Arbitral Award Holder Must Return Amount Withdrawn From Court After Insolvency Resolution: Bombay High Court

The Bombay High Court has held that where an arbitral award passed against a company is under challenge, and the company later successfully comes out of insolvency, the award holder cannot retain money withdrawn from court deposits if the claim itself is wiped out under an approved resolution plan.

The court said such amounts must be returned, as the award itself no longer survives.

A single-judge bench of Justice Somasekhar Sundaresan, in an order dated December 17, 2025, allowed an interim application filed by Reliance Defence and Engineering Ltd. against Afcons Infrastructure Ltd.

It directed Afcons to return Rs. 12.76 crore that it had earlier withdrawn from court deposits.

The court observed, "It is only proper that the amount so withdrawn should now be brought back by Afcons since the underlying Arbitral Award itself stands extinguished with Reliance starting with a clean slate post-resolution under the IBC."

Reliance Defence had challenged an arbitral award dated August 31, 2015, arising out of a contractual dispute, under which it was directed to pay Rs. 49.11 crore to Afcons. It had approached the High Court under section 34 of the Arbitration and Conciliation Act.

While that challenge was pending, the High Court in February 2017 asked Reliance to deposit Rs. 12.76 crore with the court. Afcons was allowed to withdraw the money after furnishing a bank guarantee.Years later, Reliance was admitted into insolvency and a resolution plan was approved on December 23, 2022.

Under that plan, Afcons' claim under the arbitral award was written down to Re. 1, effectively wiping out its right to recover the awarded sum. Reliance then approached the High Court seeking return of the deposited amount, arguing that once the resolution plan was approved, the arbitral award itself stood extinguished and Afcons could not continue to hold money released during the pendency of the challenge.

Afcons opposed the plea, including the claim for return along with interest.

Agreeing with Reliance, the court noted that the money deposited was held in the court's custody and was released only as a discretionary and equitable arrangement, subject to the outcome of the arbitration challenge. Once the resolution plan came into force, the court said, the law became “crystal clear.”

It recorded, “The very right to receive the amounts awarded under the Arbitral Award stands effaced by the terms of the approved Resolution Plan, and therefore, the Section 34 Petition itself is rendered infructuous since the Arbitral Award stands effaced.”

Relying on the Supreme Court's ruling in Ghanshyam Mishra and earlier decisions of the Bombay High Court, Justice Sundaresan held that Afcons' rights under the award amounted to a “claim” and “debt” under insolvency law, both of which stood fully extinguished once the resolution plan was approved.

The court directed Afcons to deposit Rs. 12.76 crore with the court within four weeks, failing which its bank guarantee would be invoked to recover the amount. At the same time, the court refused Reliance's request for interest at 18 percent per annum. It held that any such claim would amount to a separate cause of action requiring independent proceedings.