Arbitration reference barred after substantive reply, while section 7 insolvency proceedings may continue despite pending arbitration.

A section 8 request for arbitration, made after the corporate debtor had already filed its substantive reply in section 7 insolvency proceedings, was held to be time-barred and not maintainable. The tribunal applied the principle that a party who does not invoke section 8 in its first substantive response forfeits the right to seek reference to arbitration later. It also clarified that the adjudicating authority under the Insolvency and Bankruptcy Code must first examine debt and default, and that the pendency or prior initiation of arbitration does not prevent consideration of a section 7 application. Admitted liability in settlement proposals further supported the existence of debt and default.

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Issues: Whether the application under section 8 of the Arbitration and Conciliation Act, 1996 was maintainable after the corporate debtor had already filed its reply in the section 7 proceedings, and whether the pendency or prior initiation of arbitration could prevent consideration of the section 7 insolvency application.

Analysis: The application under section 8 was filed after the reply to the section 7 petition had already been submitted, and the time contemplated for seeking reference to arbitration had expired. The Court applied the principle that a party which submits its first substantive response without invoking section 8 forfeits the right to seek reference to arbitration thereafter. It further held that, in proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016, the adjudicating authority must first determine debt and default, and the existence or pendency of arbitration does not bar that statutory exercise. The Court also noted the admitted acknowledgements of liability in the settlement proposals, reinforcing the existence of debt and default.

Conclusion: The section 8 application was not maintainable, and the section 7 proceedings were rightly allowed to continue; the order rejecting referral to arbitration was upheld.

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