Karnataka High Court
Knk Construction Private Limited vs M/S Modern Asset on 26 February, 2026
Author: Suraj Govindaraj
Bench: Suraj Govindaraj
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®
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF FEBRUARY, 2026
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
CIVIL MISC. PETITION NO. 243 OF 2023
BETWEEN
KNK CONSTRUCTION PRIVATE LIMITED
(FORMERLY KNOWN AS KNK NEXGEN CONSTRUCTION PVT LTD)
NO 19, 33RD A CROSS
11TH MAIN
BANGALORE 560041
REP BY ITS DIRECTOR
MR DARSHAN PUSHPARAJ
.... PETITIONER
(BY SRI. PRADEEP NAIK., ADVOCATE FOR
SMT. ANUPAMA G. HEBBAR., ADVOCATE)
AND
M/S MODERN ASSET
A PARTNERSHIP FIRM
BEARING REGISTRATION NO GNR/449/2012-13
HAVING OFFICE AT NO 23,
Digitally signed 4F SANKEY SQUARE
by SHWETHA SANKEY ROAD
RAGHAVENDRA
LOWER PALACE ORCHARDS
Location: HIGH
COURT OF BENGALURU 560003
KARNATAKA REP BY ITS PARTNER
MR KUNAL B GOWDA
.... RESPONDENT
(BY SRI. DHYAN CHINNAPPA., SR ADVOCATE FOR
SRI. SUNDARARAMAN, ADVOCATE )
THIS CMP IS FILED UNDER SECTION 11(6) OF THE
ARBITRATION AND CONCILIATION ACT, 1996 READ WITH THE
APPOINTMENT OF ARBITRATORS BY THE CHIEF JUSTICE OF
KARNATAKA HIGH COURT SCHEME, 1996 PRAYING TO APPOINT AN
ARBITRATOR, WHO IS FORMER HONBLE JUDGE OF THE DISTRICT
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COURT IN KARNATAKA AS THIS HONBLE COURT MAY DEEM FIT,
TOWARDS CONSTITUTION OF ARBITRAL TRIBUNAL FOR
ADJUDICATION UPON ALL THE CLAIMS AND DISPUTES OF THE
PETITIONER AGAINST THE RESPONDENT, THROUGH THE
ARBITRATION AND CONCILIATION CENTRE, BENGALURU PURSUANT
TO THE CLAUSE NO. 19.13 OF THE CC DATED 09.07.2018
.AND ETC.
THIS CMP COMING ON FOR ORDERS AND HAVING BEEN
RESERVED FOR ORDERS ON 19.12.2025, THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:
CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
CAV ORDER
1. The Petitioner is before this Court seeking for the
following reliefs:
(a) Appoint an arbitrator, who is former Honble Judge of
the District Court in Karnataka as this Honble Court may
deem fit, towards constitution of arbitral tribunal for
adjudication upon all the claims and disputes of the
Petitioner against the Respondent, through the Arbitration
and Conciliation Centre, Bengaluru pursuant to the clause
No. 19.13 of the CC dated 09.07.2018
(b) Award costs
(c) Grant such other relief(s) that this Hon'ble High Court
deems fit, in the interests of justice and equity.
2. The Respondent is stated to have floated a tender for
the construction of an office building located at
Sy.No.2/2, Venkatala Village, Yelahanka Hobli,
Bengaluru. The Petitioner, having bid for the same,
was declared successful and awarded the tender. The
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Letter of Intent (LOI) came to be issued on
7.5.2018, and the Letter of Award (LOA) came to be
issued on 28.5.2018, confirming the acceptance of
the bid of the Petitioner for an amount of
Rs.1,33,68,56,000/-.
3. Thereafter, a contract was entered into on 9.7.2018,
which included the Conditions of Contract (CC). The
scope of work for the Petitioner's services was
contained in the above documents, more fully
described in the drawings, specification, bill of
quantities.
4. Respondent initially made a payment of a sum of
Rs.3,06,01,970/- as mobilisation advance to the
Petitioner, in pursuance of which, the Petitioner
furnished a bank guarantee against such advance
payment, which was required to be kept alive until
the entire advance payment was repaid/adjusted.
The Petitioner furnished a mobilisation bank
guarantee on 23.01.2019 for a sum of
Rs.1,56,13,250/-. The agreement stipulated that 5%
of all payments made to the Petitioner would be
retained till completion of the defect liability period,
that is, twelve months.
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5. The Petitioner claims to have commenced the work
on 1.6.2018 and carried out the work in an efficient
manner, and alleges that there are certain delays and
defaults on the part of the Respondent as well as
variations in the scope of works. The time period,
therefore, was extended until 31.12.2019. The
Petitioner claims that 95% of the work had been
completed, and at that stage, when the balance of
the work was in the process of being completed on
9.1.2020, the Respondent issued a notice alleging
breach on the part of the Petitioner and called upon
the Petitioner to remedy the defaults within 14 days.
6. The defaults were contested by the Petitioner. In the
meanwhile, the Corporate Insolvency Resolution
Process (CIRP) had been initiated against the
Petitioner, and a moratorium was imposed with effect
from 11.12.2019, which was only lifted on 5.4.2022.
It is during the period of the moratorium that it is
alleged that the Respondent had illegally invoked the
mobilisation bank guarantee and terminated the
contract/agreement. Apart from that, the Petitioner
has various claims against the Respondent on various
heads of account, which resulted in irreconcilable
disputes arising between the parties. In that
background, the Petitioner vide a legal notice dated
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13.3.2023 invoked the arbitration clause being
Clause 19.13 of the CC by nominating its arbitrator,
which is reproduced hereunder for easy reference:
19.13. ARBITRATION & RELATED ISSUES
The Parties shall attempt to settle any dispute or differences in
relation to or arising out of or touching this Works Contract or
the validity, interpretation, construction, performance breach or
enforceability of this Works Contract (collectively Disputes), by
way of negotiation. To this end, each of the Parties shall use its
reasonable endeavors to consult or negotiate with the other
party in good faith and in recognising the Parties mutual
interests and attempt to reach a just and equitable settlement
satisfactory to both parties. If the parties have not settled the
Dispute by negotiation within 30(Thirty) days from the date on
which negotiation are initiated, the Disputes, if not solved
/settled, shall be referred to, and finally resolved by Arbitration
by the Sole Arbitrator appointed by the Employer. The
Arbitration proceedings shall be handled & construed as per the
Indian Contracts Act 1872 and the Arbitration and Conciliation
Act, 1996 and Rules and amendments made there under.
The arbitration proceedings shall be conducted at Bangalore.
The prevailing party in the Arbitration conducted hereunder
shall be entitled to recover from the other party (as part of the
arbitral award or order) its attorney's fees and other costs.
7. The Respondent had issued a reply notice on
10.4.2023 denying the existence of an arbitration
agreement between the parties, and it is in that
background that the Petitioner has approached this
Court seeking the appointment of an arbitrator.
8. Notice having been issued, the Respondent has
entered an appearance and filed his objections
statement, taking up various contentions. According
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to the Respondent, the Respondent has terminated
the contract/agreement on 25.02.2020. Since the
Corporate Insolvency Resolution Process of the
Petitioner commenced on 17.12.2019, claims were
called for from the creditors of the Petitioner.
9. Accordingly, the Respondent sent their claims to the
Resolution Professional (RP) on 1.3.2020 along with
supporting documents, namely proof of claim.
Reconciliation of the account was also submitted,
certified by the project consultant, wherein it was
computed that the Respondent was liable to receive a
sum of Rs.12,26,30,840.63/- from the Petitioner
even after encashing the bank guarantee for a sum
of Rs.1,56,13,250/-.
10. Though the RP had accepted the entire claim
submitted by the Respondent and quantified the
amount payable by the Petitioner to the Respondent
at Rs.12,26,30,840/- as per the list of operational
creditors submitted by the RP and uploaded on the
website. The RP, having secured details from the
Petitioner and his representative as regards any
amounts due by the Respondent to the Petitioner,
had taken into account the submissions made and
tabulated the dues by holding that there is no
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amount due by the Respondent to the Petitioner, and
as such, no claim could be made by the Petitioner
now.
11. The National Company Law Tribunal (NCLT) had
approved the final resolution plan dated 16.10.2020
submitted by the successful resolution applicants and
has also approved the resolution plan. It is
contended that the said resolution plan is binding on
the corporate debtor, namely, the Petitioner, as well
as its creditors, including the Respondent and other
governmental and statutory authorities. In the
resolution plan, neither the RP nor the Petitioner has
reserved any liberty to institute proceedings against
the Respondent for any claim made against the
Respondent. As per the resolution plan, it was
proposed that the operational creditors would be paid
0.71% of the amount claimed, and it is on that basis
that the payments were made in the time frame
stipulated therein.
12. On that basis, it is contended that there is no
arbitration agreement in existence. The disputes are
non-arbitrable. The claims made by the Petitioner are
deadwood claims. The clean slate theory would be
applicable, and on that basis, it is contended that
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there being no arbitrable dispute, the petition is
required to be dismissed.
13. Sri Pradeep Naik, learned counsel appearing for the
Petitioner, would submit that:
13.1. The scope of Section 11 of the Arbitration and
Conciliation Act 1996 (Hereinafter for brevity
referred to as A&C Act) is extremely narrow
and is limited to determining, prima facie, the
existence of an arbitration agreement. His
contention is that once an arbitration
agreement is placed before the Section 11
Court, the Section 11 Court should appoint an
arbitrator and refer the parties for adjudication
by the arbitrator. None of the disputed aspects
ought to be considered by this Court.
13.2. In this regard, he relies upon the decision of
the Hon'ble Apex Court in the case of SBI
General Insurance vs Krish Spinning1, more
particularly Paras 110, 113, 114, 115, 116,
117, 118, 119, 121 and 138, which are
reproduced hereunder for easy reference:
110. The parties have been conferred with the power to
decide and agree on the procedure to be adopted for
appointing arbitrators. In cases where the agreed upon
1
2024 12 SCC 1
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procedure fails, the courts have been vested with the
power to appoint arbitrators upon the request of a party,
to resolve the deadlock between the parties in appointing
the arbitrators.
113. The scope of examination under Section 11(6-A) is
confined to the existence of an arbitration agreement on
the basis of Section 7. The examination of validity of the
arbitration agreement is also limited to the requirement of
formal validity such as the requirement that the
agreement should be in writing.
114. The use of the term "examination" under Section
11(6-A) as distinguished from the use of the term "rule"
under Section 16 implies that the scope of enquiry under
Section 11(6-A) is limited to a prima facie scrutiny of the
existence of the arbitration agreement, and does not
include a contested or laborious enquiry, which is left for
the Arbitral Tribunal to "rule" under Section 16. The prima
facie view on existence of the arbitration agreement taken
by the Referral Court does not bind either the Arbitral
Tribunal or the Court enforcing the arbitral award.
115. The aforesaid approach serves a twofold purpose --
firstly, it allows the Referral Court to weed out non-
existent arbitration agreements, and secondly, it protects
the jurisdictional competence of the Arbitral Tribunal to
rule on the issue of existence of the arbitration agreement
in depth.
116. Referring to the Statement of Objects and Reasons
of the Arbitration and Conciliation (Amendment) Act,
2015, it was observed in Interplay Between Arbitration
Agreements under the Arbitration Act, 1996 & the Stamp
Act, 1899, In re [Interplay Between Arbitration
Agreements under the Arbitration Act, 1996 & the Stamp
Act, 1899, In re, (2024) 6 SCC 1 : 2023 INSC 1066] that
the High Court and the Supreme Court at the stage of
appointment of arbitrator shall examine the existence of a
prima facie arbitration agreement and not any other
issues. The relevant observations are extracted
hereinbelow: (SCC p. 104, para 220)
"220. The above extract indicates that the Supreme Court
or High Court at the stage of the appointment of an
arbitrator shall "examine the existence of a prima facie
arbitration agreement and [Ed.: The words between two
asterisks have been emphasised in original as well.] not
other issues [Ed.: The words between two asterisks have
been emphasised in original as well.] ". These other issues
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not only pertain to the validity of the arbitration
agreement, but also include any other issues which are a
consequence of unnecessary judicial interference in the
arbitration proceedings. Accordingly, the "other issues"
also include examination and impounding of an unstamped
instrument by the Referral Court at the Section 8 or
Section 11 stage. The process of examination,
impounding, and dealing with an unstamped instrument
under the Stamp Act is not a time-bound process, and
therefore does not align with the stated goal of the
Arbitration Act to ensure expeditious and time-bound
appointment of arbitrators."
(emphasis supplied)
117. In view of the observations made by this Court in
Interplay Between Arbitration Agreements under the
Arbitration Act, 1996 & the Stamp Act, 1899, In re
[Interplay Between Arbitration Agreements under the
Arbitration Act, 1996 & the Stamp Act, 1899, In re, (2024)
6 SCC 1 : 2023 INSC 1066] , it is clear that the scope of
enquiry at the stage of appointment of arbitrator is limited
to the scrutiny of prima facie existence of the arbitration
agreement, and nothing else. For this reason, we find it
difficult to hold that the observations made in Vidya Drolia
[Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 :
(2021) 1 SCC (Civ) 549] and adopted in NTPC Ltd. v.
SPML Infra Ltd. [NTPC Ltd. v. SPML Infra Ltd., (2023) 9
SCC 385 : (2023) 4 SCC (Civ) 342] that the jurisdiction of
the Referral Court when dealing with the issue of "accord
and satisfaction" under Section 11 extends to weeding out
ex facie non-arbitrable and frivolous disputes would
continue to apply despite the subsequent decision in
Interplay Between Arbitration Agreements under the
Arbitration Act, 1996 & the Stamp Act, 1899, In re
[Interplay Between Arbitration Agreements under the
Arbitration Act, 1996 & the Stamp Act, 1899, In re, (2024)
6 SCC 1 : 2023 INSC 1066] .
118. The dispute pertaining to the "accord and
satisfaction" of claims is not one which attacks or
questions the existence of the arbitration agreement in
any way. As held by us in the preceding parts of this
judgment, the arbitration agreement, being separate and
independent from the underlying substantive contract in
which it is contained, continues to remain in existence
even after the original contract stands discharged by
"accord and satisfaction".
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119. The question of "accord and satisfaction", being a
mixed question of law and fact, comes within the exclusive
jurisdiction of the Arbitral Tribunal, if not otherwise agreed
upon between the parties. Thus, the negative effect of
competence-competence would require that the matter
falling within the exclusive domain of the Arbitral Tribunal,
should not be looked into by the Referral Court, even for a
prima facie determination, before the Arbitral Tribunal first
has had the opportunity of looking into it.
121. Tests like the "eye of the needle" and "ex facie
meritless", although try to minimise the extent of judicial
interference, yet they require the Referral Court to
examine contested facts and appreciate prima facie
evidence (however limited the scope of enquiry may be)
and thus are not in conformity with the principles of
modern arbitration which place arbitral autonomy and
judicial non-interference on the highest pedestal.
138. The existence of the arbitration agreement as
contained in Clause 13 of the insurance policy is not
disputed by the appellant. The dispute raised by the
claimant being one of quantum and not of liability, prima
facie, falls within the scope of the arbitration agreement.
The dispute regarding "accord and satisfaction" as raised
by the appellant does not pertain to the existence of the
arbitration agreement, and can be adjudicated upon by
the Arbitral Tribunal as a preliminary issue.
13.3. By relying on Krish Spinning's case, his
submission is that the judicial interference
under the A&C Act is limited, confined to the
examination of the existence of an arbitration
agreement. The said examination is also a
restrictive examination only for the purpose of
weeding out cases where there are no
arbitration agreements. His submission is that it
is the arbitral tribunal that has to rule on the
issue of the existence of the arbitration
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agreement by considering the contentions
taken after evidence and arguments advanced.
His submission is also that the validity of the
arbitration agreement would have to be decided
by the arbitrator and not by the Section 11
Court, including the aspect of whether there is
accord and satisfaction, since it is a mixed
question of law and fact. He therefore submits
that in the present matter, whether there was
accord and satisfaction in the CIRP process or
not, would have to be determined by the
arbitral tribunal.
13.4. He refers to and relies upon the decision of the
Hon'ble Apex Court in the case of In Re:
Interplay between Arbitration Agreements
under the Arbitration and Conciliation Act
1996 and the Indian Stamp Act, 18992
more particularly paras 62, 165 to 169 and
220, which are reproduced hereunder for easy
reference:
65. The Stamp Act is a fiscal legislation which is intended
to raise revenue for the Government. It is a mandatory
statute. In Hindustan Steel Ltd. v. Dilip Construction Co.
[Hindustan Steel Ltd. v. Dilip Construction Co., (1969) 1
SCC 597] , this Court dealt with the import of Sections 35,
36 and 42 of the Stamp Act. One of the parties relied on
the difference in the phraseology between Sections 35 and
2
(2024) 6 SCC 1
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36 to argue that an instrument which was insufficiently
stamped or not stamped could be admitted in evidence
upon the payment of duty and a penalty (if any) but that it
could not be acted upon, once admitted. It was argued that
Section 35 operates as a bar in two respects, namely, the
admission of an instrument into evidence as well as acting
upon that instrument. It was argued that Section 36, in
contrast to Section 35, removed the bar in one respect
alone -- the admissibility of the instrument into evidence.
This Court rejected this argument and held that the
provisions of the Stamp Act clearly provide that an
instrument could be admitted into evidence as well as acted
upon once the appropriate duty has been paid and the
instrument is endorsed : (Hindustan Steel case [Hindustan
Steel Ltd. v. Dilip Construction Co., (1969) 1 SCC 597] ,
SCC p. 600, para 6)
"6. ... The argument ignores the true import of Section 36.
By that section an instrument once admitted in evidence
shall not be called in question at any stage of the same suit
or proceeding on the ground that it has not been duly
stamped. Section 36 does not prohibit a challenge against
an instrument that it shall not be acted upon because it is
not duly stamped, but on that account there is no bar
against an instrument not duly stamped being acted upon
after payment of the stamp duty and penalty according to
the procedure prescribed by the Act. The doubt, if any, is
removed by the terms of Section 42(2) which enact, in
terms unmistakable, that every instrument endorsed by the
Collector under Section 42(1) shall be admissible in
evidence and may be acted upon as if it has been duly
stamped."
(emphasis in original)
165. The legislature confined the scope of reference under
Section 11(6-A) to the examination of the existence of an
arbitration agreement. The use of the term "examination"
in itself connotes that the scope of the power is limited to a
prima facie determination. Since the Arbitration Act is a
self-contained code, the requirement of "existence" of an
arbitration agreement draws effect from Section 7 of the
Arbitration Act. In Duro Felguera [Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC
(Civ) 764] , this Court held that the Referral Courts only
need to consider one aspect to determine the existence of
an arbitration agreement -- whether the underlying
contract contains an arbitration agreement which provides
for arbitration pertaining to the disputes which have arisen
between the parties to the agreement. Therefore, the scope
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of examination under Section 11(6-A) should be confined to
the existence of an arbitration agreement on the basis of
Section 7. Similarly, the validity of an arbitration
agreement, in view of Section 7, should be restricted to the
requirement of formal validity such as the requirement that
the agreement be in writing. This interpretation also gives
true effect to the doctrine of competence-competence by
leaving the issue of substantive existence and validity of an
arbitration agreement to be decided by Arbitral Tribunal
under Section 16. We accordingly clarify the position of law
laid down in Vidya Drolia [Vidya Drolia v. Durga Trading
Corpn., (2021) 2 SCC 1 : (2021) 1 SCC (Civ) 549] in the
context of Section 8 and Section 11 of the Arbitration Act.
166. The burden of proving the existence of arbitration
agreement generally lies on the party seeking to rely on
such agreement. In jurisdictions such as India, which
accept the doctrine of competence-competence, only prima
facie proof of the existence of an arbitration agreement
must be adduced before the Referral Court. The Referral
Court is not the appropriate forum to conduct a mini-trial
by allowing the parties to adduce the evidence in regard to
the existence or validity of an arbitration agreement. The
determination of the existence and validity of an arbitration
agreement on the basis of evidence ought to be left to the
Arbitral Tribunal. This position of law can also be gauged
from the plain language of the statute.
167. Section 11(6-A) uses the expression "examination of
the existence of an arbitration agreement". The purport of
using the word "examination" connotes that the legislature
intends that the Referral Court has to inspect or scrutinise
the dealings between the parties for the existence of an
arbitration agreement. Moreover, the expression
"examination" does not connote or imply a laborious or
contested inquiry. [ P. Ramanatha Aiyar, The Law Lexicon
(2nd Edn., 1997) 666.] On the other hand, Section 16
provides that the Arbitral Tribunal can "rule" on its
jurisdiction, including the existence and validity of an
arbitration agreement. A "ruling" connotes adjudication of
disputes after admitting evidence from the parties.
Therefore, it is evident that the Referral Court is only
required to examine the existence of arbitration
agreements, whereas the Arbitral Tribunal ought to rule on
its jurisdiction, including the issues pertaining to the
existence and validity of an arbitration agreement. A
similar view was adopted by this Court in Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd. [Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234]
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168. In Shin-Etsu [Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd., (2005) 7 SCC 234] , this Court was called
upon to determine the nature of adjudication contemplated
by unamended Section 45 of the Arbitration Act when the
objection with regards to the arbitration agreement being
"null and void, inoperative or incapable of being performed"
is raised before a judicial authority. Writing for the
majority, B.N. Srikrishna, J. held that Section 45 does not
require the judicial authority to give a final determination.
The Court observed that : (SCC p. 267, para 74)
"74. There are distinct advantages in veering to the view
that Section 45 does not require a final determinative
finding by the Court. First, under the Rules of Arbitration of
the International Chamber of Commerce (as in force with
effect from 1-1-1998), as in the present case, invariably
the Arbitral Tribunal is vested with the power to rule upon
its own jurisdiction. Even if the Court takes the view that
the arbitral agreement is not vitiated or that it is not
invalid, inoperative or unenforceable, based upon purely a
prima facie view, nothing prevents the arbitrator from
trying the issue fully and rendering a final decision
thereupon. If the arbitrator finds the agreement valid,
there is no problem as the arbitration will proceed and the
award will be made. However, if the arbitrator finds the
agreement invalid, inoperative or void, this means that the
party who wanted to proceed for arbitration was given an
opportunity of proceeding to arbitration, and the arbitrator
after fully trying the issue has found that there is no scope
for arbitration. Since the arbitrator's finding would not be
an enforceable award, there is no need to take recourse to
the judicial intercession available under Section 48(1)(a) of
the Act."
169. When the Referral Court renders a prima facie
opinion, neither the Arbitral Tribunal, nor the Court
enforcing the arbitral award will be bound by such a prima
facie view. If a prima facie view as to the existence of an
arbitration agreement is taken by the Referral Court, it still
allows the Arbitral Tribunal to examine the issue in depth.
Such a legal approach will help the Referral Court in
weeding out prima facie non-existent arbitration
agreements. It will also protect the jurisdictional
competence of the Arbitral Tribunals to decide on issues
pertaining to the existence and validity of an arbitration
agreement.
220. The above extract indicates that the Supreme Court
or High Court at the stage of the appointment of an
arbitrator shall "examine the existence of a prima facie
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arbitration agreement and not other issues". These other
issues not only pertain to the validity of the arbitration
agreement, but also include any other issues which are a
consequence of unnecessary judicial interference in the
arbitration proceedings. Accordingly, the "other issues" also
include examination and impounding of an unstamped
instrument by the Referral Court at the Section 8 or Section
11 stage. The process of examination, impounding, and
dealing with an unstamped instrument under the Stamp Act
is not a time-bound process, and therefore does not align
with the stated goal of the Arbitration Act to ensure
expeditious and time-bound appointment of arbitrators.
Therefore, even though the Law Commission of India
Report or the Statement of Objects and Reasons of the
2015 Amendment Act do not specifically refer to SMS Tea
Estates [SMS Tea Estates (P) Ltd. v. Chandmari Tea Co. (P)
Ltd., (2011) 14 SCC 66 : (2012) 4 SCC (Civ) 777] , it
nevertheless does not make any difference to the position
of law as has been set out above.
13.5. By referring to Interplay between
Arbitration Agreements, the submission is
that the scope of reference under Section 11 is
confined to the examination of the existence of
an arbitration agreement, which is only a prima
facie determination. The referral courts only
need to consider one aspect to determine the
existence of the arbitration agreement, namely,
whether the underlying contract contains an
arbitration agreement, which provides for
arbitration pertaining to disputes that have
arisen between the parties to the agreement.
The burden of proving the existence of the
arbitration agreement is on the party seeking to
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rely on the agreement. His submission is that
the existence of Clause 19.13 in the agreement
is not disputed by the Respondent, and that
existence has been established by the
Petitioner, requiring the matter to be referred to
arbitration. His submission is also that the
finding of the Section 11 Court is only a prima
facie finding. The same will not be binding on
the arbitral tribunal. That issue could be
decided by the arbitral tribunal.
13.6. He relies upon the decision of the Hon'ble Apex
Court in the case of Duro Felguera S A., vs.
Gangavaram Port Ltd.,3 more particularly
Paras 48, 56 to 59 thereof which are
reproduced hereunder for easy reference:
48. Section 11(6-A) added by the 2015 Amendment,
reads as follows:
"11. (6-A) The Supreme Court or, as the case may be,
the High Court, while considering any application under
sub-section (4) or sub-section (5) or sub-section (6),
shall, notwithstanding any judgment, decree or order of
any court, confine to the examination of the existence of
an arbitration agreement."
(emphasis supplied)
From a reading of Section 11(6-A), the intention of the
legislature is crystal clear i.e. the Court should and need
only look into one aspect--the existence of an arbitration
agreement. What are the factors for deciding as to
3
(2017) 9 SCC 729
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whether there is an arbitration agreement is the next
question. The resolution to that is simple--it needs to be
seen if the agreement contains a clause which provides for
arbitration pertaining to the disputes which have arisen
between the parties to the agreement.
56. Having said that, this being one of the first cases on
Section 11(6-A) of the 1996 Act before this Court, I feel it
appropriate to briefly outline the scope and extent of the
power of the High Court and the Supreme Court under
Sections 11(6) and 11(6-A).
57. This Court in SBP & Co. v. Patel Engg. Ltd. [SBP and
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] overruled
Konkan Railway Corpn. Ltd. v. Mehul Construction Co.
[Konkan Railway Corpn. Ltd. v. Mehul Construction Co.,
(2000) 7 SCC 201] and Konkan Railway Corpn. Ltd. v.
Rani Construction (P) Ltd. [Konkan Railway Corpn. Ltd. v.
Rani Construction (P) Ltd., (2002) 2 SCC 388] to hold that
the power to appoint an arbitrator under Section 11 is a
judicial power and not a mere administrative function. The
conclusion in the decision as summarised by
Balasubramanyan, J. speaking for the majority reads as
follows: (SBP & Co. case [SBP and Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618] , SCC pp. 663-64, para 47)
"47. We, therefore, sum up our conclusions as follows:
(i) The power exercised by the Chief Justice of the High
Court or the Chief Justice of India under Section 11(6) of
the Act is not an administrative power. It is a judicial
power.
(ii) The power under Section 11(6) of the Act, in its
entirety, could be delegated, by the Chief Justice of the
High Court only to another Judge of that Court and by the
Chief Justice of India to another Judge of the Supreme
Court.
(iii) In case of designation of a Judge of the High Court or
of the Supreme Court, the power that is exercised by the
Designated Judge would be that of the Chief Justice as
conferred by the statute.
(iv) The Chief Justice or the Designated Judge will have
the right to decide the preliminary aspects as indicated in
the earlier part of this judgment. These will be his own
jurisdiction to entertain the request, the existence of a
valid arbitration agreement, the existence or otherwise of
a live claim, the existence of the condition for the exercise
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of his power and on the qualifications of the arbitrator or
arbitrators. The Chief Justice or the Designated Judge
would be entitled to seek the opinion of an institution in
the matter of nominating an arbitrator qualified in terms of
Section 11(8) of the Act if the need arises but the order
appointing the arbitrator could only be that of the Chief
Justice or the Designated Judge.
(v) Designation of a District Judge as the authority under
Section 11(6) of the Act by the Chief Justice of the High
Court is not warranted on the scheme of the Act.
(vi) Once the matter reaches the Arbitral Tribunal or the
sole arbitrator, the High Court would not interfere with the
orders passed by the arbitrator or the Arbitral Tribunal
during the course of the arbitration proceedings and the
parties could approach the Court only in terms of Section
37 of the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the High
Court or by the Designated Judge of that Court is a judicial
order, an appeal will lie against that order only under
Article 136 of the Constitution to the Supreme Court.
(viii) There can be no appeal against an order of the Chief
Justice of India or a Judge of the Supreme Court
designated by him while entertaining an application under
Section 11(6) of the Act.
(ix) In a case where an Arbitral Tribunal has been
constituted by the parties without having recourse to
Section 11(6) of the Act, the Arbitral Tribunal will have the
jurisdiction to decide all matters as contemplated by
Section 16 of the Act.
(x) Since all were guided by the decision of this Court in
Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd.
[Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd.,
(2002) 2 SCC 388] and orders under Section 11(6) of the
Act have been made based on the position adopted in that
decision, we clarify that appointments of arbitrators or
Arbitral Tribunals thus far made, are to be treated as
valid, all objections being left to be decided under Section
16 of the Act. As and from this date, the position as
adopted in this judgment will govern even pending
applications under Section 11(6) of the Act.
(xi) Where District Judges had been designated by the
Chief Justice of the High Court under Section 11(6) of the
Act, the appointment orders thus far made by them will be
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treated as valid; but applications if any pending before
them as on this date will stand transferred, to be dealt
with by the Chief Justice of the High Court concerned or a
Judge of that Court designated by the Chief Justice.
(xii) The decision in Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd. [Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd., (2002) 2 SCC 388] is overruled."
(emphasis supplied)
58. This position was further clarified in National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. [National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1
SCC 267 : (2009) 1 SCC (Civ) 117] To quote: (SCC p.
283, para 22)
"22. Where the intervention of the Court is sought for
appointment of an Arbitral Tribunal under Section 11, the
duty of the Chief Justice or his designate is defined in SBP
& Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]
This Court identified and segregated the preliminary issues
that may arise for consideration in an application under
Section 11 of the Act into three categories, that is, (i)
issues which the Chief Justice or his designate is bound to
decide; (ii) issues which he can also decide, that is, issues
which he may choose to decide; and (iii) issues which
should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief
Justice/his designate will have to decide are:
(a) Whether the party making the application has
approached the appropriate High Court.
(b) Whether there is an arbitration agreement and
whether the party who has applied under Section 11 of the
Act, is a party to such an agreement.
22.2. The issues (second category) which the Chief
Justice/his designate may choose to decide (or leave them
to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a
live claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of their
mutual rights and obligation or by receiving the final
payment without objection.
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22.3. The issues (third category) which the Chief
Justice/his designate should leave exclusively to the
Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause
(as for example, a matter which is reserved for final
decision of a departmental authority and excepted or
excluded from arbitration).
(ii) Merits or any claim involved in the arbitration."
59. The scope of the power under Section 11(6) of the
1996 Act was considerably wide in view of the decisions in
SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8
SCC 618] and Boghara Polyfab [National Insurance Co.
Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 :
(2009) 1 SCC (Civ) 117] . This position continued till the
amendment brought about in 2015. After the amendment,
all that the courts need to see is whether an arbitration
agreement exists--nothing more, nothing less. The
legislative policy and purpose is essentially to minimise the
Court's intervention at the stage of appointing the
arbitrator and this intention as incorporated in Section
11(6-A) ought to be respected.
13.7. By relying on Duro Felguera, his submission is
that after the amendment made to Section 11
in 2015 by inserting Section 6-A, an
appointment of an arbitrator would have to be
made, notwithstanding any judgment, decree
or order of any court, by confining the
examination of the existence of an arbitration
agreement. Thus, he submits that irrespective
of the findings of the NCLT and or orders
passed by the NCLT, if there is an existence of
an arbitration agreement, this Court is required
to refer the matter to arbitration. His
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submission is that after the amendment, all
that the courts need to see is whether an
arbitration agreement exists and nothing more,
nothing less and none of the other issues are
required to be examined.
13.8. He relies upon the decision of the Hon'ble Apex
Court in the case of Demerara Distilleries (P)
Ltd., vs. Demerara Distillers Ltd.,4 more
particularly para 5 thereof, which is reproduced
hereunder for easy reference:
5. Of the various contentions advanced by the respondent
Company to resist the prayer for appointment of an
arbitrator under Section 11(6) of the Act, the objections
with regard the application being premature; the disputes
not being arbitrable, and the proceedings pending before
the Company Law Board, would not merit any serious
consideration. The elaborate correspondence by and
between the parties, as brought on record of the present
proceeding, would indicate that any attempt, at this stage,
to resolve the disputes by mutual discussions and
mediation would be an empty formality. The proceedings
before the Company Law Board at the instance of the
present Respondent and the prayer of the petitioners
therein for reference to arbitration cannot logically and
reasonably be construed to be a bar to the entertainment
of the present application. Admittedly, a dispute has
occurred with regard to the commitments of the
respondent Company as regards equity participation and
dissemination of technology as visualised under the
Agreement. It would, therefore, be difficult to hold that the
same would not be arbitrable, if otherwise, the arbitration
clause can be legitimately invoked. Therefore, it is the
objection of the respondent Company that the present
petition is not maintainable at the instance of the
petitioners which alone would require an in-depth
consideration.
4
(2015) 13 SCC 610
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13.9. By relying on Demerara, his submission is that
whether the disputes are arbitrable, premature
or not, would not merit serious consideration in
proceedings under Section 11. Once there was
an arbitration clause in the agreement, the
matter would have to be referred to arbitration.
13.10. He relies on the judgment of the Hon'ble
Karnataka High Court in the case of Mphasis
Limited vs. Strategic Outsourcing Services
Private Limited5 more particularly Para 10
thereof, which is reproduced hereunder for easy
reference:
10. The provisions of the Act were amended by Act No. 3
of 2016 which came into force with effect from 23.10.2015.
Sub-section (6A) was added to section 11 of the Act which
provides that the Supreme Court or as the case may be,
the High Court, while considering an application under sub-
section (4) or sub-section (5) or sub-section (6) shall,
notwithstanding any Judgment, decree or order of any
Court, confine to the examination of existence of an
arbitration agreement. Admittedly, in the instant case, the
agreement dated 15.07.2016 executed between the parties
contains an arbitration clause, viz., clause No. 5. The
Respondent can raise all his objections before the arbitrator
under Section 16 of the Act which need not be examined in
this summary proceedings. So far as submission of the
Respondent that this petition is premature is concerned,
suffice it to say that in the notice dated 25.01.2018, the
Petitioner has clearly stated that the Petitioner has been
following up with the Respondent to perform its obligation
under the agreement. However, despite lapse of 60 days,
no action was taken and therefore, the Petitioner is forced
5
2019 SCC Online Kar 4026
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to invoke the arbitration clause. In the reply dated
12.02.2018, the aforesaid averment of fact has not been
specifically denied and it has been merely stated that
notice has been issued without exhausting alternative
remedy. Besides that, Delhi High court in the case of
RAVINDRAKUMAR VERMA supra, has held that even if the
requirement as stated for invoking the arbitration is not
complied with, the same cannot prevent reference to the
arbitration because the procedure/precondition has to be
taken as directory and not a mandatory requirement. I am
in respectful agreement with the aforesaid view. Therefore,
the objection raised by the Respondent that this proceeding
is premature cannot be sustained.
13.11. By relying on Mphasis, his submission is that a
Coordinate Bench of this Court has held that
once the agreement is admitted, the arbitration
clause therein also having been admitted, any
other objection would have to be raised under
Section 16 of the A&C Act which cannot be
examined in a proceedings under Section 11
which is summary proceedings and therefore,
he submits that any issue raised by the
respondents would have to be considered by
the arbitrator and not by this Court.
13.12. On the basis of the above, he submits that the
petition is required to be allowed and an
Arbitrator be appointed.
14. Sri Dhyan Chinnappa, learned senior counsel
appearing for the Respondent, would submit that:
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14.1. The petition suffers from suppressio veri,
suggestio falsi. There is no valid enforceable
arbitration agreement subsisting between the
parties in view of the approval of the resolution
plan and the consequent operation of the Clean
Slate doctrine under Section 31 of the
Insolvency and Bankruptcy Code, 2016 (IBC).
His submission is that once the CIRP process
has been commenced and completed, there is a
Clean Slate doctrine that applies, inasmuch as
neither the creditor nor the debtor of the
company undergoing CIRP proceedings can
make any claim against each other, against the
company, or by the company against any
creditor or debtor. Thus, he submits that insofar
as all the parties/stakeholders are concerned,
the slate is wiped clean without anyone having
a remedy against others arising out of or
related to the CIRP process.
14.2. His submission is that the Petitioner, having
been directed to make payment of a sum of
Rs.1,74,967/- to the Respondent, it is deemed
that all the claims of the Petitioner have also
been wiped clean and that the Petitioner cannot
make any claim against the Respondent.
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14.3. His submission is that, on the CIRP proceedings
taking place, all the rights and liabilities of the
parties are deemed to be fully dealt with and
crystallised during that process, and no action
can be taken up subsequent thereto. He refers
to section 31 of the IBC, which is reproduced
hereunder for easy reference:
Section 31. Approval of resolution plan.
(1) If the Adjudicating Authority is satisfied that the
resolution plan as approved by the committee of creditors
under sub-section (4) of section 30 meets the requirements
as referred to in sub-section (2) of section 30, it shall by
order approve the resolution plan which shall be binding on
the corporate debtor and its employees, members,
creditors, [including the Central Government, any State
Government or any local authority to whom a debt in
respect of the payment of dues arising under any law for the
time being in force, such as authorities to whom statutory
dues are owed,] guarantors and other stakeholders involved
in the resolution plan.
Provided that the Adjudicating Authority shall, before
passing an order for approval of resolution plan under this
sub-section, satisfy that the resolution plan has provisions
for its effective implementation.]
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements
referred to in sub-section (1), it may, by an order, reject the
resolution plan. (3) After the order of approval under sub-
section (1),--
(a) the moratorium order passed by the Adjudicating
Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records
relating to the conduct of the corporate insolvency
resolution process and the resolution plan to the Board to be
recorded on its database.
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(4) The resolution applicant shall, pursuant to the resolution
plan approved under sub-section (1), obtain the necessary
approval required under any law for the time being in force
within a period of one year from the date of approval of the
resolution plan by the Adjudicating Authority under sub-
section (1) or within such period as provided for in such law,
whichever is later:
Provided that where the resolution plan contains a provision
for combination, as referred to in section 5 of the
Competition Act, 2002 (12 of 2003), the resolution applicant
shall obtain the approval of the Competition Commission of
India under that Act prior to the approval of such resolution
plan by the committee of creditors.
14.4. By referring to Section 31, he submits that the
said provision does not preserve, revive or
reserve any contractual rights or action in
favour of the Petitioner against the Respondent,
nor does it provide for continuation of a
terminated contract or the arbitration clause
contained therein. His submission in this regard
is that all the aspects are deemed to have been
dealt with by the RP during the CIRP process.
The contract having been terminated on
25.2.2020, CIRP proceedings were commenced
on 17.12.2019, and the Respondent had
submitted its proof of claim on 11.3.2020. The
resolution plan was approved on 5.4.2022, the
arbitration notice was issued on 13.3.2023, and
subsequently, in September 2025, the
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Petitioner made payment of the dues to the
Respondent.
14.5. During the said process, the Petitioner has
accepted the claims of the Respondent as
determined by the RP to be 0.71%. Thus, the
Respondent has received only 0.71 paise for
every one rupee receivable by the Respondent,
and has been made to take a haircut for 99.29
paise. On that basis, he submits that if the
Petitioner were to continue with the arbitration
process only in respect of the claim of the
Petitioner, after the Respondent having taken
an haircut, this would amount to double
jeopardy, in as much the Respondent has only
received 0.71% of the amount due to it, but the
Petitioner would be permitted to raise its entire
claim. The Respondent has not received 99.29
paise for every rupee. Thus, he submits that
the Respondent, having received only 0.71
paise per rupee, there being more than a sum
of Rs.12 crore, which has been due, the
Petitioner, after wiping off the liability to the
Respondent, cannot agitate arbitral proceedings
claiming the amounts due without making
payment to the Respondent.
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14.6. His submission is that the clean slate doctrine
would either have to apply to both parties in its
entirety or not at all. There cannot be a
selective application of the clean slate doctrine
only to the creditor, like the Petitioner who
underwent the CIRP process, putting at risk and
disadvantage the Respondent. Such an
anomalous situation would lead to the
Respondent's claim being wiped out, but the
Petitioner's claim continuing, which is not the
purpose and object of the resolution process.
His submission is that the IBC does not
contemplate, nor can this Court endorse, such
an inequitable result. In that background, he
submits that the matter may not be referred to
arbitration and if referred to arbitration, the
Respondent be permitted to raise all its claims
against the Petitioner.
14.7. He submits that the decisions in Krish
Spinning and Duro Felguera would not be
applicable to these facts since they are wholly
distinguishable on the facts. In those matters,
what was considered was with respect to a
subsisting arbitration agreement and in that
background, what was seen was whether, prima
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facie, the existence of the arbitration
agreement was established. Those decisions did
not deal with a situation where the very
contract and arbitration clause stood
extinguished by operation of law under a
statutory insolvency policy on approval of the
resolution plan under Section 31 of the IBC. His
submission is that there is a distinction between
the extinguishment of the contract by way of a
statute and the termination of an agreement by
the parties. If the statute extinguishes a
contract, the arbitration clause cannot be relied
upon.
14.8. Insofar as accord and satisfaction, his
submission is that the judgment in Krish
Spinning dealt with the aspect of accord and
satisfaction between the parties, and not
according to the satisfaction decided by the
Court like the NCLT, on the basis of the
recommendation made by the RP. The RP,
having considered all the dues by both parties,
has balanced the amounts due and paid 71
paise for every rupee to the Respondent, which
is deemed to have been made after taking into
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consideration all the dues of the Respondent to
the Petitioner.
14.9. Insofar as Demerara and Mphasis, his
submission is that those judgments are not
relevant to the present dispute since in the
present matter, the underlying contract has
stood terminated after being extinguished
under an approved resolution plan. On that
basis, he submits that the Cicil Miscellaneous
Petition is required to be dismissed.
15. Sri Pradeep Naik, learned counsel appearing for the
Petitioner in rejoinder, would submit that:
15.1. The clean slate doctrine would apply only
against the corporate debtor, and not as
regards the claims by the corporate debtor. In
that he submits that the clean slate applies only
to the claims of the Respondent against the
Petitioner, and not as regards the claims of the
Petitioner against the Respondent. In this
regard, he relies upon the decision of the
Hon'ble Apex Court in the case of COC Essar
Steel India Ltd., vs. Satish Kumar Gupta
and Ors.,6, more, particularly paras 105 to
6
(2020) 8 SCC 531
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107, which are reproduced hereunder for easy
reference:
105. Section 31(1) of the Code makes it clear that once a
resolution plan is approved by the Committee of Creditors
it shall be binding on all stakeholders, including guarantors.
This is for the reason that this provision ensures that the
successful resolution applicant starts running the business
of the corporate debtor on a fresh slate as it were. In SBI
v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17
SCC 394 : (2019) 2 SCC (Civ) 458] , this Court relying
upon Section 31 of the Code has held: (SCC p. 411, para
25)
"25. Section 31 of the Act was also strongly relied upon by
the respondents. This section only states that once a
resolution plan, as approved by the Committee of
Creditors, takes effect, it shall be binding on the corporate
debtor as well as the guarantor. This is for the reason that
otherwise, under Section 133 of the Contract Act, 1872,
any change made to the debt owed by the corporate
debtor, without the surety's consent, would relieve the
guarantor from payment. Section 31(1), in fact, makes it
clear that the guarantor cannot escape payment as the
resolution plan, which has been approved, may well include
provisions as to payments to be made by such guarantor.
This is perhaps the reason that Annexure VI(e) to Form 6
contained in the Rules and Regulation 36(2) referred to
above, require information as to personal guarantees that
have been given in relation to the debts of the corporate
debtor. Far from supporting the stand of the respondents,
it is clear that in point of fact, Section 31 is one more factor
in favour of a personal guarantor having to pay for debts
due without any moratorium applying to save him."
106. Following this judgment in V. Ramakrishnan case [SBI
v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC
(Civ) 458] , it is difficult to accept Shri Rohatgi's argument
that that part of the resolution plan which states that the
claims of the guarantor on account of subrogation shall be
extinguished, cannot be applied to the guarantees
furnished by the erstwhile Directors of the corporate
debtor. So far as the present case is concerned, we hasten
to add that we are saying nothing which may affect the
pending litigation on account of invocation of these
guarantees. However, Nclat judgment being contrary to
Section 31(1) of the Code and this Court's judgment in V.
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Ramakrishnan case [SBI v. V. Ramakrishnan, (2018) 17
SCC 394 : (2019) 2 SCC (Civ) 458] , is set aside.
107. For the same reason, the impugned Nclat judgment
[Standard Chartered Bank v. Satish Kumar Gupta, 2019
SCC OnLine NCLAT 388] in holding that claims that may
exist apart from those decided on merits by the resolution
professional and by the Adjudicating Authority/Appellate
Tribunal can now be decided by an appropriate forum in
terms of Section 60(6) of the Code, also militates against
the rationale of Section 31 of the Code. A successful
resolution applicant cannot suddenly be faced with
"undecided" claims after the resolution plan submitted by
him has been accepted as this would amount to a hydra
head popping up which would throw into uncertainty
amounts payable by a prospective resolution applicant who
would successfully take over the business of the corporate
debtor. All claims must be submitted to and decided by the
resolution professional so that a prospective resolution
applicant knows exactly what has to be paid in order that it
may then take over and run the business of the corporate
debtor. This the successful resolution applicant does on a
fresh slate, as has been pointed out by us hereinabove. For
these reasons, Nclat judgment must also be set aside on
this count.
15.2. By relying on Satish Kumar Gupta's case, he
submits that once a resolution plan is approved
by the Committee of Creditors (COC), it shall be
binding on all stakeholders, including
guarantors, so as to ensure the successful
resolution applicant starts running the business.
His submission is that once a successful
resolution process has taken place, the
successful resolution applicant cannot suddenly
be faced with undecided claims after the
resolution plan and in that view of the matter,
his submission is that the Respondent, having
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received certain monies, cannot claim any
monies against the Petitioner. It is only the
Petitioner who can claim monies from the
Respondent. He relies upon the judgment of the
Hon'ble Apex Court in the case of
Ghanashyam Mishra & Sons (P) Ltd., vs.
Edelweiss Asset Reconstruction Co. Ltd.,7
more particularly paras 65, 68, 69, 102.1,
102.2, and 102.3, which are reproduced
hereunder for easy reference:
65. Bare reading of Section 31 of the I&B Code would also
make it abundantly clear that once the resolution plan is
approved by the adjudicating authority, after it is satisfied,
that the resolution plan as approved by CoC meets the
requirements as referred to in sub-section (2) of Section
30, it shall be binding on the corporate debtor and its
employees, members, creditors, guarantors and other
stakeholders. Such a provision is necessitated since one of
the dominant purposes of the I&B Code is revival of the
corporate debtor and to make it a running concern.
68. All these details are required to be contained in the
information memorandum so that the resolution applicant
is aware as to what are the liabilities that he may have to
face and provide for a plan, which apart from satisfying a
part of such liabilities would also ensure, that the
corporate debtor is revived and made a running
establishment. The legislative intent of making the
resolution plan binding on all the stakeholders after it gets
the seal of approval from the adjudicating authority upon
its satisfaction, that the resolution plan approved by CoC
meets the requirement as referred to in sub-section (2) of
Section 30 is that after the approval of the resolution plan,
no surprise claims should be flung on the successful
resolution applicant. The dominant purpose is that he
should start with fresh slate on the basis of the resolution
plan approved.
7
(2021) 9 SCC 657
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69. This aspect has been aptly explained by this Court in
Essar Steel (India) Ltd. (CoC) [Essar Steel (India) Ltd.
(CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021)
2 SCC (Civ) 443] : (SCC p. 616, para 107)
"107. For the same reason, the impugned Nclat judgment
in Standard Chartered Bank v. Satish Kumar Gupta
[Standard Chartered Bank v. Satish Kumar Gupta, 2019
SCC OnLine NCLAT 388] in holding that claims that may
exist apart from those decided on merits by the resolution
professional and by the adjudicating authority/Appellate
Tribunal can now be decided by an appropriate forum in
terms of Section 60(6) of the Code, also militates against
the rationale of Section 31 of the Code. A successful
resolution applicant cannot suddenly be faced with
"undecided" claims after the resolution plan submitted by
him has been accepted as this would amount to a hydra
head popping up which would throw into uncertainty
amounts payable by a prospective resolution applicant
who would successfully take over the business of the
corporate debtor. All claims must be submitted to and
decided by the resolution professional so that a
prospective resolution applicant knows exactly what has to
be paid in order that it may then take over and run the
business of the corporate debtor. This the successful
resolution applicant does on a fresh slate, as has been
pointed out by us hereinabove. For these reasons,
102. In the result, we answer the questions framed by us
as under:
102.1. That once a resolution plan is duly approved by the
adjudicating authority under sub-section (1) of Section 31,
the claims as provided in the resolution plan shall stand
frozen and will be binding on the corporate debtor and its
employees, members, creditors, including the Central
Government, any State Government or any local authority,
guarantors and other stakeholders. On the date of
approval of resolution plan by the adjudicating authority,
all such claims, which are not a part of resolution plan,
shall stand extinguished and no person will be entitled to
initiate or continue any proceedings in respect to a claim,
which is not part of the resolution plan.
102.2. The 2019 Amendment to Section 31 of the I&B
Code is clarificatory and declaratory in nature and
therefore will be effective from the date on which the I&B
Code has come into effect.
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102.3. Consequently all the dues including the statutory
dues owed to the Central Government, any State
Government or any local authority, if not part of the
resolution plan, shall stand extinguished and no
proceedings in respect of such dues for the period prior to
the date on which the adjudicating authority grants its
approval under Section 31 could be continued.
15.3. By relying on Ghanashyam Mishra's case, he
submits that once the resolution plan is
approved by the adjudicating authority after it
is satisfied that the resolution plan is approved
by the COC meets the requirement as referred
to in subsection (2) of section 30, it shall be
binding on the corporate debtor and his
employees, members, creditors, guarantors and
other stakeholders. An information
memorandum, once submitted, containing all
the details, the resolution applicant becomes
aware of what liabilities the resolution applicant
may have to face and provide a plan. The same
cannot be subsequently negated by one of the
creditors, claiming any money post the
resolution plan becoming successful.
15.4. He relies on the judgment of the Hon'ble Apex
Court in the case of Gluckrich Capital Pvt.
Ltd., vs. The State of West Bengal and
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Ors.,8 more particularly Paras 5 to 10, which
are reproduced hereunder for easy reference:
5. It is further submitted that the judgment and order
dated January 18, 2023 passed in W.P. (C) (PIL) No. 4 of
2023 in the case of Smt. Sudipa Nath v. Union of India*
passed by the Tripura High Court has wrongly relied upon
the judgment of this Court in the case of Usha
Ananthasubramanian v. Union of India** and has
erroneously held that section 66 of the IBC cannot be
invoked against other persons, entities or organisations
with which there was any business transaction by the
corporate debtor, but only the persons who were
responsible for the conduct of business of the corporate
debtor can be proceeded against.
6. We have considered the arguments advanced by the
learned counsel for the applicant and perused the record.
7. In our considered opinion, in the name of seeking a
clarification, the endeavour of the applicant herein is to
indirectly get over with the judgment and order dated
January 18, 2023 in W.P. (C) (PIL) No. 4 of 2023***
passed by the Tripura High Court. Such an endeavour, in
the guise of a clarification, cannot be permitted.
8. We may also observe that the Tripura High Court has
rightly relied upon the observations made by this Court in a
binding precedent, in Usha
* See (2023) 237 Comp Cas 458 (Tripura).
** See (2020) 220 Comp Cas 295 (SC) ; (2020) 4 SCC
122.
*** See Smt. Sudipa Nath v. Union of India (2023) 237
Comp Cas 458 (Tripura).
Ananthasubramanian v. Union of India*, which pertains to
a matter under section 339(1) of the Companies Act, 2013
which is pari materia with section 66 of the IBC. The High
Court in the case of Smt. Sudipa Nath v. Union of India**
has rightly observed that*** :
"That section 66(1) also directed towards making such
persons personally liable for such fraudulent trading to
8
2023 SCC Online SC 1187
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recouping losses incurred thereby and to provide that the
NCLT can pass order holding such persons liable to make
such contributions to the assets of the corporate debtor as
it may deem fit. No power has been conferred on the NCLT
to pass such orders against other organisations/legal
entities (other than the corporate debtors) with whom such
business was carried out against any person responsible in
such other organisations/legal entities for carrying on
business with the corporate debtor. For the said purpose,
the ratio of the judgment of the hon'ble Supreme Court in
Usha Ananthasubramanian v. Union of India in the context
of section 339(1) one of the companies Act, 2013 as
extracted above would clearly apply even in the context of
section 66(1) of the IBC. Accordingly, an application under
section 66(1) by the resolution professional would not bar
any civil action in accordance with law, either at the
instance of the resolution professional or liquidator or by
the corporate debtor in its new avatar on a successful CIRP
for recovery of any dues payable to the corporate debtor by
such organisation/legal entities. Such legal action is
independent of section 66(1)."
9. Learned counsel appearing for the respondents has
pointed out to us that even the NCLT in other similar
matters has taken the same view following the judgment of
this Court in Usha Ananthasubramanian v. Union of India.
Reference has been made to the order dated February 9,
2023# passed in an application in C.P. (IB) No. 4258/(MB)
of 2019.
10. We are of the considered opinion that in such
circumstances, it is for the resolution professional or the
successful resolution applicant, as the case may be, to take
such civil remedies against third party, for recovery of dues
payable to the corporate debtor, which may be available in
law. The remedy against third party, however, is not
available under section 66 of the IBC, and the civil
remedies which may be available in law, are independent of
the said section.
* See (2020) 220 Comp Cas 295 (SC) ; (2020) 4 SCC 122.
** See (2023) 237 Comp Cas 458 (Tripura).
*** See page 467 of 237 Comp Cas.
# See Barclays Bank PLC v. Piramal Capital and Housing
Finance Ltd. (2023) 239 Comp Cas 825 (NCLT).
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15.5. By referring to Gluckrish Capital's case, his
submission is that the Hon'ble Apex Court has
categorically come to a conclusion that even
after the successful resolution, the successful
resolution applicant, as the case may be, could
take such civil remedies against a third party
for recovery of dues payable by the corporate
debtor, which may be available under law.
15.6. He relies upon the decision of Electrosteel
Steel Limited (Now M/s.ESL Steel Limited)
vs Ispat Carrier Private Limited9, more
particularly, para 29 to 33, 50 and 50.1, which
are reproduced hereunder for easy reference:
29. In Essar Steel India Ltd. (supra), a three-Judge Bench
of this Court examined amongst others the role of
resolution applicants, resolution professionals and the
committee of creditors constituted under the IBC as well as
the jurisdiction of NCLT and NCLAT qua resolution plans
approved by the committee of creditors. After an elaborate
and exhaustive analysis of various provisions of the IBC,
the Bench concluded that a successful resolution applicant
cannot suddenly be faced with 'undecided' claims after the
resolution plan submitted by him has been accepted. This
would amount to a hydra head popping up which would
throw into uncertainty amounts payable by a prospective
resolution applicant. All claims must be submitted to and
decided by the resolution professional so that a prospective
resolution applicant knows exactly what has to be paid in
order that it may then take over and run the business of
corporate debtor. Paragraph 107 of the said decision reads
as under:
9
2025 INSC 525
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107. For the same reason, the impugned NCLAT judgment
[Standard Chartered Bank v. Satish Kumar Gupta, 2019
SCC OnLine NCLAT 388] in holding that claims that may
exist apart from those decided on merits by the resolution
professional and by the Adjudicating Authority/Appellate
Tribunal can now be decided by an appropriate forum in
terms of Section 60(6) of the Code, also militates against
the rationale of Section 31 of the Code. A successful
resolution applicant cannot suddenly be faced with
"undecided" claims after the resolution plan submitted by
him has been accepted as this would amount to a hydra
head popping up which would throw into uncertainty
amounts payable by a prospective resolution applicant who
would successfully take over the business of the corporate
debtor. All claims must be submitted to and decided by the
resolution professional so that a prospective resolution
applicant knows exactly what has to be paid in order that it
may then take over and run the business of the corporate
debtor. This the successful resolution applicant does on a
fresh slate, as has been pointed out by us hereinabove. For
these reasons, NCLAT judgment must also be set aside on
this count.
30. An important question arose for consideration in
Ghanshyam Mishra (supra). Again a three-Judge Bench of
this Court examined a question as to whether any creditor
including the central government, state government or any
local authority is bound by the resolution plan once it is
approved by the adjudicating authority under sub-section
(1) of Section 31 of IBC? Corollary to the above question
was the issue as to whether after approval of the resolution
plan by the adjudicating authority, a creditor including the
central government, state government or any local
authority is entitled to initiate any proceeding for recovery
of any of the dues from the corporate debtor which are not
a part of the resolution plan approved by the adjudicating
authority. In that case, the Bench concluded by holding
that once a resolution plan is duly approved by the
adjudicating authority under sub-section (1) of Section 31,
the claims as provided in the resolution plan shall stand
frozen and will be binding on the corporate debtor and its
employees, members, creditors, including the central
government, any state government or any local authority,
guarantors and other stakeholders. On the date of approval
of the resolution plan by the adjudicating authority, all such
claims which are not a part of the resolution plan shall
stand extinguished and no person will be entitled to initiate
or continue any proceeding in respect to a claim which is
not part of the resolution plan. The Bench declared that all
dues including statutory dues owed to the central
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government, any state government or any local authority if
not part of the resolution plan shall stand extinguished and
no proceeding in respect of such dues for the period prior
to the date on which the adjudicating authority grants its
approval under Section 31 could be continued. Paragraph
102 of the aforesaid decision reads thus:
102 In the result, we answer the questions framed by us as
under:
102.1. That once a resolution plan is duly approved by the
adjudicating authority under sub-section (1) of Section 31,
the claims as provided in the resolution plan shall stand
frozen and will be binding on the corporate debtor and its
employees, members, creditors, including the central
government, any state government or any local authority,
guarantors and other stakeholders. On the date of approval
of resolution plan by the adjudicating authority, all such
claims, which are not a part of the resolution plan, shall
stand extinguished and no person will be entitled to initiate
or continue any proceedings in respect to a claim, which is
not part of the resolution plan.
102.3. Consequently all the dues including the statutory
dues owed to the central government, any state
government or any local authority, if not part of the
resolution plan, shall stand extinguished and no
proceedings in respect of such dues for the period prior to
the date on which the adjudicating authority grants its
approval under Section 31 could be continued.
31. In Ruchi Soya Industries Ltd. (supra), a two-Judge
Bench of this Court referred to the decision in Ghanshyam
Mishra (supra) and thereafter declared that on the date on
which the resolution plan was approved by the NCLT, all
claims stood frozen and no claim, which is not a part of the
resolution plan, would survive.
32. A three-Judge Bench of this Court in Ajay Kumar
Radheshyam Goenka (supra) held that a creditor has no
option but to join the process under the IBC. Once the plan
is approved, it would bind everyone under the sun. The
making of a claim under the IBC and accepting the same
and not making any claim will not make any difference in
the light of Section 31 of IBC. Both the situations will lead
to Section 31 and the finality and binding value of the
resolution plan. Paragraph 62 of the said decision is
extracted hereunder:
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62. Thus, from the aforesaid, it is evident that the creditor
has no option but to join the process under the IBC. Once
the plan is approved, it would bind everyone under the sun.
The making of a claim and accepting whatever share is
allotted could be termed as an "Involuntary Act" on behalf
of the creditor. The making of a claim under the IBC and
accepting the same and not making any claim, will not
make any difference in light of Section 31 IBC. Both the
situations will lead to Section 31 and the finality and
binding value of the resolution plan.
33. In a recent decision, a two-Judge Bench of this Court
decided a contempt application in M/s. JSW Steel Ltd.
Vs. Pratishtha Thakur Haritwal8. Contention of the
Petitioner was that respondents had wilfully disobeyed the
judgment of 2025 INSC 401 this Court in Ghanshyam
Mishra (supra) by issuing demand notices pertaining to the
period covered by the corporate insolvency resolution
process. In the above context, the Bench reiterated what
was held in Ghanshyam Mishra (supra) which has been
followed in subsequent decisions and thereafter declared
that all claims which are not part of the resolution plan
shall stand extinguished. No person will be entitled to
initiate or continue any proceeding in respect to a claim
which is not part of the resolution plan. Though the Bench
did not take any action for contempt in view of the
unconditional apology made by the respondents
nonetheless the Bench reiterated the proposition laid down
in Ghanshyam Mishra (supra) clarifying that even if any
stakeholder is not a party to the proceedings before the
NCLT and if such stakeholder does not raise its claim before
the interim resolution professional/resolution professional,
the resolution plan as approved by the NCLT would still be
binding on him.
50. In so far the second and third issues are concerned, it
is by now well settled that once a resolution plan is duly
approved by the adjudicating authority under sub-section
(1) of Section 31, all claims which are not part of the
resolution plan shall stand extinguished and no person will
be entitled to initiate or continue any proceeding in respect
to a claim which is not part of the resolution plan. In fact,
this Court in Essar Steel India Ltd. (supra) had categorically
declared that a successful resolution applicant cannot be
faced with undecided claims after the resolution plan is
accepted. Otherwise, this would amount to a hydra head
popping up which would throw into uncertainty the amount
payable by the resolution applicant. In so far the resolution
plan is concerned, the resolution professional, the
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committee of creditors and the adjudicating authority noted
about the claim lodged by the Respondent in the arbitration
proceeding. However, the Respondent was not included in
the top 30 operational creditors whose claims were settled
at nil. This can only mean that the three authorities
conducting the corporate insolvency resolution process did
not deem it appropriate to include the Respondent in the
top 30 operational creditors. If the claims of the top 30
operational creditors were settled at nil, it goes without
saying that the claim of the Respondent could not be
placed higher than the said top 30 operational creditors.
Moreover, the resolution plan itself provides that all claims
covered by any suit, cause of action, arbitration etc. shall
be settled at nil. Therefore, it is crystal clear that in so far
claim of the Respondent is concerned, the same would be
treated as nil at par with the claims of the top 30
operational creditors.
50.1. Lifting of the moratorium does not mean that the
claim of the Respondent would stand revived
notwithstanding approval of the resolution plan by the
adjudicating authority. Moratorium is intended to ensure
that no further demands are raised or adjudicated upon
during the corporate insolvency resolution process so that
the process can be proceeded with and concluded without
further complications. View taken by the High Court cannot
be accepted in the light of the clear cut provisions of the
IBC as well as the law laid down by this Court. In view of
the resolution plan, as approved, the claim of the
Respondent stood extinguished. Therefore, the Facilitation
Council did not have the jurisdiction to arbitrate on the said
claim. Since the award was passed without jurisdiction, the
same could be assailed in a proceeding under Section 47
CPC. View taken by the High Court that because the
appellant did not challenge the award under Section 34 of
the 1996 Act, therefore, it was precluded from objecting to
execution of the award at the stage of Section 47 of CPC is
wholly unsustainable.
15.7. By relying on Electrosteel's case, he submits
that once the resolution plan is completed, no
claim can be made by the creditor.
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15.8. He relies upon the decision of the National
Company Law Tribunal, Jaipur Bench, in
M/s.Indus Container Lines Pvt. Ltd. vs
Jadoun International Pvt. Ltd.,10 more
particularly paras 1, 14 to 16, which are
reproduced hereunder for easy reference:
1. The present application bearing IA No. 231/JPR/2019
was filed by the Resolution Professional/Applicant under
Section 60(5) read with Section 20 of the Insolvency and
Bankruptcy Code (IBC/Code) seeking necessary directions
against Respondent No. 2, namely, M/s Kanak Murbles &
Granites Pvt Ltd. i.e, the Respondent No. 2 be directed to
pay the outstanding amount of Rs. 14,55,229/- due to the
Corporate Debtor.
14. The Resolution Professional in the present matter had
approached this forum for recovery of debt which is
allegedly owed by the Respondent No. 2 to the Corporate
Debtor whereas it has forgotten the underlying principle
which enunciates that this is not a debt recovery forum.
There is no doubt that the Resolution Professional has
ampie powers to proceed and protect the debts of the
Corporate Debtor, but it cannot do so by merely filing an
Application under Section 60(5) of the Code in the pending
CIRP of the Corporate Debtor. The Hon'ble Supreme Court
in the matter of Gluckrich Capital Pvt. Ltd. Vs. The State of
West Bengal & Ors., on 19.05.2023 held:
"We are of the considered opinion that in such
circumstances, it is for the Resolution Professional or the
successful resolution applicant, as the case may be, to take
such civil remedies against third party, for recovery of dues
payable to corporate debtor which may be available in law.
The remedy against third party. however, is not available
under Section 66 of IBC, and the civil remedies which may
be available in law, are independent of the said Section.
15. The Applicant has attached a list of invoices as pending
payment against the Respondent No. 2. The Respondent
No. 2 has challenged the debt on the ground that the said
amount was set-off against the claim of the Respondent
10
IA (IBC) No.359/jpr/2019 in IB No.707(p\PB)/2018 dated 11.8.2023
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No. 2 due from the proprietorship firm Jagannath Marbles
and Granites, which is managed by the erstwhile director of
the Corporate Debtor and the said proprietorship firm in
turn owes certain debt to the Respondent No. 2 Company.
16. We are not divulging into the merits of the case which
has been presented by both the parties. While the
Applicant at the time of filing of the Application, with the
intention to protect the assets of the Corporate Debtor,
approached this Authority, the recovery prayed for cannot
be granted. We cannot divert from the principles and ratio
which has evolved in pursuance to the IBC over a period of
time. The Adjudicating Authority does not have the
jurisdiction to allow the Application filed by the Resolution
Professional. The Successful Resolution Applicant is at
liberty to proceed against its debtors by filing appropriate
application with the competent Court of law and for the
purpose of the same, the period of this Application shall be
excluded from limitation.
15.9. By relying on the Indus Container case, his
submission is that recovery of monies in the
insolvency proceedings cannot be granted by
filing an application under section 60 (5) of the
IBC. The successful resolution applicant would
be at liberty to proceed against his debtors by
filing an appropriate application with the
competent Court. Thus, he submits that the
right of the successful resolution company, that
is, the Petitioner, to recover monies continues
even after the completion of the CIRP process,
which has now been exercised by the Petitioner
and cannot be negated by the Respondent.
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16. Sri. Dhyan Chinnappa, learned senior counsel in sur-
rejoinder, submits that:
16.1. Satish Kumar Gupta's case is not applicable
since it did not deal with the situation where
the corporate debtor, like the Petitioner, had not
asserted any counterclaims or recoveries
against a creditor, like the Respondent, whose
claim stood admitted, crystallised and settled
during the CIRP. The judgment not having
determined if the claim of the creditor, that is,
the Petitioner, survives and only having dealt
with the claim of the debtor, like the
Respondent, that decision would not be
applicable. The Respondent's claim has been
admitted in full, no counterclaim has been
recorded, and such a situation has not been
dealt with.
16.2. Insofar as Ghanashyam Mishra's case, he
again submits that that decision also addressed
only one side of the equation. When there were
claims against the corporate debtor, the claims
of the corporate creditor not been dealt with,
that decision is inapplicable.
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16.3. Insofar as Gluckrich Capital's case, his
submission is that was a case where the
statutory authorities' rights were extinguished.
Since the issue before the Court was whether
government claims could be pursued post
approval of the resolution plan.
16.4. As regards Electrosteel, he submits that that
was a case arising out of an execution of an
arbitral award in favour of an operational
creditor and in that background, the Hon'ble
Apex Court held that the claims of the creditors
stood extinguished upon approval of the
resolution plan and that the arbitral award
could not be executed post-CIRP.
16.5. On the basis of the above submissions, he
submits that the resolution process being
completed, the claims of the Respondent having
been considered by resolution professional and
payments made would be deemed to have
taken into account, the claims of the Petitioner
against the Respondent and as such, after the
resolution process is completed, the Petitioner
cannot initiate proceedings once again
inasmuch as the Respondent has been forced to
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take a haircut on account of statutory provision
of a sum of Rs.99.29 paise per rupee and
cannot be now mulcted with further claims of
the Petitioner without the Respondent having a
recourse to raise a claim for the balance
amounts.
17. Heard Sri Pradeep Naik, learned counsel appearing
for the Petitioner and Sri Dhyan Chinnappa, learned
senior counsel appearing for the Respondent.
Perused papers.
18. Upon hearing the learned counsel for the parties,
perusing the pleadings and documents placed on
record, and having regard to the statutory scheme
under the Arbitration and Conciliation Act, 1996 and
the Insolvency and Bankruptcy Code, 2016, the
following questions arise for consideration:
i. Whether Clause 19.13 of the Conditions of
Contract dated 09.07.2018 constitutes a
valid arbitration agreement within the
meaning of Section 7 of the Arbitration
and Conciliation Act, 1996. If so, whether
such arbitration agreement survives
termination of the underlying contract and
continues to subsist notwithstanding the
approval of the Resolution Plan under
Section 31(1) of the Insolvency and
Bankruptcy Code, 2016?
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ii. What is the scope of jurisdiction of this
Court under Section 11 of the Arbitration
and Conciliation Act, 1996. In particular,
whether in view of Section 11(6-A), this
Court is confined to a prima facie
examination of the existence of an
arbitration agreement, or whether it is
competent to examine the legal
consequences flowing from the approval of
a Resolution Plan under Section 31 of the
Insolvency and Bankruptcy Code, 2016,
including the applicability and effect of the
"Clean Slate" doctrine?
iii. What is the effect of approval of the
Resolution Plan under Section 31(1) of the
Insolvency and Bankruptcy Code, 2016 on
the claims sought to be raised in the
present proceedings. Whether, upon such
approval, all claims not forming part of the
Resolution Plan stand extinguished in their
entirety, including claims of the corporate
debtor against third parties; or whether
such extinguishment operates only in
respect of claims against the corporate
debtor, leaving intact independent
remedies of the corporate debtor against
its counterparties?
iv. Whether, having regard to the initiation
and completion of the Corporate
Insolvency Resolution Process, the
submission and adjudication of claims
before the Resolution Professional, and
the implementation of the approved
Resolution Plan without any express
reservation of rights, the disputes now
sought to be raised by the Petitioner
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stands extinguished by operation of law,
or amount to accord and satisfaction,
waiver or estoppel, or whether they
constitute live and arbitrable disputes
capable of being referred to arbitration?
v. What is the interplay between the doctrine
of competence-competence under Section
16 of the Arbitration and Conciliation Act,
1996 and the statutory finality attached to
an approved Resolution Plan under Section
31 of the Insolvency and Bankruptcy Code,
2016. Specifically, whether upon a prima
facie arbitration agreement being shown,
all objections ought to be left to the
Arbitral Tribunal; or whether the statutory
consequences of approval of the
Resolution Plan constitute a threshold
jurisdictional bar which this Court is
required to examine at the stage of
Section 11?
vi. Whether any live and subsisting arbitrable
dispute survives between the parties so as
to warrant exercise of jurisdiction under
Section 11(6) of the Arbitration and
Conciliation Act, 1996, and consequently,
whether the present petition deserves to
be allowed by appointment of a Sole
Arbitrator or dismissed for want of a
subsisting arbitrable claim or enforceable
arbitration agreement.
vii. What Order?
19. I answer the above points as follows:
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20. Answer to Point No.(i): Whether Clause 19.13
of the Conditions of Contract dated 09.07.2018
constitutes a valid arbitration agreement within
the meaning of Section 7 of the Arbitration and
Conciliation Act, 1996. If so, whether such an
arbitration agreement survives termination of
the underlying contract and continues to
subsist notwithstanding the approval of the
Resolution Plan under Section 31(1) of the
Insolvency and Bankruptcy Code, 2016?
20.1. Sri Pradeep Naik, learned counsel appearing for
the Petitioner, submits that the scope of Section
11 of A&C Act is extremely narrow and is
limited to determining, prima facie, the
existence of an arbitration agreement. His
contention is that once an arbitration
agreement is placed before the Section 11
Court, the Section 11 Court should appoint an
arbitrator and refer the parties for adjudication
by the arbitrator. None of the disputed aspects
ought to be considered by this Court.
20.2. Learned counsel submits that Clause 19.13 of
the Conditions of Contract dated 09.07.2018 is
an arbitration clause that satisfies all the
requirements of Section 7 of the Act. The said
clause is in writing, it is part of the contract
between the parties, it provides for reference of
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disputes to arbitration by a Sole Arbitrator
appointed by the Employer, it specifies that the
arbitration proceedings shall be conducted at
Bangalore, and it expressly refers to the A&C
Act. The existence of Clause 19.13 is not
disputed by the Respondent. On that basis, he
submits that the existence of an arbitration
agreement has been established by the
Petitioner.
20.3. By relying on the decision of the Hon'ble Apex
Court in SBI General Insurance vs Krish
Spinning, he submits that the judicial
interference under the A&C Act is limited,
confined to the examination of the existence of
an arbitration agreement. The said examination
is also a restrictive examination only for the
purpose of weeding out cases where there are
no arbitration agreements. His further
submission is that it is the arbitral tribunal that
has to rule on the issue of the existence of the
arbitration agreement by considering the
contentions taken after evidence and
arguments advanced. The validity of the
arbitration agreement would have to be decided
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by the arbitrator and not by the Section 11
Court.
20.4. Placing reliance on In Re: Interplay between
Arbitration Agreements under the
Arbitration and Conciliation Act 1996 and
the Indian Stamp Act, 1899, his submission
is that the scope of reference under Section 11
is confined to the examination of the existence
of an arbitration agreement, which is only a
prima facie determination. The referral courts
only need to consider one aspect to determine
the existence of the arbitration agreement,
namely, whether the underlying contract
contains an arbitration agreement which
provides for arbitration pertaining to disputes
that have arisen between the parties to the
agreement.
20.5. He further relies upon Duro Felguera S.A. vs
Gangavaram Port Ltd. and submits that after
the amendment made to Section 11 in 2015 by
inserting Section 6-A, an appointment of an
arbitrator would have to be made
notwithstanding any judgment, decree or order
of any court by confining the examination to
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the existence of an arbitration agreement. After
the amendment, all that the courts need to see
is whether an arbitration agreement exists and
nothing more, nothing less.
20.6. He additionally relies upon Demerara
Distilleries (P) Ltd. vs Demerara Distillers
Ltd., and submits that whether the disputes are
arbitrable, premature or not, would not merit
serious consideration in proceedings under
Section 11. Once there was an arbitration
clause in the agreement, the matter would have
to be referred to arbitration.
20.7. By placing relaince on Mphasis Limited vs
Strategic Outsourcing Services Private
Limited he submits that a Coordinate Bench of
this Court has held that once the agreement is
admitted, the arbitration clause therein also
having been admitted, any other objection
would have to be raised under Section 16 of the
A&C Act which cannot be examined in
proceedings under Section 11 which is
summary proceedings.
20.8. In rejoinder, learned counsel for the Petitioner
submits that the arbitration agreement being
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separate and independent from the underlying
substantive contract in which it is contained,
continues to remain in existence even after the
original contract stands discharged. He relies
upon Krish Spinning, wherein the Hon'ble
Apex Court has held that the arbitration
agreement, being separate and independent
from the underlying substantive contract,
continues to remain in existence even after the
original contract stands discharged by accord
and satisfaction.
20.9. Sri Dhyan Chinnappa, learned senior counsel
appearing for the Respondent, submits that the
petition suffers from suppressio veri, suggestio
falsi.
20.10. His primary contention is that there is no valid
enforceable arbitration agreement subsisting
between the parties in view of the approval of
the Resolution Plan and the consequent
operation of the Clean Slate doctrine under
Section 31 of the Insolvency and Bankruptcy
Code, 2016 (hereinafter referred to as the
IBC). His submission is that once the CIRP
process has been commenced and completed,
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the Clean Slate doctrine would apply inasmuch
as neither the creditor nor the debtor of the
company undergoing CIRP proceedings can
make any claim against each other.
20.11. Learned senior counsel further submits that the
Respondent had terminated the
contract/agreement on 25.02.2020. The CIRP
of the Petitioner commenced on 17.12.2019.
The Respondent submitted its proof of claim to
the Resolution Professional on 11.03.2020. The
RP had accepted the entire claim submitted by
the Respondent and quantified the amount
payable by the Petitioner to the Respondent at
Rs.12,26,30,840/-. The Resolution Plan was
approved on 05.04.2022. As per the Resolution
Plan, the operational creditors would be paid
0.71% of the amount claimed. Accordingly, the
Respondent received only 0.71 paise for every
one rupee receivable. His submission is that if
the Petitioner were to continue with the
arbitration process only in respect of its own
claim, after the Respondent having taken a
haircut of 99.29 paise per rupee, this would
amount to double jeopardy.
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20.12. Learned senior counsel refers to Section 31 of
the IBC and submits that the said provision
does not preserve, revive or reserve any
contractual rights or action in favour of the
Petitioner against the Respondent, nor does it
provide for continuation of a terminated
contract or the arbitration clause contained
therein. His submission is that all the aspects
are deemed to have been dealt with by the RP
during the CIRP process.
20.13. Learned senior counsel submits that the
decisions in Krish Spinning and Duro
Felguera would not be applicable to these facts
since they are wholly distinguishable. In those
matters, what was considered was with respect
to a subsisting arbitration agreement and in
that background, what was seen was whether,
prima facie, the existence of the arbitration
agreement was established. Those decisions did
not deal with a situation where the very
contract and arbitration clause stood
extinguished by operation of law under a
statutory insolvency regime on approval of the
Resolution Plan under Section 31 of the IBC. His
submission is that there is a distinction between
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the extinguishment of the contract by way of a
statute and the termination of an agreement by
the parties.
20.14. Insofar as accord and satisfaction, learned
senior counsel submits that Krish Spinning
dealt with accord and satisfaction between the
parties inter se, and not according to the
satisfaction decided by a Court like the NCLT on
the basis of the recommendation made by the
RP. The RP, having considered all the dues by
both parties, has balanced the amounts due
and paid 0.71 paise per rupee to the
Respondent, which is deemed to have been
made after taking into consideration all the
dues of the Respondent to the Petitioner.
20.15. Insofar as Demerara and Mphasis, his
submission is that those judgments are not
relevant to the present dispute since in the
present matter, the underlying contract has
stood terminated after being extinguished
under an approved Resolution Plan.
20.16. In sur-rejoinder, learned senior counsel submits
that the Clean Slate doctrine would either have
to apply to both parties in its entirety or not at
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all. There cannot be a selective application of
the Clean Slate doctrine only to the creditor.
Such an anomalous situation would lead to the
Respondent's claim being wiped out, but the
Petitioner's claim continuing, which is not the
purpose and object of the resolution process.
20.17. The first question that this Court is called upon
to address is whether Clause 19.13 of the
Conditions of Contract dated 09.07.2018
constitutes a valid arbitration agreement within
the meaning of Section 7 of the Act. Section 7
of the Arbitration and Conciliation Act, 1996
reads as follows:
7. Arbitration agreement.--(1) In this Part, "arbitration
agreement" means an agreement by the parties to submit
to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained
in--
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means
of telecommunication including communication through
electronic means which provide a record of the agreement;
or
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(c) an exchange of statements of claim and defence in
which the existence of the agreement is alleged by one
party and not denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if
the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.
20.18. On a plain reading of Section 7, an arbitration
agreement must satisfy the following
requirements: (a) it must be an agreement by
the parties to submit disputes to arbitration;
(b) the disputes must arise in respect of a
defined legal relationship, whether contractual
or not; (c) the agreement must be in writing;
and (d) it may be in the form of an arbitration
clause in a contract or a separate agreement.
20.19. Clause 19.13 of the Conditions of Contract,
which is the arbitration clause in question, is
reproduced hereunder for ease of reference:
19.13. ARBITRATION & RELATED ISSUES
The Parties shall attempt to settle any dispute or differences
in relation to or arising out of or touching this Works
Contract or the validity, interpretation, construction,
performance breach or enforceability of this Works Contract
(collectively Disputes), by way of negotiation. To this end,
each of the Parties shall use its reasonable endeavors to
consult or negotiate with the other party in good faith and in
recognising the Parties mutual interests and attempt to
reach a just and equitable settlement satisfactory to both
parties. If the parties have not settled the Dispute by
negotiation within 30(Thirty) days from the date on which
negotiation are initiated, the Disputes, if not solved /settled,
shall be referred to, and finally resolved by Arbitration by
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the Sole Arbitrator appointed by the Employer. The
Arbitration proceedings shall be handled & construed as per
the Indian Contracts Act 1872 and the Arbitration and
Conciliation Act, 1996 and Rules and amendments made
there under.
The arbitration proceedings shall be conducted at Bangalore.
The prevailing party in the Arbitration conducted hereunder
shall be entitled to recover from the other party (as part of
the arbitral award or order) its attorney's fees and other
costs.
20.20. On a careful reading of Clause 19.13, this Court
finds that:
20.20.1. The clause provides for submission of
disputes to arbitration. It states that
disputes, if not settled by negotiation
within 30 days, "shall be referred to, and
finally resolved by Arbitration by the Sole
Arbitrator appointed by the Employer."
This satisfies the requirement under
Section 7(1) that there be an agreement
to submit disputes to arbitration.
20.20.2. The disputes contemplated are those "in
relation to or arising out of or touching
this Works Contract or the validity,
interpretation, construction, performance
breach or enforceability of this Works
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Contract." This relates to a defined legal
relationship, namely, the contractual
relationship under the Works Contract.
This satisfies the requirement that
disputes arise in respect of a defined
legal relationship.
20.20.3. The clause is contained in the Conditions
of Contract dated 09.07.2018, which is a
written document executed between the
parties. This satisfies the requirement
under Section 7(3) that the arbitration
agreement be in writing, and under
Section 7(2) read with Section 7(4)(a)
that it is contained in a document.
20.20.4. The clause further specifies the seat of
arbitration as Bangalore and makes
express reference to the Arbitration and
Conciliation Act, 1996.
20.21. It is pertinent to note that the Respondent does
not dispute the existence of Clause 19.13 in the
Conditions of Contract. The Respondent's
objection is not that there is no arbitration
clause, but that the arbitration clause has
ceased to be enforceable on account of the
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completion of the CIRP process and the
approval of the Resolution Plan. This is a
significant distinction. The existence of the
arbitration clause, on a prima facie
examination, is clearly established.
20.22. The next limb of this Point requires this Court to
examine whether the arbitration agreement
survives the termination of the underlying
contract and continues to subsist
notwithstanding the approval of the Resolution
Plan under Section 31(1) of the IBC.
20.23. The doctrine of separability of the arbitration
clause from the underlying contract is a well-
established principle. The Hon'ble Apex Court in
SBI General Insurance vs Krish Spinning
has categorically held at Para 118 that:
118. The dispute pertaining to the "accord and satisfaction" of
claims is not one which attacks or questions the existence of
the arbitration agreement in any way. As held by us in the
preceding parts of this judgment, the arbitration agreement,
being separate and independent from the underlying
substantive contract in which it is contained, continues to
remain in existence even after the original contract stands
discharged by "accord and satisfaction".
20.24. The principle emanating from Krish Spinning
is clear: the arbitration agreement is separate
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and independent from the underlying
substantive contract. It continues to remain in
existence even after the original contract stands
discharged. The rationale behind this principle
is that the arbitration agreement has an
autonomous existence, and its survival does not
depend on the continued subsistence of the
underlying contract. This is the doctrine of
separability, which is recognised in Section
16(1)(a) of the Act, which provides that an
arbitration clause which forms part of a contract
shall be treated as an agreement independent
of the other terms of the contract.
20.25. The Respondent's contention is that the
contract having been terminated on 25.02.2020
and the CIRP process having been completed
with the approval of the Resolution Plan, the
arbitration clause has ceased to exist. However,
this contention confuses two distinct legal
concepts: (a) the termination of the underlying
contract, and (b) the continued existence of the
arbitration agreement. The termination of the
contract does not ipso facto terminate the
arbitration clause contained therein. As held in
Krish Spinning (supra), the arbitration
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agreement survives the discharge of the
contract.
20.26. As regards the impact of the approval of the
Resolution Plan on the arbitration agreement,
this Court notes that Section 31 of the IBC
deals with the approval of the Resolution Plan
and its binding nature on the corporate debtor,
its employees, members, creditors, guarantors
and other stakeholders. However, Section 31
does not expressly provide for the
extinguishment of arbitration agreements. The
extinguishment, if any, is of claims and not of
the arbitration agreement per se. There is a
distinction between the extinguishment of a
claim and the extinguishment of the mechanism
(i.e., the arbitration agreement) by which a
claim may be adjudicated.
20.27. The Respondent's submission that the decisions
in Krish Spinning and Duro Felguera are
distinguishable is noted. Learned senior counsel
argues that those decisions dealt with
subsisting arbitration agreements and not with
situations where the contract stood
extinguished by operation of law. This Court,
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however, finds that the principle of separability
is of universal application. Whether the contract
is terminated by the parties or stands
extinguished by operation of law, the arbitration
clause, being an autonomous agreement,
retains its independent existence. The doctrine
of separability does not carve out any exception
for statutory extinguishment of the underlying
contract.
20.28. In In Re: Interplay between Arbitration
Agreements, at Para 165, the Hon'ble Apex
Court has held that the legislature confined the
scope of reference under Section 11(6-A) to the
examination of the existence of an arbitration
agreement, and the use of the term
"examination" itself connotes that the scope of
the power is limited to a prima facie
determination. The requirement of "existence"
draws effect from Section 7 of the Act. In Duro
Felguera (supra), the Hon'ble Apex Court has
held that the referral courts only need to
consider one aspect: whether the underlying
contract contains an arbitration agreement
which provides for arbitration pertaining to the
disputes which have arisen between the parties.
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20.29. Applying the above principles to the facts of the
present case, this Court finds, on a prima facie
examination, that Clause 19.13 constitutes a
valid arbitration agreement within the meaning
of Section 7 of the Act. The clause satisfies all
the formal requirements of a valid arbitration
agreement. As regards its survival, the doctrine
of separability, as enunciated in Krish
Spinning (supra), mandates that the
arbitration agreement continues to exist
independent of the underlying contract. The
termination of the contract and the approval of
the Resolution Plan do not, prima facie,
extinguish the arbitration agreement.
20.30. Insofar as the decisions relied upon by the
Respondent are concerned, the Respondent has
primarily sought to distinguish the decisions
relied upon by the Petitioner rather than placing
reliance upon any independent authority to
support the proposition that an arbitration
clause stands automatically extinguished upon
approval of a Resolution Plan. No authority has
been placed before this Court, by the
Respondent, which holds that Section 31 of the
IBC expressly or impliedly extinguishes an
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arbitration agreement. The extinguishment, if
at all, is of claims, and not of the arbitration
agreement as a dispute resolution mechanism.
20.31. Accordingly, I answer Point No.(i) by
holding that Clause 19.13 of the
Conditions of Contract dated 09.07.2018
constitutes a valid arbitration agreement
within the meaning of Section 7 of the Act,
and the said arbitration agreement, by
virtue of the doctrine of separability,
survives the termination of the underlying
contract and continues to subsist, prima
facie, notwithstanding the approval of the
Resolution Plan under Section 31(1) of the
IBC.
21. Answer to Point No.(ii): What is the scope of
jurisdiction of this Court under Section 11 of
the Arbitration and Conciliation Act, 1996. In
particular, whether in view of Section 11(6-A),
this Court is confined to a prima facie
examination of the existence of an arbitration
agreement, or whether it is competent to
examine the legal consequences flowing from
the approval of a Resolution Plan under Section
31 of the Insolvency and Bankruptcy Code,
2016, including the applicability and effect of
the "Clean Slate" doctrine?
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21.1. Sri Pradeep Naik, learned counsel for the
Petitioner, submits that the scope of
examination under Section 11 is extremely
narrow and is confined to the prima facie
existence of an arbitration agreement. He relies
upon Section 11(6-A), which was introduced by
the 2015 Amendment and provides that the
High Court, while considering an application
under sub-section (4), (5) or (6), shall,
notwithstanding any judgment, decree or order
of any court, confine to the examination of the
existence of an arbitration agreement. The
provision is extracted hereunder:
Section 11(6-A). The Supreme Court or, as the case may
be, the High Court, while considering any application under
sub-section (4) or sub-section (5) or sub-section (6), shall,
notwithstanding any judgment, decree or order of any court,
confine to the examination of the existence of an arbitration
agreement.
21.2. Learned counsel relies upon Krish Spinning
(supra), where at Para 117, the Hon'ble Apex
Court observed: "it is clear that the scope of
enquiry at the stage of appointment of
arbitrator is limited to the scrutiny of prima
facie existence of the arbitration agreement,
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and nothing else." His submission is that the
words "and nothing else" are of critical
importance and conclusively determine that this
Court cannot venture into examining the legal
consequences of the Resolution Plan or the
applicability of the Clean Slate doctrine.
21.3. Learned counsel further relies upon Interplay
between Arbitration Agreements (supra),
and Duro Felguera (supra), to reiterate that
after the 2015 Amendment, the courts need to
see only whether an arbitration agreement
exists, nothing more, nothing less. The
legislative policy and purpose is essentially to
minimise the Court's intervention at the stage
of appointing the arbitrator.
21.4. Learned counsel further relies upon Demerara
Distilleries (supra), to submit that objections
regarding disputes not being arbitrable,
proceedings being premature, and similar
contentions would not merit any serious
consideration at the Section 11 stage. He also
relies upon Mphasis Limited (supra), where a
Coordinate Bench of this Court held that once
the agreement is admitted and the arbitration
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clause therein is also admitted, any other
objection would have to be raised under Section
16 of the Act, which cannot be examined in
summary proceedings under Section 11.
21.5. Sri Dhyan Chinnappa, learned senior counsel
for the Respondent, submits that the decisions
relied upon by the Petitioner cannot be read as
laying down an absolute rule that this Court is
prohibited from examining any aspect beyond
the bare existence of an arbitration clause. His
submission is that where the very foundation of
the contractual relationship, including the
arbitration clause, has been extinguished by
operation of a statute, namely, the IBC, the
question is no longer merely about the formal
existence of the arbitration agreement, but
about whether any enforceable arbitration
agreement continues to subsist at all.
21.6. Learned senior counsel submits that the Clean
Slate doctrine, which flows from Section 31 of
the IBC as interpreted by the Hon'ble Apex
Court, is a statutory consequence of the
approval of the Resolution Plan. It is not a
contractual defence like accord and satisfaction
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or waiver. When a statute extinguishes all rights
and liabilities, the question whether the
arbitration clause survives is itself a question
that goes to the existence of the arbitration
agreement.
21.7. His submission is that Krish Spinning dealt
with the aspect of accord and satisfaction
between private parties, and the Court held
that such a question, being a mixed question of
law and fact, should be left to the arbitral
tribunal. However, the present case does not
involve mere contractual accord and satisfaction
but involves the statutory extinguishment of
claims through an approved Resolution Plan
under the IBC, which is a fundamentally
different legal question.
21.8. The question of the scope of jurisdiction of this
Court under Section 11 is a threshold question
that must be answered before proceeding to
examine the substantive issues raised by the
parties. The answer to this question will
determine the extent to which this Court may
venture into the legal consequences of the
approval of the Resolution Plan.
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21.9. Section 11(6-A) of the A&C Act is clear and
unambiguous. It mandates that the Court shall
confine itself to the examination of the
existence of an arbitration agreement. The
word "shall" leaves no room for discretion. The
word "confine" sets the outer boundary of the
Court's jurisdiction. The phrase "existence of an
arbitration agreement" defines the subject
matter of the Court's examination.
21.10. The Hon'ble Apex Court, in a series of
decisions, has consistently narrowed the scope
of inquiry at the Section 11 stage. In SBI
General Insurance vs Krish Spinning
(supra), the Hon'ble Apex Court, at Para 113,
held:
113. The scope of examination under Section 11(6-A) is
confined to the existence of an arbitration agreement on the
basis of Section 7. The examination of validity of the
arbitration agreement is also limited to the requirement of
formal validity such as the requirement that the agreement
should be in writing.
21.11. At Para 114, the Court further held that the use
of the term "examination" under Section 11(6-
A), as distinguished from the use of the term
"rule" under Section 16, implies that the scope
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of enquiry under Section 11(6-A) is limited to a
prima facie scrutiny of the existence of the
arbitration agreement, and does not include a
contested or laborious enquiry, which is left for
the Arbitral Tribunal to "rule" under Section 16.
21.12. At Para 117, the Court went further and held:
117. ...it is clear that the scope of enquiry at the stage of
appointment of arbitrator is limited to the scrutiny of prima
facie existence of the arbitration agreement, and nothing else.
For this reason, we find it difficult to hold that the
observations made in Vidya Drolia and adopted in NTPC Ltd.
v. SPML Infra Ltd. that the jurisdiction of the Referral Court
when dealing with the issue of "accord and satisfaction" under
Section 11 extends to weeding out ex facie non-arbitrable and
frivolous disputes would continue to apply despite the
subsequent decision in Interplay Between Arbitration
Agreements...
21.13. This is a significant development in the law. The
Hon'ble Apex Court has, in Krish Spinning,
effectively overruled the wider scope of inquiry
that was permitted under Vidya Drolia vs
Durga Trading Corporation and NTPC Ltd.
vs SPML Infra Ltd.. The earlier position which
permitted the Referral Court to weed out ex
facie non-arbitrable and frivolous disputes has
been displaced by the narrower position that
the Court's examination is limited to the prima
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facie existence of the arbitration agreement,
and nothing else.
21.14. In In Re: Interplay between Arbitration
Agreements (supra), the Hon'ble Apex Court
at Para 165 held:
165. The legislature confined the scope of reference under
Section 11(6-A) to the examination of the existence of an
arbitration agreement. The use of the term "examination" in
itself connotes that the scope of the power is limited to a
prima facie determination...The scope of examination under
Section 11(6-A) should be confined to the existence of an
arbitration agreement on the basis of Section 7. Similarly, the
validity of an arbitration agreement, in view of Section 7,
should be restricted to the requirement of formal validity such
as the requirement that the agreement be in writing. This
interpretation also gives true effect to the doctrine of
competence-competence by leaving the issue of substantive
existence and validity of an arbitration agreement to be
decided by Arbitral Tribunal under Section 16.
21.15. In Duro Felguera (supra), the Hon'ble Apex
Court at Para 59 held:
59. ...After the amendment, all that the courts need to see is
whether an arbitration agreement exists - nothing more,
nothing less. The legislative policy and purpose is essentially
to minimise the Court's intervention at the stage of appointing
the arbitrator and this intention as incorporated in Section
11(6-A) ought to be respected.
21.16. The cumulative effect of these decisions is that
this Court, at the Section 11 stage, is not the
appropriate forum to conduct a mini-trial or to
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determine contested questions of law and fact.
The examination is confined to a prima facie
scrutiny of the existence of the arbitration
agreement on the basis of Section 7. This
examination is limited to the formal validity of
the arbitration agreement, namely, whether it is
in writing and whether it provides for arbitration
of the disputes between the parties.
21.17. Now, the question that arises is whether the
legal consequences of the approval of the
Resolution Plan under Section 31 of the IBC,
including the applicability and effect of the
Clean Slate doctrine, fall within the scope of the
limited examination permitted under Section
11(6-A). The Respondent contends that when a
statute extinguishes the arbitration agreement
itself, the question goes to the existence of the
arbitration agreement and is therefore within
the scope of Section 11(6-A).
21.18. This Court has carefully considered this
contention. The Clean Slate doctrine, as
articulated in the decisions relied upon by both
parties, primarily operates on claims and not on
the arbitration agreement per se. Section 31 of
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the IBC speaks of the Resolution Plan being
binding on the corporate debtor, its employees,
members, creditors, guarantors and other
stakeholders. It does not, in terms, provide for
the extinguishment of arbitration agreements.
The extinguishment, if any, is of claims that
were or could have been raised during the CIRP
process.
21.19. The question whether the claims sought to be
raised by the Petitioner stand extinguished by
virtue of the approval of the Resolution Plan is
not a question that goes to the formal existence
of the arbitration agreement under Section 7 of
the Act. It is a substantive question that
involves examination of the scope and effect of
Section 31 of the IBC, the nature of the claims,
whether they were or should have been raised
before the RP, and whether they survive the
completion of the CIRP process. These are
contested questions of law and fact that are
more appropriately determined by the Arbitral
Tribunal under Section 16 of the Act.
21.20. As held in Krish Spinning (supra), at Para
119:
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119. The question of "accord and satisfaction", being a mixed
question of law and fact, comes within the exclusive
jurisdiction of the Arbitral Tribunal, if not otherwise agreed
upon between the parties. Thus, the negative effect of
competence-competence would require that the matter falling
within the exclusive domain of the Arbitral Tribunal, should
not be looked into by the Referral Court, even for a prima
facie determination, before the Arbitral Tribunal first has had
the opportunity of looking into it.
21.21. At Para 121, the Hon'ble Apex Court further
observed:
121. Tests like the "eye of the needle" and "ex facie
meritless", although try to minimise the extent of judicial
interference, yet they require the Referral Court to examine
contested facts and appreciate prima facie evidence (however
limited the scope of enquiry may be) and thus are not in
conformity with the principles of modern arbitration which
place arbitral autonomy and judicial non-interference on the
highest pedestal.
21.22. Applying this principle, the question of whether
the Clean Slate doctrine extinguishes the
Petitioner's claims involves examination of
contested facts, including: (a) the nature and
extent of the claims; (b) whether these claims
were submitted to the RP; (c) whether the
Resolution Plan addresses such claims; and (d)
the effect of the Resolution Plan on claims of
the corporate debtor against third parties.
These are precisely the kinds of contested
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questions that the Hon'ble Apex Court has held
should not be examined at the Section 11
stage.
21.23. In Demerara Distilleries (supra), at Para 5,
the Hon'ble Apex Court observed that
objections regarding disputes not being
arbitrable would not merit any serious
consideration at the Section 11 stage if the
arbitration clause can be legitimately invoked.
Similarly, in Mphasis Limited (supra), the
Coordinate Bench of this Court held that the
Respondent can raise all his objections before
the arbitrator under Section 16 of the Act,
which need not be examined in summary
proceedings. These principles are squarely
applicable to the present case.
21.24. Accordingly, I answer Point No.(ii) by
holding that enquiry under Section 11(6-
A) of the Act, is confined to a prima facie
examination of the existence of an
arbitration agreement. The legal
consequences flowing from the approval of
the Resolution Plan under Section 31 of
the IBC, including the applicability and
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effect of the Clean Slate doctrine, involve
contested questions of law and fact that
do not go to the formal existence of the
arbitration agreement under Section 7,
and are therefore not within the scope of
the limited examination permitted at the
Section 11 stage. These questions are
more appropriately left to be determined
by the Arbitral Tribunal under Section 16
of the Act.
22. Answer to Point No.(iii): What is the effect of
approval of the Resolution Plan under Section
31(1) of the Insolvency and Bankruptcy Code,
2016 on the claims sought to be raised in the
present proceedings. Whether, upon such
approval, all claims not forming part of the
Resolution Plan stand extinguished in their
entirety, including claims of the corporate
debtor against third parties; or whether such
extinguishment operates only in respect of
claims against the corporate debtor, leaving
intact independent remedies of the corporate
debtor against its counterparties?
22.1. Sri Pradeep Naik, learned counsel for the
Petitioner, in rejoinder, submits that the Clean
Slate doctrine would apply only against the
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corporate debtor, and not as regards the claims
by the corporate debtor. His submission is that
the Clean Slate applies only to the claims of the
Respondent against the Petitioner, and not as
regards the claims of the Petitioner against the
Respondent.
22.2. In support of this submission, he relies upon
COC Essar Steel India Ltd. vs Satish Kumar
Gupta and Ors., particularly Paras 105 to 107.
At Para 107, the Hon'ble Apex Court held that a
successful resolution applicant cannot suddenly
be faced with "undecided" claims after the
resolution plan submitted by him has been
accepted, as this would amount to a hydra head
popping up which would throw into uncertainty
amounts payable by a prospective resolution
applicant. All claims must be submitted to and
decided by the resolution professional. This the
successful resolution applicant does on a fresh
slate.
22.3. Learned counsel submits that this formulation is
directed at protecting the resolution applicant
from surprise claims by creditors. The "fresh
slate" or "clean slate" is for the benefit of the
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successful resolution applicant in running the
business of the corporate debtor. It does not
extinguish the corporate debtor's own claims
against third parties.
22.4. He further relies upon Ghanashyam Mishra &
Sons (P) Ltd. vs Edelweiss Asset
Reconstruction Co. Ltd., At Para 102.1, the
Hon'ble Apex Court held that once a resolution
plan is duly approved, the claims as provided in
the resolution plan shall stand frozen and all
such claims which are not a part of the
resolution plan shall stand extinguished.
However, learned counsel submits that this
extinguishment relates to claims against the
corporate debtor, and not to claims of the
corporate debtor against third parties.
22.5. Most significantly, learned counsel relies upon
Gluckrich Capital Pvt. Ltd. vs The State of
West Bengal and Ors. at Para 10, the Hon'ble
Apex Court categorically held:
10. We are of the considered opinion that in such
circumstances, it is for the Resolution Professional or the
successful resolution applicant, as the case may be, to take
such civil remedies against third party, for recovery of dues
payable to the corporate debtor, which may be available in
law. The remedy against third party, however, is not available
under section 66 of the IBC, and the civil remedies which may
be available in law, are independent of the said section.
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22.6. Learned counsel further relies upon
Electrosteel Steel Limited vs Ispat Carrier
Private Limited. While this decision primarily
deals with the extinguishment of claims of
creditors against the corporate debtor, learned
counsel submits that it reinforces the distinction
between claims against the corporate debtor
(which stand extinguished) and claims of the
corporate debtor against its counterparties
(which survive).
22.7. Learned counsel also relies upon the decision of
the National Company Law Tribunal, Jaipur
Bench in M/s Indus Container Lines Pvt.
Ltd. vs Jadoun International Pvt. Ltd. (IA
(IBC) No.359/JPR/2019), where the
Tribunal held that the successful resolution
applicant is at liberty to proceed against its
debtors by filing appropriate application with
the competent Court of law.
22.8. Sri Dhyan Chinnappa, learned senior counsel
for the Respondent, submits that Section 31 of
the IBC does not preserve, revive or reserve
any contractual rights or action in favour of the
Petitioner against the Respondent. His
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submission is that on the CIRP proceedings
taking place, all the rights and liabilities of the
parties are deemed to be fully dealt with and
crystallised during that process and no action
can be taken up subsequent thereto.
22.9. Learned senior counsel submits that the RP had
considered all the claims of both parties. The
Respondent submitted its claim of
Rs.12,26,30,840.63. The RP, having secured
details from the Petitioner and his
representative as regards any amounts due by
the Respondent to the Petitioner, had taken into
account the submissions made and tabulated
the dues by holding that there is no amount
due by the Respondent to the Petitioner. On
that basis, the Resolution Plan was prepared,
approved and implemented. Thus, all claims of
the Petitioner against the Respondent are
deemed to have been considered and resolved
during the CIRP process.
22.10. In sur-rejoinder, learned senior counsel
distinguishes the decisions relied upon by the
Petitioner. He submits that Satish Kumar
Gupta did not deal with the situation where the
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corporate debtor had not asserted any
counterclaims against a creditor whose claim
stood admitted, crystallised and settled during
the CIRP. He submits that Ghanashyam
Mishra addressed only one side of the
equation, dealing with claims against the
corporate debtor. He submits that Gluckrich
Capital was a case where the statutory
authorities' rights were extinguished and the
issue was whether government claims could be
pursued post approval. He submits that
Electrosteel was a case arising out of
execution of an arbitral award in favour of an
operational creditor, and the Court held that the
claims of the creditors stood extinguished upon
approval of the Resolution Plan.
22.11. Learned senior counsel's core submission is that
the resolution process being completed, the
claims of the Respondent having been
considered by the RP and payments made, this
would be deemed to have taken into account
the claims of the Petitioner against the
Respondent. The Respondent has been forced
to take a haircut of Rs.99.29 paise per rupee
and cannot now be mulcted with further claims
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of the Petitioner without the Respondent having
recourse to raise a claim for the balance
amounts.
22.12. This is the central question in the present
proceedings, and it requires a careful
examination of the scope and operation of
Section 31 of the IBC. Section 31(1) provides:
Section 31(1). If the Adjudicating Authority is satisfied that
the resolution plan as approved by the committee of creditors
under sub-section (4) of section 30 meets the requirements
as referred to in sub-section (2) of section 30, it shall by order
approve the resolution plan which shall be binding on the
corporate debtor and its employees, members, creditors,
including the Central Government, any State Government or
any local authority to whom a debt in respect of the payment
of dues arising under any law for the time being in force, such
as authorities to whom statutory dues are owed, guarantors
and other stakeholders involved in the resolution plan.
22.13. The language of Section 31(1) makes the
Resolution Plan binding on the corporate debtor,
its employees, members, creditors, guarantors
and other stakeholders "involved in the
resolution plan." The provision is designed to
ensure that the successful resolution applicant
can commence the business of the corporate
debtor on a fresh slate, free from the burden of
pre-existing claims that were addressed during
the CIRP process.
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22.14. The question is: does the extinguishment under
Section 31 operate symmetrically, i.e., does it
extinguish both claims against the corporate
debtor and claims of the corporate debtor? Or
does it operate asymmetrically, extinguishing
only claims against the corporate debtor while
leaving intact the corporate debtor's own
claims?
22.15. On a careful examination of the case law cited
before this Court, the following principles
emerge:
22.16. First, in COC Essar Steel India Ltd. vs Satish
Kumar Gupta (supra), the Hon'ble Apex Court
held at Para 107 that a successful resolution
applicant cannot suddenly be faced with
"undecided" claims after the resolution plan has
been accepted. All claims must be submitted to
and decided by the resolution professional so
that a prospective resolution applicant knows
exactly what has to be paid in order to take
over and run the business of the corporate
debtor. This the successful resolution applicant
does on a fresh slate. The principle articulated
here is the protection of the resolution applicant
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from surprise claims by creditors. The "fresh
slate" operates to shield the resolution
applicant from claims that were or ought to
have been raised during the CIRP process. This
principle is directed at claims against the
corporate debtor, not claims of the corporate
debtor.
22.17. Second, in Ghanashyam Mishra (supra), the
Hon'ble Apex Court held at Para 102.1 that
once a resolution plan is duly approved, the
claims as provided in the resolution plan shall
stand frozen and will be binding on all
stakeholders. On the date of approval, all such
claims which are not a part of the resolution
plan shall stand extinguished and no person will
be entitled to initiate or continue any
proceedings in respect to a claim which is not
part of the resolution plan. Again, this
formulation is directed at claims against the
corporate debtor. The purpose is to ensure that
the resolution plan is not undermined by stale
or undisclosed claims.
22.18. Third, and most significantly, in Gluckrich
Capital Pvt. Ltd. vs The State of West
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Bengal (supra), the Hon'ble Apex Court at Para
10 categorically held that the Resolution
Professional or the successful resolution
applicant may take such civil remedies against
third party for recovery of dues payable to the
corporate debtor which may be available in law.
The civil remedies which may be available in
law are independent of the IBC. This decision
directly addresses the question at hand. It
recognises that the corporate debtor, through
its resolution applicant, retains the right to
pursue claims against third parties even after
the completion of the CIRP process.
22.19. Fourth, in Electrosteel Steel Limited vs
Ispat Carrier Private Limited (supra), the
Hon'ble Apex Court at Para 50 held that once a
resolution plan is approved, all claims which are
not part of the resolution plan shall stand
extinguished. However, this was in the context
of a creditor's claim against the corporate
debtor. The Court held that the claims of the
Respondent (creditor) stood extinguished.
Significantly, the decision does not hold that the
corporate debtor's own claims against its
counterparties stand extinguished.
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22.20. Fifth, the decision of the NCLT, Jaipur Bench in
M/s Indus Container Lines Pvt. Ltd. vs
Jadoun International Pvt. Ltd. (supra)
though not binding sheds some light on this
issue. At Para 16, the Tribunal held that the
successful resolution applicant is at liberty to
proceed against its debtors by filing appropriate
application with the competent Court of law.
This decision, while of a Tribunal and not
binding on this Court, is consistent with the
ratio of Gluckrich Capital and reinforces the
principle that the corporate debtor's remedies
against third parties survive the CIRP process.
22.21. The Respondent's attempt to distinguish these
decisions is noted. However, the attempt is not
persuasive. The core principle that emerges
from Gluckrich Capital is not limited to any
particular type of claim or claimant. It is a
general statement of law that the resolution
applicant may take civil remedies against third
parties for recovery of dues payable to the
corporate debtor. The Respondent is a third
party vis-a-vis the corporate debtor's claims,
and the Petitioner's claims against the
Respondent (for delays, defects, withholding of
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amounts, etc.) are civil remedies that are
independent of the IBC process.
22.22. The Respondent's submission regarding double
jeopardy and inequity is an argument of
considerable force. It is true that the
Respondent has received only 0.71% of its
admitted claim of Rs.12,26,30,840,
representing a massive haircut. If the Petitioner
is permitted to pursue its claims against the
Respondent without the Respondent having a
corresponding right to pursue its full claims
against the Petitioner, the result appears
asymmetric. However, this asymmetry is a
consequence of the statutory scheme of the
IBC, which is designed to revive the corporate
debtor as a going concern. The Clean Slate
doctrine, as articulated by the Hon'ble Apex
Court, operates in one direction: to protect the
resolution applicant from claims. It does not, by
its own logic, extinguish the corporate debtor's
claims against others. The equitable concerns
raised by the Respondent, while
understandable, cannot override the clear legal
position established by the Hon'ble Apex Court.
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22.23. That said, it is not for this Court, at the Section
11 stage, to finally determine the scope and
effect of the Resolution Plan on the specific
claims sought to be raised by the Petitioner. The
question of whether the Petitioner's claims were
or ought to have been raised before the RP,
whether they were considered during the CIRP
process, and whether they survive the approval
of the Resolution Plan, are all contested
questions of fact and law that are more
appropriately determined by the Arbitral
Tribunal. This Court's observations are, at best,
prima facie in nature and do not bind the
Arbitral Tribunal.
22.24. Accordingly, I answer Point No.(iii) by
holding that on a prima facie examination,
the extinguishment under Section 31(1) of
the IBC operates primarily in respect of
claims against the corporate debtor.
Claims of the corporate debtor against
third parties, including claims by the
Petitioner against the Respondent, are not
automatically extinguished by the
approval of the Resolution Plan. The
corporate debtor, through its resolution
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applicant, retains the right to pursue
independent civil remedies against its
counterparties, as held by the Hon'ble
Apex Court in Gluckrich Capital (supra).
However, the final determination of this
question, including the scope and effect of
the Resolution Plan on the specific claims
sought to be raised, is left to the Arbitral
Tribunal.
23. Answer to Point No.(iv): Whether, having
regard to the initiation and completion of the
Corporate Insolvency Resolution Process, the
submission and adjudication of claims before
the Resolution Professional, and the
implementation of the approved Resolution
Plan without any express reservation of rights,
the disputes now sought to be raised by the
Petitioner stands extinguished by operation of
law, or amount to accord and satisfaction,
waiver or estoppel, or whether they constitute
live and arbitrable disputes capable of being
referred to arbitration?
23.1. Sri Pradeep Naik, learned counsel for the
Petitioner, submits that the disputes sought to
be raised by the Petitioner are live and
arbitrable disputes. His primary submission is
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that the completion of the CIRP process does
not amount to accord and satisfaction, waiver
or estoppel in respect of the Petitioner's claims
against the Respondent. He relies upon Krish
Spinning (supra), to submit that the question
of accord and satisfaction is a mixed question of
law and fact that comes within the exclusive
jurisdiction of the Arbitral Tribunal. At Para 138,
the Court held that the dispute regarding
accord and satisfaction does not pertain to the
existence of the arbitration agreement and can
be adjudicated upon by the Arbitral Tribunal as
a preliminary issue.
23.2. Learned counsel submits that the Petitioner has
various claims against the Respondent on
various heads of account, including claims
arising from delays, defaults on the part of the
Respondent, variations in the scope of works,
and the illegal invocation of the mobilisation
bank guarantee during the period of the
moratorium. These claims were not raised or
adjudicated during the CIRP process. The CIRP
process was concerned with the claims of
creditors against the corporate debtor, and not
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with the corporate debtor's claims against its
counterparties.
23.3. Learned counsel further submits that the fact
that the Resolution Plan has been approved and
implemented without any express reservation
of rights does not, by itself, amount to waiver
or estoppel. The corporate debtor, having been
under moratorium from 11.12.2019 to
05.04.2022, was not in a position to pursue its
claims during that period. The arbitration notice
was issued on 13.03.2023, promptly after the
moratorium was lifted. This demonstrates that
the Petitioner did not intend to abandon its
claims.
23.4. Sri Dhyan Chinnappa, learned senior counsel
for the Respondent, submits that the disputes
sought to be raised by the Petitioner stand
extinguished by operation of law. His
submission is that the completion of the CIRP
process, the submission of claims by the
Respondent to the RP, the determination by the
RP that no amount was due by the Respondent
to the Petitioner, and the approval and
implementation of the Resolution Plan,
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collectively operate as a final settlement of all
claims between the parties.
23.5. Learned senior counsel submits that the RP had
specifically considered whether any amounts
were due by the Respondent to the Petitioner,
and had concluded that no such amounts were
due. On that basis, the Resolution Plan was
formulated, which provided for payment of
0.71% of the operational creditors' claims. The
Respondent received payment on this basis.
The entire process was supervised by the NCLT
and the Resolution Plan was approved by the
Adjudicating Authority. The Petitioner cannot
now seek to reopen settled matters.
23.6. His further submission is that even if the
question of accord and satisfaction is ordinarily
a matter for the Arbitral Tribunal, the present
case is different because the settlement has
been effected not by agreement between the
parties but by operation of a statutory process
under the IBC. The statutory finality attached to
the Resolution Plan by Section 31 goes beyond
mere contractual accord and satisfaction.
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23.7. The question before this Court is whether the
disputes sought to be raised by the Petitioner
have been extinguished by operation of law, or
amount to accord and satisfaction, waiver or
estoppel. This question requires examination of
several interconnected issues.
23.8. First, as regards accord and satisfaction. The
Hon'ble Apex Court in SBI General Insurance
vs Krish Spinning (supra) has dealt with this
issue directly and conclusively. At Para 119, the
Court held:
119. The question of "accord and satisfaction", being a mixed
question of law and fact, comes within the exclusive
jurisdiction of the Arbitral Tribunal, if not otherwise agreed
upon between the parties. Thus, the negative effect of
competence-competence would require that the matter falling
within the exclusive domain of the Arbitral Tribunal, should
not be looked into by the Referral Court, even for a prima
facie determination, before the Arbitral Tribunal first has had
the opportunity of looking into it.
23.9. At Para 138, in the context of the specific
dispute before it, the Court held:
138. The existence of the arbitration agreement as contained
in Clause 13 of the insurance policy is not disputed by the
appellant. The dispute raised by the claimant being one of
quantum and not of liability, prima facie, falls within the scope
of the arbitration agreement. The dispute regarding "accord
and satisfaction" as raised by the appellant does not pertain
to the existence of the arbitration agreement, and can be
adjudicated upon by the Arbitral Tribunal as a preliminary
issue.
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23.10. The principle is clear. The question of accord
and satisfaction is a mixed question of law and
fact that falls within the exclusive jurisdiction of
the Arbitral Tribunal. The Referral Court ought
not to examine this question, even on a prima
facie basis, before the Arbitral Tribunal has had
the opportunity to examine it. This is the
negative effect of the competence-competence
doctrine.
23.11. The Respondent's contention that the present
case is different because the settlement was
effected by operation of a statutory process
under the IBC, and not by agreement between
the parties, is noted. This is an argument that
merits consideration. However, even accepting
this distinction at face value, the question of
whether the CIRP process constitutes a
statutory form of accord and satisfaction, or
whether it operates differently from contractual
accord and satisfaction, is itself a complex legal
question that involves interpretation of the IBC,
examination of the scope of the Resolution
Plan, and determination of whether specific
claims were or ought to have been addressed
during the CIRP process. These are contested
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questions that are more appropriately
determined by the Arbitral Tribunal.
23.12. Second, as regards waiver and estoppel. The
Respondent's submission is that the Petitioner,
by not reserving its rights during the CIRP
process and by implementing the Resolution
Plan without any express reservation, has
waived its claims against the Respondent.
However, waiver requires voluntary
relinquishment of a known right. The Petitioner
was under moratorium from 11.12.2019 to
05.04.2022. During this period, the Petitioner's
affairs were managed by the RP and,
subsequently, by the resolution applicant. The
Petitioner may not have been in a position to
assert its claims during this period. Whether the
failure to assert claims during the CIRP
amounts to waiver is, again, a factual question
that should be determined by the Arbitral
Tribunal.
23.13. Similarly, estoppel requires a representation of
fact by one party, reliance on that
representation by the other party, and
consequent detriment. Whether the Petitioner's
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conduct during the CIRP amounted to a
representation that it would not pursue its
claims, whether the Respondent relied on such
representation, and whether the Respondent
suffered detriment as a result, are all factual
questions that cannot be resolved at the
Section 11 stage.
23.14. Third, as regards extinguishment by operation
of law. As discussed in connection with Point
No.(iii), the extinguishment under Section 31 of
the IBC primarily operates in respect of claims
against the corporate debtor. The Hon'ble Apex
Court in Gluckrich Capital (supra) has
recognised the right of the corporate debtor to
pursue civil remedies against third parties.
Whether the specific claims sought to be raised
by the Petitioner in this case survive the CIRP
process is a question that requires detailed
examination of the Resolution Plan, the claims
submitted to the RP, and the nature of the
Petitioner's claims. This examination cannot be
undertaken at the Section 11 stage.
23.15. Fourth, the Respondent's submission regarding
the RP's determination that no amount was due
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by the Respondent to the Petitioner is a factual
assertion that is disputed by the Petitioner. The
Petitioner claims to have various claims against
the Respondent on various heads of account.
Whether the RP's determination is binding on
the Petitioner's claims, and whether the
Petitioner's claims were in fact considered and
rejected during the CIRP process, are contested
questions of fact that cannot be resolved in
these proceedings.
23.16. Accordingly, I answer Point No.(iv) by
holding that the question of whether the
disputes sought to be raised by the
Petitioner stand extinguished by operation
of law, or amount to accord and
satisfaction, waiver or estoppel, involves
contested questions of law and fact that
are within the exclusive jurisdiction of the
Arbitral Tribunal. On a prima facie
examination, the disputes sought to be
raised by the Petitioner constitute live and
arbitrable disputes capable of being
referred to arbitration. The final
determination of these questions,
including the effect of the CIRP process on
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the specific claims sought to be raised, is
left to the Arbitral Tribunal.
24. Answer to Point No.(v): What is the interplay
between the doctrine of competence-
competence under Section 16 of the Arbitration
and Conciliation Act, 1996 and the statutory
finality attached to an approved Resolution
Plan under Section 31 of the Insolvency and
Bankruptcy Code, 2016. Specifically, whether
upon a prima facie arbitration agreement being
shown, all objections ought to be left to the
Arbitral Tribunal; or whether the statutory
consequences of approval of the Resolution
Plan constitute a threshold jurisdictional bar
which this Court is required to examine at the
stage of Section 11?
24.1. Sri Pradeep Naik, learned counsel for the
Petitioner, submits that the doctrine of
competence-competence, as embodied in
Section 16 of the Act, gives the Arbitral Tribunal
the power to rule on its own jurisdiction,
including the existence and validity of the
arbitration agreement. His submission is that
once a prima facie arbitration agreement is
shown, all objections, including those arising
from the CIRP process, ought to be left to the
Arbitral Tribunal. He relies upon Krish
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Spinning (supra), Interplay between
Arbitration Agreements (supra), and Duro
Felguera (supra), to submit that the Referral
Court should not exercise jurisdiction that is
within the domain of the Arbitral Tribunal.
24.2. Learned counsel relies upon Interplay
between Arbitration Agreements (supra), at
Para 165, where the Hon'ble Apex Court held
that "This interpretation also gives true effect to
the doctrine of competence-competence by
leaving the issue of substantive existence and
validity of an arbitration agreement to be
decided by Arbitral Tribunal under Section 16."
24.3. Sri Dhyan Chinnappa, learned senior counsel
for the Respondent, submits that the statutory
finality attached to an approved Resolution Plan
under Section 31 of the IBC constitutes a
threshold jurisdictional bar that this Court is
required to examine at the Section 11 stage.
His submission is that the Clean Slate doctrine
is not merely a defence on the merits of the
dispute, but goes to the very jurisdiction of the
Arbitral Tribunal to entertain the dispute. If the
claims stand extinguished by operation of law,
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there is no live dispute to be arbitrated, and the
appointment of an arbitrator would be an
exercise in futility.
24.4. His further submission is that the competence-
competence doctrine cannot be stretched to a
point where it requires the Court to refer to
arbitration a dispute that has been conclusively
resolved by a statutory process. The IBC, being
a special statute with overriding effect under
Section 238, prevails over the provisions of the
A&C Act to the extent of any inconsistency.
24.5. Section 16 of the A&C Act provides:
Section 16. Competence of arbitral tribunal to rule on
its jurisdiction. (1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objection with respect to
the existence or validity of the arbitration agreement, and for
that purpose, - (a) an arbitration clause which forms part of a
contract shall be treated as an agreement independent of the
other terms of the contract; and (b) a decision by the arbitral
tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.
24.6. The doctrine of competence-competence, as
embodied in Section 16, has both a positive and
a negative dimension. The positive dimension
empowers the Arbitral Tribunal to rule on its
own jurisdiction. The negative dimension
restricts the Referral Court from making
determinations that fall within the domain of
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the Arbitral Tribunal. The Hon'ble Apex Court in
Krish Spinning (supra) has explicitly
recognised the negative effect of the
competence-competence doctrine at Para 119,
holding that the matter falling within the
exclusive domain of the Arbitral Tribunal should
not be looked into by the Referral Court, even
for a prima facie determination, before the
Arbitral Tribunal first has had the opportunity of
looking into it.
24.7. The Respondent contends that the statutory
finality of the Resolution Plan under Section 31
of the IBC constitutes a threshold jurisdictional
bar. This Court has considered this contention
carefully. The question is whether the approval
of the Resolution Plan creates a legal situation
where there is no live dispute to be arbitrated,
or whether it merely raises a defence that the
claims have been extinguished, which defence
should be considered by the Arbitral Tribunal.
24.8. In the considered view of this Court, the
question of whether the Petitioner's specific
claims survive the CIRP process is not a
threshold jurisdictional question but a
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substantive defence that goes to the merits of
the dispute. The following considerations
support this conclusion:
24.8.1. First, the existence of the arbitration
agreement is not in dispute. As found
under Point No.(i), Clause 19.13
constitutes a valid arbitration agreement
that survives the termination of the
underlying contract.
24.8.2. Second, the Clean Slate doctrine, as
discussed under Point No.(iii), operates
primarily in respect of claims against the
corporate debtor. The Hon'ble Apex
Court in Gluckrich Capital (supra) has
recognised the corporate debtor's right
to pursue civil remedies against third
parties. Whether the Petitioner's specific
claims fall within the category of
survivable claims is a factual question.
24.8.3. Third, as held by the Hon'ble Apex Court
in Krish Spinning (supra) at Para 121,
tests that require the Referral Court to
examine contested facts and appreciate
evidence are not in conformity with the
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principles of modern arbitration. The
question of whether the CIRP process
constitutes a statutory bar to the
Petitioner's claims requires examination
of the Resolution Plan, the claims
submitted to the RP, the nature of the
Petitioner's claims, and the scope of the
RP's determination. These are contested
factual inquiries.
24.8.4. Fourth, the approach in Krish Spinning
(supra) at Paras 114-115 is of
importance, the Court held that the
limited scope of enquiry at the Section
11 stage serves a twofold purpose: (a) it
allows the Referral Court to weed out
non-existent arbitration agreements, and
(b) it protects the jurisdictional
competence of the Arbitral Tribunal to
rule on the issue of existence in depth.
This approach preserves the autonomy
of the arbitral process and ensures that
substantive defences are not determined
by the Referral Court.
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24.9. As regards the Respondent's submission that
the IBC has overriding effect under Section
238, this Court notes that Section 238 provides
that the provisions of the IBC shall have effect
notwithstanding anything inconsistent therewith
contained in any other law for the time being in
force. However, the question is not whether the
IBC overrides the Arbitration Act, but whether
the specific consequences of the Resolution Plan
create a jurisdictional bar to arbitration in the
present case. This is a question of fact and law
that is more appropriately determined by the
Arbitral Tribunal, which will have the benefit of
full evidence and detailed submissions.
24.10. It is also relevant to note that the Arbitral
Tribunal, under Section 16, is fully competent to
determine whether it has jurisdiction to
entertain the dispute, including whether the
claims have been extinguished by operation of
law. If the Arbitral Tribunal finds that the claims
stand extinguished, it can decline jurisdiction or
dismiss the claims on that ground. This
preserves the statutory finality of the
Resolution Plan while also respecting the
autonomy of the arbitral process.
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24.11. Accordingly, I answer Point No.(v) by
holding that the doctrine of competence-
competence under Section 16 of the A&C
Act requires that, upon a prima facie
arbitration agreement being shown,
objections relating to the substantive
effect of the approved Resolution Plan on
the claims sought to be raised should be
left to the Arbitral Tribunal. The statutory
consequences of approval of the
Resolution Plan under Section 31 of the
IBC do not constitute a threshold
jurisdictional bar which this Court is
required to examine at the stage of
Section 11. The Arbitral Tribunal is fully
competent under Section 16 to determine
whether the claims have been
extinguished by operation of law, and this
question should be left to the Tribunal.
25. Answer to Point No.(vi): Whether any live and
subsisting arbitrable dispute survives between
the parties so as to warrant exercise of
jurisdiction under Section 11(6) of the
Arbitration and Conciliation Act, 1996, and
consequently, whether the present petition
deserves to be allowed by appointment of a
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Sole Arbitrator or dismissed for want of a
subsisting arbitrable claim or enforceable
arbitration agreement.
25.1. Sri Pradeep Naik, learned counsel for the
Petitioner, submits that the Petitioner has
various claims against the Respondent arising
from the construction contract, including claims
relating to delays and defaults on the part of
the Respondent, variations in the scope of
works, illegal invocation of the mobilisation
bank guarantee during the moratorium period,
and other heads of account. These claims
constitute live and arbitrable disputes. The
arbitration clause in Clause 19.13 is broad
enough to cover these disputes, as it
encompasses all disputes "in relation to or
arising out of or touching this Works Contract."
On that basis, he submits that the petition
deserves to be allowed and an Arbitrator be
appointed.
25.2. Sri Dhyan Chinnappa, learned senior counsel
for the Respondent, submits that no live or
subsisting arbitrable dispute survives between
the parties. His submission is that all claims
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have been fully dealt with during the CIRP
process. The RP determined that no amount
was due by the Respondent to the Petitioner.
The Resolution Plan has been approved and
implemented. The Respondent has received
payment of 0.71% of its claim. On these facts,
there is no surviving dispute that warrants the
appointment of an arbitrator. His submission is
that the petition deserves to be dismissed for
want of a subsisting arbitrable claim.
25.3. This Point, in substance, is a synthesis of the
findings under the preceding Points. The answer
to this Point flows directly from the cumulative
effect of the answers to Points (i) through (v).
25.4. Under Point No.(i), this Court has found, on a
prima facie examination, that Clause 19.13
constitutes a valid arbitration agreement that
survives the termination of the underlying
contract and continues to subsist
notwithstanding the approval of the Resolution
Plan.
25.5. Under Point No.(ii), this Court has held that at
the Section 11 stage, the Court is confined to a
prima facie examination of the existence of an
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arbitration agreement. The legal consequences
of the Clean Slate doctrine involve contested
questions that are not within the scope of the
limited examination permitted.
25.6. Under Point No.(iii), this Court has found, on a
prima facie basis, that the extinguishment
under Section 31 of the IBC operates primarily
in respect of claims against the corporate
debtor, and that claims of the corporate debtor
against third parties survive, as held in
Gluckrich Capital (supra).
25.7. Under Point No.(iv), this Court has held that the
questions of accord and satisfaction, waiver and
estoppel are contested questions that are within
the exclusive jurisdiction of the Arbitral
Tribunal, and that the disputes, prima facie,
constitute live and arbitrable disputes.
25.8. Under Point No.(v), this Court has held that the
doctrine of competence-competence requires
that objections relating to the effect of the
Resolution Plan on the claims should be left to
the Arbitral Tribunal.
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25.9. The cumulative effect of these findings is that:
(a) a valid arbitration agreement exists and
subsists prima facie; (b) the scope of this
Court's examination is limited to the prima facie
existence of the arbitration agreement; (c) the
Petitioner's claims against the Respondent,
prima facie, survive the CIRP process; and (d)
all substantive objections are to be determined
by the Arbitral Tribunal.
25.10. In these circumstances, this Court is satisfied
that live and subsisting arbitrable disputes,
prima facie, survive between the parties so as
to warrant exercise of jurisdiction under Section
11(6) of the Act. The Petitioner has established,
prima facie, the existence of an arbitration
agreement and the existence of disputes that
fall within the scope of that agreement. The
Respondent's objections, though substantial,
are in the nature of substantive defences that
must be adjudicated by the Arbitral Tribunal.
25.11. It is, however, necessary to note that the
observations and findings of this Court are
prima facie in nature and are limited to the
purpose of determining whether the
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appointment of an arbitrator is warranted.
These observations shall not bind the Arbitral
Tribunal, which will be at liberty to examine all
questions of law and fact, including the effect of
the Resolution Plan on the specific claims, the
applicability of the Clean Slate doctrine, and the
questions of accord and satisfaction, waiver and
estoppel.
25.12. It is further clarified that the Respondent shall
be at liberty to raise all defences available to it
before the Arbitral Tribunal, including but not
limited to: (a) the effect of the Clean Slate
doctrine on the Petitioner's claims; (b) the
contention that the Petitioner's claims were or
ought to have been raised during the CIRP
process; (c) the defence of accord and
satisfaction, waiver or estoppel; and (d) any
other defence available in law. The Arbitral
Tribunal shall consider and adjudicate upon all
such defences on their merits.
25.13. Accordingly, I answer Point No.(vi) by
holding that Live and subsisting arbitrable
disputes, prima facie, survive between the
parties so as to warrant exercise of
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jurisdiction under Section 11(6) of the Act.
The present petition deserves to be
allowed by appointment of a Sole
Arbitrator. The appointment is, however,
subject to the clarification that the Arbitral
Tribunal shall be at liberty to examine all
questions of law and fact, and the
Respondent shall be at liberty to raise all
available defences.
26. Answer to Point No.(vii): What Order?
26.1. In view of the analysis and findings on Points (i)
through (vi), I pass the the following
ORDER
i. The Civil Miscellaneous Petition No.243 of 2023 is
allowed.
ii. Shri Justice Ajit J.Gunjal, former judge of this
Court is appointed as a Sole Arbitrator to
adjudicate the disputes between the Petitioner and
the Respondent arising out of or in connection
with the Conditions of Contract dated 09.07.2018.
iii. The Arbitration shall be conducted under the aegis
of the Arbitration and Conciliation Centre,
Bengaluru.
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iv. The Arbitral Tribunal shall be at liberty to examine
all questions of law and fact, including but not
limited to: (i) the effect of the approval of the
Resolution Plan under Section 31(1) of the
Insolvency and Bankruptcy Code, 2016 on the
specific claims sought to be raised by the
Petitioner; (ii) the applicability and effect of the
Clean Slate doctrine on the Petitioner’s claims; (iii)
the questions of accord and satisfaction, waiver,
estoppel and extinguishment by operation of law;
and (iv) any other defence available to the
Respondent in law.
v. The Respondent shall be at liberty to raise all
defences available to it before the Arbitral
Tribunal, including the defence that the Petitioner’s
claims have been extinguished by virtue of the
CIRP process and the approval of the Resolution
Plan.
vi. The observations and findings of this Court in the
present order are prima facie in nature, limited to
the purpose of determining whether the
appointment of an arbitrator is warranted, and
shall not bind the Arbitral Tribunal in any manner.
vii. It is clarified that the Respondent’s contention
regarding the asymmetric effect of the Clean Slate
doctrine and the equitable concerns raised by the
Respondent are preserved for consideration by the
Arbitral Tribunal, which shall deal with them on
their merits.
27. After pronouncement of the order today i.e., on
26.02.2026, both the counsels submit that if the
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matter is referred to mediation, they would endeavor
to arrive at an amicable settlement.
28. In view of the said submission, the Registry is
directed to forward the file to the Karnataka
Mediation Center. The Director, Karnataka Mediation
Center, is directed to appoint a suitable Mediator to
try and mediate the dispute between the parties.
29. Since the order is passed in the presence of both the
counsels, they shall appear before the Director,
Karnataka Mediation Center, without requirement of
any notice on 10.03.2026 at 02.30 p.m.
30. In the event of the mediation proceedings not being
successful, the Director, Karnataka Mediation Center,
is directed to inform the Director, Karnataka
Bangalore International Arbitration and Conciliation
Center about the same so as to enable the Director,
Arbitration Center to take necessary action.
SD/-
(SURAJ GOVINDARAJ)
JUDGE
PRS, List No.: 2 Sl No.: 75