Winding-up petitions held to be non-arbitrable

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Delhi High Court recently restated that an arbitration clause

Delhi High Court recently restated that an arbitration clause could not oust the jurisdiction of a company court to adjudicate a winding-up petition as disputes relating to insolvencies are non-arbitrable.

In HSH Nordbank v Goodwill Hospital and Research Centre Limited, following a default in the repayment of an amount extended under a financial facility, the lender, Nordbank, filed a petition before the high court under sections 433(e) and 433(f) read with sections 434 and 439 (1)(b) of the Companies Act, 1956, seeking to wind up the debtor, Goodwill Hospital. The latter objected on the ground that the agreement between the parties had an arbitration clause and that clause 12 of the agreement provided that the agreement was to be governed by the laws of Sweden.

The agreement further provided that any disputes between the parties were to be adjudicated in accordance with the rules of the Arbitration Institute of the Stockholm Chamber of Commerce. Hence, the debtor applied to the high court to refer them to arbitration.

Highlighting the distinction between arbitrable and non-arbitrable disputes, the high court held that disputes relating to insolvency and winding-up orders have been held to be non-arbitrable. The court observed that a petition for winding up is not for money but rather the company has become insolvent and, therefore, should be wound up. The power to order the winding up of a company is provided for under the Companies Act and is conferred on the court.

An arbitrator, notwithstanding any agreement between the parties, does not have jurisdiction to order the winding up of a company. Therefore, a petition for winding up cannot be referred to arbitration. Moreover, an arbitrator is unable to grant relief to a party under sections 433 and 434 of the Companies Act.

Accordingly, the winding-up petition was admitted by the court and the official liquidator attached to the court was appointed as the provisional liquidator.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.