2022 (5) TMI 1122 - HC - Insolvency and Bankruptcy

Court appoints nominee arbitrator under Section 11; emphasizes need for Arbitral Tribunal adjudication

Bharat Petroresources Limited Versus Jsw Ispat Special Products Limited

The court allowed the petition for the appointment of a nominee arbitrator under Section 11 of the Arbitration and Conciliation Act. Justice (Retired) ... Liability of respondents to pay its share of the Cash Calls - Appointment of nominee arbitrator - enabling constitution of an Arbitral Tribunal for adjudication of the disputes that have arisen between the parties in relation to the Joint Operating Agreement - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT:- It is well settled that in terms of sub-section (6A) of Section 11 of the A&C Act, the scope of examination under Section 11 of the A&C Act is limited to the existence of an arbitration agreement between the parties. Notwithstanding the same, in cases where it is ex facie clear that the disputes cannot be entertained, the courts would refrain from entertaining the petition to appoint an arbitrator as the same would be an exercise in futility. It is also trite law that it is only in exceptional cases where it is absolutely clear that the disputes cannot be entertained that the court will decline to entertain a petition under Section 11 of the A&C Act. The standards of examination under Section 11 of the A& C Act do not permit the court to carry out any adjudicatory exercise in respect of any contentious issue. The question whether the liability sought to be enforced by BPRL against the respondent stands extinguished is a contentious issue. This Court is unable to accept that the controversy involved in the present case falls within the standards of examination under Section 11 of the A&C Act. The Supreme Court in its recent decision in MOHAMMED MASROOR SHAIKH VERSUS BHARAT BHUSHAN GUPTA & ORS. [2022 (2) TMI 134 - SUPREME COURT] while referring to the decision in VIDYA DROLIA AND OTHERS VERSUS DURGA TRADING CORPORATION [2020 (12) TMI 1227 - SUPREME COURT] held that “the Court by default would refer the matter when contentions relating to nonarbitrability are plainly arguable.” This Court is not required to examine and adjudicate any contentious issue and the parties must be relegated to the forum of their choice for adjudication of their disputes - Petition allowed. Issues Involved:1. Appointment of nominee arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.2. Respondent's liability to pay its share of the Cash Calls.3. Impact of the Corporate Insolvency Resolution Process (CIRP) and approved Resolution Plan on existing and future claims.4. Jurisdiction and scope of examination under Section 11 of the Arbitration and Conciliation Act, 1996.Issue-wise Detailed Analysis:1. Appointment of Nominee Arbitrator:The petitioner (BPRL) filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a nominee arbitrator on behalf of the respondent to constitute an Arbitral Tribunal for adjudicating disputes related to the Joint Operating Agreement dated 05.04.2013. BPRL invoked the Arbitration Clause (Article 19.3 of the Agreement) and appointed Justice (Retired) V.K. Gupta as its nominee arbitrator, calling upon the respondent to appoint its nominee arbitrator within thirty days. The respondent failed to do so, prompting BPRL to seek judicial intervention.2. Respondent's Liability to Pay Cash Calls:BPRL raised various Cash Calls on the consortium partners, including the respondent, who allegedly failed to comply with Cash Calls amounting to significant sums. BPRL issued Default Notices and further Cash Calls, which were also unmet by the respondent. Consequently, the non-defaulting consortium partners assumed the respondent’s 10% participating interest. The respondent disputed its liability, contending it had forfeited its participating interest in the PSC and that no provision was made in the Resolution Plan for any liability for operating the PSC.3. Impact of CIRP and Approved Resolution Plan:The respondent was admitted to CIRP under the Insolvency and Bankruptcy Code, 2016. BPRL filed its claim as an operational creditor, which was partially admitted by the Insolvency Resolution Professional (IRP). A final resolution plan for the respondent company was approved by the NCLT, Mumbai, and the CIRP concluded on 24.07.2018. The respondent argued that all claims or demands against it were extinguished by the approved Resolution Plan, which was binding. BPRL’s appeal against the NCLT order was dismissed by the NCLAT, which noted that future claims post the Insolvency Commencement Date (ICD) could not be considered by the Resolution Professional.4. Jurisdiction and Scope of Examination under Section 11:The court emphasized that under Section 11(6A) of the A&C Act, the scope of examination is limited to the existence of an arbitration agreement. It is only in exceptional cases where disputes are clearly non-arbitrable that courts would refrain from appointing an arbitrator. The court referred to precedents, including Vidya Drolia v. Durga Trading Corporation and Inter-Continental Hotels Group (India) Pvt. Ltd. v. Waterline Hotels Pvt. Ltd., reiterating the principle ‘when in doubt refer’. The contentious issue of whether the respondent’s liability was extinguished by the Resolution Plan was deemed suitable for arbitration rather than judicial determination at this stage.Conclusion:The court concluded that the controversy did not fall within the standards of examination under Section 11 of the A&C Act, and contentious issues should be adjudicated by the Arbitral Tribunal. The petition was allowed, and Justice (Retired) Pankaj Naqvi was appointed as the Arbitrator on behalf of the respondent, subject to necessary disclosures and eligibility under the A&C Act. The two nominated Arbitrators were required to concur on the appointment of the third Arbitrator for constituting the Arbitral Tribunal as per the Agreement.