Pre-existing dispute and commencement of arbitration barred a Section 9 insolvency application under the arbitration law.

A Section 9 IBC application was found not maintainable because a pre-existing dispute existed before the insolvency petition was filed. The corporate debtor had already issued a notice seeking appointment of a sole arbitrator, and under Section 21 of the Arbitration and Conciliation Act, 1996, arbitral proceedings commenced on receipt of that request. On that basis, the dispute was treated as existing earlier in time and barred admission of the insolvency application. The question whether the applicants were operational creditors was left undecided.

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Issues: Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable in view of the existence of a dispute and the commencement of arbitral proceedings.

Analysis: The record showed that the corporate debtor had issued a notice seeking appointment of a sole arbitrator in respect of disputes arising from the relevant agreements. Under Section 21 of the Arbitration and Conciliation Act, 1996, arbitral proceedings commence on receipt of a request to refer the dispute to arbitration. Since such a request had been made, the dispute was treated as existing before the insolvency petition was filed. On that basis, the pre-existing dispute barred admission of the Section 9 application. The question whether the appellants were operational creditors was left undecided.

Conclusion: The Section 9 petition was not maintainable and the appeal failed.

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