4.1 INTRODUCTION
Medha Sarin
The Supreme Court and High Courts have time and again interpreted the provisions of governing the IBC and Arbitrationlaws and at the same time progressive even, in evolving definite principles for complying with the provisions of some sectionsspecifically section 8 and section 7 of IBC laws, Arbitration & Conciliation Act is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. The Courts of India have proved themselves to be the torchbearer of progressive attitudes towards IBC & Arbitration in India. Courts acted as Harbinger for this issue. The researcher have classified the various court decisions on the said issue & narrated hereunder:-
4.2 JUDICIAL TRENDS
‘Dispute’ in terms of section 7 and section 9
According to section 5(6) of IBC ‘dispute’ includes a suit or arbitration proceedings relating to:• the existence of the amount of debt;• the quality of goods and services; and• the breach of representation or warranty
It is not uncommon for parties to an arbitration to secure (or at least attempt to secure) amounts involved in arbitration from a “Court” under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act).This can be done by way of deposits in an interest-bearing account maintained by such Court or by furnishing bank guarantees and/or similar instruments (Section 9 Security).
The position in law continues to be unsettled and a reasoned decision from the Supreme Court is currently awaited. In arriving at a decision, it is the authors’ view that a balancing act would have to be performed by Courts with respect to two competing principles. First, when the execution of a money award/ decree itself cannot proceed against a corporate debtor after an order of moratorium is in effect, permitting withdrawal/ disbursement of the amount secured in Section 9 proceedings may be viewed as bypassing the legislative intent behind Section 14 of the IBC. This could also be seen as a “preferential payment” as an award holder would in effect be treated as a secured creditor while other creditors would have to wait in line for payments. However, at the same time, the interests of an award holder who has been secured for the decretal amount by a court of competent jurisdiction must also be protected.
In a landmark judgment dated 9 June 2020 re: ‘Indus Biotech Private Limited v. Kotak India Venture Fund-I, the National Company Law Tribunal, Mumbai Bench-IV (NCLT), referred the parties to Arbitration by allowing an application filed by Indus Biotech Private Limited, (corporate debtor) under Section-8 of the Arbitration & Conciliation Act, 1996 (Arbitration Act) seeking reference to arbitration for settlement of the disputes between the parties, and dismissed the Company Petition filed by Kotak India Venture Fund-I (financial creditor) under Section-7of the Insolvency & Bankruptcy Code 2016 (IBC).
Issue: – whether the provisions of the Arbitration & Conciliation Act, 1996 prevail over the provisions of the Insolvency & Bankruptcy Act, 2016, if so, in what circumstances?
Observations:-
While considering the aforesaid issue the Adjudicating Authority (tribunal) considered the ratios of the judgments passed by Superior Courts:
Re: In the case of Booz Allen & Hamilton v. SBI Home Finance Ltd. , it was held that generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration and all disputes relating to rights in rem are required to be adjudicated by courts and tribunals. The Supreme Court further clarified that this principle is not rigid, and disputes relating to subordinate rights in personam arising from rights in rem are arbitrable.
The Adjudicating Authority also considered the settled law ‘generalia specialibus non derogant’ – special law prevails over general law.
In this regards reliance was placed of the Consolidated Engineering Enterprises v Principal Secretary, Irrigation Department & others , wherein the Hon’ble Supreme Court held that the Arbitration & Conciliation Act is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto.
In the case of In Hindustan Petroleum Corporation Limited v Pinkcity Midway Petroleum, the Hon’ble Supreme Court held that where an arbitration clause exists, the court has a mandatory duty to refer dispute arising between the contracting parties to arbitrator. It quoted with approval the decision of the same court in P Anand Gajapathi Raj& others v PVG Raju (dead) & others, wherein it was held that the language of section 8 of the Arbitration & Conciliation Act, 1996, is peremptory and the court is under an obligation to refer parties to arbitration.
Thus, both the statutes are special statutes which operate in different fields of law.
Further, Section-238 of the Insolvency & Bankruptcy Codegives an overriding effect to it over all other statues. It reads as follows, “the provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law”.
The Adjudicating Authority (Tribunal) also summarized the rules of interpretation of general laws versus special laws:-• When a provision of law regulates a particular subject and a subsequent law contains a provision regulating the same subject, there is no presumption that the later law repeals the earlier law. If the subsequent law does not repeal the earlier rule, there can be no presumption of an intention to repeal the earlier rule.• When two provisions of law – one being a general law and the other being special law govern a matter, the court should endeavor to apply a harmonious construction to the said provisions.• If the repugnancy or inconsistency subsists in spite of an effort to read them harmoniously, the prior special law is not presumed to be repealed by the later general law.• Where a later special law is repugnant to or inconsistent with an earlier general law, the later special law will prevail over the earlier general law.
The decision of the Adjudicating Authority was:-• On a perusal of the contentions and facts, the Adjudicating Authority was not satisfied that a ‘default’ has occurred.• It will be unnecessary to push a solvent, debt-free and profitable company into insolvency and no meaningful purpose will be served.• The disputes that form the subject matter of the underlying Company Petition, viz., and valuation of shares, calculation and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, an attempt must be made to reconcile the differences between the parties and their respective perceptions.
Application under Section-8 of Arbitration and Conciliation Act was allowed and petition filed by financial creditor under Section-7 of the IBC was dismissed by the tribunal.
4.3 CONFLICT DUE TO DECISIONS:-
Aditya Prakash Entertainment Pvt Ltd. v/s MagikwandMedia Pvt Ltd., the Adjudicating Authority, NCLT, directed the parties to resolve their disputes through arbitration, it is noteworthy that the Adjudicating Authority did not hold that the Arbitration Act would prevail over the IBC and observed that law on this subject is res integra. In case of repugnancy between the provisions of the two Acts, the Arbitration Act could not prevail over the IBC.
In case of conflict, the provisions of the Arbitration Act would have to give way to the provisions of the IBC. This position is supported by the decision of the Ahmedabad Bench of the NCLT in ABG Shipyard Ltd v/s ICICI Bank Ltd. In that case, the Adjudicating Authority had to determine whether Section-56 of the Electricity Act, 2003 would override Section-14 of the IBC. The Adjudicating Authority held that the IBC would prevail over the Electricity Act, 2003 for the reason that both the statutes are special law, the IBC being later in time would prevail over the Electricity Act. For this finding, the Adjudicating Authority had relied upon the decision of the Supreme Court in KSL And Inustries Ltd v/s Arihant Threads Ltd. In that case, the Supreme Court had held that “it is settled law that when there are two enactments passed by the Parliament, and if there is any provision contained in such Acts which is repugnant to another, the provisions contained in the Act, which is later in point of time, shall prevail”.
Once the Adjudicating Authority is satisfied as to the existence of ‘default’ according to Section-7 of the IBC, the existence of an arbitration agreement between the parties would not restrict the Adjudicating Authority from initiating CIRP against the corporate debtor. Therefore, Section-8 of the Arbitration Act would not prevail over Section-7 of the IBC.
The issue of conflict is related to whether the proceeding under Section-34 of Arbitration and Conciliation Act, 1996 would go against the award which is granted to the corporate debtor. This issue was dealt by Honorable Delhi High Court in the matter of Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd and the court interprets Section-14(1)(a) as “ the code aims for providing relief to the corporate debtor and tries to protect his property from dissolution, and to find the true meaning of this section it is essential to see the provision with the statute as a whole and for this purposive approach should be followed to interpret the provision although it does not constitute any ambiguity. If we see the provision while applying the formula of purposive approach which can say that Section-14 does not apply to the cases which provides benefit to corporate debtor, like the matter with which we are dealing as this does not constitute any debt recovery action and the end of this will not lead to dissolution of the property of the corporate debtor in any manner.”
This was observed by Honorable Delhi High Court and finally it was held that “Proceeding which are carried on under Section- (14) (1) (a) of IBC which includes the word ‘proceeding’ does not include all types of proceeding and therefore it should be limited to some actions such as debt recovery action.”
Another dispute arose between ADR and IBC Code when 2019 amendment was made to the Arbitration act. The 2019 amendment talks about section 87 of the arbitration act, 1996 which says that all the arbitral proceeding which started before 23rd October, 2015, in that arbitration proceeding there will be an stay of that awards when they are challenged under Section-34 of Arbitration Act, 1996.
Hindustan Construction Company Limited moved to Supreme Court with other companies by raising their contention that this enactment is totally against the judgment provided by the Honorable Supreme Court of India in the case of BCCI v Kochi Cricket Pvt Ltd and non inclusion of government bodies under IBC. Supreme Court held that as NHAI is an extension of government authority and it performs the governmental functions therefore they are not under the purview of the provisions of the IBC.
Therefore from the conflicts discussed above we can say that how courts have used different types of interpretation rules such as purposive approach while interpreting the IBC provisions and also had made Arbitration Act prevail over IBC, also it is important to note here that recent amendments are highlighting this issue of conflict in a bigger manner because it is somehow not made while thinking of provisions of other statutes which can get affected because of the enactment.
In light of the limitations to a strict interpretation approach to Sction-14 of the IBC, the courts have adopted a purposive interpretative approach keeping in mind the object/ policy behind the IBC. In the event, an award is in favor of the corporate debtor, the moratorium under Section-14 would not bar the recovery of such dues owed to the corporate debtor by way of execution of such award under Section- 36 of the Arbitration Act. However, if the monetary award is against the corporate debtor, the moratorium under Section-14 would be triggered to bar recovery of such dues owed by the corporate debtor by way of execution of such award under Section-36 of the Arbitration Act.
4.4 Special Law over General Law
Strong reason given by NCLT Mumbai in Kotak’s Case to consider the supremacy of Arbitration Act over I&B Code is the old principle of generalia specialibus non derogant i.e. special law prevails over general law. Initially, in Gujarat Urja Vikas Nigam Limited v Essar Power Limited the Supreme Court held that the Arbitration Act is a general law. The court in that case was considering a question under the Electricity Act. It held that the Electricity Act being a special statute would have overriding effect over the Arbitration & Conciliation Act, which was the general statute. However, this decision was overruled by the Supreme Court in Consolidated Engineering Enterprises v Principal Secretary, Irrigation Department & others wherein it was held that the Arbitration & Conciliation Act is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto. Thereafter, in P Anand Gajapathi Raju & others v PVG Raju (dead) & others it was held that the language of section 8 of the Arbitration & Conciliation Act, 1996, is authoritative in nature and the Judicial Authority is under an obligation to refer parties to arbitration. After discussing the series of judgments on this principle NCLT Mumbai concluded that, since the disputes were purely contractual in nature the invocation of arbitration in a case like this seems to be justified and will save a debt-free company from unnecessarily going into CIRP.
All of this leads us to believe that arbitrability of insolvency petitions remains an unsettled phenomenon in India, and as of now there is no clear picture as to ‘when’ and ‘whether’ an insolvency plea can be referred to arbitration due to several contradicting and confusing views given by tribunals. There is a desperate need of a concrete ruling from the Supreme Court on this subject matter which would cover the entire nation. Further, on a personal note we believe that in order to promote arbitration in India, an attempt must be made by tribunals to retain arbitration in case of mala fide, vexatious and ‘dressed up’ insolvency petitions.