Insolvency law is at the intersection of all areas of legal practice.  This is particularly the case in international arbitration, where the insolvency regime in one of the parties’ home jurisdictions may become relevant, irrespective of the nature of the underlying dispute between them; and there are common issues that arise when insolvency law and international arbitration cross paths.
This chapter considers one of these issues: the effect of foreign insolvency legislation and judgments on arbitrations seated in other jurisdictions. In particular, the chapter addresses whether the moratorium prescribed by section 14 of the Indian Insolvency and Bankruptcy Code 2016 (the IBC) applies to a Qatar-seated arbitration brought against the Qatari branch of an Indian company which is insolvent in India under the IBC. With reference to a recent decision in a Qatar-seated ICC arbitration involving such a party, this chapter concludes that the moratorium does not apply.
This is an issue of considerable importance because of the large number of Indian nationals and Indian companies in Qatar, and the widespread use of arbitration in this jurisdiction. Indeed, Indian nationals make up the largest expatriate community in Qatar and account for almost a quarter of its population.  Indian businesses play a significant part in the Qatari economy. In an estimate issued in 2017 by the then Indian Ambassador to Qatar, the number of Indian firms working in partnership with Qatari entities exceeded 6,000, while two dozen Qatari companies are fully owned by Indian nationals or entities  and some of these entities have been involved in major projects in Qatar, including projects relating to the FIFA World Cup 2022. As a result, disputes frequently arise between Qatari companies and Indian entities based in Qatar, and those disputes are often referred to Qatar-seated arbitration. The interplay between Qatari and Indian law is therefore regularly engaged in the context of arbitrations, and it is expected that the advent of the IBC will make this all the more prevalent.
The scheme under the IBC
Section 14 of the IBC prescribes a moratorium to be imposed on the initiation and continuation of litigation and arbitrations during the pendency of insolvency proceedings in India (the Moratorium). Section 14 states:
(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: –
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.
(3) The provisions of sub-section (1) shall not apply to –
(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;
(b) a surety in a contract of guarantee to a corporate debtor.
(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:
Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.
In other words, the Moratorium prohibits both the initiation and continuation of proceedings against an insolvent company, as well as other adverse measures such as the transfer or disposal of its assets, actions to foreclose security and the recovery of property in its possession. It is aimed at providing a buffer period during the insolvency process, whereby the insolvent company is in a position to engage in that process without the risk of facing new claims or the enforcement of earlier judgments or awards. The Moratorium is valid until a resolution plan (a scheme proposed by a potential buyer to salvage the insolvent company) is accepted by the adjudicating authority (the National Company Law Tribunal), or when it orders the liquidation of the company. Therefore, it is likely that the imposition of the Moratorium will be a relevant consideration for commercial creditors who are suing or looking to sue insolvent Indian companies within or outside India.
However, section 14 does not itself distinguish between domestic and foreign proceedings. The extra-territorial effect of that section is addressed by other provisions of the IBC, discussed below.
Section 1 of the IBC states:
1. Short title, extent and commencement. –
(1) This Code may be called the Insolvency and Bankruptcy Code, 2016.
(2) It extends to the whole of India:
Provided that Part III of this Code shall not extend to the state of Jammu and Kashmir.
Although the default position is that the IBC’s application is restricted to India, the IBC also specifically recognises the contingency that may arise in relation to its cross-border application. Section 234 provides for the possibility of a treaty and agreement-based approach as between India and foreign countries for international recognition and enforcement of its provisions. That section states:
234. Arrangements with foreign countries. –
(1) The Central Government may enter into an agreement with the Government of any country outside India for enforcing the provisions of this Code.
(2) The Central Government may, by notification in the Official Gazette, direct that the application of provisions of this Code in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India with which reciprocal arrangements have been made, shall be subject to such conditions as may be specified.
235. Letter of request to a country outside India in certain cases. –
(1) Notwithstanding anything contained in this Code or any law for the time being in force if, in the course of insolvency resolution process, or liquidation or bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India with which reciprocal arrangements have been made under section 234, he may make an application to the Adjudicating Authority that evidence or action relating to such assets is required in connection with such process or proceeding.
(2) The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied that evidence or action relating to assets under sub-section (1) is required in connection with insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request to a court or an authority of such country competent to deal with such request.
It is understood that sections 234 and 235 are aimed at facilitating the National Company Law Tribunal in taking control over the assets of an insolvent company in a foreign jurisdiction. This can be done through a letter of request to the appropriate court of authority in that country, but this is subject to the existence of a treaty or agreement between that country and India.
A Qatari entity (the Claimant) initiated an ICC arbitration against the Qatari branch of an Indian entity (the Respondent) for the recovery of outstanding payments due under a contract. The substantive law of the contract was Qatari law and the seat of arbitration was Doha, Qatar.
During the course of the arbitration proceedings, the National Company Law Tribunal made an order admitting the Respondent into insolvency in India further to the provisions of the IBC. This led to the suspension of its board of directors; the appointment of an insolvency practitioner (called a resolution professional under the IBC) to handle its affairs; and, most relevantly for the purposes of this chapter, the Moratorium was imposed.
The Respondent then applied to the Tribunal for an order placing the arbitration in abeyance. The Respondent’s application was based on section 14 of the IBC: as a result of the Moratorium, the Respondent claimed it would be detrimental to it and its creditors if the arbitration were allowed to continue. Anticipating that there would be an issue as to the IBC’s applicability to a Qatar-seated arbitration, the Respondent also sought to rely on the Qatari Civil and Commercial Procedures Code (Law No. 13 of 1990) (the Qatari Civil Procedures Law) to argue that the Moratorium did so apply. Its position was based on articles 379 and 381 of the Qatari Civil Procedures Law, which provide:
379. Judgments and orders passed in a foreign country may be ordered for execution within the State of Qatar under the same conditions provided for in the law of the said foreign country for the execution of judgments and orders passed in the State.
A request of the execution of order shall be made by summoning the litigant to appear before the judge of execution of the Higher Civil Court in compliance with the normal procedures of filing a lawsuit.
381. The provisions of the preceding two Articles shall apply to the arbitration decisions passed in a foreign country. Arbitration decisions shall be passed on a matter which may be decided on by arbitration according to the laws of the State of Qatar.
However, the Claimant resisted the Respondent’s application for the reason that, although the IBC (and the Moratorium) applied in India, it did not apply in Qatar:
- Pursuant to section 234 of the IBC, to extend the application of the IBC (and the Moratorium) to Qatar, there would have to be an agreement or treaty between Qatar and India. Such an agreement or treaty does not exist and therefore the IBC only applies in India, further to section 1.
- The Claimant also argued that principles of comity would not apply: the terms of the order made by the National Company Law Tribunal were such that it did not intend that the Moratorium should have effect in Qatar, nor (in the absence of a relevant treaty or agreement under section 234) did it have the power to extend the operation of the Moratorium to Qatar.
The Claimant also denied the relevance of articles 379 and 381 of the Qatari Civil Procedures Law cited by the Respondent.
- Under article 379, the Qatari courts have the power to enforce judgments and orders of a foreign country only if that foreign country has a reciprocal enforcement arrangement with Qatar. India is not a reciprocal country for the enforcement of judgments of Qatari courts, and therefore orders of Indian courts and tribunals (including the National Company Law Tribunal) have no legal effect in Qatar.
- Article 381 does not apply to the enforcement of the Moratorium, as it merely prescribes a mechanism for the enforcement of foreign arbitral awards in Qatar.
In its decision, the Tribunal framed the issues for its consideration as being ‘whether and under what conditions, [the] rules of an insolvent party’s home jurisdiction, providing for the stay of arbitral proceedings or the non-arbitrability of claims against an insolvent party should be given effect in other jurisdictions’; and whether a Moratorium adversely impacted ‘a Qatar-seated international arbitration that has been agreed to by the Respondent’.
The Tribunal had to consider two competing objectives: on the one hand, the wish of the Claimant to resolve its dispute expeditiously and, on the other, the Respondent’s desire that the proceedings be stayed to allow its orderly reorganisation under the IBC. However, having noted the absence of any treaty or agreement between India and Qatar to extend the operation of the IBC to Qatar, the Tribunal held that the Moratorium did not apply to the arbitration, and therefore refused a stay.
In reaching its decision, the Tribunal took guidance from leading practitioners and scholars such as Gary Born and Stefan Michael Kroll. Mr Born (2014) is of the view that:
International arbitral proceedings occasionally present the question whether rules in an insolvent party’s home jurisdiction, providing for the invalidity of arbitration agreements or non-arbitrability of claims of an insolvent entity, should be given effect in other jurisdictions. […] Although different courts have reached different results, both national courts and arbitral tribunals have generally been reluctant to give automatic effect to foreign bankruptcy legislation that forbids arbitration by an insolvent party.
A representative approach was that of the English Court of Appeal in an arbitration, seated in England, involving an insolvent Polish entity which argued that, under Polish law, it lacked the capacity to continue to arbitrate. (As noted above, Polish bankruptcy legislation provides that ‘[a]n arbitration agreement concluded by the bankrupt shall lose its force from the date of the declaration of bankruptcy and pending proceedings shall be subject to discontinuance.’) The English court upheld the arbitral tribunal’s refusal to discontinue arbitral proceedings against the insolvent Polish entity; the English court reasoned that the Polish legislation addressed issues of capacity and that the applicable EU Insolvency Regulation provided for application of English, not Polish, law to the capacity of a party to English-seated arbitral proceedings. The English court concluded that, under English law, the Polish company retained its capacity to arbitrate, notwithstanding Polish legislation allegedly withdrawing that capacity.
In practice, most international arbitral tribunals have proceeded with arbitrations notwithstanding the pendency of bankruptcy proceedings involving one of the parties in that party’s home jurisdiction. Tribunals have usually rejected arguments, based on national insolvency law, that the arbitration agreement became invalid or that the arbitration could not proceed, often requiring at a minimum clear and convincing evidence that a foreign law applicable to a party prohibits its continuing participation in bankruptcy proceedings and that this law should be recognized.
Tribunals have also generally been reluctant to stay arbitral proceedings based on a pending insolvency involving one of the parties: ‘Even in circumstances in which the suspension seems mandatory, if the other party – with full awareness of the relevant particulars – requests to proceed with the arbitration, the arbitrator should refuse to suspend the proceedings, for no one knows best what suits the party’s interests than the party itself.’ Arbitral awards are almost uniformly consistent with this view.
Mr Kroll (2006) agrees with this analysis, as follows:
[A]rbitral tribunals which owe allegiance primarily to the parties may not be bound at all or at least not in the same way as courts by the provisions of the national system in which they are situated. As a result, tribunals, when requested by one of the parties, have often rendered awards despite restrictions by a given insolvency law. The willingness to do so may differ depending on whether the place of arbitration and the place where the insolvency proceedings were initiated are in the same country or not.
In cases where the place of arbitration was outside the country of insolvency tribunals have, upon the request of one party, often disregarded the restrictions imposed by the applicable insolvency law. The underlying rationale is that though the award may not be enforceable in the country of insolvency it may be enforceable in other countries.
The same approach has been followed in several ICC arbitrations. For example, in ICC Case No. 12993, the arbitral tribunal held:
In response to [Respondent No. 2]’s contention that the Korean Bankruptcy Court has exclusive jurisdiction over claims against [Respondent No. 2], [Claimant] contends that Korean Bankruptcy law has no extra territorial affect [sic] and hence cannot deprive this Tribunal of jurisdiction.
The Claimant has referred the Tribunal to the Commentary on the Korean Code of Civil Procedure […] The learned editors state […] that based on the principle of territorial sovereignty, civil jurisdiction cannot be exercised in a foreign territory but can only be exercised within Korea. The Tribunal is satisfied that this commentary accurately states Korean law and that Article 239 of the Korean Code of Civil Procedure [which provides for placing in abeyance of litigation proceedings against a bankrupt estate] does not purport to apply to […] arbitration occurring outside Korea. 
It might be considered reasonable to protect an insolvent party’s assets from separate enforcement proceedings by creditors. However, practitioners and arbitral tribunals largely are of the view that the insolvency laws of an insolvent party’s home jurisdiction should not affect arbitral proceedings in other jurisdictions.
This is not mere pragmatism: it is an approach that respects territorial boundaries. Indeed, as demonstrated by the case study, the Moratorium does not apply to Qatar-seated arbitrations for the reason that the IBC does not have extraterritorial jurisdiction in Qatar: there is no agreement or treaty between India and Qatar to extend the jurisdiction of the IBC to Qatar; and Qatar and India are not reciprocal countries in respect of the enforcement of judgments of one jurisdiction in the other.
 Stefan M. Kroll, ‘Chapter 18: Arbitration and Insolvency Proceedings – Selected Problems’, in Loukas A. Mistelis and Julian D. M. Lew (eds), Pervasive Problems in International Arbitration, (Kluwer Law International, 2006).
 https://www.gulf-times.com/story/588892/Indian-population-in-Qatar-touches-691-000 (accessed on 4 February 2020).
 http://www.qatar-tribune.com/news-details/id/58882 (accessed on 4 February 2020).
 Gary Born, ‘Chapter 6: Nonarbitrability and International Arbitration Agreements’, in Gary B. Born, International Commercial Arbitration (Second Edition), (Kluwer Law International, 2014), p. 1003 and 1006.
 Stefan M. Kroll, ‘Chapter 18: Arbitration and Insolvency Proceedings – Selected Problems’, in Loukas A. Mistelis and Julian D. M. Lew (eds), Pervasive Problems in International Arbitration, (Kluwer Law International, 2006), p. 374.
 ICC Case No. 12993 of 2009.