Section 41 of ACA : Section 41: Provisions In Case Of Insolvency

Explanation using Example

Imagine a scenario where a construction company, BuildCo, enters into a contract with a supplier, SupplyCo, to provide materials for a large project. The contract includes an arbitration clause for resolving disputes. Halfway through the project, SupplyCo faces financial difficulties and is declared insolvent. A receiver is appointed to manage SupplyCo's assets and liabilities.

Under Section 41(1) of The Arbitration and Conciliation Act, 1996, if the receiver decides to continue honoring the contract with BuildCo, any disputes that arise related to the contract can still be resolved through arbitration, as initially agreed upon in the contract.

In another instance, if SupplyCo had entered into the arbitration agreement with BuildCo before being declared insolvent, and now there is a dispute that needs to be resolved for the purposes of the insolvency proceedings, BuildCo or the receiver can request the court involved in the insolvency proceedings to refer the dispute to arbitration as per Section 41(2). The court will then decide if arbitration is appropriate, considering all circumstances.

The term "receiver" in this context, as clarified by Section 41(3), also covers an Official Assignee who is responsible for the insolvent's property.