Petition filed under Section 7 of I&B Code 2016 cannot be defeated upon the ground of appointment of arbitrator.

The ground for appointment of arbitrator cannot be taken as a ground in defeating an application under Section 7 of the Insolvency and Bankruptcy Code 2016 though it is permissible to take such a ground to get an application rejected under Section 9 of the said Code.

The said ratio was delivered by the National Company Law Appellate Tribunal in the matter of O.A.A Ananthapadmanaban Chettiar Vs. Sri Mahalakshmi Textile, Company Appeal (AT) (Insolvency) No. 520/2018 decided on 05.09.2018.

Challenge

In the present appeal, the only limited issue before this Ld. Tribunal was that whether a letter of exchange for appointment of an arbitrator can be taken as a ground for rejection of application under Section 7 of the Insolvency and Bankruptcy Code 2016 (hereinafter referred to as I&B Code 2016).

In the present matter, an application under Section 7 of the I&B Code 2016 preferred by the Respondent was admitted, an order of ‘Moratorium’ was passed and an ‘Interim Resolution Professional’ was appointed.

The plea raised by the Appellant was two-fold;

-That the Respondent is not covered under the definition of ‘Financial Creditor’ under Section 5(7) read with Section 5(8) of the I&B Code 2016.

-That a letter exchanged between the parties for appointment of arbitrator shall be the ground for rejection of an application.

Held

The Ld. Appellate Authority held and observed that since the provisions of the agreement shows ‘disbursement’ of money by the Respondent for which the ‘consideration is time value of money’ which the Respondent is entitled to.

It was further observed that in view of the above-mentioned observation, the plea taken by the Appellant for rejecting the application under Section 7 of the I&B Code 2016, on the basis of a letter exchanged between the parties for appointment of arbitrator, is not permissible. Such a plea can only be taken as a ground to reject an application under Section 9of the I&B Code 2016.