Indus Biotech Private Limited Versus Kotak-India Venture Fund

Court / Forum : National Company Law Tribunal, Mumbai Bench
Case Number : IA No.3597/2019 in CP (IB) No. 3077/2019
Coram : Mr. Rajasekhar VK, Hon’ble Member (Judicial), Mr. Ravikumar Duraisamy, Hon’ble Member (Technical)
Subject : Section 7 of the Insolvency and Bankruptcy Code, 2016 Section 8 of the Arbitration and Conciliation Act, 1996
Date of Decision : June 09, 2020

Brief Facts

• The application to initiate Corporate Insolvency Resolution Process (“CIRP”) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) was filed by Kotak India Venture Fund-I (“Financial Creditor”) against Indus Biotech Private Limited (“Corporate Debtor”).
• The application was filed on the ground that the Corporate Debtor had failed to redeem the Optionally Convertible Redeemable Preference Shares (“OCRPS”) on or before April 15, 2019, in terms of the Share Subscription and Shareholders Agreement (“SSSA”).
• Pursuant to the arbitration clause under the SSSA, the Corporate Debtor filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 to refer the parties to arbitration.
• The ground taken by the Corporate Debtor was that there existed a bona fide and substantial dispute between the parties under the SSSA since August 2018.

Issues

1. Whether a Corporate Debtor and a Financial Creditor can be referred to arbitration while deciding an application under Section 7 of IBC?
2. Under what circumstances will the provisions of the Arbitration & Conciliation Act, 1996 prevail over the provisions of IBC?

Decision

• With respect to the first issue, the Bench while allowing the application under section 8 of the Arbitration & Conciliation Act, 1996 stated that generalia specialibus non derogant is a settled law which means – special law prevails over general law.
• The Bench relied on the decision of Consolidated Engineering Enterprises v. Principal Secretary, Irrigation Department & Ors.[1], wherein the Hon’ble Supreme Court held that the Arbitration & Conciliation Act, 1996 is a special law, consolidating and amending the law relating to arbitration and matters connected therewith or incidental thereto.
• The Bench also referred to the case of Hindustan Petroleum Corporation Limited v. Pinkcity Midway Petroleum[2], where the Hon’ble Supreme Court held that, where an arbitration clause exists, the court has a mandatory duty to refer dispute arising between the contracting parties to arbitration and that the language of Section 8 of the Arbitration & Conciliation Act, 1996 is peremptory and the court is under an obligation to refer parties to arbitration.
• While deciding the second issue, the Bench held for the admission of the application under section 7 of the IBC, the Adjudicating Authority needed to ascertain that there was a default. For the purpose of the said ascertainment, it was required to resolve the disputes relating to the valuation of shares, calculation and conversion formula and fixing of Qualified Initial Public Offering and all such issues were arbitrable in nature. Furthermore, the Bench observed that it was not right admit Corporate Insolvency Resolution Process against an otherwise solvent and debt free company and an attempt must be made to reconcile the differences between the parties.

^[1] (2008) 7 SCC 169

^[2] (2003) 6 SCC 503