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Arbitral-award can’t be set aside by NCLT under Moratorium

NCLT under the IBC Act

NCLT Kolkata – Arbitral award cannot be set aside by NCLT under IBC Moratorium

In the case of Mahavir Industrial Corporation vs. Hindustan Controls and Equipment Private Limited, the National Company Law Tribunal (NCLT) Kolkata ruled that it lacks the jurisdiction to set aside an arbitral award during an Insolvency and Bankruptcy Code (IBC) moratorium. This decision stems from the statutory limitations placed on the NCLT’s powers under the IBC.

The case involved the resolution professional (RP) of Hindustan Controls and Equipment Pvt. Ltd., who sought to set aside an arbitral award issued after the commencement of the Corporate Insolvency Resolution Process (CIRP) for the corporate debtor. The RP argued that the continuation of arbitration proceedings and the issuance of the award violated the moratorium imposed under Section 14 of the IBC, which stays all legal actions against the corporate debtor once the insolvency process begins​.

However, the NCLT clarified that while it has the authority to issue interim measures related to arbitration and to enforce arbitral awards, it does not have the power to set aside arbitral awards. Such challenges must be brought before a competent court under Section 34 of the Arbitration and Conciliation Act, 1996. The NCLT referenced the Supreme Court’s precedent in the Gujarat Urja Vikas Nigam Limited case, which emphasized that the NCLT should not overstep its jurisdiction into matters that do not directly pertain to insolvency resolution​.

The respondents countered that any challenge to the arbitral award must be made under Section 34 of the Arbitration and Conciliation Act, 1996, and not under Section 60(5) of the IBC. They argued that the NCLT does not have the jurisdiction to set aside arbitral awards, which is a power reserved for courts designated under the Arbitration Act​.

The NCLT, comprising Members D. Arvind and Bidisha Banerjee, agreed with the respondents. The tribunal noted that while the NCLT has broad residuary jurisdiction under Section 60(5) of the IBC to adjudicate issues arising out of insolvency proceedings, this does not extend to setting aside arbitral awards. The NCLT emphasized that it cannot assume powers that the IBC does not explicitly grant it. Consequently, the application to set aside the arbitral award was dismissed, but the RP was granted the liberty to challenge the award through appropriate legal channels​.

This NCLT’s decision highlights the clear delineation of authority between the NCLT and courts under the Arbitration Act, reinforcing the principle that challenges to arbitral awards must follow the specific legal framework established for arbitration, even during insolvency proceedings. The NCLT’s decision reinforces the separation of jurisdiction between insolvency proceedings under the IBC and arbitration matters, ensuring that challenges to arbitral awards must follow the established legal framework of the Arbitration Act, even during insolvency proceedings.

The NCLT Kolkata, in its verdict on the case involving the Resolution Professional (RP) of Hindustan Controls and Equipment Private Limited, dismissed the application to set aside an arbitral award that was issued during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016. The tribunal held that the NCLT, as the Adjudicating Authority, lacks jurisdiction to annul such an award, even if it was made post-initiation of the Corporate Insolvency Resolution Process (CIRP)​.

The RP had contended that the arbitral award violated the moratorium imposed by the IBC, which stays all legal proceedings against the corporate debtor. Despite this, the NCLT ruled that its powers do not extend to setting aside arbitral awards, as this falls under the jurisdiction of courts designated under the Arbitration and Conciliation Act, 1996​.

The Kolkata Bench of the National Company Law Tribunal (NCLT) has ruled that it is not empowered to set aside an arbitral award issued during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016. This ruling came in the case involving the Resolution Professional (RP) of Hindustan Controls and Equipment Private Limited, who sought to annul an arbitral award passed after the initiation of the Corporate Insolvency Resolution Process (CIRP) against the company​

The RP argued that the arbitral proceedings and the resulting award violated the moratorium imposed under Section 14 of the IBC, which stays all legal actions against the corporate debtor. The RP claimed that the arbitrator was aware of the ongoing insolvency proceedings but proceeded with the arbitration regardless, thereby contravening the moratorium provisions​.

Thus, the NCLT dismissed the application, allowing the RP to seek appropriate legal recourse to challenge the arbitral award in the relevant judicial forum​ under IBC​. This ruling reinforces the principle that the NCLT’s jurisdiction during an IBC moratorium is confined to insolvency-related matters and does not extend to setting aside arbitral awards.

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