Factual Background 

In the Matter of Sunflag Iron & Steel Co. Ltd. v. J. Poonamchand & Sons In the plea, it was asserted that the provisions of Section 11(6) of the Arbitration and Conciliation Act 1996 would not apply because the respondent had approached the National Company Law Tribunal under the Insolvency and Bankruptcy Code and that it would be unlawful to appoint an arbitrator.

Issue 

Whether Section 11(6) of the Arbitration and Conciliation Act, 1996 to appoint an arbitrator is prohibited by the requirements of the Insolvency and Bankruptcy Code, 2016

Analysis of Judgement 

Nothing appears to be in conflict between the terms of the 1996 Act and the IBC Code, according to the Bombay High Court’s single-judge bench led by Justice Avinash G. Gharote. Sections 7 to 9 of the IBC Code, which deal with the beginning of insolvency resolution procedures, resolution by operational creditors, and requests for the beginning of corporate insolvency resolution processes by operational creditors, were upheld by the single judge bench. Additionally, it referred to Section 238, which makes it clear that the IBC Code’s provisions take precedence over other laws.

The Court ruled that while Section 7 gives a financial creditor the ability to file for insolvency against a corporate debtor, merely applying does not mean the adjudicating authority will take the case under consideration. Because of this, Section 7(4) requires the adjudicating authority to determine the presence of a default within 14 days using records of information or evidence provided by financial creditors under Section 7(3) of the IBC Code. The Court stated that the bar under Section 238 of the IBC Code might be invoked upon “admission of an application after satisfaction of the Adjudicating Authority under Section 7(5)” as well as “simply applying Section 7(1) of the IBC Code.”

According to the Court, the position must be taken into account as a whole and not just based on a single communication. The Court stated that the arbitrator would have to take the applicant’s concerns about the quality of the items into account based on the evidence provided. Furthermore, it was said that even if the adjudicating authority finds that a default exists, it will still be strictly bound by Section 238 of the IBC Code, but it would not prevent the adjudication of an application under Section 11(6) of the 1996 Act. In the current case, the court approved the application and chose Justice Z.A. Haq to serve as an arbitrator to settle disagreements between the parties.