Bombay High Court: In an interim application arising from a petition under Section 34 of Arbitration and Conciliation Act, 1996 (‘the Act’), a Single Judge Bench of Somasekhar Sundaresan, J., held that the amount withdrawn by the award holder pursuant to a court ordered deposit could not continue to remain with it after the corporate debtor had undergone resolution under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). Emphasising that the resolution plan had extinguished the right to receive the arbitral award, the Court directed that the withdrawn sum be brought back to the Registry, failing which the bank guarantee furnished would be invoked. Clarifying further, the Court rejected the claim for interest, holding that such pursuit entailed a separate cause of action.
Background:
An arbitral award dated 31-08-2015 directed payment of approximately Rs 49.11 crores. During pendency of the Section 34 petition challenging the award, pursuant to an order dated 20-02-2017, a deposit of Rs 12,76,91,279 was made with the Registry. This amount was withdrawn by the award-holder upon furnishing a bank guarantee valid until 30-04-2026.
Subsequently, the corporate debtor was admitted to the corporate insolvency resolution process, and a resolution plan was approved on 23-12-2022, reducing the debt due under the award from Rs 49.11 crores to Re 1.
The applicant sought release of the withdrawn amount along with interest at 18 per cent per annum from 20-02-2017. The respondent contended that the withdrawal was validly made against the deposit and secured by a bank guarantee, and that no basis existed for the claim of interest under the interim application.
Analysis and Decision:
The Court emphasised that once the resolution plan had reduced the claim under the arbitral award to Re 1, the withdrawn amount could not continue to remain with the award-holder. The Court noted that the amount deposited in Court was custodia legis and had been released only on the strength of the bank guarantee. It was observed that it is only proper that the amount so withdrawn should now be brought back since the underlying Arbitral Award itself stands extinguished.
The Court highlighted that the law was well covered by Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657, Siti Networks Ltd. v. Rajiv Suri, (2025) 257 Comp Cas 623, and Garden Silk Mills Ltd. v. Gayatri Industries, (2025) 258 Comp Cas 725. The Court referred to Siti Networks Ltd. (supra), wherein it was held that the amounts deposited in Court by a judgment debtor, who later became a corporate debtor admitted to corporate insolvency resolution process (‘CIRP’) under the IBC, were liable to be returned to the resolution professional of the corporate debtor during the conduct of the CIRP, in order to conserve both the insolvency estate and the future liquidation estate of the judgment debtor.
The Court further observed that in the present matter the resolution plan has indeed been approved and has been completed and moreover the Petition under Section 34 of the Act itself is rendered infructuous since the Arbitral Award stands effaced, with nothing awarded in it capable of being enjoyed.
On the claim for interest, the Court noted that there is no basis for awarding interest generally, and indeed specifically at the rate of interest as claimed. Further, the Court highlighted that the claim for interest entails pursuit of a separate cause of action and such a claim cannot be provided under the interim application.
The Court, therefore, directed that the withdrawn amount of Rs 12,76,91,279 be brought back to the Registry within four weeks, failing which, the Registry must invoke the bank guarantee to recover the amount and pay it to the corporate debtor.
Consequently, the claim for interest was rejected, leaving it open for pursuit in appropriate proceedings, and the interim application was disposed of with no order as to costs.
[Reliance Naval & Engineering Ltd. v. Afcons Infrastructure Ltd., 2025 SCC OnLine Bom 5594, decided on 17-12-2025]
Advocates who appeared in this case:
For the Applicant: Cyrus Ardeshir with Amir Ariswala and Rahul Gupta
For the Respondent: Janak Dwarkadas with Naushad Engineer, instructed by Meenakshi Iyer
Buy Arbitration and Conciliation Act, 1996 HERE
