INTRODUCTION
The Parliament’s recent push to introduce a cross-border insolvency framework under the Insolvency and Bankruptcy Code, 2016 (“IBC”), is a significant step towards recognizing and coordinating restructuring proceedings for Indian corporate debtors in other jurisdictions. The IBC (Amendment) Bill, 2025, provides for Section 240C of the IBC, which empowers the Central Government to prescribe rules for the administration and conduct of cross-border insolvency proceedings. While this is a largely positive change, Indian Courts would now be tasked with maintaining a certain degree of uniformity in how cross-border insolvency and its reliefs may interact with other dispute resolution mechanisms, more notably, arbitration. Section 14 of the IBC imposes a wide stay on the institution and continuation of proceedings against a corporate debtor, and it is well-settled that arbitrations also fall within the scope of this provision. The Supreme Court’s decision in the Indus Biotech[1] case reinforces this position, holding that once a Corporate Insolvency Resolution Process (“CIRP”) application is admitted, such proceedings become non-arbitrable and arbitration clauses cannot be invoked. The Supreme Court in Alchemist Asset Reconstruction Company Ltd.[2] also provided that any arbitration proceedings instituted after the imposition of a moratorium would be rendered non- est in law.
Despite this strong position in domestic law, once a cross-border framework becomes operational, international jurisprudence would have to be considered while dealing with issues arising out of arbitration and insolvency. If the Parliament decides to incorporate the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on Cross-Border Insolvency (“MLCBI”), then the remarks provided for Article 20 recognizes the difficulty of imposing an automatic stay on arbitrations despite the recognition of a foreign main proceeding by another Court. In particular, it acknowledges that the interests of parties may be a reason to allow for the continuation of arbitral proceedings despite such recognition; however, this is still left to the law of the enacting State. It is in this backdrop that the Sapura Fabrication[3]judgment assumes relevance, offering guidance on how arbitration-related carve-outs may be approached in cross-border insolvency proceedings.
THE JUDGMENT
Brief Facts:
The Sapura Group had been engaged in a series of restructuring proceedings in Malaysia since 2022. These proceedings in Malaysia had been recognized in Singapore as ‘foreign main proceedings’, pursuant to the UNCITRAL Model Law on Cross-Border Insolvency. The Respondent had entered into contracts with the Sapura Entities, which had the latter undertake to provide the Respondent with construction-related services in exchange for a total payment
of around 169 million USD. On 29th September 2023, the Respondent commenced arbitration proceedings against the Sapura Entities on the basis of the aforementioned contract, despite their filing claims earlier in the insolvency proceedings based on the same contracts. The Respondent, however, argued that because its arbitration claims had crystallized post the cut- off date for submitting claims, their current claims do not fall within the proposed scheme of compromise.
On 20th February 2024, the Sapura Entities applied for another moratorium, which was granted by the Kuala Lumpur High Court on 7th March 2024. However, when the Sapura Entities then applied to the General Division of the Singapore High Court (“General Division”) for recognition of the same, the Respondent sought a carve-out from the moratorium in order to proceed with arbitration. The General Division, after applying the factors laid down in Wang Aifeng[4], had allowed the carve-out (“Discretionary Ground”). However, the General Division additionally observed that the carve-out either way had to be allowed since they were bound by the principle of mandatorily enforcing arbitration agreements as per the AnAn[5] decision (“Mandatory Ground”). When the Sapura Group appealed against this decision, the parties had reached a settlement agreement, and the appeals were subsequently withdrawn. However, the Court proceeded to issue its judgment, as the issues framed pertain to legal points of general interest and significance, presenting an opportunity to clarify the interplay between arbitration agreements and insolvency proceedings.
Holding:
On the Discretionary Ground
The Court had affirmed the test laid down in Wang Aifeng instead of the “exceptional circumstances test” proposed by the Sapura Entities, as laid down by the Kuala Lumpur High Court in Re Top Builders[6]. As noted by the Court, the proposed test was vague and did not provide for a determining factor signifying an exceptional circumstance. The Court had upheld the General Division’s application of the Wang Aifeng test on the following grounds.
1. Nature of the claim – Due to the complexity of the claim submitted by the Respondent, it must be allowed to proceed with arbitration, as it requires a factually complex exercise of assessing the Respondent’s entitlement to terminate the contracts. This would be impractical for the compromise scheme’s adjudicator to dwell on.
2. Existing Remedies – The existing remedy of the scheme’s adjudicator may not prove to be sufficient in the Respondent’s case, as it had been more than two years since the Respondent’s claims were submitted, and they were still not adjudicated upon. This lengthy delay indicated to the Court that the scheme adjudication process was not adequate to deal with claims, and the Arbitration claims are as complex (if not more). Hence, arbitration is a more efficient remedy than the existing one.
3. Timing of the application and prejudice to the parties – The main factor to assess here is to ascertain whether the debtor’s “breathing space” by virtue of a carve-out may prejudicially affect the compromise. Since the Arbitration claims in the current instance represent only about 6-7% of the total debt, a carve-out would have a negligible impact on the scheme. The Respondent could not be expected to wait until the adjudicator finally adjudicates on the claim, and even if there is any prejudice that may be caused by virtue of the arbitration, the General Division imposed a condition barring any enforcement of the arbitral award without their leave. This acts as a safeguard against any form of possible prejudice that may arise.
On the Mandatory Ground
The Court disagreed with the General Division on the application of AnAn. It was held that AnAn does not stand for the proposition that the policy of enforcing arbitration agreements should trump the insolvency regime under all circumstances. A moratorium is meant to give a company breathing room to put forward a proposal or a scheme, and this would be severely compromised by the invocation of a valid arbitration agreement automatically overruling the policy considerations of insolvency proceedings. Moreover, the Wang Aifeng case already provides for when carve-outs may be allowed; therefore, for an arbitration agreement to prevail over insolvency, it must be subject to the aforementioned test rather than an automatic application.
SIGNIFICANCE OF THE JUDGMENT
The significance of the Sapura Fabrication judgment lies not just in its rejection of a mandatory override of an arbitration agreement over insolvency mechanisms, but in its ultimate goal of balancing individual interests with a collective process. Arbitration-related carve-outs are not unexplored in Indian jurisprudence; however, they only apply to circumstances where an arbitral award is challenged under Section 34 of the Arbitration and Conciliation Act, 1996.[7] In fact, courts are generally reluctant to allow for such carve-outs because of the risk of dissipating a corporate debtor’s assets. While this should be the primary concern in rehabilitating a corporate debtor, the SGCA’s judgment also factors in whether certain creditors are being harmed in the process of imposing a blanket stay. On paper, creditors of the same class are treated alike, yet the SGCA acknowledges how practical realities may differ. Keeping these discrepancies in mind, carve-outs are in place to protect creditors who may be disadvantaged during the process of realization and left without adequate remedies.
There are cases such as Compuage, where Courts are recognizing Indian CIRP as a foreign main proceeding under the UNCITRAL MLCBI, thereby, affirming the IBC’s legitimacy in the international arena.[8] As CIRPs increasingly obtain recognition in foreign jurisdictions, such recognition underscores the risk that Indian courts may lack adequate mechanisms to address its implications in the absence of a unified framework. Further, the introduction of a cross- border framework would require courts to engage with international insolvency principles, particularly those that allow limited carve-outs within moratoriums. Issues such as blanket stays would have to be re-examined in light of judgments such as Sapura Fabrication. Rigidity in the imposition of a moratorium becomes particularly problematic in an international setting when it intersects with foreign-seated arbitrations. As the SGCA succinctly demonstrates, arbitrations may nonetheless proceed when there is no major risk of dissipation. Even when
such risks arise, restrictions on the enforceability of foreign arbitral awards would align with public policy concerns where a manifest risk of dissipation is evident. Thus, the SGCA’s judgment highlights how Courts must still retain some discretion while imposing a moratorium, and, as India moves towards a cross-border insolvency framework, to revisit settled issues through the lens of international principles, thereby bringing certainty to an already complex area of law.
*Vyapak Desai, Counsel – International Disputes & Investigations, Vyapak Desai Law Chambers
**Ruben Zachariah, Student
[1] Indus Biotech Private Limited v. Kotak India Ceture (Offshore) Fund (earlier known as Kotak India Venture Limited) & Ors., Arbitration Petition (Civil) Nol. 48/2019 with Civil Appeal No. 1070/2021.
[2] Alchemist Asset Reconstruction Company Ltd. v. M/s. Hotel Gaudavan Pvt. Ltd. & Ors., Civil Appeal No. 16929 of 2017.
[3] Sapura Fabrication Sdn Bhd and Others v. GAS and another appeal, [2025] SGCA 13.
[4] Wang Aifeng v. Sunmax Global Capital Fund 1 Pte Ltd and another, [2023] 3 SLR 1604.
[5] AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Co), [2020] 1 SLR 1158.
[6] Re Top Builders Capital Bhd & Ors, [2021] 10 MLJ 327.
[7] SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd, CS(COMM) 470/2016 & CC(COMM) 73/2017.
[8] Re Compuage Infocom Limited and Another, [2025] SGHC 49.