Alchemist Asset Reco... v. M/S. Hotel Gaudavan ..., Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

An insolvency petition against the corporate debtor, M/s. Hotel Gaudavan Pvt. Ltd., was admitted by the National Company Law Tribunal (NCLT), Principal Bench, New Delhi, on 31 March 2017. Upon admission, the statutory moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) came into force and an Interim Resolution Professional (IRP) was appointed.

Despite the moratorium, Respondent No. 1 invoked the arbitration clause in its agreement with the corporate debtor and appointed Shri Pankaj Garg as the sole arbitrator. Arbitration proceedings were initiated and the arbitrator entered upon the reference. The NCLT, by order dated 31 May 2017, reminded the parties that Section 14(1)(a) barred such proceedings.

Nevertheless, a first appeal under Section 37 of the Arbitration and Conciliation Act, 1996 was filed before the District Judge, Jaisalmer, Rajasthan. On 6 July 2017 the District Judge ordered that the appeal be registered and issued notice. In parallel, an FIR (No. 0605 dated 06 August 2017) was lodged, allegedly to obstruct the IRP.

The petitioner, Alchemist Asset Reconstruction Company Ltd., approached the Supreme Court of India by Special Leave Petition (Civil) No. 18195 of 2017 challenging the District Judge's order and all consequential proceedings that violated the IBC moratorium.

Legal Issues Presented

Whether the statutory moratorium under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 bars the initiation and continuation of arbitration proceedings commenced after the insolvency petition is admitted.

Whether a civil court can entertain an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 in the face of the IBC moratorium.

Whether criminal proceedings (FIR No. 0605/2017) initiated against the IRP could continue during the pendency of the corporate insolvency resolution process.

Court's Reasoning and Analysis

The Supreme Court emphasised the “mandate of the new Insolvency Code,” noting that once an insolvency petition is admitted, Section 14(1)(a) expressly prohibits the institution or continuation of any suits or proceedings against the corporate debtor. The Court recorded its surprise that, despite this clear statutory bar, an arbitration was commenced and an appeal under Section 37 of the Arbitration Act was entertained.

Because the arbitration proceedings were instituted after the moratorium took effect, the Court declared them non est in law. Consequently, the District Judge’s order dated 6 July 2017, which had entertained the appeal, was set aside.

Addressing the criminal proceedings, the Court viewed the FIR dated 6 August 2017 as a “desperate attempt” to stall the time-bound insolvency process. Exercising its inherent power to do complete justice, the Court quashed the FIR to ensure that the IRP could continue unhindered.

Throughout, the Court relied squarely on the text of Section 14 of the IBC and did not invoke external precedents, underscoring the supremacy of the statutory moratorium over conflicting forums or proceedings.

Holding and Implications

Appeal Allowed; arbitration proceedings and related appeal set aside; FIR quashed.

The Supreme Court’s decision reinstates the primacy of the IBC moratorium, ensuring that no parallel judicial, arbitral, or criminal proceedings can derail the corporate insolvency resolution process once it is triggered. The ruling directly benefits the petitioner by nullifying the arbitration and quashing obstructive criminal proceedings, while signalling to lower courts and arbitral tribunals that any action infringing Section 14 is void.

Alchemist Asset Reconstrution Company Ltd. Petitioner(S) v. M/S. Hotel Gaudavan Pvt. Ltd. & Ors. (S)

1. Leave granted.

2. Heard the learned Senior Counsel/Counsel appearing for the parties.

3. The facts of the present case disclose a very sorry state of affairs. Several proceedings had been taken and ultimately a petition filed under the Insolvency and Bankruptcy Code, 2016 was admitted on 31.03.2017 by the National Company Law Tribunal, Principal Bench, New Delhi. As a result, the moratorium that is imposed by Section 14 came into effect on that date and Respondent No. 3 has been appointed as the Interim Resolution Professional (IRP). A Writ Petition was filed against this order, which was admitted only to the extent of the challenge to the vires of the Insolvency Code, is pending. A Special Leave Petition against this order was dismissed on 26.04.2017 Meanwhile, despite the moratorium, a letter was issued by Respondent No. 1 to Respondent No. 2 invoking the arbitration clause between the parties and Shri Pankaj Garg, an Advocate, was appointed as Sole Arbitrator. Shri Garg entered upon the reference. In an other order dated 31.05.2017, the National Company Law Tribunal, Principal Bench, New Delhi referred to Section 14(1)(a) of the Insolvency Code and stated that given the moratorium that is imposed, no arbitration proceedings could go on. A notice was issued on 29.06.2017 by the National Company Law Tribunal, Principal Bench, New Delhi in C.A No. 186(PB) of 2017.

4. A First Appeal was filed before the District Judge, Jaisalmer, Rajasthan under Section 37 of the Arbitration and Conciliation Act, 1996 and by the impugned order dated 06.07.2017, the appeal was asked to be registered and notice was issued awaiting a reply.

5. 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.

6. This being the case, we are surprised that an arbitration proceeding has been purported to be started after the imposition of the said moratorium and appeals under Section 37 of the Arbitration Act are being entertained. Therefore, we set aside the order of the District Judge dated 06.07.2017 and further state that the effect of Section 14(1)(a) is that the arbitration that has been instituted after the aforesaid moratorium is non est in law.

7. Mr. Jayant Bhushan, learned Senior Counsel, also informs us that criminal proceeding being F.I.R No. 0605 dated 06.08.2017 has been taken in a desperate attempt to see that the IRP does not continue with the proceedings under the Insolvency Code which are strictly time bound. We quash this proceeding.

8. As a result, the appeal is allowed and the steps that have to be taken under the Insolvency Code will continue unimpeded by any order of any other Court.

SUPREME COURT OF INDIA

RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C) No(s). 18195/2017

Alchemist Asset Reconstrution Company Ltd.….Petitioner(s)

v.

M/s. Hotel Gaudavan Pvt. Ltd. & Ors.….Respondent(s)

(FOR ADMISSION and I.R and IA No. 57914/2017-EXEMPTION FROM FILING O.T and IA No. 57976/2017-PERMISSION TO FILE ADDITIONAL DOCUMENTS)

Date : 23-10-2017 This matter was called on for hearing today.

(Before Rohinton Fali Nariman and Sanjay Kishan Kaul, JJ.)

For Petitioner(s) Mr. Sidhartha Luthra, Sr. Adv.

Mr. Abhirup Das Gupta, Adv.

Ms. Swati Sharma, Adv.

Manmayi Sharma, Adv.

Mr. Rahul Pratap, AOR

For Respondent(s) Mr. Jayant Bhushan, Sr. Adv.

Ashu Kansal, Adv.

Anushree Prashit Kapadia, AOR

Suvidutt M.S, AOR

UPON hearing the counsel the Court made the following

9. Leave granted.

10. The appeal is allowed in terms of the signed order.

11. Pending applications, if any, stand disposed of.

Civil Appeal No. 16929 of 2017,[Arising out of S.L.P (C) No. 18195/2017]

Alchemist Asset Reco... v. M/S. Hotel Gaudavan ...

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Alchemist Asset Reconstrution Company Ltd. Petitioner(S) v. M/S. Hotel Gaudavan Pvt. Ltd. & Ors. (S)

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