Arbitration In IndiaInitiation of CIRP does not make a dispute Non-Arbitrable in Nature

The Delhi High Court in Brilltech Engineers Pvt. Ltd. v. Shapoorji Pallonji and Co. Pvt Ltd, [Arb. P. 790/2020 decided on 15.12.2022]  held that the dispute would not become non-arbitrable in nature merely because corporate insolvency proceedings have been initiated. If the intention to arbitrate the dispute has been communicated, the notice for invocation of Arbitration under Section 21 of the A&C Act will be considered to be served.

FACTS

The Army Welfare Housing Organisation (hereinafter referred to as “AWHO”) had awarded work of construction of the Twin Tower residental accomodation at Greater Noida (hereinafter referred to as the “Project”), to Shapoorji Pallonji and Co. (hereinafter referred to as the “Respondent”) on 11.03.2011. The AWHO further declared Brilltech Engineers Pvt. Ltd. (hereinafter referred to as the “Petitioner”) as the “Specialist Firm” for carrying out electrification works in the Project on 16.11.2011.

The Respondent awarded work order for electric works exclusively to the Petitioner on the said Project vide a letter 19.12.2011. The mechanism for executing work was that the Petitioner shall issue running account bills which would be approved and confirmed by the Respondent on basis of the inspection done by AWHO and Architect. The Petitioner shall thereafter generate tax invoices after accepting the verification certification that would be accepted by the Respondent by making an endorsement and the payment would be made on back to back basis.

The project was completed on 25.03.2019 and the Letter of Appreciation was issued by AWHO in favour of the Petitioner on 12.03.2019. The Respondent was liable to pay an amount of Rs. 59,76,574/- along with 24% interest to the Petitioner. The Petitioner served a demand notice on 19.04.2019 to which the Respondent replied that they were liable to pay only when they received the payments from AWHO and hence, the payments would be cleared after 6-8 months. The Petitioner had submitted an application before MSME SAMADHAAN, but the application was rendered void ab initio due to the statutory limitation prescribed.

Thereafter, the Petitioner filed an Application under Section 9 of the Insolvency and Bankruptcy Code (hereinafter referred to as the “IBC”) against the Respondent before the National Company Law Tribunal (hereinafter referred to as the “NCLT”), Mumbai for initiating Corporate Insolvency Resolution Process, where the Respondents were directed to settle the matter, but failed to settle.

The Petitioner also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) on 05.10.2020 wherein again the Respondent failed to  settle the dispute amicably.

The Petitioner claims an amount of Rs. 2,58,03,143/- to be recovered from the Respondent in terms of Clause 13 of the work order dated 19.12.2011 which envisaged an Arbitration Clause. Hence, the Petitioner has filed the present petition under Section 11 of the A&C Act for the appointment of an Arbitrator.

A petition under Section 9 of the A&C Act has also been filed for attachment of amount of Rs. 2,58,03,143/- lying in the hands of AWHO who is indebted to pay the amount in order to enable the Respondent to release the amount in favor of the Petitioner.

ISSUES BEFORE THE HIGH COURT

1. Whether the dispute is arbitrable in nature ?
2. Whether the Petitioner has resorted to forum shopping ?
3. Whether the Petitioner has failed to served the notice under Section 21 of the A&C Act?

CONTENTIONS OF THE PARTIES

The Respondent argued that the matter is already pending before NCLT, Mumbai under Section 9 of IBC as on Operational Creditor. It is a trite law that the proceedings under Section 9 of IBC can be initiated only when the dispute is non-arbitrable in nature and hence, the Petitioner does not have any remedy under the A&C Act.

It was also contended that the Petitioner had specifically stated that there are no disputes between the parties but the payment was delayed due to AWHO. Hence, as no disputes existed between the parties, the present petition was not maintainable.

It was submitted that the notice under Section 21 of the A&C Act for the invocation of the Arbitration Clause was also not served to the Respondent, and in absence of notice of invocation of Arbitration Clause, the present petition is liable to be dismissed.

It was also asserted that the Petitioner had resorted to forum shopping and the acts are mala fide.

DECISION AND FINDINGS

The Delhi High Court observed that the juridiction of NCLT can be invoked in respect of determined debts, but the admission of the application under Section 9 of IBC does not imply that the Respondent is liable to pay the claimed debt amount. Though Section 9 IBC proceedings have been initiated by the Petitioner and has been admitted, but the Respondent has refuted the claim amount at every stage and hence, it was held that the dispute is arbitrable in nature.

The High Court also held that the Petitioner has approached different forums and has claimed different amounts, but each provision has been invoked under individual scope and hence, it cannot be said to be forum shopping. The Court relied on A. P. State Financial Corporation Vs. Gar Re-Rolling Mills [(1994) 2 SCC 647], and held that the scope of enquiry in the proceedings before NCLT and before the Arbitration is distinct and hence, it cannot be considered to be forum shopping.

The Court further opined that the Petitioner had met the pre-requisite of Section 21 of the A&C Act, the demand notice clearly stated the intention of initiation of invoking legal proceedings including arbitration. The Court relied on Universal Consortium of Engineers Pvt. Ltd. v. Kanak Mitra and Another [AIR 2021 Calcutta 127] and State of Goa v. Praveen Enterprises [MANU/SC/0812/2011] and held that mere non-service of notice under Section 21 of the A&C Act would not make the application under Section 11 of the A&C Act non-maintainable. The Court held that the disputes were prima facie arbitrable in nature and hence, appointed Arbitrators while allowing the applications under Section 11 of the A&C Act and Section 9 of the A&C Act.

AMLEGALS REMARKS

The Delhi High Court has held that when the scope of proceedings before the two forums is individual and distinct it cannot be said to be forum shopping. Moreover, the dispute will not become non-arbitrable in nature merely because an application under Section 9 of IBC has been filed.

The jurisdiction of NCLT can only be invoked in respect of determined debts but the Respondent has not admitted the claimed amount to be paid and thus the Petitioner can invoke the Arbitration Clause for resolving the dispute. Further, the intention to invoke Arbitration has been communicated implies that the notice for invocation of Arbitration under Section 21 of the A&C Act has been served and it would not affect the maintainability of the application under Section 11 of the A&C Act.