In a major decision the Bombay High Court observed that mere filing of an application under Section 7(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) is not enough to invoke the bar of Section 238 of the Insolvency and Bankruptcy Code and consequently it would not bar the to file an application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator.
The applicant in the matter is M/s. Sunflag Iron & Steel Co. Ltd. The Counsel for the applicant, Ashutosh Dharmadhikari, submitted that once the above two conditions are admitted to exist, there is no other option than to appoint an arbitrator and the opposition by the respondent, is really without any merit.
It was also contended that no order as yet has been passed under Section 9 of the Insolvency and Bankruptcy Code, 2016 in proceedings initiated by the respondent and therefore mere initiation of proceedings does not injunct this Court from entertaining and deciding this application.
The ground for opposition by Rahul Bhangde, counsel for the respondent, is that since the respondent has approached the National Company Law Appellate Tribunal (NCLT) under the provisions of the IBC, the provisions of Section 11(6) of the Arbitration and Conciliation Act, 1996, would become inapplicable and therefore it would be impermissible to appoint an arbitrator.
The Counsel further contended that once the NCLT is seized of the matter upon the respondent having approached it for measures under the provisions of the IBC, it would have an overriding effect on Section 11(6) of the Arbitration and Conciliation Act which then cannot be invoked, for which reliance was placed upon Section 238 of the IBC.
A Single Bench comprising Justice Avinash G Gharote observed that “Mere filing of such an application by itself, does not mean that the Adjudicating Authority, has taken cognisance of the matter. This is so for the reason that sub-section 4 of Section 7 of the IBC, casts a duty upon the Adjudicating Authority, within fourteen days of the receipt of such application to, ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section 3 of Section 7 of the IBC.” “The proviso to Section 7(4) of the IBC further enjoins the Adjudicating Authority to record reasons for not ascertaining the factors, as contemplated by Section 7(4) of IBC, within the time frame stipulated therein. Further Section 7(5) of the IBC enjoins upon the Adjudicating Authority to record its satisfaction that the default has occurred and there is no disciplinary proceedings pending against the proposed resolution professional and upon such satisfaction permits admission of such application” the Bench concluded.
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