Sanchayita Lahkar

The High Court of Bombay Single Bench of Justice Somasekhar Sundaresan has directed an award-holder to return money earlier withdrawn from a court deposit, holding that the amount cannot be retained once the underlying arbitral claim stands extinguished under an approved insolvency resolution plan. The dispute arose from an arbitral award requiring payment by a company, which was later challenged in court, while the award-holder withdrew part of the deposited amount against a bank guarantee. After the company’s successful resolution under the insolvency framework reduced the award-related liability to a nominal sum, the Court held the award no longer survives for enforcement. It ordered repayment to the Registry within four weeks, failing which the guarantee must be invoked and the recovered sum released to the company.

The proceedings arose from an interim application filed in a pending challenge to an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The applicant, a company that had undergone corporate insolvency resolution, sought directions for restitution of a monetary deposit earlier released to the opposing party during the pendency of the arbitral challenge.

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Under an arbitral award dated 31 August 2015, the applicant was directed to pay a substantial sum to the respondent. During the pendency of the challenge to the award, the applicant deposited a portion of the awarded amount with the Registry of the High Court pursuant to a judicial order, which was subsequently withdrawn by the respondent upon furnishing a bank guarantee.

Thereafter, the applicant was admitted into the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. A resolution plan came to be approved, under which the respondent’s claim arising from the arbitral award was written down to a nominal amount. Following approval of the resolution plan, the applicant sought return of the amount withdrawn by the respondent from court custody, along with interest, contending that the underlying arbitral claim no longer survived.

The Court recorded that “the Applicant… was a ‘Corporate Debtor’, which underwent resolution under the provisions of the Insolvency and Bankruptcy Code, 2016.” It noted that under the approved resolution plan, “the debt due under the Arbitral Award [stood reduced] from Rs. ~49.11 Crores to Re.1,” and consequently “the right to receive the amount awarded under the Arbitral Award was extinguished.”

Addressing the status of the withdrawn deposit, the Court observed that “the amount deposited in Court was custodia legis and had been released on the strength of the bank guarantee provided by Afcons.” It further stated that “such withdrawn amount cannot continue to remain with Afcons” once the arbitral award itself stood effaced following insolvency resolution.

The Court relied upon precedents governing the treatment of court deposits when a judgment debtor undergoes insolvency, recording that “the law in this regard is well covered” by decisions interpreting the Insolvency and Bankruptcy Code. It reiterated that a claim under an arbitral award constitutes a “claim” and “debt” under the Code, and the award-holder remains a “creditor” for insolvency purposes.

It was observed that “the very right to receive the amounts awarded under the Arbitral Award stands effaced by the terms of the approved Resolution Plan,” rendering the pending challenge to the award infructuous. The Court stated that “with nothing being owed under the Arbitral Award (other than Re.1), the amount withdrawn by Afcons ought to be brought back.”

On the claim for interest, the Court recorded that “there is no basis for awarding interest generally, and indeed specifically at the rate of interest as claimed,” and noted that such a claim would constitute “a separate cause of action” not maintainable in the interim application.

The Court directed that “Afcons is directed to bring back the amount of Rs.12,76,91,279 to the Registry.” And that the respondent “must do so within a period of four weeks from the upload of this order on the website of this Court.”

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“Should such amount not be brought back within the four-week deadline as above, the Registry must invoke the bank guarantee provided by Afcons, in order to recover the amount and pay it to Reliance.” It was specified that “such invocation and payment must be completed within a period of two weeks from the expiry of the aforesaid four-week deadline.”

“With the aforesaid directions, the captioned Interim Application is hereby finally disposed of. In the peculiar facts of this case, there shall be no order as to costs. All actions required to be taken pursuant to this order shall be taken upon receipt of a downloaded copy as available on this Court’s website.”

Advocates Representing the Parties

For the Petitioners: Mr. Cyrus Ardeshir, Advocate, with Mr. Amir Ariswala and Mr. Rahul Gupta
For the Respondents: Mr. Janak Dwarkadas, Senior Advocate, with Mr. Naushad Engineer, instructed by Ms. Meenakshi Iyer

Case Title: Reliance Defence & Engineering Limited v. Afcons Infrastructure Limited
Neutral Citation: 2025: BHC-OS:25804
Case Number: Interim Application (L) No. 9646 of 2024 in Arbitration Petition No. 1755 of 2015
Bench: Justice Somasekhar Sundaresan