The Bombay High Court has directed Afcons Infrastructure Ltd. to return ₹12.76 crore withdrawn by it pursuant to an interim order passed during the pendency of a Section 34 of the Insolvency and Bankruptcy Code (the “Act”) challenge to an arbitral award, holding that the amount cannot be retained after the corporate debtor’s successful resolution under the Insolvency and Bankruptcy Code.
The dispute arose from an arbitral award dated August 31, 2015, in which Reliance was directed to pay about ₹49.11 crore to Afcons. Later, Reliance challenged the arbitral award in the Section 34 Petition. Pursuant to a court order dated February 20, 2017, Reliance deposited ₹12.76 crore with the High Court. Afcons was permitted to withdraw such an amount with a bank guarantee. Subsequently, Reliance was admitted to the corporate insolvency resolution process (CIRP), and the resolution plan approved on December 23, 2022, reduced the Arbitral Award from Rs. 49.11 Crores to Re. 1, thereby extinguishing the debt.
While considering the interim application, Justice Somasekhar Sundaresan observed that the amount deposited in court was custodia legis and had been released to Afcons only as an interim, equitable arrangement pending adjudication of the Section 34 petition. Once the resolution plan was approved, Afcons’ right to receive any amount under the arbitral award stood completely effaced, rendering the Section 34 proceedings infructuous. Referring to Ghanashyam Mishra & Sons v. Edelweiss ARC (2021) 9 SCC 657, Siti Networks Ltd. v. Rajiv Suri 2024 SCC OnLine Bom 3550, and Garden Silk Mills Ltd. v. Gayatri Industries IA/3540/2021, the Court held that amounts deposited by a corporate debtor must follow the outcome mandated by the IBC resolution.
Accordingly, the High Court directed Afcons to re-deposit ₹12.76 crore with the Registry within four weeks, failing which the bank guarantee furnished by Afcons is to be invoked. However, the Court rejected Reliance’s claim for interest at 18%, holding that such a claim constitutes a separate cause of action and cannot be granted in the present interim application.
Appearances:
For the Applicant: Advocate Cyrus Ardeshir, Amir Ariswala, and Rahul Gupta
For the Respondent: Senior Advocate Janak Dwarkadas, Advocate, with Advocate Naushad Engineer
