Can Financial Creditor and Corporate Debtor be referred to arbitration while deciding plea under Section 7 IBC

In the matter of Application under section 8 of the Arbitration & Conciliation Act, 1996,  in the matter of Indus Biotech Private Limited vs Kotak India Venture Fund-I,  the question before the NCLT, Mumbai was whether the provisions of the Arbitration & Conciliation Act, 1996 prevail over the provisions of the Insolvency & Bankruptcy Act, 2016? If so, in what circumstances?

It is settled law that generalia specialibus non derogant – special law prevails over general law.

The rules of interpretation are fairly well-settled: -

(1) When a provision of law regulates a particular subject and a subsequent law contains a provision regulating the same subject,  there is no presumption that the later law repeals the earlier law. The rule making authority while making the later rule is deemed to know the existing law on the subject. If the subsequent law does not repeal the earlier rule, there can be no presumption of an intention to repeal the earlier rule.

(2) When two provisions of law - one being a general law and the other being special law govern a matter, the court should endeavour to apply a harmonious construction to the said provisions. But where the intention of the rule making authority is made clear either expressly or impliedly, as to which law

should prevail, the same shall be given effect.

(3) If the repugnancy or inconsistency subsists in spite of an effort to read them harmoniously, the prior special law is not presumed to be repealed by the later general law. The prior special law will  continue to apply and prevail in spite of the subsequent general law. But where a clear intention to make a rule of universal application by superseding the earlier special law is evident from the later general law, then the later general law, will prevail over the prior special law.

(4) Where a later special law is repugnant to or inconsistent with an earlier general law, the later special law will prevail over the earlier general law.

The National Company Law Tribunal, Mumbai held that a Financial Creditor and a Corporate Debtor can be referred to arbitration while deciding a plea under Section 7 IBC if the dispute between them is arbitrable and has a bearing on the judicial determination of the existence of a default. (Kotak India Venture Fund-I vs Indus Biotech Private Limited)