In a significant procedural showdown at the intersection of arbitration law and insolvency resolution, the Bombay High Court stepped in to scrutinise whether a judgment creditor can retain money withdrawn from court when the very arbitral award backing that claim has been wiped out under the Insolvency and Bankruptcy Code (IBC), raising sharp questions about finality, restitution, and the “clean slate” principle post-resolution.
The controversy began when Reliance Naval & Engineering Ltd., once saddled with a Rs.49.11 crore arbitral award in favour of Afcons Infrastructure Ltd., challenged the award under Section 34 of the Arbitration and Conciliation Act and deposited Rs.12.76 crore in court during the pendency of the proceedings. Afcons was allowed to withdraw this amount against a bank guarantee.
However, the legal landscape shifted dramatically when Reliance entered corporate insolvency resolution, culminating in an approved resolution plan that slashed Afcons’ entire arbitral claim down to a symbolic Re.1. Armed with this development, Reliance returned to court seeking the return of the withdrawn amount, along with steep interest, arguing that Afcons’ right to retain the money no longer survived the resolution process.
Justice Aarti Palkar was unequivocal in her reasoning. Holding that the deposited amount was always custodia legis and released only on the strength of a bank guarantee, the Court underscored that once the resolution plan was approved, “the very right to receive the amounts awarded under the Arbitral Award stands effaced.” Drawing heavily from Apex Court precedent in Ghanashyam Mishra and the Bombay High Court’s own ruling in Siti Networks, the Court observed that insolvency resolution is meant to allow the corporate debtor to start “with a clean slate,” leaving no room for old claims to linger through procedural backdoors.
“With nothing being owed under the Arbitral Award (other than Re.1),” the Court said, the money withdrawn by Afcons “ought to be brought back,” warning that failure to do so would trigger invocation of the bank guarantee. Consequently, the Court allowed Reliance’s application for refund of the principal amount, directed Afcons to redeposit Rs.12.76 crore within four weeks, but firmly rejected the claim for 18% interest, holding that any such demand would require a separate legal action.
Case Title: Reliance Defence & Engineering Limited. Vs. M/s Afcons Infrastructure Ltd.
Case No.: Interim Application (L) no.9646 of 2024
Coram: Justice Somasekhar Sundaresan
Advocate for Petitioner: Adv. Amir Ariswala, Rahul Gupta
Advocate for Respondent: Advs. Janak Dwarkadas, Naushad Engineer, Meenakshi Iyer
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