The Single Bench of the Delhi High Court in the case of Millennium Education Foundation vs Educomp Infrastructure and School Management Ltd consisting of Justice Sanjeev Sachdeva observed that the proceedings under the Insolvency and Bankruptcy Code (IBC) would take precedence and any moratorium issued therein would automatically bind the proceedings under the Arbitration Act.
Facts
A demand notice was issued by the respondent, which was duly responded. A counter-demand was made on the respondent which has not been paid and even the respondent was directed to agree to reference of disputes. On failure of the respondent, the present petition has been filed.
Contentions Made
Respondent: Respondent already filed a petition u/s 9 of IBC, which is pending before the National Company Law Tribunal (NCLT). So, the remedy of the petitioner was to file an application u/s 8 of the Arbitration and Conciliation Act (“Arbitration Act”) before the NCLT for reference of the disputes to arbitration. There was no demand raised by the petitioner against respondent and petitioner had merely replied to the demand raised by the respondent and instead of raising a demand, petitioner proceeded further to appoint an Arbitrator under clause 17 of the collaboration agreement. Reliance was placed on Indus Biotech Private Ltd. v. Kotak India Venture (Offshore).
Observations of the Court
The Bench observed that there is no dispute about the execution of the collaboration agreement or the fact that it contains an arbitration clause. Respondent had issued a demand notice demanding certain payment of unpaid operational dues from the petitioner by its demand letter, which was responded to by the petitioner by its reply-cum-notice of dispute. In the said reply while disputing the claim of the respondent, petitioner had in paragraph 4(i) called upon the respondent to pay a sum of Rs.1,97,70,192/- to the petitioner and thereafter, in the last paragraph contended that clearly the disputes had arisen and consequently proceeded to appoint an Arbitrator under clause 17 of the collaboration agreement. So, it clearly cannot be held that no demand was made by the petitioner on the respondent.
It was noted that the parties, as per the collaboration agreement agreed to reference of disputes arising in connection with or out of the said agreement to arbitration under the Arbitration Act. The clause stipulates that in case of a dispute, petitioner shall be entitled to appoint a sole Arbitrator for settlement of disputes. Consequently, the petitioner in its reply appointed an Arbitrator, however, in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC Vs. HSCC (India) Ltd., the petitioner is not entitled to appoint an Arbitral Tribunal. Consequently, the petitioner filed the subject petition seeking intervention of this Court for reference of disputes to arbitration and appointment of an Arbitral Tribunal.
It was also noted that the Supreme Court has held that if a petition under the IBC is admitted, upon the adjudicating authority recording its satisfaction then an application u/s 8 of the Arbitration Act would not be maintainable and the application under the Insolvency and Bankruptcy Code has to be decided first and the natural consequence of the same would befall on the application u/s 8 of the Arbitration Act.
Judgment
The Bench noted that in case the petition filed before the NCLT is admitted and moratorium comes into play, the legal consequences of the same would automatically apply to the proceedings under the Arbitration Act. So long as the petition is merely pending and not admitted and no moratorium has commenced, there can be no embargo on the proceedings under the Arbitration Act and on the petitioner seeking reference of disputes and appointment of an Arbitral Tribunal.
Finding no merit in the objection raised by the respondent on the appointment of an Arbitral Tribunal, Mr. Justice S.P. Garg, (Retd) Former Judge of this Court was appointed as the sole Arbitrator to adjudicate the claims and counter claims, if any, of the parties, whose fees shall be as per the Fourth Schedule of the Arbitration and Conciliation Act, 1996.
Case: Millennium Education Foundation vs Educomp Infrastructure and School Management Ltd
Citation: ARB.P. 326/2022
Bench: Justice Sanjeev Sachdeva
Decided on: 13th May 2022
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