Claims Raised After Commencement Of Insolvency Proceedings Stand Extinguished, Not Amenable To Arbitration: Delhi High Court

The Delhi High Court Bench of Justice Jyoti Singh has observed that claims which are not a part of the Resolution Plan on the date of approval, shall stand extinguished and no person will be entitled to arbitrate such claims. Put differently, post-insolvency commencement date claims which are not made a part of the Resolution Plan are not arbitrable. Facts The present petition was filed by the Petitioner under Section 34, Arbitration and Conciliation Act, 1996 (“ACA”) challenging the arbitral award dated 21.08.2024, passed by the three-member arbitral tribunal. The Petitioner was admitted to Corporate Insolvency Resolution Process under Insolvency and Bankruptcy Code, 2016. The Respondent filed its proof of claims under Regulation 7 of CIRP Regulations, 2017 under the head of Operational Creditor as – Rs. 9,58,88,886 payable till insolvency commencement date (“ICD”) and Rs. 9,92,86,982 towards estimated share of expenditure post ICD. The Committee of Creditors (“CoC”) approved the resolution plan on 10.04.2018, which was further approved by NCLT on 24.07.2018. On 19.08.2019, NCLAT dismissed the appeal filed by the Respondent against NCLT's aforesaid order and confirmed the Resolution Plan. After exchange of correspondence and on failure of settlement talks, Respondent filed a petition on 14.10.2021 under Section 11, ACA seeking appointment of Petitioner's nominee arbitrator which was allowed by this Court. The Petitioner filed an application under Section 16, ACA before the Tribunal questioning its jurisdiction followed by an application under Section 12, ACA challenging the mandate of the Presiding Arbitrator. The Tribunal dismissed the application under Section 12, ACA whereas the Section 16 application was deferred for consideration at the time of final arguments. The arbitral award was passed by the Tribunal on 21.08.2024, which was challenged in the present petition. Contentions The Counsel for the Petitioner submitted that the members of the tribunal failed to give individual disclosures in writing as mandated under Section 12(1) and (2) read with Sixth Schedule of ACA. Contrary to prescribed format under Sixth Schedule, the Tribunal passed a composite procedural order on 25.03.2022 stating that none of the members had any interest in any of parties or the subject matter of the disputes. Additionally, the Presiding Arbitrator failed to disclose that on 19.08.2019, he had decided an appeal filed by the Respondent against the order of NCLT, in his capacity as Chairperson of NCLAT and was thus involved in the case. The subject matter of the appeal and subject matter of arbitration were the same and consequently, even legal issues were common. The Counsel for the Petitioner further submitted that even on merits, the claims of the Respondent which were referred to arbitration, were wrongly entertained and decided by the Tribunal. After the approval of the Resolution Plan, all claims, which were not a part thereof, stood extinguished in view of Section 31 read with Section 238 of IBC and were thus non-arbitrable. Resolution Plan clearly stated that all claims and demands, whether present or future, accrued or unaccrued, known or unknown, would stand extinguished, once the Resolution Plan was approved. The Counsel for the Respondent submitted that the order dismissing the application under Section 12 did not suffer from any legal infirmity since the Presiding Arbitrator had no previous involvement in the case. It is trite that the mere fact that Arbitrator has adjudicated some disputes between the parties on previous occasion(s), would not by itself be enough to lead to a conclusion of bias in subsequent proceedings between the same parties. On merits, the Counsel submitted that the Resolution Plan only included the claims prior to ICD, whereas the claims awarded by the Tribunal arose much later. Plain reading of NCLT order would show that the liabilities and obligations of the Petitioner pertaining to the period prior to ICD and being part of Resolution Plan alone, stood extinguished and thus the Respondent could not be left remediless to pursue future claims, which were not entertained by the RP. Observations The Court considered the issue of incorrect disclosure by the Arbitrator and his bias collectively. The Court noted that the requirement of disclosure in writing in the format specified in the Sixth Schedule was mandatory. The Court relied on the judgment of HRD Corporation v GAIL (India) Limited (2018) 12 SCC 471, wherein it was observed that merely because an Arbitrator has rendered an award in a previous arbitration between the same parties, per se will not be a ground of ineligibility, in the absence of something more which makes the person inherently ineligible to be an Arbitrator, in the subsequent arbitration. On the facts of the present case it was held that by deciding a legal...

Claims Raised After Commencement Of Insolvency Proceedings Stand Extinguished, Not Amenable To Arbitration: Delhi High Court

Arpita Pande

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