Infrastructure And School Management Limited, has held that the mere pendency of an insolvency petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 is not a bar for appointment of Arbitrator under the Arbitration and Conciliation Act, 1996.
The Hon’ble Delhi High Court further noted that the merits or validity of a legal notice are not to be decided by the Court while exercising power under Section 11 of the Arbitration and Conciliation Act, 1996.
Brief facts of the case
The parties had entered into a collaboration agreement dated October 20, 2014 containing an Arbitration Clause. However, a subsequent dispute had arisen between the parties, and demand and counter-demand notices had been exchanged. The Respondent had chosen to issue a legal notice of its demands (relating to payment of certain operational dues) instead of directly referring the dispute to arbitration. In its reply cum notice of dispute dated January 13, 2021, Petitioner had disputed the claims of the Respondent, and consequently proceeded to apply for the appointment of an Arbitrator under the Arbitration and Conciliation Act, 1996.
Pendency of Insolvency petition not an embargo for Appointment of Arbitrator
The Single Bench of the Hon’ble Delhi High Court has held that merely because an insolvency petition is pending, it cannot be an embargo on the power of the Court to decide arbitration applications. It is only when the insolvency petition is admitted and the moratorium is declared that the proceedings under the Arbitration and Conciliation Act, 1996 would be non-maintainable.
The Hon’ble Delhi High Court observed that the reliance of the Respondent on the Hon’ble Supreme Court’s decision in Indus Biotech Private Ltd. Vs. Kotak India Venture (Offshore)1 is misplaced as the Court, in that case, had only held that the adjudicatory authority has to decide the insolvency application on priority when an application under Section 8 of the Arbitration and Conciliation Act, 1996 is also pending, and if it is satisfied that a default has happened it shall admit the insolvency petition and the Arbitration application would be non-maintainable.
The Hon’ble Delhi High Court observed that admittedly there is an Arbitration Agreement between the parties and a dispute has arisen, therefore, the argument that the Petitioner has not raised any demand upon the Respondent (proved to be false) is in any case of no consequence. The Hon’ble Delhi High Court further held that merits or validity of a legal notice is not to be decided by the Court while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996. Accordingly, the Hon’ble Delhi High Court allowed the application and appointed the Sole Arbitrator.
Conclusion
Merely because an insolvency petition has been filed by the Respondent before the National Company Law Tribunal, it cannot be an embargo upon the power of the Court to decide an arbitration application. It is only when the insolvency petition is admitted and the moratorium is declared under Section 14 of the Insolvency and Bankruptcy Code, 2016 that the proceedings under the Arbitration and Conciliation Act, 1996 would be non-maintainable.
[1](2021) 6 SCC 436
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