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Alchemist Asset Reconstruction Company Limited V. M/s Hotel Gaudavan Private Limited & Ors Case Summary

Case Brief on Alchemist Asset Reconstruction Company Limited V. M/s Hotel Gaudavan Private Limited & Ors.

Citation – Civil Appeal No. 16929 of 2017, Decided on October 23, 2017

INTRODUCTION

The case of Alchemist Asset Reconstruction Company Limited vs. M/s Hotel Gaudavan Private Limited & others is also a relevant judgment regarding the matter of Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016. It has cleared a problem in regards to conflict of arbitration with insolvency proceedings under the Code. The issue, in this case, is whether arbitration proceedings can be instituted against an entity after a moratorium under section 14(1)(a) of the Code has been imposed on that entity?

FACTS

  1. Hotel Gaudavan Private Limited (Corporate Debtor) was given a loan of Rs 24,00,00,000 and limited credit of INR 1,00,00,000 by the State Bank of India (SBI) (Financial Creditor) on January 4, 2008.
  2. The Corporate Debtor was not able to repay the loan and interest amount.
  3. Consequently, the bank looking at the inconsistency pulled out to the Corporate Debtor getting back the loan amount. An appeal was filed before the Debt Recovery Tribunal, Jaipur, (“DRT”) to recuperate the amount of the loan.
  4. State Bank of India (“SBI”) through a task assignment under Section 5 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 allocated the debt of the Corporate Debtor to an organization named Alchemist Asset Reconstruction Company Limited. 
  5. Basically, the Financial Creditor had supplanted SBI in the ongoing proceedings in DRT, Jaipur.
  6. The Financial Creditor at that point moved toward the Principal Bench of the National Company Law Tribunal at New Delhi by making an application under Section 7 of Code. This application was acknowledged and conceded by the bench and the court proclaimed Moratorium against Corporate Debtor under Section 14 of Code.
  7. When the Moratorium was announced, the Corporate Debtor conjured the arbitration clause between the Financial Creditor and the Corporate Debtor and appointed an arbitrator according to the loan agreement.
  8. The bench concluded that the appointment of an arbitrator and the arbitration proceeding was unlawful and not valid. Also, the bench controlled from holding any arbitration proceeding against the Corporate Debtor.
  9. Even after the above decision, the Corporate Debtor filed an appeal under the District Court of Jaisalmer, Rajasthan under Section 37 of the Arbitration and Conciliation Act, 1996 and the court passed an order for the appeal to be enrolled and a notice seeking reply was issued.
  10. It was against the affirmation of this application that an appeal was preferred before the Supreme Court.

ARGUMENTS OF BOTH THE PARTIES

The Petitioner’s Advocate Argued to stay the proceedings of the arbitration and the appellate proceedings in the District Court and the Court ordered the same.

Mr. Jayant Bhushan learned senior counsel, additionally, advise us that the criminal proceeding being F.I.R No. 0605 dated 06.08.2017 has been taken in a desperate attempt to see that the IRP doesn’t proceed with the procedures under the Insolvency Code which are strictly time-bound. We quash this proceeding.

JUDGEMENT

Against the said order, the Financial Creditor proceeds under Hon’ble Supreme Court in Civil Appeal No. 16929 of 2017 (Arising out of S.L.P No. 18195/2017 which was in favor of the Financial Creditor).

Hon’ble Supreme court put aside the order of the District Judge and further expressed that the impact of Section 14 (1) (a) is that the arbitration that has been organized after the previously moratorium is non-est in law.

Further, an ongoing Criminal proceeding under F.I.R No. 0605 which was taken in an edgy attempt to see that IRP doesn’t proceed with the proceedings under the Insolvency Code which are strictly time-bound was quashed.

Therefore, the appeal was permitted and the steps that must be taken under the Insolvency Code will proceed unrestricted by any order of any other court.

CONCLUSION

Any arbitration proceeding started after the inconvenience of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is non-est in law.

This case brief has been made by Nishtha Kajla from IMS Unison University, Dehradun.

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