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Adjudicating authority under IBC does not have jurisdiction to refer parties to arbitration
The National Company Law Tribunal (NCLT or the Adjudicating Authority) on June 9, 2020, in a Mumbai case titled as Kotak India Venture Fund v. Indus Biotech Private Limited, referred to the financial creditor and Corporate debtor to Arbitration as specified under Section 8 of Arbitration and Conciliation Act, 1996 while adjudicating an insolvency petition filed under Section 7 of Insolvency and Bankruptcy Code, 2016 respectively.
While referring the parties to arbitration, National Company Law Tribunal also asserted that it was not satisfied if there was a default by the Corporate Debtor.
Previously on June 8, 2020, National Company Law Tribunal Bengaluru in the case titled as Harish P. vs. Chemizol Additives Pvt. Ltd. through suo moto cognizance has referred the parties to the mediation or Arbitration by powers enshrined under Section 442 of the Companies Act, 2013 while deciding the insolvency petition framed by the operational creditor under Section 9 of the Insolvency and Bankruptcy Code. In the case, the National Company Law Tribunal has emphasized that as an arbitration agreement exists just between the parties, hence, the proceedings under the shall Insolvency and Bankruptcy Code not be taken as the first recourse.
Both these cases have raised a very serious issue i.e. if the National Company Law Tribunal can refer the parties to the arbitration in proceedings under the Code?
Section 8 of the Arbitration Act empowers to refer the parties to arbitration only if the action brought before a judicial forum is a subject matter of an Arbitration Agreement. The Supreme Court in the case titled as Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 has emphasized that the judicial authority has the power to refer the parties to arbitration only if the arbitration agreement is entered between the parties, the dispute is considered as the subject matter of the arbitration agreement, and the relief thereby sought can be granted by the arbitrator.
The court was of the opinion that the Adjudicating Authority under Insolvency and Bankruptcy Code does not have jurisdiction to refer parties to the arbitration.
