Not all arbitration proceeding barred by Section 14 of Bankruptcy Code

In POWER GRID CORPORATION OF INDIA LTD. vs JYOTI STRUCTURES LTD, petition is under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as „the Act‟) for setting aside the arbitral award dated 20.05.2016 passed by the arbitral tribunal in favour of the respondent herein. The award is in nature of a pure money decree in favour of the respondent.

During the pendency of these proceedings under section 34 of the Act, an application under Section 7 of the Insolvency and Bankruptcy Code 2016 (hereinafter referred as „the Code‟) was filed by a financial creditor against the respondent company before the National Company Law Tribunal – Mumbai, (hereinafter referred as „the NCLT‟) seeking initiation of the corporate insolvency resolution against the respondent and by an order dated 04.07.2017 the NCLT has admitted such application and has declared a moratorium in terms of Section 14 of the Code.

The question now has arisen is if the present proceedings under Section 34 of the Act, need to be stayed, per Section 14 (1)(a) of the Code?

The Delhi High Court concluded that the present proceeding would not be hit by the embargo of Section 14(1)(a) viz., (a) „proceedings‟ do not mean „all proceedings‟;(b) moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor; (c) 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; (d) term „including‟ is clarificatory of the scope and ambit of the term „proceedings‟;(e) 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; (f) the use of narrower term “against the corporate debtor” in section 14(1)(a) as opposed to the wider phase “by or against the corporate debtor” used in section 33(5) of the code further makes it evident that section 14(1)(a) is intended to have restrictive meaning and applicability; (g) 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).