Whether the Arbitration invoked Against a Corporate Debtor before Initiation of Insolvency gets revived post lifting of moratorium? – Ananya Pratap Singh

Supreme Court of India: Whether the Arbitration invoked Against a Corporate Debtor before Initiation of Insolvency gets revived post lifting of moratorium

In Electrosteel Steel Limited v. Ispat Carrier Private Limited 2025 INSC 525, the Hon’ble Supreme Court inter alia decided two important issues. Firstly, whether an award which was not challenged under Section 34 of the Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) can be objected to in enforcement proceedings. Secondly, whether an arbitration which was kept in abeyance due to moratorium imposed under Insolvency & Bankruptcy Code, 2016 (‘Code’) gets revived after the moratorium is lifted.

Factual Matrix

In the facts of the case, Ispat Carrier, an MSME filed its claim against Electrosteel before the West Bengal Micro, Small and Medium Facilitation Council (‘Facilitation Council’) under Micro, Small and Medium Enterprises Development Act, 2006 (‘MSME Act’). The MSME Act provides for statutory arbitration post an attempt of conciliation. Since conciliation failed, statutory arbitration was commenced between the parties.

Subsequently, Electrosteel went in insolvency under the Code, 2016. This led imposition of moratorium against initiation or continuation of any proceedings against Electrosteel till conclusion of insolvency. In view of this moratorium, the arbitration was kept in abeyance. Ispat Carrier, however, filed its claim in the insolvency of Electrosteel.

A company named Vedanta agreed to acquire Electrosteel and according to its plan, operational debtors like Ispat Carrier were to receive NIL amount against their claims. The plan of Vedanta to acquire Electrosteel under the Code got approved by the National Company Law Tribunal (‘NCLT’) whereafter the moratorium was uplifted. Ispat Carrier did not appeal against the decision of NCLT approving resolution plan.

In arbitration, since moratorium was uplifted, the arbitration resumed but Electrosteel did not contest the same. The award was passed in favour of Ispat Carrier which was not objected by Electrosteel. However, when Ispat Carrier initiated proceedings to enforce the award, Electrosteel filed a petition objecting enforcement of award calling it as nullity since it was allegedly passed by the arbitral tribunal (Facilitation Council) which did not had jurisdiction as the claim of Ispat Carrier was already settled in the resolution plan at NIL. Ispat Carrier argued that the plea of nullity of award cannot be raised in execution proceedings when the award was not challenged by Electrosteel under Section 34 of the Arbitration Act, 1996.

The executing court decided against Electrosteel which led Electrosteel to file a writ against the decision of the executing court. In writ, the Court held that plea of nullity qua the arbitral award can be raised in an execution proceeding in a very narrow scope. However, the Court held that since Electrosteel did not file a petition under Section 34 of Arbitration Act, therefore, it was precluded from challenging the award in the execution proceedings. The Writ Court further held that arbitral tribunal (Facilitation Council) did not lose its jurisdiction to procced and pronounce the arbitral award notwithstanding approval of the resolution plan by the NCLT.

Reasoning given by the Writ Court is that the arbitral proceedings were initiated prior to the insolvency resolution date, kept suspended during the moratorium period and resumed after lifting of the moratorium; the approved resolution plan simply determined the claim of Ispat Carrier as NIL. Accordingly, Electrosteel’s writ was dismissed and Electrosteel filed a special leave petition against this decision before the Supreme Court which was decided in the present proceedings.

Parties Contentions

Before the Supreme Court, Electrosteel inter alia contended that writ court had erroneously held that the resolution plan did not determine the claim of Ispat Career at NIL and, therefore, the Facilitation Council had the jurisdiction to decide on the claim of Ispat Career. It further submitted that Electrosteel has been given a fresh and clean slate upon approval of the resolution plan and the same cannot be allowed to be defeated or frustrated by raising claims relatable to the period covered by the corporate insolvency resolution process. It also contended that an award can be challenged in an execution proceeding on the ground of it being a nullity and since the Facilitation Council inherently lacked jurisdiction to arbitrate on the claim of Ispat Career post approval of the resolution plan, award itself is a nullity.

Per contra, Ispat Career argued that imposition of moratorium and consequential approval of resolution plan does not terminate or put an end to pending proceedings but those were merely stayed. Therefore, post expiry of the moratorium period, pending proceedings such as arbitral proceedings would stand revived and taken to their logical conclusion. Ispat Career further contended that without challenging the award under Section 34 of the Arbitration Act, it was not open to Electrosteel to challenge the same in execution proceeding. According to Ispat Carrer, its claim was filed before the interim resolution professional but was not included in the resolution plan and therefore, Ispat Career does not fall in the category of operational creditors whose claims were rendered NIL.

Issues before the Supreme Court

The issues before the Court were as under:-

• The arbitral award having not been challenged under Section 34 of the Arbitration Act, whether the objection to execution of the arbitral award by Electrosteel was maintainable by alleging that the arbitral award itself was a nullity and hence non-executable?
• Whether the arbitral award in the present case could be assailed as a nullity and hence non-executable within the permissible grounds of raising such a plea?
• Irrespective of maintainability of the objection to the arbitral award in the executing proceedings, whether on facts, the Facilitation Council lost its jurisdiction to proceed and pronounce the arbitral award in view of the insolvency resolution plan which was duly approved by the NCLT?

Findings of the Supreme Court

The Supreme Court held as under:-

• A plea of nullity qua an arbitral award can be raised in executing proceedings but such a challenge would lie within a very narrow compass.
• The law is well settled that at the stage of execution, an objection as to executability of the decree (award being enforceable as a decree of a court) can be raised but such objection is limited to the ground of jurisdictional infirmity or voidness.
• Only a decree which is a nullity can be the subject matter of objection in the execution proceedings and not one which is erroneous either in law or on facts.
• Objection to execution of an award is not dependent or contingent upon filing a petition under Section 34 of the Arbitration.
• Once a resolution plan is duly approved by the NCLT, all claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan.
• Lifting of the moratorium does not mean that the claims of creditors which were kept in abeyance due to moratorium would stand revived notwithstanding approval of the resolution plan by the NCLT.
• Moratorium is intended to ensure that no further demands are raised or adjudicated upon during the corporate insolvency resolution process so that the process can be proceeded with and concluded without further complications.

Decision of the Supreme Court

• Writ Court was not justified in taking the view that since Electrosteel did not file a petition under Section 34 of Arbitration Act, therefore, it was precluded from objecting to its enforcement in the execution proceedings.
• The resolution professional, the committee of creditors and the NCLT noted about the claim lodged by Ispat Carrer in the arbitration proceeding. However, Ispat Carrer was not included in the top 30 operational creditors whose claims were settled at NIL. This can only mean that the three authorities conducting the corporate insolvency resolution process did not deem it appropriate to include the respondent in the top 30 operational creditors. If the claims of the top 30 operational creditors were settled at NIL, it goes without saying that the claim of Ispat Carrer could not be placed higher than the said top 30 operational creditors.
• Moreover, the resolution plan itself provides that all claims covered by any suit, cause of action, arbitration etc. shall be settled at nil. Therefore, it is crystal clear that in so far claim of Ispat Carrer is concerned, the same would be treated as NIL at par with the claims of the top 30 operational creditors.
• Lifting of the moratorium does not mean that the claim of Ispat Carrer would stand revived notwithstanding approval of the resolution plan by the NCLT.

Accordingly, the Court concluded that the in view of the approved resolution plan, the claim of Ispat Carrer, being outside the purview of the resolution plan, stood extinguished and therefore, the Facilitation Council did not have the jurisdiction to arbitrate on the said claim. Further, since the award was passed without jurisdiction, the same could be assailed in execution proceedings. The Court set aside the decisions of the Execution court and Writ Court.