Discretion in Admission of Application under §7 of the Insolvency & Bankruptcy Code, 2016 : A Win for Arbitration

Discretion in Admission of Application under §7 of the Insolvency & Bankruptcy Code, 2016 : A Win for Arbitration

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Volume 15 Issue 3-4 ()

The current jurisprudence regarding the interplay between §7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) and arbitration stands in favour of the former in light of the Supreme Court’s decision in Indus Biotech v. Kotak India Venture (Offshore) Fund (‘Indus Biotech’). However, the recent pronouncement of the Supreme Court in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (‘Vidarbha’)  has added an element of discretion between determination of default and admission of an application under §7 of the IBC. Interestingly, the effect of Vidarbha on the jurisprudence as established by Indus Biotech has not been examined and decided by any court of law in India till date. Therefore, this paper has been written from a practitioner’s perspective and aims to address this research gap by examining the impact of Vidarbha Industries on Indus Biotech. This paper does not critique the judgment in Vidarbha and primarily aims to explore the element of discretion whilst adjudicating upon a §8 application under the Arbitration Act, 1996. In essence, this paper analyses the potential impact of the ratio laid down in Vidarbha to the existing interplay between insolvency law and arbitration in India assuming that the discretion by the Adjudicating Authority is exercised in a reasonable manner. This part also analyses and aims to provide certain guiding principles whilst exercising discretion under §7 of the IBC particularly in context of arbitration. Moreover, this paper also opines that the Resolution Professional (‘RP’) would not be inclined to initiate any arbitration proceedings on behalf of the corporate debtor because of the strict timelines under the IBC. Finally, this paper concludes that though it is not mandatory for the Adjudicating Authority to refer all insolvency applications to arbitration, a harmonious reading of Indian insolvency law and arbitration law in light of the Vidarbha ruling should ordinarily persuade the tribunal to refer disputes to arbitration.

Cite as: Meenal Garg & Krish Kalra, Discretion in Admission of Application under §7 of the Insolvency & Bankruptcy Code, 2016 : A Win for Arbitration, 15 NUJS L. Rev. 301 (2022)