ISSUE 2: Whether the insolvency proceedings underway against the Respondent in Yevadu bars

the jurisdiction of this Tribunal?

The Insolvency and Bankruptcy Code, 2016 (IBC), which is a complete code in itself and provides
for the initiation of a corporate insolvency resolution process (CIRP) against a corporate debtor,
also contains a provision for a moratorium period which bars the institution, continuation and
execution of decree or order of any court including an arbitration panel against the corporate
debtor.[1] A question arises as to the status of an arbitration proceeding instituted against the
corporate debtor or by the corporate debtor during the CIRP period or moratorium and also the
status of the arbitral award against the corporate debtor.

Claim against Corporate Debtor

A similar question arose before the National Company Law Appellate Tribunal (NCLAT) in K. S.
Oils v. The State Trade Corporation of India (2018 SCC OnLine NCLAT 352), wherein the
NCLAT, relying upon various sections of the IBC, held that the arbitration proceeding pending
between the parties cannot be continued. However, the tribunal gave liberty to the parties to file
their claim and counter claim before the resolution professional. The tribunal also relied upon the
judgement of the Supreme Court in Alchemist Asset Reconstruction Company Ltd v. Hotel
Gaudavan Pvt. Ltd. & Ors. (2017 SCC OnLine SC 1362), where the Court held:

The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted, the
moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or
continuation of pending suits or proceedings against Corporate Debtors.

….we are surprised that an arbitration proceeding has been purported to be started after the
imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being
entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017 and further
state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the
aforesaid moratorium is non est in law.

[emphasis added]

The abovementioned judgments clarified the position of law with regards to the initiation and
continuation of arbitration proceedings against the corporate debtor during the moratorium period
and settled the debate regarding the same. However, the position has resurfaced again with a
contention that section 14 of the IBC does not bar the jurisdiction of the Supreme Court and the
High Courts to adjudicate the matters against the corporate debtor and, therefore, a money suit can
be filed or continued before the High Court for adjudication. The NCLAT answered the same in
negative while dealing with the matter of Canara Bank v. Deccan Chronicle Holdings ([2017] 141
CLA 93) by stating:

In view of the aforesaid provision of law, we make it clear that ‘moratorium’ will not affect any
suit or case pending before the Hon’ble Supreme Court under Article 32 of the Constitution of
India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’ will
also not affect the power of the High Court under Article 226 of Constitution of India. However,
so far as suit, if filed before any High Court under original jurisdiction which is a money suit or
suit for recovery, against the ‘corporate debtor’ such suit cannot proceed after declaration of
‘moratorium, under Section 14 of the I & B Code.

Therefore, the only proceedings which can be initiated against the corporate debtor will be under
the writ jurisdiction of either the High Court or Supreme Court of India and proceedings cannot
be initiated or continued before any other court under any jurisdiction whatsoever.

Claim by the Corporate Debtor

Similarly, a question arises regarding the status of the claims filed by the corporate debtor in an
arbitration proceeding, subject to its continuity during the moratorium period. The Delhi High
Court in Power Grid Corporation of India Ltd v. Jyoti Structures Ltd ((2018) 246 DLT 485) held:

10. In the light of above purpose or object behind the moratorium, Section 14 of the Code would
not apply to the proceedings which are in the benefit of the corporate debtor, like the one before
this court in as much these proceedings are not a ‘debt recovery action’ and its conclusion would
not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner
whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the
corporate debtor’s assets together during the insolvency resolution process and facilitating
orderly completion of the process envisaged during the insolvency resolution process and ensuring
the company may continue as a going concern.

[emphasis added]

Therefore, this was the first judgement wherein the Delhi High Court interpreted the scope of
moratorium and held that application moratorium will not apply to any proceeding which will
benefit the corporate debtor.

The position was further settled by the NCLAT in Jharkhand Bijli Vitran Nigam Limited v. IVRCL
Ltd., wherein the NCLAT held that the claim of the corporate debtor can be determined only after
the determination of the counter claim of the other party. The appellate tribunal further added that
claims and counter claims of both the parties can be adjudicated by the arbitrator; however, if on
determination of the claims it is understood that the corporate debtor is liable to pay a certain
amount, then the same cannot be executed during the period of moratorium.

The period of moratorium will therefore, protect the corporate debtor from any further liability
since every claim needs to be put altogether before the resolution professional, and if the liability
of corporate debtor kept on increasing during the moratorium period, it will be impossible to
complete the CIRP.

Status of Arbitral Award

In Annapurna Infrastructure Pvt. Ltd. & Anor vs. Soril Infra Resources Ltd, the NCLAT held that
arbitral award against the corporate debtor will be treated as a default as stipulated under the IBC,
and that the pendency of proceedings for execution of an arbitral award or a judgment and decree
does not bar an operational creditor from preferring any petition under the IBC. It was further
clarified by the Supreme Court in K. Krishan v. Vijay Nirma Company Pvt. Ltd., wherein the Court
held that:

…there may be cases where a Section 34 petition challenging an Arbitral Award may clearly and
unequivocally be barred by limitation, in that it can be demonstrated to the Court that the period
of 90 days plus the discretionary period of 30 days has clearly expired, after which either no
petition under Section 34 has been filed or a belated petition under Section 34 has been filed. It
is only in such clear cases that the insolvency process may then be put into operation.

We may hasten to add that there may also be other cases where a Section 34 petition may have
been instituted in the wrong court, as a result of which the petitioner may claim the application of
Section 14 of the Limitation Act to get over the bar of limitation laid down in Section 34(3) of the
Arbitration Act. In such cases also, it is obvious that the insolvency process cannot be put into
operation without an adjudication on the applicability of Section 14 of the Limitation Act.

[emphasis added]

Conclusion

The contention of imposing a moratorium period on the assets of the corporate debtor is to preserve
the value of the estate against diminution by the actions of various parties during the insolvency
proceedings. The literal interpretation of section 14 of the IBC is to declare the proceedings
involving corporate debtor sine die; however, the purposive interpretation adopted by the courts
in India concludes that arbitral proceedings in favor of the corporate debtor can continue although
it would depend upon the determination of facts from case to case. At this juncture, the authors
hasten to add that, as held in Jharkhand Bijli, liability, if any, will not be enforced upon the parties
but the claims can be adjudicated. Therefore, in a similar manner, arbitral proceedings against
corporate debtor can continue, but if any liability arises the same can be executed after the
completion of the CIRP.

Hence, as the law stands today, there is an ambiguity that the claims against the corporate debtor
in an arbitration proceeding can neither be continued nor executed during moratorium period.
However, a claim filed by the corporate debtor can be continued during the moratorium period for
the purpose of adjudication. The interpretation adopted by various courts, including the Supreme
Court of India, firmly establishes that the objective of the moratorium period is to limit any further
liability of corporate debtor and to consolidate all the available claim before the resolution
professional. Therefore, the intent behind the reasoning adopted by the courts is to promote
corporate resolution to the maximum extent possible, by serving the objectives, principles and
vision of the IBC. Allowing the moratorium to be lifted in certain cases shall only be in the interest
of the corporate debtor and other parties in the insolvency proceedings and maximizing the value
of the assets, thereby providing a square deal to the aim of IBC.

Most important as it has been written by the partner of L&L Partners( Try to focus on this
one)
This article studies the impact of the passing of a moratorium order in proceedings against a
corporate debtor ("CD") under the Insolvency and Bankruptcy Code ("IBC") on arbitration
proceedings pending at various stages by and/or against the said CD.

II. Relevant Legal Provisions

A. The objects and reasons of IBC are stated, inter alia, as follows:

"An Act to consolidate and amend the laws relating to reorganization and insolvency resolution
of corporate persons, partnership forms and individuals in a timebound manner for maximization
of value of assets of such persons...."

B. "14. (1) Subject to provisions of sub- sections (2) and (3), on the insolvency commencement
date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of
the following, namely:--

(a) the institution of suits or continuation of pending suits or proceedings against corporate debtor
including execution of any judgment, decree or order in any court of law, tribunal, arbitration
panel or other authority;" (emphasis supplied)

C. "238. Provisions of this Code to override other laws.-- The provisions of this Code shall
have effect, notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue of any such law."

III. Possible Scenarios

During the course of a typical arbitration, the following scenarios can arise:

A) Claims are only made by the CD with no counter claims against the CD

B) Claims are only made against the CD with no counter claims by the CD

C) Claims (and counter claims) are made inter se the corporate debtor and the Opposite Party(ies)

D) Post arbitral proceedings are pending in the nature of ss. 34/36 of the Arbitration and
Conciliation Act, 1996 ("Arbitration Act")

a) the arbitral award being in favor of CD

b) the arbitral award being against CD

c) the arbitral award being an admixture of (a) and (b) above

E) Enforcement proceedings against the CD under a foreign award are pending before courts in
India.
This article attempts to examine the impact of, inter alia, ss. 14 and 238 of the IBC on the aforesaid
scenarios.

IV. The Legal Position

(i) As far as scenario A) is concerned i.e. claims are made by a CD with no counter claims against
it, s. 14(1)(a) does not ex facie constitute a bar to the continuance of such arbitration proceedings
as the said provision only interdicts the institution of suits or continuation of pending suits or
proceedings against the CD. Thus, the arbitration claim by the CD will continue or can be
instituted.

(ii) As far as scenario B) is concerned, i.e. claims are only made against the CD with no counter
claims by the CD, s. 14(1)(a) ex facie constitutes a bar to the institution/ continuance of such
arbitration proceedings.

The Hon'ble Supreme Court in Alchemist Asset Reconstruction Company Ltd. v Hotel Gaudavan
Pvt. Ltd. AIR 2017 SC 5124 ("Alchemist") has held that,

"4. The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted,
the moratorium that comes into effect under s. 14(1)(a) expressly interdicts institution or
continuation of pending sits or proceedings against Corporate Debtors."

5. This being the case, we are surprised that an arbitration proceeding has been purported to be
started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration
Act are being entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017
and further state the effect of Section 14(1)(a) is that the arbitration that has been instituted after
the aforesaid moratorium is non est in law."

Though the Alchemist dealt with an arbitral proceeding instituted after the imposition of
moratorium under IBC, the NCLAT in it's order dated 30.1.2018 passed in K.S. Oils Ltd. v The
State Trade Corporation of India Ltd. & Ors. [2018] 146 SCL 588 ("K.S. Oils Ltd. ") applied the
aforesaid principle to pending arbitral proceedings i.e. arbitral proceeding which had commenced
before the imposition of moratorium under IBC as well. According to the NCLAT, this position
also obtained from s. 238 of the IBC which provided overriding effect to the IBC over the
Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The NCLAT was of the view that the
after initiation of the corporate insolvency resolution process, all creditors (including parties to the
pending arbitration) could file their claims before the Resolution Professional pursuant to the
declaration of moratorium and public announcement under s. 13/14 of the IBC. The NCLAT in
the operative portion of the K.S. Oils Ltd. order said:

"13. In view of the provisions as referred to the above and the decision of the Hon'ble Supreme
Court in "Alchemist Asset Reconstruction Company Ltd. v. M/s. Hotel Gaudavan Pvt. Ltd. & Ors."
we hold that the arbitral proceeding pending between 'M/s K.S. Oil Ltd.' (Corporate Debtor) and
'The State Trade Corporation of India Ltd.' (Financial Creditor) before the Indian Council of
Arbitration cannot proceed during the moratorium period.
14. For the reasons recorded above while we are not inclined to interfere with the part of the
impugned order whereby the Adjudicating Authority refused to set aside the order passed by the
Indian Council of Arbitration, declare that the Arbitration Tribunal/Indian council of Arbitration
cannot proceed with the arbitral proceeding pending between the parties. Both the parties are
directed not to pursue arbitral proceeding before the Arbitration Tribunal/Indian Council of
Arbitration till final order is passed by the Adjudication Authority on the resolution plan and
completion of the moratorium period. However, it will open to both of them to file their respective
claim and counter claim, if any, before the Resolution Professional. The appeal stands disposed
of with the aforesaid observations and directions. No Costs." (emphasis supplied)

The NCLAT judgment in K.S. Oils Ltd. does not reveal whether the arbitration in question
involved both claims and counter claims. It appears that the liberty given to both parties to file
their respective claims and counter claims before the Resolution Professional would fall foul of
the NCLAT order in Jharkhand Bijli Vitran Nigam Limited v IVRCL Ltd. (Corporate Debtor)
& Anr. CP (IB) No. 294/7/HDB/2017 discussed below.

(iii) As far as scenario C) is concerned, i.e. claims (and counter claims) are made inter se the
corporate debtor and the Opposite Party(ies), there has been some divergence of opinion, which
appears to have been settled by the NCLAT. Of course, this is till such time the Hon'ble Supreme
Court reconsiders this position.

The NCLT, Hyderabad Bench in Jharkhand Bijli Vitran Nigam Limited v IVRCL Ltd.
(Corporate Debtor) & Anr. CP (IB) No. 294/7/HDB/2017 held that in the arbitration proceedings
in question, the claim made by the corporate debtor could proceed but the counter claim filed
against the corporate debtor could not be allowed to proceed. The NCLT however recognized the
difficulties involved in segregating a lis in such a manner and left it upon the arbitral tribunal to
take an independent view whether the claim of the corporate debtor and counter claim against the
corporate debtor could be separately proceeded or not.

The NCLAT reversed the aforesaid decision of the NCLT vide it's order dated 03.08.2018 passed
in Jharkhand Bijli Vitran Nigam Limited v IVRCL Ltd. (Corporate Debtor) & Anr. [Company
Appeal (AT)(Insolvency) No. 285 of 2018]. The NCLAT allowed the arbitration proceedings to
continue and held

"3. As the claim of the Corporate Debtor can be determined only after determination of counter
claim made by the Appellant in the same very arbitral proceedings and if counter claim or part of
it is set off with the claim made by the Corporate Debtor, were of the view that both the claim and
the counter claim of parties should be heard together by the Arbitral Tribunal in absence of any
bar under Insolvency and Bankruptcy Code, 2016.

4.However, on determination, if it is found that the Corporate Debtor is liable to pay certain
amount, in such case, no recovery can be made during the period of moratorium." (emphasis
supplied)

Thus, arbitrations involving claims (and counter claims) made by and against the corporate debtor
may not be hit by section 14(1)(a) during the pre- award stage, and will be proceeded with. Thus,
the moratorium may come into effect depending on the award in the arbitration proceedings. If the
award is against the corporate debtor, the moratorium will apply for the period stated in the IBC
to bar a recovery action. The question that arises is as to whether a s. 34 application under the
Arbitration Act filed by Opposite Party to set aside an award in favor of the CD would be
maintainable. This question is answered in the succeeding scenario.

(iv) As far as scenario D) is concerned, i.e. post arbitral proceedings being pending in the nature
of ss. 34/36 of the Arbitration and Conciliation Act, 1996 ("Arbitration Act") with

a) the arbitral award being in favor of CD

b) the arbitral award being against CD

c) the arbitral award being an admixture of (a) and (b) above;

In light of the limitations to a strict interpretation approach to s. 14, the courts have adopted a
purposive interpretative approach keeping in mind the object/ policy behind the IBC. In the event,
an award is in favor of the CD, the moratorium under s. 14 would not bar the recovery of such
dues owed to the CD by way of execution of such award under s. 36 of the Arbitration Act.
However, if the monetary award is against the CD, the moratorium under s. 14 would be triggered
to bar recovery of such dues owed by the CD by way of execution of such award under s. 36 of
the Arbitration Act.

A question arose as to whether a s. 34 proceeding would lie against the award in favor of the CD.
This was answered by the Hon'ble Delhi High Court in it's judgment dated 11.12.2017 in Power
Grid Corporation of India Ltd. v. Jyoti Structures Ltd. 246 (2018) DLT 485 ("Power Grid"),
while construing the scope of s. 14(1)(a) of the IBC, has held,

"8. The object of the Code is to provide relief to the corporate debtor through "standstill" period
during which its assets are protected from dissipation or diminishment, and as a corollary, during
which it can strengthen its financial position, .......... To determine the true meaning of the statute,
the provision would have to be construed in the context of the statute as a whole, for which purpose
interpretative criteria may have to be applied even when the statutory language is apparently free
from any semantic ambiguity......

10. In the light of above purpose or object behind the moratorium, Section 14 of the Code would
not apply to the proceedings which are in the benefit of the corporate debtor, like the one before
this court in as much these proceedings are not a 'debt recovery action' and its conclusion would
not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner
whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the
corporate debtor's assets together during the insolvency resolution process and facilitating orderly
completion of the process envisaged during the insolvency resolution process and ensuring the
company may continue as a going concern.

In striking this purposive interpretative approach, the court, inter alia, held that 'proceedings' under
s. 14(1)(a) of the IBC did not include 'all proceedings' and the term "proceeding" would be
restricted to the nature of action that follows it i.e. debt recovery action against assets of the
corporate debtor. The court further held that the moratorium under s. 14(1)(a) of the IBC is
intended to prohibit debt recovery actions against the assets of the corporate debtor and
continuation of proceedings which do not result in endangering, diminishing, dissipating or
adversely impacting the assets of corporate debtor are not prohibited under section 14(1)(a) of the
IBC.

The court further observed that the Arbitration Act draws a distinction between proceedings under
section 34( i.e. objections to the award) and under section 36(i.e. the enforceability and execution
of the award). The proceedings under section 34 are a step prior to the execution of an award. Only
after determination of objections under section 34, the party may move a step forward to execute
such award and in case the objections are settled against the corporate debtor, its enforceability
against the corporate debtor then certainly shall be covered by moratorium of section 14(1)(a).

(v) As far as scenario E) is concerned, i.e. when enforcement proceedings against the CD under a
foreign award are pending before Indian courts, a question may arise as to whether a proceeding
under s. 48 of the Arbitration Act will lie to enforce a foreign award against the CD.

Once a foreign award is passed, the same cannot be enforced immediately like a domestic award.
The said award has to be initially put through the process of enforcement, which is mandatory
before an award could be executed. The provisions of the Arbitration Act, particularly Ss. 47, 48
and 49 envisage the mode and manner in which a foreign award is to be enforced and could be
executed.

The party seeking to enforce the award has to make an application under S. 47 of the Act enclosing
therewith the evidence mentioned therein. Such an application could be resisted by the party
against whom enforcement is sought by furnishing proof to the court of the existence of one or
more of the defences as set out in S. 48 of the Act.

It is only when the Court decides and records its satisfaction that the award is enforceable, then
only the award could be enforced as a decree of the court. It is now a settled law as laid down in
Fuerst Day Lawson Ltd. vs. Jindal Export, (2001) 6 SCC 356 that it is not necessary to take up
separate proceedings one for deciding the enforceability of the award and the other to take up
execution thereafter and that both the reliefs could be sought for in the same proceedings.

It could be argued that proceedings till the stage of deciding upon the question of enforceability of
the award may not be hit by a moratorium and that only if the CD fails on this account would the
moratorium apply to the subsequent proceedings executing the award against the CD. Thus, the
NCLT, Ahmedabad Bench in Vitol S.A. v Asian Natural Resources 9India) Ltd. & Ors. [2018]
145 SCL 30 applied the moratorium under s. 14 of the IBC to the execution proceedings against
the CD which were pending after the objections under s. 48 of the Arbitration Act to the
enforceability of the foreign award had been rejected and stayed the said execution proceedings.
The question whether such proceedings would have been maintainable at the stage of deciding of
objections under s. 48 of the Arbitration Act relating to enforceability of the foreign award was
however not in issue before the learned Tribunal.
However, it appears from a reading of the Alchemist judgment that the courts may be reluctant to
entertain the very institution or continuation of the enforcement proceedings of a foreign award
against the CD at any stage.

An interesting question would be the application of a moratorium on the execution of a foreign

award against a CD which has assets outside India.

We can derive guidance in this regard from the judgment of the Hon'ble High Court of Bombay in
Ashapura Minechem Ltd. v Armada ( Singapore) Pte. Ltd. & Ors. MANU/MH/1123/2016 which
was decided in the context of s. 22 of the Sick Industrial Companies (Special Provisions) Act, 1985
("SICA") which is a similar provision to s. 14 of the IBC. The court held that since the provisions
of SICA including s. 22 thereof extend to only the territory of India , the same do not have any
application to proceedings outside India. Thus, there was no requirement of prior consent of the
Board of Industrial and Financial Reconstruction ("BIFR") for taking steps in execution of foreign
awards including filing garnishee proceedings in respect of properties of the judgment debtor
situated outside India. On the same logic, in view of s. 1 of the IBC which extends the said Act to
India, it could be inferred that the moratorium under s. 14 of the IBC would not apply to execution
of a foreign award against a CD which has assets outside India. Of course, the situation would
change should reciprocal arrangements be in place with other countries , to enforce the IBC (as
envisaged in ss. 234 and 235 of the IBC).