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

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

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 ... Moratorium under Section 14(1)(a) of the Insolvency and Bankruptcy Code prohibiting institution or continuation of proceedings against the corporate debtor - arbitration proceedings instituted after the commencement of moratorium are non est - set aside of interlocutory order permitting proceedings under the Arbitration and Conciliation Act to proceed despite moratorium - quashing of criminal proceedings instituted to obstruct time bound insolvency processMoratorium under Section 14(1)(a) of the Insolvency and Bankruptcy Code prohibiting institution or continuation of proceedings against the corporate debtor - arbitration proceedings instituted after the commencement of moratorium are non est - set aside of interlocutory order permitting proceedings under the Arbitration and Conciliation Act to proceed despite moratorium - Effect of the moratorium on arbitration proceedings and the validity of subsequent interlocutory steps taken to pursue arbitration or appeals therefrom. - HELD THAT: - The Insolvency and Bankruptcy Code mandates that upon admission of an insolvency petition the moratorium under the Code comes into effect and expressly interdicts institution or continuation of pending suits or proceedings against the corporate debtor. Given that the insolvency petition was admitted and the moratorium was in force, initiation of arbitration proceedings thereafter and the registration/entertainment of an appeal under Section 37 of the Arbitration and Conciliation Act were inconsistent with the moratorium. The Court held that an arbitration purportedly instituted after the moratorium is non est in law and therefore the impugned interlocutory order of the District Judge permitting the appeal to be registered must be set aside to give effect to the statutory moratorium. [Paras 5, 6]The order of the District Judge dated 06.07.2017 is set aside and arbitration proceedings instituted after the moratorium are declared non est, so that the moratorium operates to suspend such proceedings.Quashing of criminal proceedings instituted to obstruct time bound insolvency process - Validity of the criminal proceeding (F.I.R. No. 0605 dated 06.08.2017) alleged to be initiated to impede the Interim Resolution Professional and the insolvency process. - HELD THAT: - Recognising that the insolvency process under the Code is strictly time bound and must proceed without obstruction, the Court found that the criminal proceeding had been instituted in a desperate attempt to hinder the IRP and the ongoing insolvency proceedings. As such, the proceeding was quashed to prevent interference with the statutory insolvency process. [Paras 7]F.I.R. No. 0605 dated 06.08.2017 is quashed to ensure the uninterrupted continuation of the insolvency process.Final Conclusion: The appeal is allowed; interlocutory steps and proceedings inconsistent with the moratorium are set aside, the specified criminal proceeding is quashed, and steps required under the Insolvency and Bankruptcy Code shall continue unimpeded. 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.