The Calcutta High Court has clarified that in a petition under Section 11 of the Arbitration and Conciliation Act, 1996, the court’s role is confined to a prima facie examination of the existence of the arbitration agreement, and disputes concerning the right of a non-signatory to invoke the arbitration clause, including questions of joinder, mis-joinder, non-joinder, and the legal effect of an alleged transfer arrangement connecting such non-signatory to the underlying contract, fall within the domain of the arbitral tribunal under Section 16.
The Court therefore held that the mere pendency of proceedings under Section 66 of the IBC does not, at the Section 11 stage, bar reference to arbitration where the objections raised turn on disputed facts and evidence; issues as to whether the underlying transactions were fraudulent, whether the claims are arbitrable, and whether the IBC overrides the arbitral process in the facts of the case are matters that may be raised before and decided by the arbitral tribunal.
A Single Judge Bench of Justice Shampa Sarkar on the issue of SREI Equipment Finance Limited (SEFL) as a non-signatory, observed that whether the business transfer agreement subsisted, what its effect was, what stake SEFL had under it, and whether SEFL could claim SIFL’s dues from the respondent were disputed questions of fact requiring adjudication on evidence by the arbitral tribunal. The Bench prima facie held that, SEFL appeared to be connected to the underlying contract by virtue of the transfer agreement, and opined that questions regarding mis-joinder, non-joinder, addition or deletion of parties in arbitration must be decided by the arbitrator.
The Bench reiterated that both courts and arbitral tribunals are empowered to decide whether a non-signatory should be referred to arbitration, and that under Section 16, the arbitral tribunal can determine jurisdictional questions including who is a party to the arbitration agreement. It also reiterated that the tribunal’s jurisdiction extends to impleading parties, including non-signatories, if they are found to be parties to the arbitration agreement.
On the IBC objection, the Bench reproduced Section 66 of the IBC and observed that the provision is confined to fraudulent trading or wrongful trading and recovery from persons found guilty of fraudulent business conduct. The Bench held that whether the loans advanced by SREI Infrastructure Finance Limited (SIFL) to the respondent, and the execution of the assignment agreement, were fraudulent, or involved ever-greening or round tripping, were matters of evidence to be weighed by the arbitrator.
Therefore, the Bench concluded that the questions of arbitrability of the disputes and the alleged supremacy of the IBC over the arbitral proceeding would also have to be decided by the Arbitrator upon appreciation of evidence. Emphasising that the scope of the referral court is limited to satisfaction as to the existence of the arbitration agreement, the Bench rejected the respondent’s objections to maintainability, allowed the application, and appointed Justice T.S. Sivagnanam, former Chief Justice of the Calcutta High Court, as sole arbitrator, leaving all questions including jurisdiction, arbitrability and admissibility open to be raised before the tribunal.
Briefly, the petitioners stated that CIRP had commenced against SREI Infrastructure Finance Limited (SIFL) and SREI Equipment Finance Limited (SEFL) in October 2021, that an Administrator was appointed by the NCLT, that a consolidated CIRP was later directed, and that the consolidated resolution plan submitted by NARCL was approved by the NCLT on 11 August 2023. The petitioners further contended that, pursuant to a business transfer agreement effective 1 October 2019, SIFL’s lending business, assets and liabilities stood transferred to SEFL, and therefore SEFL should also be treated as lender for the relevant loans and was entitled to invoke the arbitration agreement despite being a non-signatory to the assignment agreement.
On the underlying transaction, the respondent had approached SIFL for financial assistance in October 2016, pursuant to which a loan agreement was entered into and SIFL advanced Rs.150 crores, apart from other advances made between August 2013 and February 2017. After foreclosure of the respondent’s NHAI contract and disputes with NHAI, the respondent, being unable to repay SIFL, agreed to assign monies receivable under the arbitral award in the NHAI arbitration, and under the assignment agreement acknowledged that Rs.129.56 crores were due to SIFL as on that date.
The arbitral proceedings between the respondent and NHAI culminated in an award dated 31 March 2019 in favour of the respondent for Rs.322.78 crores; that award was challenged by NHAI before the Delhi High Court, the challenge was dismissed, and the respondent withdrew the deposited amount. SEFL thereafter called upon the respondent and its director to remit the cash flow proceeds arising from the arbitral award, and the respondent asserted that the assignment agreement and its conditions had been complied with. The petitioners’ case was that the assignment covered the entire receivables under the award and not merely Rs.129.56 crores, and that disputes had therefore arisen under the assignment agreement, particularly having regard to clause 7.2 and the arbitration clause in clause 8.1, pursuant to which notice invoking arbitration was issued on 10 May 2025.
The respondent opposed the petition on three principal grounds. First, it argued that the assignment agreement was only between the respondent and SIFL, and therefore SEFL, being a non-signatory, could not maintain the Section 11 petition jointly with SIFL. Secondly, it contended that the alleged business transfer agreement relied upon by the petitioners did not exist or had no sanction in the NCLT order approving the resolution plan. Thirdly, it submitted that a proceeding under Section 66 of the Insolvency and Bankruptcy Code, 2016 concerning similar reliefs was pending before the NCLT, and by reason of Section 238 of the IBC, arbitration ought not to proceed because NCLT had exclusive jurisdiction.
Appearances:
Debnath Ghosh, Senior Advocate, Biswaroop Mukherjee, Advocate, Pubali Sinha Chowdhury, Advocate, and Rajeshwari Prasad, Advocate, for the Petitioner
Rohit Das, Advocate, Kishwar Rahman, Advocate, and Sristi Roy, Advocate, for the Respondent
