In the recent judgment delivered by the Hon'ble Delhi High Court in the case of Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd. 1, the Hon'ble High Court dwelled upon the question - whether a proceeding going on under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as "the Act") need to be stayed, in light of Section 14(1)(a) of the Insolvency and Bankruptcy Code ( hereinafter referred as "the Code").

In the instant case, a petition was filed under Section 34 of the Act, for setting aside the arbitral award passed by the arbitral tribunal in favour of the Respondent. During the pendency of the abovementioned petition, an application under Section 7 of the Code, was filed by a financial creditor against the Respondent company before the National Company Law Tribunal- Mumbai (hereinafter referred as "the NCLT") seeking initiation of the corporate insolvency resolution process against the Respondent and by an order dated July 04, 2017, the Ld. NCLT had admitted the said application and had declared a moratorium under Section 14 of the Code.

Section 14(1)(a) of the Code runs as under-

"14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely-

  1. The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;"

Hence, the issue was - if the word "proceedings" used in Section 14(1)(a) of the Code, be read to mean 'all legal proceedings' or it should be read restrictively to mean a particular type of legal proceeding viz. debt recovery action which may have an effect of dissipating or diminishing the debtor's assets during the period of its insolvency resolution.

 The respondent argued that if the proceedings are stayed, the respondent would be unable to execute the award given in its favour for an extended period till the moratorium exists and will be unable to recover its dues thereby further impeding its financial condition.

While settling the issue in the favour of the Respondent (i.e. corporate debtor), the Hon'ble High Court observed that the term 'proceeding' as is mentioned in Section 14(1)(a) of the Code is not preceded by the word 'all' to indicate the moratorium provisions would not apply to all the proceedings against the corporate debtor.

Further, the Hon'ble Delhi High Court also observed that the object of the Code is to provide relief to the corporate debtor through a 'standstill' period during which its assets are protected from dissipation or diminishment, and as a corollary, during which it can strengthen its financial position. In the present case extending the unexecutability of the award would prevent the Respondent (i.e. corporate debtor) from recovering money due to it and adding to its financial corpus. Therefore, Section 14 of the Code would not apply to the proceedings which are for the benefit of the corporate debtor as these proceedings are not a 'debt recovery action'.

Moreover, the Hon'ble Delhi High Court also remarked that the proceedings under Section 34 of the Act are a step prior to the execution of an award. Only after determination of objections under Section 34 of the Act, the party may move a step forward to execute such award and in case the objections are settled against the Respondent (i.e. corporate debtor), then its enforceability under Section 36 of the Act shall certainly be covered by moratorium of Section 14(1)(a) of the Code.


1 Decided on 11 December 2017

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