When a moratorium period is in effect due to an adjudicating authority order, an arbitration proceeding cannot be initiated. The definition of an arbitration proceeding is as follows: An arbitration is a process in which a disagreement is decided by an impartial arbitrator, whose decision is final and binding if all parties to the dispute have agreed to it or if it is required by law. Arbitration awards are subject to limited powers of review and appeal. The current case established the connection between the 2016 Insolvency and Bankruptcy Code and the Arbitration and Conciliation Act.
To make Section 14 of the Code's rules more understandable, the case was brought out. The imposition of the moratorium period was outlined in Section 14. The moratorium period is imposed once the corporate debtor has been the subject of bankruptcy proceedings; it begins when the adjudicating body accepts the resolution plan that the resolution professional has proposed.
In the instant case titled Alchemist Asset Reconstruction Co. Ltd. v. M/S Hotel Gaudavan Pvt. Ltd.the issue raised for clarification before the Supreme Court was:
Whether an entity can be the target of arbitration actions after being subject to a moratorium under Section 14(1)(a) of the Code?
With regard to this issue, in its decision, the Supreme Court unambiguously reaffirmed the Insolvency and Bankruptcy Code's 2016 directive that a substance subject to a ban under Section 14 (1) (a) of the Code may not be the subject of further legal action or administrative claims. Additionally, it is forbidden to continue any legal proceedings.
The Supreme Court declared the legal designation of the intervention processes as "non-Est." The court's decision is supported by the argument that a prohibition creates a period of peace during which loan executives cannot engage in a single authorised action that could undermine the purpose of the corporate bankruptcy process. A prohibition on the transfer of the corporate account holder's benefits would also ensure that the corporate debtor or its management cannot shift their benefits, depriving the corporate borrower of significant value during the corporate bankruptcy objective process.
The Court categorically stated that,
"The mandate of the new Insolvency Code is that the moment an insolvency petition is admitted, the moratorium that comes into effect under Section 14(1)(a) expressly interdicts institution or continuation of pending suits or proceedings against Corporate Debtors"
The provision of section 14 as included in the Code was clarified in the current case. According to the court, when the moratorium period is imposed, certain Act-mandated activities are kept on hold, such as the corporate debtor's ability to start an arbitration proceeding during this time. In other words, the corporate debtor will not be permitted to use the provisions of remedy provided under several separate statutes while the moratorium is in effect.