FACTS
The Government of India executed a Production Sharing Contract (PSC) with MIEL (Petitioner in this case), GAIL, the Respondent, and others. They entered into a Joint Operation Agreement (JOA) on 5th April, 2013, to carry out joint operations under the PSC. On 13th April, 2016, the Respondent issued a Default Notice to MIEL as it had defaulted in making payment under the Cash call. On 18th July 2017, NCLT allowed the commencement of the Corporate Insolvency Resolution Process (CIRP) under the IBC against the Petitioner, and an Interim Resolution Professional was appointed. The Respondent claimed Rs. 19.51 crore in total, and the Insolvency Commencement Date was fixed as 18th July, 2017. After this, the Resolution Plan was admitted, which only allowed pre-ICD claims and rejected post-ICD claims. This plan was approved by the Committee of Creditors and NCLT. The Respondent appealed against the NCLT’s approval of the Plan. However, the NCLAT upheld the Resolution Plan and held that post-ICD claims could not be collated.
The Respondent invoked arbitration under Article 19.3 of the JOA. The Petitioner challenged the jurisdiction of the Tribunal and the mandate of the Presiding Arbitrator.
ISSUES
- Whether the Presiding Arbitrator was ineligible under Section 12(1), Section 12(5), read with Entry 16 of the Seventh Schedule of the Arbitration Act, due to failure to make necessary disclosure of previous involvement as Chairperson of the NCLAT in the appeal?
- Whether claims that are not part of the approved Resolution Plan under IBC are arbitrable or extinguished due to approval of the plan under Section 31 of the IBC?
LEGAL PROVISIONS
Section 31 of the IBC, 2016 states that after the Resolution Plan is approved by NCLT, it becomes binding on stakeholders involved.
Section 238 of the IBC, 2016, states that the provisions of the IBC override all other laws.
Section 12 (1) and 12(5) of the Arbitration and Conciliation Act, 1996 state that members of the Tribunal must make individual disclosures in writing of any past or present relationship with any of the parties involved, any interest in the subject matter, or any other factor that will cast doubt on their independence or impartiality.
Seventh Schedule, Entry 16– Previous involvement in the case of an arbitrator would make him ineligible.
ARGUMENTS
PETITIONER
The Petitioner argued that the Presiding Arbitrator was the Chairperson of the NCLAT and had decided the Respondent’s appeal against the NCLT’s order, which approved the Resolution Plan. Due to this, he had “previous involvement in the case”. This will attract Entry 16 of the Seventh Schedule. Section 12 (5) states that such previous involvement would make the person ineligible to be appointed as an arbitrator.
They also argued that the arbitrator failed to make individual disclosure as required under Section 12(1) of the Act, 1996. This requirement is mandatory. Thus, the award was biased and liable to be set aside.
They invoked Sections 31 (1) and Section 238 of the IBC, 2016, and argued that the Resolution Plan was duly approved by NCLT and NCLAT, so all pre-existing and future claims stood permanently extinguished, as stated in the plan. That is why the Respondent’s post-ICD claims (for cash calls, arbitration costs, abandonment costs, etc) were barred.
RESPONDENT
The Respondent argued that the Arbitrator’s role was limited to a legal question of whether the Resolution Professional could collate post-ICD claims. He did not decide the same question as was raised in the arbitration. Hence, there was no “previous involvement in the case.” It argued that prior judicial or arbitral involvement in a different capacity does not amount to bias. So, the appointment is valid.
They argued that the resolution plan dealt with pre-ICD claims. Claims that arose post that could be referred to arbitration, as the RP could not admit future claims.
ANALYSIS
On Eligibility of an Arbitrator
The court held that to be ineligible, the arbitrator must have previous involvement in the case in the form of an advisor or other capacity connected to the very dispute. However, if an arbitrator had been involved with the same parties previously, it would not make him ineligible per se. It also noted that the grounds in the appeal before NCLAT were different from the issues raised in the arbitration. Hence, mere involvement as a judge/arbitrator previously would not attract the impugned sections.
On Arbitrability of Post-Resolution Plan Claims
The court invoked the “clean slate” principle. It states that once a Plan is approved, it must dissolve the company of the past or unadmitted liabilities. It was noted that all claims should be submitted to and decided by the Resolution Professional so that a potential resolution applicant clearly knows the total liabilities it will have to pay before taking over the company and starting the business afresh, on a clean slate. [Ghanashyam Mishra and Sons P. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 227 Comp Cas 251 (SC)]. Relying on this landmark judgment, the court concluded that all claims that are not part of the Resolution Plan shall stand extinguished and are not arbitrable.
JUDGMENT
Following the above reasoning, the court set aside the arbitral award, as the claims awarded were barred under IBC and non-arbitrable. It held that the RP was final and binding on all stakeholders. Hence, no fresh proceedings could begin in respect of claims not included in the plan.
CONCLUSION
The court gave effect to the binding nature of the Resolution Plan as required by Section 31, IBC, by invoking the “clean slate” principle. This ensures that the result of the Plan remains certain and intact, as it extinguishes all other claims.
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WRITTEN BY: FARZEEN ZAMAN
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