In Kridhan Infrastructure Pvt. Ltd. v. Venketesan Sankaranarayan [Civil Appeal No. 8984 of 2019], the Supreme Court dealt with a critical conflict between insolvency proceedings under the IBC and pending arbitration proceedings. This case shed light on whether arbitration can proceed once insolvency has been initiated against a company.
Case Background: Kridhan Infra was undergoing arbitration with Venketesan Sankaranarayan regarding unpaid dues. While the arbitration was ongoing, insolvency proceedings were initiated against Kridhan Infra. The question arose whether the arbitration should be stayed in light of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC).
Key Legal Issue: Can arbitration proceedings continue against a corporate debtor once insolvency proceedings are initiated under the IBC?
Supreme Court’s Decision: The Court upheld the primacy of insolvency proceedings over arbitration. It held that once the moratorium is in place under Section 14 of IBC, all proceedings including arbitration must be halted.
Key Takeaways:
- Reaffirmed that IBC overrides other proceedings
- Emphasized the supremacy of the moratorium during Corporate Insolvency Resolution Process (CIRP)
- Clarified that arbitration proceedings are subject to IBC once insolvency is initiated
Impact: This judgment confirmed that insolvency laws take precedence over ADR mechanisms when it comes to preserving the assets of a corporate debtor. It also clarified procedural priorities and protected the interest of creditors.
Conclusion: Kridhan Infra v. Venketesan Sankaranarayan strengthens the legal understanding that while ADR is important, it cannot supersede insolvency laws. It brings certainty to parties on how and when arbitration may be paused in light of insolvency proceedings.