Arbitration in abeyance till operation of Moratorium under IBC

The petitioner – finance company had given channel finance to the Sterling Motor Company of Noida and executed the documents as Proprietor and as guarantor.  There were other surety / guarantors to the said loan.   The account became NPA and the loan was recalled.  NCLT passed orders for moratorium under Section 96 of IBC in favour of principal borrower and one of the guarantors.

Thereafter, the petitioner-initiated arbitration.   By the order dated 7.10.2022, the learned Arbitrator has kept the arbitration proceedings in abeyance till operation of moratorium under Section 96 of the IBC in respect of debt owned by the Respondent no.2 Tarun Kapoor.

There is no provision in the Arbitration Act for splitting arbitration proceedings to stay the same against one party and to proceed against another party.  The arbitration proceedings will have to be decided in their entirety against all parties which cannot be on a piecemeal basis.

The protection of moratorium is in respect of the “debt” and not the “debtor”.   The “debt” must be held in its entirety and not otherwise.  The “debt” cannot be severed into “debt” of the principal borrower / one of the guarantors and other guarantors.  It would be, therefore, immaterial whether the liability of one of the parties to the arbitration proceedings is in the capacity of a guarantor or otherwise for the purpose of moratorium.

Judgment dated   20.6.2024 of the Bombay High Court in Writ Petition No.7477 of 2024 of Tata Capital Limited  Vs. Geeta Passi and others