Indus Biotech Private Limited issued Optionally Convertible Redeemable Preference Shares (OCRPS) to Kotak India Venture (Offshore) Fund through share subscription and shareholders agreements. When Indus opted for a Quali

The issue is whether an application under Section 8 of the Arbitration and Conciliation Act, 1996 can be entertained after an insolvency resolution petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) has been admitted. As per the scheme of the IBC, insolvency proceedings are intended to be time-bound and are initiated for the purpose of determining the existence of a financial debt and default. The IBC does not contain any provision mandating reference of disputes to arbitration, nor does it subordinate insolvency proceedings to arbitral processes. On the contrary, Section 238 of the IBC gives it an overriding effect over other laws. In Indus Biotech Private Limited v. Kotak India Venture (Offshore) Fund (Supreme Court, 26.03.2021) , the Supreme Court clarified the legal position regarding the interface between arbitration and insolvency proceedings. The operative holding of the Court is that: An application under Section 7 of the IBC must first be examined by the Adjudicating Authority (NCLT) to determine whether a financial debt and default exist. Till the Section 7 petition is admitted, the insolvency proceedings do not attain the character of proceedings in rem. If the NCLT comes to the conclusion that no default is made out, the Section 7 application is liable to be dismissed, and in such a situation, the dispute may be referred to arbitration, provided there is a valid arbitration agreement. However, once a Section 7 petition is admitted, the Corporate Insolvency Resolution Process (CIRP) commences, the proceeding becomes in rem, and the rights of all stakeholders are affected. At that stage, reference to arbitration under Section 8 of the Arbitration Act is not permissible, as it would defeat the object, timelines, and collective nature of the insolvency process. Thus, an application under Section 8 of the Arbitration and Conciliation Act cannot be filed or entertained after the admission of a Section 7 IBC petition. Arbitration is permissible only prior to admission, and only where the Adjudicating Authority finds that no default exists. In light of the Supreme Court's ruling in Indus Biotech, arbitration under Section 8 is barred after admission of insolvency proceedings under Section 7 of the IBC, but may be permitted before admission, if the dispute does not disclose a debt or default.