[By Avesta Vashishtha]
The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow.
INTRODUCTION
There exists a plethora of international jurisprudence on waiver of the right to invoke arbitration, when proceedings in another forum have been substantially utilized. In a situation where the parties have initiated prior, or simultaneous proceedings in a different forum, than before the arbitral tribunal, then such forum has to evaluate whether the proceedings have been considerably utilized for discussing the issues that would be duplicated in the arbitration. It is a well-settled position that in case the proceedings have been exploited to such an extent where the key issues related to the merits of the case have already been examined, then the right to invoke arbitration would be waived off.
However, the issue regarding waiver, when arbitration proceedings have in fact already been invoked, or when a mandatory application under Section 60(5) (Sec.) of Insolvency and Bankruptcy Code 2016 (IBC) is filed before the National Company Law Tribunal (NCLT), over which the NCLT exclusive jurisdiction, has not been brought to light yet.
In the present article, I will lay out the difficulties caused due to the non-initiation of arbitration, and the subsequent filing of Sec. 60(5) application in the NCLT, and also provide a course of action to achieve clarity from the conundrums.
INCONSISTENCY WITH THE RIGHT TO ARBITRATE
A waiver refers to the “deliberate, intentional and unequivocal abandonment of the right that is later sought to be enforced”. The issue arises when, in an arbitration, the claims have been submitted by one of the parties before the arbitral tribunal, but the arbitration proceedings discussing such substantive claims have not yet been initiated. In the meanwhile, if one of the parties is admitted under insolvency, an application would be required to be filed under Sec. 60(5) of IBC to protect the subject matter of arbitration, which would otherwise be sold off during Corporate Insolvency Resolution Process (CIRP).
For a waiver to be established, various principles have been provided in international authorities, which can be relied upon due to the dearth on Indian jurisprudence on the topic. One such principle that can lead to a waiver of arbitration is the submission of a dispute to another forum, which is inconsistent with the right to arbitrate. Such inconsistency includes (a) substantial invocation of the procedure; (b) the extent of the moving party’s activity, including discovery of evidence; and (c) duplicity of claims. However, when factual issues are decided by two forums, numerous practical problems arise. Concurrent jurisdiction might be exercised by both the arbitral tribunal and the NCLT over the factual issues, leading to duplicity of claims. Such decisions can be inconsistent with each other, and the binding value of the decisions would come into question. Further, proceedings in multiple forums can cause undue delay and diminish the economic value of the assets of the corporate debtor, further prejudicing the responding party.
WHETHER SEEKING PROTECTIVE MEASURES UNDER IBC CAN LEAD TO WAIVER?
Interim measures, for an arbitration proceeding seated within India, can be granted either under Sec. 9 of the Arbitration and Conciliation Act, 1996 (ACA) by the domestic court having jurisdiction over the arbitration, or by the arbitral tribunal itself under Sec. 17 of the ACA. If the arbitration is seated outside of India, the procedure provided in the law of such country would be followed.
However, when the matter is related to insolvency of one of the parties, NCLT has jurisdiction over disputes that may have a monetary impact on the economic value of the debtor firm since the liquidation process will be streamlined and efficient. Sec. 63 of IBC bars any authority from entertaining any proceeding over which the ‘NCLT’ has necessary jurisdiction, even in cases not related to insolvency.[1] Nevertheless, Sec. 25(2)(b) of IBC mandates the representation of Corporate Debtors by the Resolution Professional (“RP”) in “any court, tribunal or other authority”. Such recognition of adjudicating authorities, other than the NCLT, refutes the exclusive jurisdiction of NCLT over all disputes against Corporate Debtor.
Therefore, arbitral proceedings can be initiated between the parties even with the continuance of insolvency of one of the parties, by the virtue of Sec. 25 of IBC. But still, the parties cannot adopt the procedure provided under the ACA, or a foreign arbitration legislation for seeking protective/interim measures when one of the parties is undergoing insolvency, because the NCLT has exclusive jurisdiction under Sec. 60(5) of IBC for providing protective measures. Sec. 60(5) is non-obstante in nature. Therefore, when a party requests for the protective measure, which is urgent in nature due to the ongoing insolvency resolution process, or such order can be exclusively granted by the NCLT, the same cannot be decided by the arbitral tribunal, and it would not lead to the waiver of right to arbitrate.
CAVEAT: ISSUES ARISING OUT OF AN APPLICATION FOR PROTECTIVE MEASURES UNDER SEC. 60(5)
Sec. 60(5) primarily determines the powers of the NCLT to entertain or dispose issues related to the corporate debtor or the insolvency process. It contains various clauses, which can appear to have overlapping effects on applications presented before the NCLT. Clause (a) encompasses any legal action initiated by or against the Corporate Debtor, however, factual or substantive issues that may arise during the course of the liquidation proceedings are covered under clause (c).
This means that clause (c) has been specifically incorporated for dealing with factual issues arising during the insolvency process, whereas clause (a) has been provided with a wider ambit. Thus, if one were to assume that the issues submitted under clause (c) are to be exclusively decided by the NCLT, the same would provide a clearer view of jurisdiction between the NCLT and the arbitral tribunal. Yet, the wide ambit of clause (a) would still lead to a confusion about this division of jurisdiction.
For establishing a conclusive principle, it is imperative to draw a connection between the principles of waiver, and Sec. 60(5) of IBC. A waiver of right to invoke arbitration cannot be established when an NCLT application is filed only under clause (a), because of its wide ambit, which includes interim and protective applications within the clause. Because of the same, when a party submits an application under Sec. 60(5) before the NCLT after the initiation of the arbitration, certain issues can be decided by the NCLT, and other issues related to the facts can be submitted before the arbitral tribunal.
However, such an arrangement, even though it sounds legally efficient for the proper disposal of disputed issues, can lead to numerous concerns. Conundrums can arise because of the internationally accepted approach that a protective measure taken by the party to prevent a breach of its own rights in urgent cases does not amount to waiver.[2] Furthermore, a declaration requested from a forum which is not amenable to arbitration also cannot constitute waiver. The adjudication of such an application does not result in the disposal of any substantive rights submitted before the arbitral tribunal.
However, in certain cases, even a protective or interim application filed under clause (a) of Sec 60(5) might require the determination of certain factual issues related to the dispute, which would lead to the implied submission of substantive issues by the party before the NCLT. The same would lead to either substantial invocation of proceedings before the NCLT, or duplicity of claims, which would in turn lead to waiver of right to arbitrate.
WAY FORWARD
The crux lies in ensuring that the invocation of protective measures before the NCLT does not inadvertently lead to the waiver of arbitration rights. Urgent protective actions, necessitated by the exigencies of insolvency proceedings, should not be misconstrued as a relinquishment of the right to arbitrate. The primary resolution to the above-discussed complications has to be the alteration of the language of Sec. 60(5) of IBC, wherein it would be the obligation of the legislature to clarify the distinction between clause (a) and (c). The language currently has an overlapping effect over the kind of issues that can be submitted under these clauses.
Furthermore, the powers of NCLT have to be demystified in regard to deciding questions related to factual or substantive issues while dealing with a protective measure application under clause (a). Such factual issues should essentially be submitted before the arbitral tribunal when an arbitration agreement is present between the parties.
[1] Sangam India Ltd v Girjesh Kumar Dalmia IA (IBC) No 333/JPR/2021.
[2] Award in ICC Case No 6223; Robert B Martin, ‘Waiver of the Right to Compel Arbitration-a Directional Analysis’ (vol 16, Cal W L Rev 375, 1980).