Pre-admission insolvency disputes may still be arbitrable until default is found and the petition is admitted.

In a Section 7 insolvency proceeding, default must be examined before the matter is treated as non-arbitrable; until admission, the Adjudicating Authority may consider an application under Section 8 of the arbitration statute at the pre-admission stage. The described analysis also treats disputes arising from share subscription and shareholders' arrangements, including conversion and valuation of preference shares, as contractual disputes capable of arbitration where no admitted default has crystallised. Because the agreements contained similar arbitration clauses and the disputes were closely connected, a common arbitral tribunal could be constituted to resolve them.

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Issues: (i) Whether, in a pending Section 7 insolvency petition, the Adjudicating Authority must first determine the existence of default before treating the matter as non-arbitrable and whether an application under Section 8 of the arbitration statute can be considered at the pre-admission stage. (ii) Whether the disputes arising from the share subscription and shareholders' arrangements, including the conversion and valuation of preference shares, were capable of reference to arbitration and whether a common arbitral tribunal could be constituted for the connected agreements.

Issue (i): Whether, in a pending Section 7 insolvency petition, the Adjudicating Authority must first determine the existence of default before treating the matter as non-arbitrable and whether an application under Section 8 of the arbitration statute can be considered at the pre-admission stage.

Analysis: A proceeding under Section 7 of the insolvency code is triggered by the existence of debt and default, but it becomes a proceeding in rem only upon admission. Before admission, the Adjudicating Authority must apply its mind to the material placed by the financial creditor and the corporate debtor and decide whether default has actually occurred. The mere filing of the insolvency petition does not itself exclude arbitration. At the pre-admission stage, an application invoking arbitration cannot be ignored mechanically, but its effect depends on the adjudication of default. If default is found and the petition is admitted, the dispute passes into the insolvency regime and ceases to be arbitrable.

Conclusion: The Adjudicating Authority must first decide whether default exists, and only on admission does the insolvency proceeding become non-arbitrable; accordingly, the pre-admission arbitration request was capable of consideration.

Issue (ii): Whether the disputes arising from the share subscription and shareholders' arrangements, including the conversion and valuation of preference shares, were capable of reference to arbitration and whether a common arbitral tribunal could be constituted for the connected agreements.

Analysis: The disputes concerned conversion formulae, valuation, redemption consequences, and the timing and effect of the qualified public offer, all of which were contractual disputes between the parties. On the facts, the amount payable on redemption had not crystallised as an admitted default, and therefore the controversy remained one that could be resolved by arbitration. The agreements contained arbitration clauses in similar terms, and the disputes were substantially interconnected. In those circumstances, constitution of a tribunal to resolve the disputes under the several agreements was appropriate, with the tribunal free to work out the procedural modalities.

Conclusion: The disputes were arbitrable at that stage and a tribunal could properly be constituted to decide them.

Final Conclusion: The connected insolvency and arbitration controversies were resolved by holding that no concluded default had yet arisen to justify admission of the insolvency petition, while the contractual disputes were fit for arbitration and an arbitral tribunal was directed to be constituted.

Ratio Decidendi: In a Section 7 insolvency proceeding, non-arbitrability arises only after the Adjudicating Authority records default and admits the petition; until then, contractual disputes between the parties may still be referred to arbitration if no admitted default has crystallised.

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