In a recent ruling the Bombay High Court provided a significant clarification regarding the interaction between the Insolvency and Bankruptcy Code (IBC) and the Arbitration and Conciliation Act. The court held that the mere filing of a Section 7 application under the IBC does not bar parties from seeking the appointment of an arbitrator under the Arbitration and Conciliation Act.
The case before the Bombay High Court involved a dispute between Sunflag Iron & Steel (applicant) and J. Poonamchand & Sons (respondent). Sunflag filed a Section 7 application under the IBC, seeking the initiation of the corporate insolvency resolution process against the respondent. In response, the respondent moved an application under Section 11 of the Arbitration and Conciliation Act for the appointment of an arbitrator to adjudicate the disputes between the parties.
The main contention raised by Sunflag was that once the IBC proceedings are initiated by filing a Section 7 application, the jurisdiction of civil courts and arbitral tribunals is automatically ousted. On the other hand, the respondent argued that the arbitration clause in the agreement between the parties survives the initiation of the IBC proceedings, and thus, they have a right to seek the appointment of an arbitrator.
After carefully considering the arguments the Bombay High Court ruled in favor of the respondent,. The court observed that the IBC does not intend to bar the invocation of arbitration proceedings when there is an arbitration clause in the agreement between the parties.
The court emphasized that the IBC and the Arbitration and Conciliation Act are distinct and independent statutes, each serving a different purpose. The IBC focuses on the resolution of corporate insolvency, while the Arbitration and Conciliation Act provides a mechanism for the settlement of commercial disputes through arbitration.
The court further stated that the IBC does not contain any provision that takes away the jurisdiction of an arbitral tribunal or the jurisdiction of a civil court to entertain an application for the appointment of an arbitrator. In the absence of an express bar in the IBC, the court concluded that the respondent had the right to approach an arbitral tribunal for the appointment of an arbitrator.