Subsisting restraint order barred arbitration and a Section 11 reference despite claims being said to arise after the cut-off date.

A subsisting NCLAT restraint order under Sections 241 and 242 of the Companies Act, 2013 was treated as binding and was held to bar both the institution and continuation of arbitration proceedings, including a Section 11 petition, because no stay had been granted by the Supreme Court. The Court held that the restraint operated broadly against fresh and pending proceedings involving IL&FS and its group companies, and that claims said to arise after the cut-off date were not exempt from the prohibition. The limited scope of Section 11 jurisdiction could not override the operative restraint directions, so the request for reference to arbitration was refused.

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Issues: (i) Whether the NCLAT's restraint order passed under Sections 241 and 242 of the Companies Act, 2013 barred the institution and continuation of arbitration proceedings and a petition under Section 11 of the Arbitration and Conciliation Act, 1996. (ii) Whether claims said to arise after the cut-off date could still be referred to arbitration despite the IL&FS resolution framework and the subsisting restraint order. (iii) Whether the petitioner could rely on the limited scope of Section 11 jurisdiction to secure reference to arbitration notwithstanding the pending challenge to the NCLAT orders before the Supreme Court.

Issue (i): Whether the NCLAT's restraint order passed under Sections 241 and 242 of the Companies Act, 2013 barred the institution and continuation of arbitration proceedings and a petition under Section 11 of the Arbitration and Conciliation Act, 1996.

Analysis: The restraint order was treated as operative and binding for the purpose of these proceedings because its legality was already under challenge before the Supreme Court and no stay had been granted. The order expressly stayed institution or continuation of suits and other proceedings against IL&FS and its group companies in any court, tribunal, arbitration panel or arbitration authority. The Court held that this covered arbitration as well as the present Section 11 petition. The fact that the order was not framed as a Section 14 IBC moratorium did not alter its effect for the present case.

Conclusion: The objection based on the NCLAT restraint order was upheld, and the petition could not proceed.

Issue (ii): Whether claims said to arise after the cut-off date could still be referred to arbitration despite the IL&FS resolution framework and the subsisting restraint order.

Analysis: The Court held that the restraint order did not carve out any exception for claims based on periods after the cut-off date. It prohibited both fresh proceedings and continuation of existing proceedings, regardless of the period to which the claim related. Accepting the petitioner's submission would dilute the purpose of the order and permit further liabilities to be pursued despite the ongoing resolution process. The plea that denial of arbitration would leave the petitioner remediless was rejected.

Conclusion: Claims said to arise after the cut-off date were also held not referable to arbitration during the subsistence of the restraint order.

Issue (iii): Whether the petitioner could rely on the limited scope of Section 11 jurisdiction to secure reference to arbitration notwithstanding the pending challenge to the NCLAT orders before the Supreme Court.

Analysis: The Court held that the general rule that arbitrable disputes should ordinarily be referred could not override the operative restraint order. Since the challenge to the NCLAT directions was pending before the Supreme Court, the High Court declined to make any order that would render those directions nugatory. Authorities invoked on supervisory jurisdiction and the narrow scope of Section 11 were distinguished on the facts.

Conclusion: The Section 11 request was refused.

Final Conclusion: The proceedings were held to be barred by the subsisting NCLAT restraint directions, and arbitration could not be commenced in the present posture of the IL&FS resolution process.

Ratio Decidendi: Where a subsisting restraint order expressly prohibits institution or continuation of proceedings, including arbitration, a court exercising Section 11 jurisdiction will not refer the parties to arbitration merely because the underlying claims are asserted to fall after a cut-off date or because the restraint order is under challenge elsewhere without any stay.

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