Delhi High Court: IBC Proceedings Do Not Bar Court from Considering Section 11 A&C Applications

Delhi High Court: IBC Proceedings Do Not Bar Court from Considering Section 11 A&C Applications

Justice Sachin Datta of the Delhi High Court has ruled that the proceedings outlined in Section 14 of the Insolvency and Bankruptcy Code (IBC) do not explicitly preclude the jurisdiction of the court or authorities to entertain applications under Section 11(6) of the Arbitration Act or other proceedings initiated by the corporate debtor against another party. The court emphasized that, even if a joint venture is undergoing insolvency, it does not preclude the corporate debtor from filing an application under Section 11.

The case revolved around disputes arising from a tender process initiated by the respondent for the "construction of dwelling units, including allied services for officers and ORS at Mumbai (Army)." The Petitioner's bid was accepted on 15.06.2016, leading to the issuance of a Work Order on 27.06.2016. However, due to reasons not attributed to the petitioner, the work was terminated by the petitioner on 14.09.2021. Following this, the petitioner submitted its final bill, but payment was not released. The respondent purportedly terminated or canceled the contract under Clause 48 of the GCC through a letter, sparking disputes between the parties. Subsequently, the petitioner invoked arbitration by sending a notice. Seeking resolution, the petitioner approached the Delhi High Court and filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), requesting the appointment of a sole arbitrator to adjudicate the disputes between the parties.

In response, the respondent contended that the work was cancelled or terminated by the respondent due to the petitioner's alleged violation of contractual obligations. The respondent argued that the balance of work is to be completed at the petitioner's risk and cost. Disputing the validity of the petitioner's reliance on the Government of India Office Memorandum, the respondent claimed it to be flawed. Additionally, the respondent asserted that the petition is not maintainable due to ongoing insolvency proceedings against one of the member constituents of the petitioner JV.

On the other hand, the petitioner contended that Government of India Office Memorandums allowed parties to invoke the Force Majeure Clause and terminate the contract without financial repercussions due to the impact of the coronavirus. It argued that the insolvency of one constituent of the petitioner JV should not impede the petition, emphasizing the separate legal entity status of a JV. The petitioner also noted that more than two years have elapsed since contract termination, and the respondent did not take steps to issue a fresh tender as per Clause 60 of the GCC.

The High Court emphasized that the question of whether the petitioner had the authority to terminate the contract by relying on the Government of India's Office Memorandum must be addressed within the arbitral proceedings.

Additionally, the High Court referenced the Supreme Court's decision in New Horizons Limited v. Union of India (1995) 1 SCC 478 while delving into the concept of a joint venture. It was noted that a joint venture functions as a legal entity similar to a partnership, emphasizing the collaborative nature involving shared assets and risks. The High Court clarified that even if the petitioner JV is undergoing insolvency, it does not preclude the corporate debtor from filing an application under Section 11 of the Arbitration Act against another party. It highlighted that proceedings outlined in Section 14 of the Insolvency and Bankruptcy Code (IBC) do not explicitly exclude the jurisdiction of the court or authorities to entertain applications under Section 11(6) of the Arbitration Act or other proceedings initiated by the corporate debtor against another party.

Nevertheless, the High Court recognized that the determination of whether the petitioner JV was genuinely undergoing insolvency was a contested fact. It asserted that the respondent had the freedom to raise concerns regarding the alleged incapacity of the petitioner JV to initiate proceedings in arbitration. This allows for a proper examination of the insolvency status during the arbitration proceedings. As a result, the High Court designated Mr. Justice (Retd.) Krishna Murari, former judge of the Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the parties.