Pending IBC Proceedings Do Not Bar Arbitration Referral: Calcutta HC In SREI-Orissa Steel Dispute

The Calcutta High Court has referred a dispute between SREI group entities and Orissa Steel Expressway Private Limited to arbitration. It held that objections based on pending insolvency proceedings, allegations of fraud, and the status of a non-signatory claimant must be decided by the arbitral tribunal, not at the stage of appointing an arbitrator.

“Thus, the question of arbitrability of the disputes and supremacy of IBC over the arbitral proceeding, will have to be decided by the learned Arbitrator, upon appreciation of evidence," a single-judge bench of Justice Shampa Sarkar held.

“As the scope of the referral court is limited only to the satisfaction of the existence of the arbitration agreement, Mr. Das's contentions against the maintainability of this application are not accepted,” She added.

The Court appointed former Calcutta High Court Chief Justice T.S. Sivagnanam as arbitrator. He will adjudicate disputes between SREI Infrastructure Finance Limited, SREI Equipment Finance Limited, and Orissa Steel Expressway Private Limited.

The dispute arose from financial facilities extended by SREI Infrastructure Finance Limited to Orissa Steel Expressway Private Limited for its road and highway business. This included a ₹150 crore loan advanced in 2016 in connection with an NHAI project.

After NHAI foreclosed the project contract, arbitration commenced between Orissa Steel Expressway and NHAI. Orissa Steel Expressway also defaulted on its repayment obligations to SREI Infrastructure Finance.

It then entered into an assignment agreement with SREI Infrastructure Finance in 2018. Under this agreement, it agreed to assign monies receivable under the NHAI arbitration award. At that stage, ₹129.56 crore was acknowledged as due.

An arbitral award of ₹322.78 crore was later passed in favour of Orissa Steel Expressway against NHAI. After the challenge to that award failed and the amount was withdrawn, a fresh dispute arose.

SREI Equipment Finance later demanded remittance of the award proceeds. It claimed the assignment covered the entire receivables and not merely the admitted dues.

SREI Infrastructure Finance and SREI Equipment Finance then approached the High Court seeking appointment of an arbitrator.

Orissa Steel Expressway opposed the plea. It argued that SREI Equipment Finance, being a non-signatory to the assignment agreement, could not invoke arbitration.

It also argued that the SREI entities had already initiated proceedings before the National Company Law Tribunal. Those proceedings alleged fraudulent transactions, ever-greening, and round-tripping in relation to the underlying transactions. According to the respondent, insolvency proceedings should therefore take precedence.

Rejecting these objections at this stage, the court held that the effect of the alleged business transfer arrangement involved disputed questions. It said SREI Equipment Finance's right to invoke arbitration and the impact of pending insolvency proceedings must also be decided by the arbitral tribunal.

Relying on recent Supreme Court rulings, the Court held that questions relating to impleadment of non-signatories fall within the arbitral tribunal's jurisdiction.

For Petitioners (SREI Infrastructure Finance Limited & Anr.): Advocates Debnath Ghosh, Senior Advocate, Biswaroop Mukherjee, Pubali Sinha Chowdhury, Rajeshwari Prasad.

For Respondent (Orissa Steel Expressway Private Limited): Advocates Rohit Das, Kishwar Rahman, Sristi Roy.