Insolvency Proceedings Under Ibc Doesn’t Exclude The Court’s Jurisdiction To Entertain Section 11 A&C Applications

Summary:

[1] The Delhi High Court single bench of Justice Sachin Datta held that proceedings contemplated in Section 14 of the Insolvency and Bankruptcy Code (IBC) do not expressly exclude the jurisdiction of the court or authorities to entertain applications under Section 11(6) of the Arbitration Act or other proceedings initiated by the corporate debtor against another party. It held that even if a Joint Venture is undergoing insolvency, the bench held that preclude the corporate debtor from filing an Application under Section 11.

Facts:

The matter pertained to the disputes stemmed from a tender process initiated by the Respondent for the “construction of dwelling units including allied services for officers & ORS at Mumbai (Army).” The Petitioner’s bid was accepted on 15.06.2016, leading to the issuance of a Work Order on 27.06.2016. However, due to reasons not attributed to the petitioner, the work was terminated by the Petitioner on 14.09.2021. Subsequently, the Petitioner submitted its final bill, but payment was not released.

The Respondent, through a letter, purportedly terminated/cancelled the contract under Clause 48 of the GCC, resulting in disputes between the parties. The Petitioner sent a notice invoking arbitration. The Petitioner approached the Delhi High Court (“High Court”) and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the appointment of a Sole Arbitrator to adjudicate the disputes between the parties.

In response, the Respondent contended that the work was canceled/terminated by the Respondent due to the Petitioner’s alleged violation of contractual obligations. It argued that the balance work is to be completed at the Petitioner’s risk and cost. The Respondent disputed the validity of the Petitioner’s reliance on the Government of India Office Memorandum claiming it to be flawed. Additionally, the respondent asserts that the petition is not maintainable due to ongoing insolvency proceedings against one of the member constituents of the Petitioner JV.

On the other hand, the Petitioner contended that Government of India Office Memorandums allowed parties to invoke the Force Majeure Clause and terminate the contract without financial repercussions due to the impact of the coronavirus. It argued that the insolvency of one constituent of the Petitioner JV should not impede the petition, emphasizing the separate legal entity status of a JV. The Petitioner also noted that more than two years have elapsed since contract termination, and they did not take steps to issue a fresh tender as per Clause 60 of GCC.

Issue:

Whether insolvency proceedings against a member of the JV under the IBC exclude the jurisdiction of the Court to entertain Applications on behalf of the JV under section 11 of the A&C Act, 1996?

Judgment:

The High Court emphasized that the question of whether the Petitioner had the authority to terminate the contract by relying on the Government of India’s Office Memorandum must be addressed within the arbitral proceedings.

Furthermore, the High Court delved into the concept of a joint venture, referencing the Supreme Court in New Horizons Limited v. Union of India (1995) 1 SCC 478. The High Court noted that a joint venture as a legal entity akin to a partnership, emphasizing the collaborative nature involving shared assets and risks. Even assuming the Petitioner JV is undergoing insolvency, the High Court clarified that it does not preclude the corporate debtor from filing an application under Section 11 of the Arbitration Act against another party.

It highlighted that proceedings contemplated in Section 14 of the Insolvency and Bankruptcy Code (IBC) do not expressly exclude the jurisdiction of the court or authorities to entertain applications under Section 11(6) of the Arbitration Act or other proceedings initiated by the corporate debtor against another party.

However, the High Court acknowledged that the question of whether the petitioner JV was indeed under insolvency was a disputed fact. It held that the Respondent was at liberty to raise the issue of the Petitioner JV’s alleged incapacity to institute proceedings in arbitration. This ensures that the insolvency status can be properly examined during the course of arbitration proceedings.

Consequently, the High Court appointed Mr. Justice (Retd.) Krishna Murari, Former Judge of the Supreme Court of India, as the Sole Arbitrator to adjudicate the disputes between the parties.

Analysis:

The case underscores the complexities inherent in contractual disputes, particularly in the context of unforeseen events. It highlights the importance of clear contractual provisions and the need for parties to adapt to changing circumstances while upholding their contractual obligations. The court’s decision to appoint a Sole Arbitrator reflects a commitment to resolving disputes through alternative means, fostering a fair and efficient resolution process. Ultimately, the case serves as a reminder of the importance of effective contract management and the significance of arbitration in achieving equitable outcomes amidst legal challenges and uncertainties.

[1] BEFORE THE HON’BLE DELHI HIGH COURT

ARB.P. 1342/2022

Judgment dated 4th March, 2024

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