Mere pendency of the insolvency petition u/s 9 of the IBC is no bar for appointment of arbitrator in terms of section 11 of the Arbitration Act.

In the matter of Millennium Education Foundation Vs. Educomp Infrastructure and School Management Limited, Arb. P. 326/2022, decided by the Hon’ble Delhi High Court on 13.05.2022

Facts of the case-

A demand notice was issued by the Respondent which was duly responded by the Petitioner and has further made a counter demand and directed the Respondent to agree to reference of disputes. On failure of the Respondent for agreeing on the appointment of the arbitrator, the Petitioner had filed petition for appointment of arbitrator u/s 11 of Arbitration and Conciliation Act, 1996.

It is the case of the Respondent that the Respondent has already filed a petition u/s 9 of the Insolvency and Bankruptcy Code, which is pending before the NCLT and therefore, the remedy available to the Petitioner is to file an application u/s 8 of the Arbitration Act before the NCLT for reference of disputes to arbitration. Respondent has relied on Indus Biotech Private Ltd. Vs. Kotak India Venture (Offshore), (2021) 6 SCC 436.

Observation of the Court–

The Court observed that there is no dispute regarding the existence of arbitration clause. As per the collaboration agreement, the parties have clearly agreed to reference of disputes arising in connection with or out of the said agreement to arbitration under the Arbitration Act. The clause further stipulates that in case of a dispute, the Petitioner is entitled to appoint a sole arbitrator, however, in view of the judgment of the Hon’ble Supreme Court in Perkins Eastman Architects DPC Vs. HSCC (India) Ltd., (2020) 20 SCC 760, the petitioner is not entitled to appoint an Arbitral Tribunal.

The Court further observed that the reliance of the Respondent on Indus Biotech Pvt. Ltd. is misplaced because the as per the ratio of Indus Biotech Pvt. Ltd., the proceedings under the Insolvency and Bankruptcy Code would take precedence and any moratorium issued therein would automatically bind the proceedings under the Arbitration Act.

The Court concluded that in case the petition filed before the NCLT is admitted and moratorium comes into play, the legal consequences of the same would automatically apply to the proceedings under the Arbitration Act. However, as long as the petition is merely pending and not admitted and no moratorium has commenced, there can be no embargo on the proceedings under the Arbitration Act and on the petitioner seeking reference of disputes and appointment of an Arbitral Tribunal.