2017 (12) TMI 1107 - SC - Insolvency and Bankruptcy

Supreme Court Invalidates Post-Moratorium Arbitration, Emphasizes Insolvency Code Prohibition

Alchemist Asset Reconstrution Company Ltd Versus M/s. Hotel Gaudavan Pvt. Ltd. & Ors.

The Supreme Court set aside the District Judge's order, ruling that any arbitration initiated after the moratorium imposed by Section 14(1)(a) of the ... Petition filed under the Insolvency and Bankruptcy Code, 2016 admitted - arbitration proceeding purported to be started after the imposition of the said moratorium - Held that:- The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against Corporate Debtors. This being the case, we are surprised that an arbitration proceeding has been purported to be started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017 and further state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law. Also as informed that criminal proceeding being F.I.R. No. 0605 dated 06.08.2017 has been taken in a desperate attempt to see that the IRP does not continue with the proceedings under the Insolvency Code which are strictly time bound. We quash this proceeding. As a result, the appeal is allowed and the steps that have to be taken under the Insolvency Code will continue unimpeded by any order of any other Court. Issues:- Imposition of moratorium under the Insolvency and Bankruptcy Code, 2016.- Validity of arbitration proceedings initiated during the moratorium.- Entertaining appeals under Section 37 of the Arbitration and Conciliation Act, 1996 during the moratorium.- Quashing of criminal proceeding hindering the Insolvency proceedings.Analysis:The judgment by the Supreme Court dealt with the implications of the moratorium imposed under the Insolvency and Bankruptcy Code, 2016. The case revealed a complex situation where insolvency proceedings had been initiated, leading to the appointment of an Interim Resolution Professional (IRP) and the imposition of a moratorium under Section 14 of the Code. Despite this, an arbitration proceeding was initiated invoking an arbitration clause between the parties, leading to the appointment of a Sole Arbitrator. Subsequently, a notice was issued by the National Company Law Tribunal, emphasizing the impact of the moratorium on arbitration proceedings.A First Appeal was filed under Section 37 of the Arbitration and Conciliation Act, 1996, challenging the arbitration proceedings initiated during the moratorium. The Supreme Court, in its decision, highlighted the clear mandate of the Insolvency Code that prohibits the institution or continuation of suits or proceedings against Corporate Debtors once an insolvency petition is admitted. The Court expressed surprise at the arbitration proceedings initiated post-moratorium and the entertaining of appeals under the Arbitration Act during this period.Consequently, the Supreme Court set aside the order of the District Judge, emphasizing that any arbitration instituted after the moratorium imposed by Section 14(1)(a) is invalid in the eyes of the law. Additionally, the Court addressed the criminal proceeding initiated to obstruct the IRP's proceedings under the Insolvency Code, emphasizing the time-bound nature of such proceedings and quashing the said criminal proceeding.In conclusion, the Supreme Court allowed the appeal and affirmed that the steps mandated under the Insolvency Code should proceed without hindrance from any other court orders, ensuring the smooth continuation of the insolvency proceedings as per the statutory framework.