In Alchemist Asset Reconstruction Company Limited v. M/s Hotel Gaudavan Private Limited, the Supreme Court bench comprising of Justices Rohinton Fali Nariman and Sanjay Kishan Kaul held that arbitration proceedings instituted after the imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is non est in law.
In the instant case, NCLT had admitted a petition filed under the Code as a result of which moratorium was imposed under Section 14 of the Code. While the moratorium was in force, a letter was issued by Respondent No. 1 to Respondent No. 2 for invocation of arbitration clause between the parties. In another order, the NCLT stated that no arbitration proceedings could continue when a moratorium has been imposed.
On appeal under section 37 of the Arbitration and Conciliation Act, 1996 an order was passed by the District Judge directing the registration of the appeal and for issuance of notices. Section 37 of the Arbitration Act provides for filing of appeals from orders.
Section 14(1) of the Code provides, inter alia, for declaration of moratorium by NCLT prohibiting (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
Allowing the appeal, the Hon’ble Supreme Court held the following:
“The effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law”.
Thus, the Hon’ble Supreme Court set aside the order of the District Judge entertaining the appeal under Section 37 of the Arbitration Act with respect to the arbitration proceeding started after the imposition of moratorium under the Code.