In a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the ‘Arbitration Act’) seeking the appointment of an arbitrator, the Hon’ble High Court of Delhi, while allowing the petition, ruled that the initiation of arbitration proceedings does not preclude a corporate debtor from pursuing remedies under the Insolvency and Bankruptcy Code, 2016 (the ‘IBC’).
In this case, the Petitioner Company asserted that the SPA included an indemnity clause covering losses due to misrepresentation, inaccuracy, or breach of the Warranties or any willful misconduct or fraud. Upon discovering the fraud, they issued a Notice of Invocation which the respondents denied, insisting that no fraud had occurred and demanding payment of outstanding amounts. Consequently, the petitioners served a notice of arbitration, seeking the appointment of an arbitrator. With no arbitrator having been appointed, the petitioners filed the current petition under Section 11(6) of the Arbitration Act before the Court, for appointment of arbitrator. The respondents, who are former shareholders and directors of the Petitioner, claimed that no actual dispute exists between the parties, asserting that the amounts owed by the petitioners are admitted, and they had already filed a petition under Section 7 of the IBC before the NCLT, Jaipur. The respondents alleged that the petition under Section 11(6) of the Arbitration Act was a strategy to fake disputes and avoid the NCLT proceedings.
The Court observed that disputes had indeed arisen and that the Petitioner’s legal notice issued before the filing of the petition under Section 7 of the IBC. Consequently, the respondent's claim that the petition was not maintainable was found to be untenable. The Court held that the mere initiation of arbitration proceedings does not preclude a corporate debtor from pursuing other remedies available under the IBC. Therefore, the Court allowed the petition and appointed an independent arbitrator to adjudicate the disputes between the parties.
Pitambar Solvex Pvt. Ltd. v. Manju Sharma,
2024 SCC OnLine Del 3995.
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