The Delhi High Court reiterated that an arbitration clause cannot be a bar on institution and adjudication of a winding up petition by a company court as a dispute relating to insolvency pertain to right in rem and is non-arbitrable in nature.
The above observations were delivered by the Delhi High Court in the judgment of HSH Nordbank Vs. Goodwill Hospital and Research Centre Limited, Date of decision, CO.PET. 508/2014 decided on 09.07.2018.
In the present case, the petitioner had filed a petition under section 433(e) and 433(f) read with section 434 & 439 (1) (b) of the Companies Act, 1956 seeking to wind up the respondent company following a default in repayment of an amount extended under a financial facility.
The primary objection raised by the respondent was that there was an arbitration agreement between the parties. It was thereby pleaded by the respondent that in view of the arbitration clause, the present dispute be referred to arbitration.
The Delhi High Court referred to the judgement of the Supreme Court in Booz Allen and Hamilton INC vs. SBI Home Finance Ltd. and Others (2011) 5 SCC 532 and reiterated the distinction between arbitrable and non-arbitrable disputes. Disputes which relate to right in personam are arbitral able and choice is given to the parties to choose the alternate forum. However, those relating to rights in rem are not arbitrable and the parties’ choice to choose forum of arbitration is ousted.
The Court observed that a claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up. The power to order winding up of a company is contained under the Companies Act and is conferred on the court. An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. Therefore, a petition for winding up cannot be referred to arbitration as a dispute relating to insolvency and winding up orders have been held to be non- arbitrable disputes and an arbitrator is incapable of granting a relief to a party under section 433 and 434 of the Companies Act.