Insolvency resolution plan renders arbitral award infructuous; court orders return of withdrawn funds to registry.
In a significant ruling, the Bombay High Court has ordered Afcons Infrastructure Ltd. to return Rs. 12.76 crores to the court registry, marking a pivotal moment in the legal proceedings involving Reliance Naval and Engineering Ltd., formerly known as Pipavav Defence and Engineering Limited. The court's decision stems from the successful resolution of Reliance Naval's insolvency process under the Insolvency and Bankruptcy Code (IBC), 2016, which effectively extinguished the debt owed to Afcons under a previous arbitral award.
The case, centered around an arbitral award dated August 31, 2015, had initially obligated Reliance Naval to pay Afcons a sum of Rs. 49.11 crores. However, following the approval of a resolution plan on December 23, 2022, this debt was reduced to a mere Re.1, rendering the original arbitral award ineffective.
The court had earlier permitted Afcons to withdraw Rs. 12.76 crores from the registry against a bank guarantee, pending the outcome of a Section 34 Petition challenging the arbitral award. With the resolution plan now in place, the court ruled that the funds must be returned as the award stands nullified.
Justice Somasekhar Sundaresan, presiding over the matter, emphasized that the resolution plan's approval and completion meant that the Section 34 Petition was now redundant. The court directed Afcons to return the withdrawn amount within four weeks, failing which the bank guarantee would be invoked to recover the funds.
Additionally, Reliance Naval's claim for interest on the withdrawn amount was rejected, with the court suggesting that such a claim constitutes a separate cause of action and should be pursued through appropriate proceedings.
This judgment reinforces the principles established in previous landmark cases such as Ghanashyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Company and Siti Networks Ltd. v. Rajiv Suri, where the Supreme Court and the Bombay High Court, respectively, have articulated the impact of IBC resolution plans on pending legal proceedings and claims.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Resolution Plan extinguishing the debt of the corporate debtor under an arbitral award renders the Section 34 Petition challenging the award infructuous. Amount withdrawn by judgment creditor under court's discretionary equitable measure pending Section 34 Petition must be returned to the court registry.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 3(6), 3(10), 3(11), Corporate Insolvency Resolution Process (CIRP), Section 34 of Arbitration Act.
Reliance Naval and Engineering Ltd., (Bombay) : Law Finder Doc Id # 2832401
