Arbitration proceedings cannot be split between parties under moratorium and others under Section 96 IB Code

The HC dismissed a petition challenging arbitral tribunal's decision to stay arbitration proceedings during moratorium granted under IB Code Section 96. The court held that debt cannot be severed between principal borrower/guarantors granted moratorium and other parties not approaching NCLT, as debt under Section 96 must be considered in entirety. The tribunal's stay order was not perverse or patently illegal, making writ jurisdiction under Article 226 unavailable. Arbitration proceedings cannot be split against some parties while continuing against others under the Arbitration Act 1996.

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Issues Involved:
1. Validity of the arbitrator's order to keep proceedings in abeyance due to the moratorium under Section 95 of the Insolvency and Bankruptcy Code (IB Code) 2016.
2. Applicability of moratorium provisions under Section 96 of the IB Code to the arbitration proceedings.
3. Jurisdiction of the High Court under Article 226 of the Constitution to interfere with arbitral orders.

Issue-wise Detailed Analysis:

1. Validity of the Arbitrator's Order to Keep Proceedings in Abeyance:
The petition challenged the arbitrator's order dated 07.10.2022, which kept the arbitration proceedings in abeyance due to the moratorium under Section 95 of the IB Code 2016. The arbitrator's decision was based on the moratorium affecting the debts owed by Mr. Tarun Kapoor, the proprietor of Sterling Motor Company (SMC), and one of the guarantors, Smt. Pavan Kapoor. The petitioner argued that the moratorium should not apply to the legal heirs of the original respondent No. 4, Shri B.L. Passi, and that the arbitration should continue against them. However, the court found that the moratorium under Section 96 of the IB Code covers the entire debt, irrespective of whether the liability is of a guarantor or principal borrower.

2. Applicability of Moratorium Provisions Under Section 96 of the IB Code:
The petitioner contended that the moratorium granted by the NCLT should only favor Mr. Tarun Kapoor and Smt. Pavan Kapoor, and not extend to other respondents. The court referred to the definition of 'debt' under Section 3(11) of the IB Code and clarified that the moratorium applies to "all the debts" and "any debt" of the personal guarantor. The court emphasized that the moratorium under Section 96 is debt-centric and not debtor-centric, meaning it covers the entire debt irrespective of the parties involved. The court cited precedents, including SBI vs. V. Ramakrishnan and Anr. and Dilip B. Jiwrajka vs. Union of India, to support its interpretation that the moratorium under Section 96 stays legal proceedings in respect of the debt, not the debtor.

3. Jurisdiction of the High Court Under Article 226 of the Constitution:
The respondent argued that the petition was not maintainable under Article 226 or 227 of the Constitution and should be challenged under Section 34 or 37 of the Arbitration & Conciliation Act (A & C Act). The court referred to several precedents, including SBP & Co. vs. Patel Engineer Ltd., Deep Industries Ltd. vs. ONGC, and Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd., which established that the High Court's writ jurisdiction is limited to cases of perversity or patent illegality. The court concluded that the arbitrator's order did not exhibit any perversity or patent illegality and thus, the petition was not maintainable.

Conclusion:
The court held that the moratorium under Section 96 of the IB Code applies to the entire debt, affecting all parties involved in the arbitration proceedings. The arbitrator's decision to stay the proceedings was not perverse or patently illegal. Consequently, the petition was dismissed, and the court affirmed the arbitrator's order to keep the arbitration proceedings in abeyance during the moratorium period. The petitioner's request to vacate the order was also rejected.

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