Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors. [LL 2021 SC 454]

Facts of Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors.

In Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors., Essar Steels’ CIRP began on 02/08/2017, with Mr. Satish Kumar Gupta appointed as the RP. Meanwhile, the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, inserted Section 29A of the IBC into the code. The RP distributed an advertisement seeking expressions of interest for resolution applicants who wish to submit their resolution plan proposing a method to ensure ESIL continues as a going concern. As a result, Arcelor Mittal India Private Limited (Appellant) and Numetal competed for the insolvent company Essar Steel India Limited (ESIL).

Both companies were disqualified under Section 29A during the resolution stage. Arcelor Mittal was discovered to have been the promoter or had control over two companies, Uttam Galva Steels Limited and KSS Petron Limited, that owed unpaid debts to banks and financial institutions.

In the case of Numetal, it was discovered that the company was founded prior to the resolution of Essar Steel and that it was primarily controlled by Rewant Ruia, the son of Ravi Ruia (one of the promoters of Essar Steel). The NCLT upheld the resolution professionals’ disqualification of both bidders and determined that they were ineligible for a resolution process under IBC Section 29A.

However, on appeal, the NCLAT agreed with Arcelor Mittal’s disqualification but reached a different conclusion regarding Numetal because Rewant Ruia had divested his Numetal interests in favor of VTB, a Russian entity, by that point. Outraged, the Appellant filed an appeal with the Supreme Court.

Issues in Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors

1. If so, what is the true meaning and intent of the term “entertain” in Section 9(3) of the Act?
2. Whether, after establishing an arbitral tribunal, the court must evaluate the efficacy of the remedy under Section 17 before making an order under Section 9(1) of the act?

Relevant provisions

Section 9(1) of the Arbitration and Conciliation Act enables parties to seek interim relief before an arbitral award is enforced. This means that the parties can go to court before and during the arbitration proceedings. Section 9(3) of the Arbitration and Conciliation Act states that once an Arbitral Tribunal has been established, the Court may not entertain an application under Section 9(1) of the Act unless it is established that circumstances exist that would render the remedy provided under Section 17 ineffective.

Contentions of the appellant

Section 9(3) of the Arbitration Act, as amended, limited the court’s ability to hear an application under Section 9(1) once the arbitral tribunal was formed. Even though Section 9(3) did not revoke the Court’s jurisdiction under Section 9(1), it did limit the role of courts after the formation of an arbitral tribunal. Only when a remedy under Section 17 was rendered ineffective would the court consider an application under Section 9 of the Arbitration Act.

The appellant cited the Law Commission’s 246th Report, which stated that the addition of Section 9(3) was intended to reduce the role of the courts in granting interim measures once the arbitral tribunal had been formed. Similarly, the appellant argued that Section 9(3) of the Arbitration Act was enacted to limit judicial intervention in the arbitral process, citing the report of the High-Level Committee to Review the Institutionalization of Arbitration Mechanisms in India, chaired by Mr. Justice B.N. Srikrishna. As a result, the appellant argued that Section 9(3) must be construed purposefully and that any attempt to circumvent Section 9(3) must be discouraged.

The appellant then cited State Bank of India and Ors. v. S. N. Goyal to argue that just because an order was reserved did not mean the district court had given up on hearing a Section 9 application. The decision in Deep Chand & Ors. v. Land Acquisition Officer & Ors. was then cited to argue that the term adjudication included a court hearing. Thus, in Section 9(3) of the Arbitration Act, the term “entertain” is to be interpreted to mean and include adjudication and the passing of an order or judgment.

The appellant then contended that a party seeking to render the remedy under Section 17 ineffective could not approach the court under Section 9 of the Arbitration Act. The appellant claimed that the respondent was attempting to avoid arbitration throughout. As a result, the appellant contended that the Commercial Court erred in interpreting “entertain” as defined in Section 9(3) of the Arbitration Act.

Contentions of the respondents

The respondent initially questioned the applicability of the Article 227 application. It was argued that because the Arbitration Act is a self-contained Code that provides the right of appeal at various stages, Article 227 could not be invoked to circumvent the Arbitration Act’s procedure. The respondent contended that an application under Article 227 of the Indian Constitution exists where the lower court acts outside its authority, without jurisdiction, in violation of natural justice principles, or if the order is manifestly perverse.

Furthermore, the respondent relied on Section 9(1), which states that a party may file an application before, during, or after the arbitral proceedings. As a result, the respondent argued that the courts did not lose jurisdiction due to the formation of the Arbitral Tribunal.

The respondent contended that Section 9(3) of the Arbitration Act prohibits the court from “considering” an application under Section 9 unless circumstances exist that render the remedy provided by Section 17 ineffective. Only the formality of pronouncing the order in Section 9 applications remained in this case. Section 9(3) of the Arbitration Act would not apply because the application under Section 9 had been entertained, fully heard, and arguments concluded.

The respondent argued that an application is “entertained” when the court considers it. Entertain means to “take into account” or “accept in order to deal with.” The respondent contended that the Commercial Court had taken the Section 9 applications filed by the respective parties into consideration and applied its mind, and thus the Section 9 applications had progressed beyond the stage of “entertainment.” Furthermore, the respondent claimed that the Arbitration Act gave the court no authority to relegate or transfer pending applications under Section 9(1) to an arbitral tribunal the moment it was formed.

Observations of the hon’ble Supreme Court

After hearing the parties, the Hon’ble Supreme Court noted that there was no evidence on record to show that the respondent had any lapses or laches that delayed the formation of the Arbitral Tribunal.

The claim that the respondent had barred itself from using the Section 17 remedy remained unsubstantiated. Furthermore, a mere delay in appointing an arbitrator did not bar a party from seeking relief under Section 9 of the Arbitration Act.

The Supreme Court then ruled that, even after the establishment of an arbitral tribunal, the court retains the authority to grant interim relief under Section 9(1) of the Arbitration Act [Avantha Holdings Limited v. Vistra ITCL India Limited, (2020) SC].

Furthermore, the Supreme Court ruled that the term “entertain” refers to thinking about the issues raised. When a case is heard by the court, it is said to be entertained. The deliberation process could continue until a decision is reached. Once an arbitral tribunal has been established, the court cannot hear an application under Section 9 unless the remedy under Section 17 is ineffective.

However, once an application is entertained in the sense that it is taken up for consideration and the court has applied its mind to the application, the court can certainly proceed to adjudicate it.

The Apex Court agreed with the respondent that the intent of Section 9(3) was not to turn back the clock and require the arbitral tribunal to consider a matter already reserved for orders in its entirety under Section 17 of the Arbitration Act. Even after an arbitral tribunal is established, there may be numerous reasons why the arbitral tribunal is ineffective as an alternative to Section 9(1).

The Supreme Court reiterated that applications for interim relief are inherently urgent and must be resolved as soon as possible. If applications for interim measures are not decided quickly, the party seeking interim relief may suffer irreparable harm or prejudice. As a result, the Apex Court concluded that it could never have been the legislative intent that even after a Section 9 application is finally heard, relief must be denied, and the parties are remitted to their remedy under Section 17.

While the respondent sought interim relief, the Supreme Court ruled that Section 9 allows any party to seek interim relief before, during, or after arbitral proceedings but before it is enforced.

Judgment in Arcelor Mittal India Private Limited vs. Satish Kumar Gupta & Ors.

In response to Issue (1), the Supreme Court determined that the term “entertain” in Section 9(3) of the Act implies “to examine” the problems presented by using one’s intellect. When a case is presented to the court for consideration, it is referred to as an “encounter.” The deliberation process could continue indefinitely until a decision is reached.

Thus, after the arbitral tribunal has been established and has custody of the parties’ dispute, the court cannot hear an application under Section 9 of the Act unless the remedy under Section 17 is ineffective, according to Section 9(3).

However, in this case, the Supreme Court agreed with Essar that the purpose of Section 9(3) cannot be to go back in time and force an arbitral tribunal to reconsider a subject that has already been reserved for orders under Section 17 of the Act. As a result, the Supreme Court emphasised that the bar of Section 9(3) of the Act would not apply once an interim relief application was received and considered, as in the current case, where the hearing was completed and judgment was reserved.

Concerning Issue (2), the Supreme Court determined that where an application has already been presented for consideration and is being examined or has already been considered, the question of whether or not the remedy under Section 17 is effective does not arise. The exercise is only required when the application is being entertained and/or taken up for consideration by the arbitral tribunal.

The supreme court concluded in the current case that because the commercial court had already heard and reviewed the application under Section 9 of the Act, it was unnecessary for the commercial court to assess the efficacy of relief under Section 17 of the Act.

Conclusion

Applying the aforementioned principles to the facts of the case, the Supreme Court determined that both plans submitted by Arcelor Mittal and Numetal were covered by section 29A(c), and thus both bidders were barred from submitting resolution plans.

Although this would normally have been the end of this round of litigation, the Court used its powers under Article 142 of the Constitution to give the bidders one more chance “to pay off the NPAs of their related corporate debtors within a period of two weeks from the date of receipt of this judgment, in accordance with the proviso to Section 29A(c).” It also stated that the company would be liquidated if no plan was found worthy of acceptance by the majority of the Committee of Creditors.

In all, the present judgment is important as it interprets section 29A for the first time and provides guidance toward its implementation. As we have seen, the import of the judgment extends beyond the Code to matters such as the corporate veil and the concept of control, but it also leaves some open questions. Section 29A is perhaps the most hotly debated provision in the Code, and the present judgment is likely to pave the way for swifter corporate resolutions.

Finally, the Supreme Court has confirmed that an arbitral tribunal can be given partial and limited priority over courts where the legislation permits it. with this judgment, the apex court has delicately balanced the arbitral procedure in the hands of both courts and arbitral tribunals.

Section 9(1) establishes distinct phases at which parties may seek interim relief from the court. this can happen:

1. before the start of arbitral proceedings,
2. during arbitral proceedings, or
3. at any point after an arbitral award is made but before it is enforced under Section 36 of the Act.

If the interim relief application has already been considered, that is, if an order has been reserved or a judgment has been issued, it indicates that considerable time and resources have been invested in it. As a result, it would be impossible to refer the case back to the arbitral tribunal for a new hearing. However, if the interim relief application has been submitted but has not yet been reviewed by the court, and an arbitral tribunal has been established in the meantime, the courts will not hear the case due to the bar imposed by Section 9(3) of the Act.

Regardless, the Supreme Court concluded that, even if an application under Section 9 was entertained prior to the establishment of the tribunal, the court retains the authority to direct the parties to approach the arbitral tribunal. If necessary, while making such a reference, it may grant a limited order of interim protection, particularly if there has been a significant interval between the hearings, requiring a party’s application to be considered virtually anew, or the hearing has just begun and is expected to take a long time.

This article has been submitted by Preeti Birla.