Topics Covered in this article
An arbitration proceeding cannot be started when there is moratorium period going on by the order of the adjudicating authority. The meaning of arbitration proceeding can be defined as, arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards. The present case laid down the relationship between the Arbitration and Conciliation Act and the Insolvency and Bankruptcy Code 2016.
The case was filed in order to clarify the provisions of Section 14 of the Code. Section 14 laid down the imposition of the moratorium period. The moratorium period is imposed when the insolvency proceedings has been initiated against the corporate debtor, this period is started when the resolution professional proposes the resolution plan and the same has been accepted by the adjudicating authority.
The facts of the present cases are as follows:
- The corporate debtor in this case a term loan has been sanctioned by SBI in favour of the corporate debtor.
- The repayment of the same has been due on the part of the corporate debtor. The bank has made continues reminder for the repayment of the said amount which was continuously ignored by the corporate debtor.
- The corporate debtor was given the specified time period to repay the said amount, but the corporate debtor failed to do so.
- The SBI then invoked the provisions under SARFESI Act for the recovery of the loan. Section 13 of the SARFESI Act, the bank is empowered to issue the notice under clause (4) of the section. This notice is issued as the last warning given to the debtor for the repayment of the amount due to him along with the interest.
- The amount involved in the present case was, Rs. 33.93 crores which is inclusive of interest levied by the bank.
- The petition was challenged by the corporate debtor with Debt Recovery Tribunal and Debt Recovery Appellate Tribunal.
- Further, in the year 2014, SBI assigned all the rights, title, and interest in favour of the appellant in the present case, i.e., in favour of Alchemist Asset Reconstruction Co.
- Issuance of fresh notice under the provision of SARFESI Act was allowed by the High Court when the appeal has been filed by the financial creditor.
- The court is of the view that the corporate debtor is incorporated with the debts both belong the secured and the unsecured creditors and hence a clear case of insolvency resolution process as per the provisions of the IBC so that the stakeholders of the corporate debtor can get the benefit within the stipulated time period.
- The adjudicating authority gave the decision of imposition of the moratorium period and hence appointed the Interim Resolution Professional for carrying out the functions under the provisions of the Code.
- The corporate debtor filed the writ petition against the decision passed by the adjudicating authority as established under the provisions of the Act. He then further filed an appeal in Supreme Court and then finally proceeded to the arbitral tribunal against the action taken by the Insolvency Resolution Professional who moved to the adjudicating authority who gave the decision in favour of the corporate debtor.
- In the present case, Alchemist Asset Reconstruction Co. is the petitioner as well as the financial creditor and the opponent i.e., Hotel Gaudavan Pvt, Ltd. is respondent and the corporate debtor.
- The main fact of the present case is the respondent invoked the arbitration proceeding against the appellant after the imposition of the moratorium period as per section 14 of the Code.
Whether arbitration proceedings can be instituted against an entity after a moratorium under Section 14 (1) (a) of the Code has been imposed on that entity?
Decision and Judgement of Supreme Court
The Court observed that the mandate of the Code is that the moment an insolvency petition is admitted, the moratorium period stands initiated under Section 14 (1) (a) of the Code, and then it bars any admission of fresh proceedings or continuation of any pending suit against a Corporate Debtor.
Hence, the present appeal was dismissed
- The Supreme Court in this choice, unequivocally repeated the order of the Insolvency and Bankruptcy Code, 2016, of endless supply of a ban under Section 14 (1) (a) of the Code, no new suit or assertion procedures can be started against the substance under ban. Besides, continuation of any suit or legitimate continuing is disallowed.
- The Supreme Court proclaimed the intervention procedures being referred to ‘non-Est’ in law. The method of reasoning for the court’s holding is that a ban gives a time of quiet, where loan bosses cannot turn to singular authorization activity which may disappoint the object of the corporate bankruptcy goal process. Additionally, a forbiddance on removal of the corporate account holder’s advantages would guarantee that the corporate indebted person or its administration cannot move its benefits, in this manner stripping the corporate borrower of significant worth during the corporate bankruptcy goal process.
- Similar legitimate decisions can be found in the law of different nations. The UK Insolvency Act, 1986 restricts any lawful procedures (comprehensive of discretion procedures) against the organization or property of the organization aside from with the assent of the chairman or with the consent of the Court. Maritime Electric Company v. Joined Jersey Bank has underlined that the reason for the ‘programmed remain’ is to give the account holder a breathing spell, to think about methods of restoring business, by halting all loan boss activity, abandonment, requirement, and mediation procedures.
The present case laid down the clarification of the provision of section 14 as incorporated under the Code. The court held that, when the moratorium period is imposed then in such case certain activities as prescribed under the Act has been kept on stay i.e., during this time the corporate debtor shall not initiate the arbitration proceeding. In other words, that when the imposition of moratorium takes place then during that time the corporate debtor will not be allowed to invoke the provisions of remedy available under various different provisions. The finding made by the court was on Section 14 of the
Insolvency and Bankruptcy Code 2016. The section covers the concept of moratorium. The code specifies that when the moratorium period is imposed by the adjudicating authority, all the proceedings during this period shall stand stayed. Therefore, section 14 of the code will not apply to the proceedings which will be beneficial for the corporate debtor as these cannot be labelled as the debt recovery action.
Whether a moratorium under Section 14 of the Code shall apply in arbitration proceedings ultimately depends upon the nature of arbitration proceedings and peculiar facts and circumstances of each case, if the proceedings are in detriment to the financial position of the Corporate Debtor the moratorium shall have an effect and in case it does not have such an effect the moratorium shall not apply.