RELIANCE NAVAL AND ENGINEERING LTD. v. RELIANCE DEFENCE AND ENGINEERING LTD.
IBC Resolution Plan's Impact on Arbitral Awards: Court Orders Return of Funds Withdrawn Pending Section 34 Challenge After Claim Reduction.
Court: Bombay High Court
Citation: 2025:BHC-OS:25804
Decision Date: 17-12-2025
List of Laws
Arbitration and Conciliation Act, 1996 (Section 34); Insolvency and Bankruptcy Code, 2016
- Facts: Reliance Naval & Engineering Ltd. ("Reliance") faced an arbitral award of approximately Rs. 49.11 Crores in favor of Afcons Infrastructure Ltd. ("Afcons"). Reliance challenged this award under Section 34 of the Arbitration and Conciliation Act. During the Section 34 proceedings, Reliance deposited Rs. 12,76,91,279 with the court registry, which Afcons withdrew by providing a bank guarantee. Subsequently, Reliance underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 ("IBC"), resulting in a resolution plan that reduced Afcons' claim to Re.1. Reliance then filed an Interim Application seeking the return of the deposited amount withdrawn by Afcons, along with interest.
- Procedural Posture: The case is before the High Court of Judicature at Bombay in its Ordinary Original Civil Jurisdiction, specifically concerning Interim Application No. 9646 of 2024 in Arbitration Petition No. 1755 of 2015. The court is considering Reliance's application for the return of funds withdrawn by Afcons during the pendency of a Section 34 challenge to an arbitral award, in light of a subsequent resolution plan under the IBC that significantly reduced Afcons' claim.
- Issue: Whether Afcons is required to return the amount withdrawn from the court registry, considering that the underlying arbitral award has been effectively extinguished by the approved resolution plan under the IBC, and whether Reliance is entitled to interest on the deposited amount.
- Holding: Afcons is directed to return the amount of Rs. 12,76,91,279 to the Registry. Reliance's claim for interest is rejected.
- Reasoning: The Court reasoned that the approved resolution plan under the IBC effaced Afcons' right to receive the amounts awarded under the Arbitral Award, reducing the claim to Re.1. The deposited amount was considered custodia legis and released based on the bank guarantee provided by Afcons. Since the underlying Arbitral Award is now extinguished, Afcons should return the withdrawn amount. The court relied on the Supreme Court's decision in Ghanashyam Mishra and the Bombay High Court's decisions in Siti Networks and Garden Silk, which held that amounts deposited in court by a corporate debtor are assets of the debtor and should be available for the resolution process. The court rejected the interest claim, stating it was a separate cause of action not appropriately pursued in the Interim Application.
🔒 For Members Only