Case title:
Sunflag Iron & Steel Co. Ltd. Vs J. Poonamchand & Sons
Date of Order:
5 June 2023
Bench:
Justice Avinash G. Gharote
Parties:
Appellant - Sunflag Iron & Steel Co. Ltd.
Respondent - Poonamchand & Sons
SUBJECT
- In light of an arbitration clause no. 15 in the agreement dated 30/08/2019 (pg.16) between the parties hereto, the existence and invocation of which is not in dispute, an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A & C Act, for short hereinafter) was filed for the appointment of an arbitrator.
- According to Justice Avinash Gharote, Section 238 of the IBC is applicable only if the deciding authority finds a default in line with Section 7(5) of the Code. As a result, an application was approved, and the parties decided to resolve the issues via arbitration.
IMPORTANT PROVISIONS
- A financial lender can file an application to the National Company Law Tribunal (NCLT) under Section 7 of the IBC asking for the start of the insolvency resolution procedure against a corporate debtor.
- An operative lender may submit a request to the National Company Law Tribunal (NCLT) under Section 9 of the IBC seeking for the start of the insolvency mediation process against the corporate debtor.
- Section 238 of IBC provides an overriding effect w.r.t other laws.
OVERVIEW
- In accordance with an agreement between Sunflag Iron & Steel Co. Ltd. And the respondent, M/s. J. Poonamchand & Sons, Sunflag triggered the arbitration clause. Sunflag asked the Bombay High Court to appoint an arbitrator in an application made pursuant to Section 11.6 of the A&C Act.
- The applicant was opposed by the respondent, M/s. J. Poonamchand & Sons, on the grounds that Sunflag had been the subject of a petition under Section 9 of the IBC that had been submitted to the National Company Law Tribunal (NCLT).
- As a result, they argued that the provisions of Section 11(6) of the A&C Act would no longer be valid and that choosing an arbitrator would be unlawful. The section 238 of the IBC was cited by the respondent to bolster its argument.
ISSUES RAISED
- The issue is whether Section 11(6) of the A & C Act can be used to select an arbitrator without violating the IB Code’s rules.
ARGUMENTS ADVANCED BY THE APPELLANT
- Ashutosh Dharmadhikari, counsel for the applicant, argues that appointing an arbitrator is the only option after determining the two conditions. The applicant argues that no order has been passed under Section 9 of the Insolvency and Bankruptcy Code, 2016 in the respondent’s proceedings. The applicant also cites the judgment in Jasani Realty Pvt. Ltd. Vs. Vijay Corporation, which addressed similar issues.
ARGUMENTS ADVANCED BY THE RESPONDENT
- Mr. Rahul Bhangde, counsel for the respondent, argues that the NCLT’s provisions of Section 11(6) of the A & C Act would become inapplicable if the respondent approached it for measures under the IB Code. He argues that the NCLT would have an overriding effect on Section 11(6), making it unusable.
- He relies on Section 238 of the IB Code and Indus Biotech Private Limited vs. Kotak India Venture (Offshore) Fund to argue that the application filed to obviate NCLT proceedings is not maintainable.
- Although the applicant acknowledges a debt, they claim that their response is to blame for the conflict.
- The dispute was created to invoke Section 11 of the A & C Act, claiming a variation in a test case. The respondent cites Bharat Sanchar Nigam Limited and Nortel Networks India Private Limited for support.
- He argues that the court’s view in Jasani Realty Pvt. Ltd.’s view is incorrect and should not be followed.
JUDGEMENT ANALYSIS
- The bar under Section 238 of the IB Code can be invoked by the admission of an application after recording satisfaction as contemplated by Section 7(5) of the IB Code. The mere filing of an application under Section 7(1) does not act as a bar to any other statutes until satisfaction is recorded by the Adjudicating Authority and the application is admitted.
- Jasani Realty Pvt. Ltd. Records the correct position, rejecting the contrary argument by counsel Rahul Bhangde. The A & C Act and IB Code do not appear inconsistent, as Section 238 of the IB Code only applies after an order is passed by the Adjudicating Authority.
- The Arbitrator must consider the impact of the email on the circumstances. Nortel Networks India Private Limited does not assist counsel for the respondent in their claim of absence of dispute.
- The application under Section 11 (6) of the A & C Act has a narrow scope of judicial consideration. Indus Biotech and Jasani Realty Pvt. Ltd. Covered the issue, and Mr. Justice Z. A. Haq was appointed as an arbitrator to adjudicate disputes.
CONCLUSION
- As Section 238 of the IBC will only apply when an order is made by the Adjudicating Authority under Section 7(5) of the Code, Justice Avinash G. Gharote decided that there is no discrepancy between the A&C Act and the IBC. The application was granted, and an arbitrator was chosen to settle the parties’ disagreement.
- It would apply only if the Adjudicating Authority finds a default.
