Court rules that liquidation of a company does not impede enforcement of arbitral awards against its promoters.
In a significant judgment, the Kerala High Court has upheld the enforceability of an arbitral award against the promoters of a company under liquidation, emphasizing that the winding up of a company does not automatically stay arbitration proceedings concerning promoters' obligations. The case, R. Sampathkumar v. Marine Products Export Development Authority, was decided on May 21, 2026, by Justice T.R. Ravi.
The petitioner, R. Sampathkumar, sought to challenge an arbitral award issued by a sole arbitrator, Justice J.M. James, in 2009, which was based on a financial collaboration agreement executed in 1993. The agreement involved the Marine Products Export Development Authority (MPEDA) subscribing to equity shares in a seafood processing company, with the promoters obligated to buy back the shares after five years from the commencement of commercial production.
Despite the company's liquidation, the High Court affirmed that the arbitration award remains enforceable against the promoters. The court clarified that under Sections 278 and 279 of the Companies Act, 2013, the winding-up order pertains only to claims against the company, not its promoters. Thus, the arbitration proceedings regarding the promoters' obligations were valid.
The petitioners argued that the company's liquidation rendered the arbitration proceedings invalid, citing incapacity under Section 34(2)(a)(i) of the Arbitration and Conciliation Act, 1996. However, the court noted that the incapacity of the company does not affect the award against its promoters. The court also emphasized that an arbitral award can be stayed only if issues such as jurisdictional errors, invalid agreements, or violation of public policy are proven, which the petitioners failed to substantiate with material evidence.
The decision reinforces the autonomy of arbitral awards and clarifies the non-applicability of company liquidation on the obligations of its promoters. The High Court's judgment provides a critical interpretation of the Arbitration and Conciliation Act, 1996, and the Companies Act, 2013, ensuring that the liquidation process does not impede enforcement of valid arbitral awards against those responsible.
Bottom line:-
Arbitration - Stay of arbitral award - Incapacity of a company under liquidation does not affect the enforceability of the arbitral award against its promoters.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 34(2)(a)(i), Companies Act, 2013 Sections 278, 279, Arbitration and Conciliation Act, 1996 Section 36(2) & 36(3).
