Judgment Name: Brilltech Engineers Private Limited v. Shapoorji Pallonji and Company Private Limited

Citation: ARB.P. 790/2020, IA 12493/2020, IA 3888/2021

Court: The High Court of Delhi

Coram: Neena Bansal Krishna, J.

Date: 15th December 2022

Keywords: Section 9, Arbitration & Conciliation Act, 1996 (the “A&C Act”), Section 11, A&C Act, Section 21, A&C Act, Section 9, Insolvency and Bankruptcy Code, 2016 (the “IBC”), arbitrability, corporate insolvency resolution process (“CIRP”), National Company Law Tribunal (the “NCLT”), the doctrine of election, forum shopping

Overview

A Single-Judge Bench of the Delhi High Court ruled that the invocation of a CIRP by filing an application under Section 9 of the IBC would not render a dispute non-arbitrable because the mere assertion of an admitted debt does not amount to an admitted liability, particularly when the other party has continuously refused such liability. Moreover, approaching the NCLT prior to seeking reference to arbitration does not amount to forum shopping, given the distinct scope of enquiries of a proceeding before the two forums.

Facts

The dispute relates to an agreement whereby Brilltech Engineers Private Limited (“BEPL”) was to exclusively execute electrical works for Shapoorji Pallonji and Company Private Limited (“SPCPL”) on a residential project.

By way of a work order dated 19th December 2011, SPCPL awarded certain electrical works to BEPL. Clause 13 of this work order contained an arbitration agreement. On certain disputes arising between the parties due to SPCPL’s non-payment of amounts on running account bills and retention of the security deposit, BEPL issued a demand notice dated 19th April 2019 to SPCPL. SPCPL denied BEPL’s claims. Following that, BEPL approached the ‘MSME SAMADHAAN’ for resolution; however, due to inaction by the latter, the proceedings became void ab initio under the prescribed statutory limit.

Thereafter, BEPL filed an application under Section 9 of the IBC to initiate a CIRP, and although SPCPL responded to this petition by expressing its willingness to amicably resolve the dispute, it failed to achieve the same.

Subsequently, BEPL relied on the arbitration agreement contained in Clause 13 of the work order to file an application under Section 11 of the A&C Act for the appointment of an arbitrator. It also petitioned under Section 9 of the A&C Act seeking attachment of a certain amount as interim relief.

SPCPL objected to the petition’s maintainability stating that a CIRP application under Section 9 of the IBC can only be filed when the dispute is non-arbitrable, and hence the matter could no longer be referred to arbitration. Besides this, SPCPL, inter alia, contended that BEPL failed to follow the pre-arbitral steps provided in the agreement, failed to comply with the notice requirement pursuant to Section 21 of the A&C Act, engaged in forum shopping, and claimed varying amounts before different forums.

Issue

Whether initiation of a CIRP under Section 9 of the IBC renders a dispute non-arbitrable?

Analysis

The court highlighted the settled proposition of law that the NCLT’s jurisdiction can be invoked only in case of determined debts. Notably, a mere assertion before the NCLT that there is a definite amount to be paid would not amount to a party admitting the claimed amount. This was particularly the case in light of SPCPL’s repeated denial of its liability, as seen in its response to the demand notice, the petition before the NCLT and the present petition. Thus, notwithstanding the Section 9 IBC petition, the court asserted that there was no admitted debt, and hence the dispute remained arbitrable.

The court relied on the Apex Court’s discussion on the ‘doctrine of election’ in A. P. State Financial Corporation v. Gar Re-Rolling Mills, wherein it was stated that if two remedies provide the same relief, then a party has the option to elect either of the remedies. But the doctrine of election remains inapplicable in circumstances where the ambit and scope of the remedies are essentially different. The court also cited the Apex Court’s observation in National Insurance Company Ltd. v. Mastan, where it held that the doctrine of election is a branch of the estoppel rule and may preclude a party from asserting a right that he would have otherwise had. However, in the present matter, the scope of enquiry in the proceedings before the NCLT and the arbitral tribunal were entirely distinct, and thus BEPL did not indulge in forum shopping. Moreover, the claims at the various forums were filed at different times, thereby justifying the variation in the claim amount.

Turning to the issue of compliance with the pre-arbitral steps, the court referred to Clause 13 of the work order, whereby the requirement of conducting mutual discussions at the site level and referring the issue to the Regional Head only applied in disputes involving the interpretation of clauses, technical specifications, etc. However, the dispute at hand dealt with the non-payment of dues. Moreover, the petitioner had approached MSME SAMADHAAN for the resolution of the disputes, and thus BEPL was deemed to have satisfied the prescribed procedure under Clause 13.

The court also addressed the issue of the statutory requirement of notice by analysing the purpose of providing notice under Section 21 of the A&C Act. It observed that this requirement was satisfied by the demand notice and even if the demand notice failed to meet the threshold, then the proceedings under Section 9 of the IBC, wherein SPCPL, in its response to the petition, had expressly agreed to refer the dispute to arbitration, amounted to sufficient compliance of the notice requirement under Section 21 of the A&C Act.

As a result, the court allowed the petition under Section 11 of the A&C Act and appointed an arbitrator to adjudicate the dispute between the parties. Moreover, in dealing with the Section 9 A&C Act petition, the court granted interim relief by directing SPCPL to maintain a certain balance amount till adjudication of the dispute.

Conclusion

On assessing the settled proposition of law regarding the NCLT’s jurisdiction, along with the Apex Court’s position on the doctrine of election and forum shopping, a Single-Judge Bench of the Delhi High Court held that the initiation of a CIRP under Section 9 of the IBC would not render a dispute non-arbitrable because the mere assertion of an admitted debt does not amount to admitted liability, particularly when the other party has continuously refused such liability. Moreover, approaching the NCLT prior to seeking reference to an arbitral tribunal would not result in forum shopping, given the distinct scope of enquiries of a proceeding before the two forums.

[This case note has been authored by Ayush Prashant Waghmare, an Editor at Mapping ADR.]