Tuesday, December 4, 2012

Subject matter to initiate winding-up proceedings isn't subordinate to pending arbitration on such matter

In the instant case, the petitioner-creditor was a NBFC. It granted credit facilities to a company. The agreement was backed up by the personal guarantees executed by two directors of the company.  The loan was partly secured by the company by pledging of a fixed deposit held in the name of the company in a bank. Cheques issued for repayment in three trenches were dishonored. In view of the huge unpaid dues, the petitioner filed winding up petition contending that the company was unable to pay its debts. Simultaneously, the petitioner invoked the arbitration clause contained in the agreement and applied to the Bombay High Court under section 9 of the Arbitration Act, 1996. The company contended that Court should exercise its discretion in not admitting the petition and should direct the petition to be stayed over till the arbitral reference between the parties would be concluded.

Deliberating on the issue, the High Court held as under:

1) The scope of an arbitral reference is altogether different from the scope of a creditor's winding up petition even though the claim in both actions may be founded on the same cause;

2) The initiation of an arbitral reference in respect of a claim, which is made the subject-matter of a creditor's winding up petition as well, will not operate as a bar on the winding-up proceedings;

3) Creditor's arbitration petition on a claim, and his simultaneous winding-up petition on the same claim could never been regarded as parallel proceedings;

4) The institution of a suit or an arbitral reference, in such a situation, makes no difference since the arbitral reference has to be initiated in place of a suit if the matrix contract on which the money is claimed is governed by an arbitration agreement.

In view of the above findings, it held that initiation of an arbitral reference in respect of a claim which is made subject-matter of a creditor's winding up petition would not operate as a bar on winding up proceedings - Maheshwary Ispat Ltd., In re [2012] 28 taxmann.com 4 (Calcutta)

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