Section 10 of the Code of Civil Procedure does not lay an embargo in proceeding with Arbitration during Pendency of insolvency proceedings

In the matter of Tata Capital Financial Services Ltd. v Naveen Kachru Proprietor, Arb. Pet. 295/2021 decided on 06.04.2022 by the Delhi High Court.

Facts

The Petitioner (Tata Financial Services Ltd.) filed a Petition before the Delhi High Court for appointment of arbitrator to adjudicate the dispute between the Petitioner and Respondent (Naveen Kachru). The Court passed an ex-parte order whereby an arbitral tribunal was constituted.

The Respondent/Applicant filed the present application under Order 9 Rule 13 of the Code of Civil Procedure, 1908 to set aside the ex parte order passed by the Court appointing a sole arbitrator.

Contentions made by the Parties

The Respondent/Applicant contended that he has already initiated proceedings for being declared as an insolvent under the Provincial Insolvency Act, 1920(hereinafter referred to as “Insolvency Act”).

He further submits that the Arbitration Proceedings would be hit by Section 10 of the Code of Civil Procedure, 1908 as the insolvency Petition filed by the Respondent before the Insolvency Court.

The Counsel of the Petitioner submitted that the Respondent/Applicant has initiated the proceedings only to try and defeat the rights of the Petitioner to recover money.

Observations

The Hon’ble Delhi High Court considered Section 29 of the Insolvency Act in respect of the plea of the Respondent that he has already initiated proceedings under the Provincial Insolvency Act, 1920.

Section 29 of the Insolvency Act stipulates that any Court in which a suit or proceeding is pending against a debtor, on proof of an order of adjudication having been made against the debtor, shall either stay the proceedings, or allow it to continue on such terms as such the Court may impose.

Therefore, Section 29 does not make an absolute prohibition on the said court in proceeding with the suit against the debtor. Furthermore, the embargo of Section 29 only comes to play after an order of adjudication has been made. In the present case only an order of adjudication was passed.

The Hon’ble Delhi Court further observed that the submission of the Respondent that Section 10 of CPC lays an embargo in proceeding with the arbitral proceedings is not sustainable for the reason that Section 10 CPC comes into play only in a case where the proceedings are between the same parties and the matter in issue is directly and substantially in issue in the previously instituted suit.

The Petition filed by the Respondent is not a lis between the Respondent and the Petitioner but it is a lis in rem. Even though debt of the petitioner may have been mentioned in the said proceedings it does not become a lis between the Respondent and the Petitioner and the issues involved in the insolvency proceedings and the issue involved in the present proceedings are completely different and as such the embargo of Section 10 of the Civil Procedural Code, 1908 also does not apply.

In view of the above, the Court dismissed the application under Order 9 Rule 13 of the Respondent.