Arbitral Proceedings Cannot Continue Once Moratorium Under IBC Is In Effect, Creditors' Recourse Lies Before Liquidator: Madras High Court
The Madras High Court bench of Justice N. Anand Venkatesh held that arbitration proceedings cannot continue after commencement of liquidation, any order passed thereafter is not legally sustainable. However, considering that continuation of arbitration proceedings would be futile and that the petitioner had not been informed of the commencement of the liquidation, the court...
The Madras High Court bench of Justice N. Anand Venkatesh held that arbitration proceedings cannot continue after commencement of liquidation, any order passed thereafter is not legally sustainable. However, considering that continuation of arbitration proceedings would be futile and that the petitioner had not been informed of the commencement of the liquidation, the court allowed the petitioner to file its claim before the liquidator.
Background:
M/s. AL Tirven Steels Ltd. had filed a petition under section 34 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) challenging an arbitral award passed by a Sole Arbitrator. Later the petitioner requested to treat the petition under section 14(2) to challenge the termination of proceedings by the arbitrator. Thereafter, M/s. IVRCL Assets & Holdings Ltd was admitted into the Corporate Insolvency Resolution Process (CIRP) by National Company Law Tribunal (NCLT) Hyderabad and a moratorium under section 14 of the IBC came into operation. A liquidator was also appointed.
The Liquidator submitted that as per section 33(5) of the IBC, no proceedings can be continued or initiated against the corporate debtor once liquidation had started. It was further submitted that since the petitioner had failed to submit claims within time prescribed by the IBC, the claims now could not be admitted.
Per contra, the Respondent submitted that the arbitral award had been passed after commencement of liquidation, therefore such an order was hit by moratorium. It sought to file claims before the liquidator.
Findings:
The court held that once a moratorium comes into operation under section 14 of the IBC, arbitration proceedings stand automatically stayed and all subsequent orders are legally unsustainable. “The moratorium order having come into force on 23.02.2018 rendered the termination order dated 26.02.2018 unsustainable in law,” the Court held.
The court observed that since moratorium under section 14 of the IBC had come into operation even before the termination of arbitration proceedings, the continuation of arbitration proceedings would be futile. It held that “even if this Court permits the arbitration proceedings to continue and an award is also passed in favour of the petitioner, it is not certain what subsequent remedy can the petitioner seek even after obtaining the award".
The court further noted that the petitioner had been kept in the dark about the commencement of the IBC proceedings and the moratorium. This concealment prejudiced the petitioner.
The court allowed the petitioner to approach the liquidator who was subsequently directed to consider the claims of the petitioner on merits.
The court concluded that “the Liquidator, who is now in charge of the respondent company, shall consider the claim on its own merits and in accordance with law and take a decision and inform the same to the petitioner. The entire process shall be completed within a period of three (3) months from the date of receipt of the claim from the petitioner.”
Case Title: M/s.AL TIRVEN STEELS LTD Vs. M/s.IVRCL Assets and Holding Ltd
Case Number: O.P.No.528 of 2020 and A.Nos.2874 & 3801 of 2021
Order Date: 18/09/2025