Meaning of “proceedings”...

Power Grid Corpn. of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189

The term “proceedings” is mentioned in Section 14 but is not defined under IBC. A literal reading of
Section 14 suggests that all proceedings are barred from the time of imposition of moratorium. The
High Court of Delhi in Power Grid Corpn. of India Ltd. v. Jyoti Structures Ltd.15 (Power Grid
Corporation), however, clarified that the term ”proceedings” as mentioned in Section 14(1)(a) is not
preceded by the word ”all”, indicating that the moratorium proceedings would not apply to all the
proceedings against the CD. In particular, Section 14 would not apply to proceedings which are for
the benefit of the CD....

Effect of moratorium during various stages in arbitration proceedings...

Effect on fresh and ongoing arbitration proceedings...

Alchemist Asset Reconstrution Co. Ltd. v. Hotel Gaudavan (P) Ltd., (2018) 16 SCC 94

In this case arbitration proceeding in question was started after imposition of morartorium period
under section 14 of the IBC. It was held that such proceedings were non est in law. The Court said
that District Judge ought not have entered an appeal under section 37 of the Arbitration and
Conciliation Act,1996.

K.S. Oils Ltd. v. State Trade Corporation of India Ltd., 2018 SCC OnLine NCLAT 352

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. Hotel Gaudavan Pvt. Ltd.” we hold that the arbitral
proceeding pending between ‘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.

Power Grid Corpn. of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189

Where arbitration proceedings have been initiated after the declaration of moratorium,
the continuation of the arbitration proceedings could depend on whether the claims are

(a) for value maximisation of the assets of the CD; or

(b) in the nature of a debt recovery action against the CD....

Arbitration invoked for “value maximisation of assets” versus “debt recovery action”...

Power Grid Corpn. of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189

This issue arose in this case

Held that - continuation of proceedings under section 34 of the Arbitration Act 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 code;
Overruled in P. Mohanraj v. Shah Bros. ISPAT (P) Ltd., (2021) 6 SCC 258.

Effect of moratorium on “pre-award stage” and “post award stage”...

Pre-award stage...

Jharkhand Bijli Viltran Nigam Ltd. v. IVRCL Limited, 2018 SCC OnLine NCLT 18197

Nclat was tasked with determining whether a counterclaim in an arbitration could

proceed during the moratorium period. Nclat held that the counterclaim filed by the
creditor would be a proceeding against the CD and hence fall within the ambit of the
embargo under Section 14. However, the counterclaim filed by the CD could proceed
before the Arbitral Tribunal even during the moratorium period. Nclat went further,
stating that both the claim and counterclaim ought to be heard and decided despite the
moratorium. However, Section 14 would apply if the CDs were directed to pay damages
or any other amounts as no recovery can take while the moratorium is in place.

SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd., 2019 SCC OnLine Del 9339

The High Court of Delhi took a similar position.

The High Court of Delhi clarified that even though a counterclaim is a proceeding
against the CD, its continuation per se is not a threat to the assets of the CD. Section 14
is triggered only when the amount to be paid or recovered is determined. Thus,
arbitrations involving claims and counterclaims by and against a CD may not be hit by
Section 14(1) during the pre-award stage. The moratorium may come into effect
depending on the award passed in the proceeding. If the award is not in favour of the
CD, the moratorium will apply to bar any recoveries....

Post-award stage.

Annapurna Infrastructure Pvt. Ltd. v. SORIL Infra Resources Ltd., 2017 SCC OnLine NCLAT 380

the courts have considered the issue that whether a final arbitral award can be
considered as evidence of debt.

Nclat held that an arbitral award against a CD constitutes a default under IBC....

K. Kishan v. Vijay Nirman Co. (P) Ltd., (2018) 17 SCC 662

The Supreme Court of India in K. Kishan v. Vijay Nirman Co. (P) Ltd.28, held that even
though arbitral awards are valid proof of debt, they will have to be undisputed in order
to enable initiation of CIRP by operational creditors. The foregoing analysis reveals that
Indian courts are inclined to limit further obligations and liabilities of the CD.
Judicial exceptions to the moratorium regime...

Canara Bank v. Deccan Chronicle Holdings Limited, 2017 SCC OnLine NCLAT 255

Nclat stated that:

“7. … [t]he Supreme Court has power under Article 32 of the Constitution of India and
High Court under Article 226 of the Constitution of India which power cannot be
curtailed by any provision of an Act or a court. In view of the aforesaid provision of law,
we make it clear that “moratorium” will not affect any suit or case pending before the
Supreme Court under Article 32 of the Constitution of India or where an order is passed
under Article 136 of the Constitution of India. “Moratorium” will also not affect the
power of the High Court under Article 226 of the Constitution of India.”...

Applicability of moratorium to “criminal proceedings”...

P. Mohanraj v. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258

Examined the applicability of Section 14 IBC to proceedings of dishonour of cheques

under Section 138 of the Negotiable Instruments Act, 188133 (“the NI Act”)....

The Supreme Court examined the legislature's intent to allow value maximising of
assets and concluded that Section 14 IBC would cover proceedings under Section 138 of
the NI Act....

The Supreme Court held that the word “proceedings” cannot be limited only to “civil
proceedings”, and that any matter that can create a debt or encumbrance on the assets
of a CD, including criminal proceedings, were to be prohibited by an order of
moratorium....

Deputy Director Directorate of Enforcement Delhi v. Axis Bank, 2019 SCC OnLine
Del 7854

High Court of Delhi held that since the objective of the PMLA is distinct from the
purpose of IBC, the latter legislation does not prevail over the former. Thus, criminal
proceedings which seek to enforce a civil remedy and are in the nature of quasi-criminal
proceedings will be hit by Section 14 IBC....

Enforcement of Foreign Arbitral Awards in India

In the current scenario, it is settled that Indian law lacks jurisdiction over foreign seated
arbitrations that have no nexus to India. However, when the foreign arbitral award has nexus to
Indian law ie the award needs to be implemented in India, the courts have paved the way for
certain remedies in favour of the corporate debtor undergoing CIRP.

Unlike domestic awards, a foreign award is not immediately enforceable in India. It attains the
status of a decree[33] when the party furnishes proof that the conditions for enforcement have
been met.[34]

In the case of Vitol SA,[35] the National Company Law Tribunal ["NCLT"] applied section 14 IBC to
stay the execution proceedings of a foreign award passed by the London Arbitral Tribunal.
However, the decision was given after the objections challenging the enforcement of the foreign
award[36] were rejected. A similar view was taken by the NCLT in the case of Videocon Industries
Limited.[37] The issue before the bench was whether the award pronounced by the foreign
tribunal to recover petroleum from the corporate debtor was enforceable during the pendency of
insolvency proceedings. It was held that enforcement proceedings are covered by section 14 IBC
according to the general rules of moratorium.

Therefore, in case of foreign seated ICAs, in the absence of reciprocal agreements the moratorium
extends only to the execution of the foreign award in India. Where the foreign award has no nexus
to India, section 14 in the absence of reciprocal agreements is a toothless tiger.

Analysis And Way Forward

The IBC overrides the Arbitration Act and the application of moratorium under section 14 IBC to
domestic and Indian seated ICAs is settled. However, its effect on foreign seated arbitrations is
highly debated in the absence of judicial clarifications.

According to the authors' analysis, the effect of section 14 on foreign seated arbitrations, has been
beautifully encapsulated by the draftsmen in the form of section 234 IBC. The legislature has given
the government an opening to make IBC effective beyond the territories of India in this globalized
world where cross-border interactions are the new normal. When the interpretation of section 14
by the judiciary is read alongside section 234, the stance is clear- the moratorium will extend to
foreign seated arbitrations in the same way as domestic arbitrations when the following two
conditions are met: first, when there is a reciprocal agreement with the country in which the seat
of arbitration is and second, when the general purpose of the moratorium is fulfilled.

However, as no reciprocal agreements have been notified under section 234, there is a tug of war
between what the IBC intends to do and its inability to do it. This has created a situation where the
debtor undergoing insolvency in India is at the mercy of the lex arbitri ie the procedural law
applicable to the proceedings rather than the IBC. In the current scenario, the only recourse
available to the debtor is to invoke section 14 at the stage of enforcement of the foreign award in
India and in case the foreign award has no nexus to India, the debtor is left remediless.
Furthermore, the stance of different countries on the effect that insolvency has on arbitrations
differs and the lack of uniformity makes reciprocal agreements more relevant. Though it's not easy
to reconcile the aims of international arbitration and insolvency, notifying reciprocal agreements
under section 234 IBC is the solution to the issue in contention.