2021 Supreme(SC) 169

SUPREME COURT OF INDIA
S.A. BOBDE, CJI., A.S. BOPANNA, V. RAMASUBRAMANIAN, JJ.
Indus Biotech Private Limited - Petitioner
Versus
Kotak India Venture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors. - Respondents
Arbitration Petition (Civil) No. 48 of 2019 With Civil Appeal No. 1070 of 2021 @ SLP (C) No. 8120 of 2020
Decided On : 26-03-2021

IMPORTANT POINTS
(1) Initiation of Corporate Insolvency Resolution Proceeding – Appointment of Arbitrator – Mere filing of petition and its pendency before admission cannot be construed as triggering of a proceeding in rem. Admission of petition for consideration of Corporate Insolvency Resolution Process is relevant stage which would decide status and nature of pendency of proceedings and mere filing cannot be taken as triggering of insolvency process.
(2) Initiation of Corporate Insolvency Resolution Proceeding – Admission of petition for consideration of Corporate Insolvency Resolution Process is relevant stage which would decide status and nature of pendency of proceedings and mere filing cannot be taken as triggering of insolvency process.

Headnote:

(A) Insolvency and Bankruptcy Code, 2016 – Section 7 – Arbitration and Conciliation Act, 1996 – Section 11(3) read with Sections 11(4) (a) and 11(6) – Initiation of Corporate Insolvency Resolution Proceeding – Before Adjudicating Authority is satisfied as to whether default has occurred or not, in addition to material placed by financial creditor, corporate debtor is entitled to point out that default has not occurred and that debt is not due, consequently to satisfy Adjudicating Authority that there is no default – In such exercise undertaken by Adjudicating Authority if it is found that there is default, process as contemplated under Sub-Section (5) of Section 7 of IB Code is to be followed as provided under Sub-Section 5(a); or if there is no default Adjudicating Authority shall reject application as provided under Sub-Section 5(b) to Section 7 of IB Code – In that circumstance if finding of default is recorded and Adjudicating Authority proceeds to admit application, Corporate Insolvency Resolution Process commences as provided under sub-section (6) and is required to be processed further – In such event, it becomes a proceeding in rem on the date of admission and from that point onwards matter would not be arbitrable – Only course to be followed thereafter is resolution process under IB Code – Trigger point is not filing of application under Section 7 of IB Code but admission of same on determining default – In process of consideration to be made by Adjudicating Authority facts in particular case is to be taken into consideration before arriving at a conclusion as to whether a default has occurred even if there is a debt in strict sense of term, which exercise in present case has been done by the Adjudicating Authority – In such circumstance if Adjudicating Authority finds from material available on record that situation is not yet ripe to call it a default, that too if it is satisfied that it is profit making company and certain other factors which need consideration, appropriate orders in that regard would be made; consequence of which could be dismissal of petition under Section 7 of IB Code on taking note of stance of corporate debtor. (Paras 17, 20 and 21)

(B) Arbitration and Conciliation Act, 1996 – Section 8 – Insolvency and Bankruptcy Code, 2016 – Section 7 – Initiation of Corporate Insolvency Resolution Proceeding – Appointment of Arbitrator – A dispute will be non-arbitrable when a proceeding is in rem and a IB Code proceeding is to be considered in rem only after it is admitted – In instant case position is otherwise – Reference to triggering of a petition under Section 7 of IB Code to consider the same as a proceedings in rem, it is necessary that Adjudicating Authority ought to have applied its mind, recorded a finding of default and admitted petition – On admission, third party right is created in all creditors of corporate debtors and will have erga omnes effect – Mere filing of petition and its pendency before admission cannot be construed as triggering of a proceeding in rem – Admission of petition for consideration of Corporate Insolvency Resolution Process is relevant stage which would decide status and nature of pendency of proceedings and mere filing cannot be taken as triggering of insolvency process – Notwithstanding fact that alleged corporate debtor filed an application under Section 8 of Act, 1996, independent consideration of same de hors application filed under Section 7 of IB Code and materials produced therewith will not arise – Adjudicating Authority is duty bound to advert to material available before him as made available along with application under Section 7 of IB Code by financial creditor to indicate default along with version of corporate debtor – Keeping in perspective scope of proceedings under IB Code and there being a timeline for consideration to be made by Adjudicating Authority, process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process – Even if an application under Section 8 of Act, 1996 is filed, Adjudicating Authority has a duty to advert to contentions put forth on application filed under Section 7 of IB Code, examine material placed before it by financial creditor and record a satisfaction as to whether there is default or not – If irresistible conclusion by Adjudicating Authority is that there is default and debt is payable, bogey of arbitration to delay process would not arise despite the position that agreement between parties indisputably contains an arbitration clause. (Paras 23, 24 and 25)

(C) Insolvency and Bankruptcy Code, 2016 – Section 7 – Arbitration and Conciliation Act, 1996 – Section 8 – Initiation of Corporate Insolvency Resolution Proceeding – Appointment of Arbitrator – In any proceeding which is pending before Adjudicating Authority under Section 7 of IB Code, if such petition is admitted upon Adjudicating Authority recording satisfaction with regard to default and debt being due from corporate debtor, any application under Section 8 of Act, 1996 made thereafter will not be maintainable – In a situation where petition under Section 7 of IB Code is yet to be admitted and, in such proceedings, if an application under Section 8 of Act, 1996 is filed, Adjudicating Authority is duty bound to first decide application under Section 7 of IB Code by recording a satisfaction with regard to there being default or not, even if application under Section 8 of Act, 1996 is kept along for consideration – In such event, natural consequence of consideration made therein on Section 7 of IB Code application would befall on application under Section 8 of Act, 1996. (Para 27)

Facts of the case:

Arbitration Petition is filed by ‘Indus Biotech Private Limited’ under Section 11(3) read with Sections 11(4) (a) and 11(12)(a) of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitrator on behalf of the respondent Nos. 1 to 4 so as to constitute an Arbitral Tribunal to adjudicate upon disputes that have arisen between the petitioner and respondent Nos. 1 to 4 herein. The petition filed before this Court is due to the fact that the respondent No.1 is a Mauritius based Company and the dispute qualifies as international arbitration. The respondents No. 2 to 4 though are Indian entities, they are the sister ventures of respondent No.1. Further, according to the petitioner subject matter involved is the same, though under different agreements, the arbitration could be conducted as a single process, by a single Arbitral Tribunal. Hence a common petition is filed before this Court, instead of bifurcating causes of action and availing their remedy before the High Court in respect of similar disputes with respondents No.2 to 4.

Findings of Court:

Since Indus Biotech Private Limited had nominated Mr. Justice V.N. Khare, former Chief Justice of India through their letter dated 15.10.2019 the said Arbitrator is treated as having been proposed jointly by Company and the promoters. Mr. Justice R.M. Lodha, former Chief Justice of India is appointed as the second arbitrator since the respondents had failed to nominate. The said learned arbitrators shall mutually nominate a third Arbitrator to be the Chairperson of Arbitral Tribunal.

Result : Civil Appeal dismissed and Arbitration Petition allowed