Impact of Insolvency Proceedings on Arbitration Agreement: An Indian Perspective

Written by Saptaparni Raha, Lawyer

Introduction

Insolvency law can interfere with different fields of law, both domestically and internationally. This helps to analyze the efficiency of creditor protection concerning the adjudication of claims via arbitration with an insolvency entity. Domestic pull and single jurisdiction apply to insolvency proceedings. The insolvency proceedings' contribution states that when the arbitration agreement is put in jeopardy by the insolvency proceedings, it must be deemed void.

Indian Perspective

There is no distinction made in the bankruptcy and insolvency code between arbitration cases that are already in progress and those that start after the filing of an insolvency petition.

A party may petition the foreign-seated arbitral tribunal for a stay of the arbitration in cases involving Indian parties who are involved in bankruptcy processes and arbitration proceedings that are situated in foreign jurisdictions; however, there is no prejudice to a foreign award that is enforced against foreign assets.

In another scenario, debt defined by the insolvency and bankruptcy code does not cover a claim under an arbitration agreement. However, the claim can be filed to the resolution professional if the same falls within the purview of financial or operational debt independently. The creditor can only approach the national corporate law tribunal if the insolvency resolution proceedings refuse inclusion.

The honorable Supreme Court ruled in Fourth Dimension Solution Solutions Ltd. v. Ricoh India Ltd. that an operational creditor of a corporate debtor may continue the arbitration proceedings despite the committee of creditors' approval of the corporate bankruptcy resolution plan.

Conclusion

Domestic creditors must accept the entity in the same condition that they found it: with a variety of rights and responsibilities, including the duty to arbitrate for the effective management of debt.

References

Rajdutt Shekhar Singh and Srishti Pandey, India: Insolvency And Arbitration: A Web Of Interpretations (Mondaq)

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