Interim protection for Kaizen Power Limited reinstated during arbitration proceedings, ensuring adherence to the Insolvency and Bankruptcy Code's moratorium provisions.
In a significant ruling, the Telangana High Court on April 15, 2026, overturned the Commercial Court's decision to vacate interim protection previously granted to Kaizen Power Limited, a corporate debtor undergoing insolvency proceedings. The judgment, delivered by Justices Moushumi Bhattacharya and Gadi Praveen Kumar, underscored the imperative of adhering to the Insolvency and Bankruptcy Code, 2016 (IBC), particularly Section 14, which enforces a moratorium prohibiting recovery or possession of property from a corporate debtor.
The case revolved around a dispute between Kaizen Power Limited and Andhra Pradesh Industrial Corporation Limited (APIIC) concerning a lease termination. The Commercial Court had dismissed the Commercial Original Petition (COP) filed by Kaizen Power Limited, which sought to restrain APIIC from acting on a show-cause notice that proposed the lease's termination. The High Court found that the dismissal overlooked critical statutory protections afforded by the IBC during the moratorium period.
Kaizen Power Limited, represented by a Resolution Professional following insolvency proceedings initiated by UCO Bank, had been granted interim protection under Section 9 of the Arbitration and Conciliation Act, 1996. This protection aimed to prevent APIIC from terminating the lease, which was a substantial asset in Kaizen Power Limited's resolution plan. The Commercial Court's decision to vacate this protection was deemed contrary to Section 14(1)(d) of the IBC, which prohibits recovery of property occupied by a corporate debtor during a moratorium.
The High Court emphasized that the continuation of arbitration proceedings was vital and directed the appellants and respondent to resume arbitration forthwith. The Court noted that the Resolution Professional failed to prosecute arbitration proceedings effectively, which was contrary to the duties outlined in Section 25 of the IBC. Furthermore, the Court highlighted the necessity for arbitration proceedings to commence within 90 days of interim relief under Section 9, which Kaizen Power Limited had not adhered to.
The judgment reinstates the interim protection granted to Kaizen Power Limited, maintaining the status quo during the pending arbitration. This ensures compliance with the moratorium provisions of the IBC, offering legal protection to the corporate debtor against adverse actions by the lessor, APIIC.
The ruling underscores the judiciary's role in safeguarding the rights of corporate debtors during insolvency proceedings, reinforcing the legislative intent behind the IBC's moratorium provisions. By directing the arbitration to proceed without delay, the High Court seeks to resolve the dispute efficiently, balancing the interests of both parties while adhering to statutory mandates.
Bottom line:-
Interim protection granted under Section 9 of the Arbitration and Conciliation Act, 1996 cannot be vacated if it prejudicially affects a Corporate Debtor during the Moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9, Insolvency and Bankruptcy Code, 2016 Section 14, Insolvency and Bankruptcy Code, 2016 Section 25
