NCLT Kolkata: NCLT Has No Jurisdiction To Set Aside Arbitral Award Passed During Moratorium Period U/S 14 Of IBC

Background Facts:

The sole Arbitrator in the arbitration matter between M/s. Steel Authority of India vs. Hindustan Controls & Equipment Pvt. Ltd. and Amiya Commerce & Construction Co Pvt. Ltd. passed an Arbitral Award dated 06.03.2023 post the initiation of CIRP against Hindustan Controls and Equipment Pvt. Ltd. (Corporate Debtor). The CIRP was initiated against the Corporate Debtor via an Order dated 05.07.2022.

Subodh Kumar Agarwal (Applicant), the Resolution Professional of the Corporate Debtor, filed the application seeking an order to set aside the said Arbitral Award in favor of Steel Authority of India (Respondent) and to restrain the Respondent from taking any steps in terms of the said Arbitral Award.

Contentions of the Applicant:

The Applicant contended that since the Arbitral Award was passed post the initiation of CIRP and in ignorance of the provisions of moratorium under Section 14 of the IBC. The Applicant placed reliance on Alchemist Asset Reconstruction Company Ltd. v. Hotel Gaudavan Pvt. Ltd. & Ors. contended that arbitration instituted after the moratorium is non-est in law.

NCLT Verdict:

The NCLT Kolkata dismissed the application and held that the Adjudicating Authority lacks jurisdiction to set aside an arbitral award even when the award was issued post-initiation of CIRP and during the moratorium period under Section 14 of the IBC.

The Tribunal referred to Section 430 of the Companies Act, 2013, stating that while the NCLT can issue an injunction before arbitration, refer parties to arbitration, or enforce arbitration awards, it lacks the authority to set aside an arbitral award.

430. Civil court not to have jurisdiction.— No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.

Referring to the case of Gujarat Urja Vikas Nigam Ltd. v. Mr. Amit Gupta & Ors, the Tribunal noted that IBC overrides other laws, including instruments governed by such laws as provided under Section 238 of IBC. It also noted that NCLT's jurisdiction is confined to matters related to insolvency resolution processes and it cannot derive authority from the spirit and objectives of the IBC. While NCLT possesses broad residual jurisdiction under Section 60(5) of the IBC to address legal and factual issues arising from insolvency proceedings, its powers are limited by the text of the IBC. Thus, NCLT cannot exercise powers that the IBC deliberately does not grant.

In conclusion, NCLT dismissed the application despite the award being during the moratorium period and directed the Applicant to institute proceedings to challenge the said Award before the appropriate forum.

Case Title: Subodh Kumar Agarwal, RP of Hindustan Controls and Equipment Pvt. Ltd. vs. Steel Authority of India

Case No.: IA(IB) No. 1820/( KB) /2023 in CP (IB) No. 1256/KB/2019

Counsel for Applicant: Mr. Subodh Kumar Agarwal, CA, Ms. Pooja Agarwal, CA

Counsel for Respondent: Mr. Prantik Garai, Adv., Mr. Abhishek Sikdar, Adv., Mr. Avijit Ghoshal, Adv., Mr. Subhasis Sengupta, Adv., Mr. Souvik Kundu, Adv. Ms. Nilanjana Adhya, Adv., Ms. Bishalaxmi Ghosh, Adv., Ms. Ranjana Seal, Adv.

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