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The Insolvency and Bankruptcy Code (IBC) is a comprehensive legislation enacted in India in 2016 to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. While the IBC primarily focuses on the resolution of insolvency cases, it also contains provisions related to arbitration. Here’s a brief overview of the IBC and its relationship with arbitration:

  1. Insolvency and Bankruptcy Code (IBC):
    • The IBC provides for the resolution of corporate insolvency through mechanisms such as corporate insolvency resolution process (CIRP), liquidation, and bankruptcy proceedings.
    • It aims to maximize the value of assets of insolvent persons, promote entrepreneurship, ensure availability of credit, and balance the interests of all stakeholders, including creditors, debtors, and employees.
    • The IBC establishes various institutions and authorities, such as the National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), Insolvency and Bankruptcy Board of India (IBBI), and insolvency professionals, to oversee and facilitate the insolvency resolution process.
  2. Arbitration under the IBC:
    • The IBC recognizes arbitration as a method of resolving disputes arising under the Code.
    • Section 238 of the IBC provides that the provisions of the IBC shall override any other law in force, including the Arbitration and Conciliation Act, 1996 (Arbitration Act), to the extent of any inconsistency.
    • However, the IBC does not preclude parties from resorting to arbitration for resolving disputes related to insolvency or bankruptcy, provided such arbitration is not inconsistent with the provisions of the IBC.
    • Arbitration clauses in contracts entered into by corporate debtors or creditors remain enforceable, subject to the provisions of the IBC.
  3. Arbitration and Insolvency Proceedings:
    • Parties to an arbitration agreement may continue with arbitration proceedings even after the commencement of insolvency proceedings under the IBC.
    • However, once insolvency proceedings are initiated against a corporate debtor, any ongoing arbitration proceedings involving the corporate debtor are typically stayed, and the resolution process is governed by the provisions of the IBC.
    • Arbitration clauses in contracts do not affect the rights and obligations of parties under the IBC, including the right of creditors to initiate insolvency proceedings against a defaulting debtor.

while the IBC primarily governs the resolution of insolvency cases through its specific procedures and mechanisms, it does not explicitly prohibit arbitration. Parties to contracts may continue with arbitration proceedings, subject to the provisions of the IBC and any orders issued by the adjudicating authorities under the Code. However, once insolvency proceedings are initiated, the resolution process is generally governed by the provisions of the IBC, and arbitration proceedings may be stayed or superseded by the insolvency resolution process.