top of page

The Intersection of Arbitration & Insolvency Laws in India: A Jurisdictional Conundrum

Gautam Mohanty[1] & Shivam Hargunani[2]


The distinct nature of arbitration and insolvency regimes is apparent. While the fundamental foundation of arbitration lies in party autonomy, an insolvency regime is often comprised of mandatory rules safeguarding the interests of various stakeholders. The lack of guidance or limited guidance on the impact of insolvency proceedings on arbitration has put the spotlight on finding clarity to specific issues through case law. Be that as it may, new inconsistencies come to the forefront when dealing with insolvency questions in arbitration, especially in light of the repercussions of the Covid-19 pandemic. As described by the American Courts, this phenomenon is a “conflict of near polar extremes”.[3] A cursory glance over various international legal systems indicates a significant level of divergence in the context of regulating the intersection of arbitration and insolvency. Some jurisdictions prohibit individual proceedings, including arbitration; some jurisdictions prohibit arbitration only in some circumstances subject to certain limitations and procedural adaptations, while some jurisdictions stipulate that insolvency proceedings have no impact on arbitration proceedings. Additionally, there is no international convention or instrument that harmonizes the various national approaches to insolvency.

The existing judicial precedents in India and regulatory guidance provide little guidance to issues such as the continuation of arbitration proceedings, the impact of foreign seated arbitration, the ability to participate in the insolvency resolution process and the enforcement of arbitral awards vis-à-vis insolvency proceedings.[4] The law on bankruptcy and insolvency in India underwent a complete change with the enactment of the Insolvency and Bankruptcy Code 2016 (“IBC”). Notably, apart from the imposition of a moratorium, the IBC did not stipulate any other provisions pertaining to the impact of insolvency on arbitration proceedings. Such being the case, guidance from case law has helped tackle issues that are not covered by the IBC but which lie at the intersection between arbitration and insolvency. The consequences of the above intersection, although unclear, are slowly emerging.

The Supreme Court of India in Indus Biotech Pvt. Ltd v. Kotak India Venture (Offshore) Fund and Ors.[5] was presented with the opportunity to place itself at the intersection between insolvency and arbitration. In the above context, the Hon’ble Supreme Court has in clear and explicit terms postulated that if an insolvency application is admitted, then an arbitration proceeding is not maintainable. The court has further observed that an insolvency action concerning a right in rem cannot be overridden by an arbitration action that involves a right in personal.

In relation to the only provision in IBC dealing with arbitration, i.e., imposition of a moratorium, it is to be noted that Section 14 of the IBC specifically bars “the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority”.[6] Pertinently the above provision of law is an all-encompassing one, thereby implying that the imposition of moratorium does not differentiate between pending arbitration proceedings and those commenced after the institution of insolvency proceedings. The law in this regard is clear and has been stated by the Hon’ble Supreme Court of India in the case of Alchemist Asset Reconstruction Co.[7] wherein it was held that arbitration proceedings commenced after the initiation of a ‘corporate insolvency resolution process’ (“CIRP”) are considered non-est in law. Notwithstanding the above, in the absence of statutory exceptions, judicial exceptions have allowed for the continuation of arbitration proceedings in a situation where: (1) the arbitration proceedings maximize the value of the assets of the corporate debtor; (2) the proceedings are beneficial to the corporate debtor and do not adversely impact its assets,[8] or (3) if proceedings are allowed to continue no recovery can be pursued against the corporate debtor during the operative period of the moratorium.[9]

Further, in some instances, Courts have refused to issue an injunction on claims and counterclaims advanced by a creditor where it was found that the corporate debtor, in case of an order to pay, would not be in an adverse financial situation.[10] Recently, the Hon’ble Bombay High Court in Nahar Builders Ltd. v. Housing Development and Infrastructure Ltd.[11] was presented with the question of whether security obtained pursuant to interim measures in an arbitration prior to the initiation of insolvency proceedings could be encashed despite the moratorium order? Interestingly, the Hon’ble Bombay High Court allowed for encashing the security and disbursement of the amounts and observed that the moratorium order would have no effect on the security. Similarly, the Hon’ble Delhi High Court when faced with the exact question of law, has observed that a moratorium prohibits encashing of security and disbursement of any amounts.[12] The above is just an example to highlight the importance of case law jurisprudence in developing the understanding of issues pertaining to arbitration that are not explicitly dealt with by IBC.


A. Facts and procedural history

In the case, an arbitration petition was filed by Indus Biotech Private Limited (“Petitioner”) under Section 11(3) read with Section 11(4)(a) and 11(12)(a) of the Act, 1996 seeking the appointment of an Arbitrator on behalf of Respondents Nos. 1 to 4 in order to adjudicate upon certain disputes between the parties. The genesis of the dispute can be traced back to the Share Subscription and Shareholders’ Agreements (“SS and SA”) dated 20.07.2007, 12.07.2007, 09.01.2008 and the Supplemental Agreements dated 22.03.2013 and 19.07.2017 whereby the Respondents had subscribed to equity shares and Optionally Convertible Redeemable Preference Shares (“OCRPS”) in the Petitioner company.

Subsequently, it was decided by the Petitioner company to make a Qualified Initial Public Offering (“QIPO”). However, under Regulation 5(2) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements), Regulations 2018 (“SEBI Regulations”), a company with any outstanding convertible securities or any other right which would entitle any person with an option to receive equity shares of the issues was not entitled to make QIPO. Therefore, to facilitate the QIPO, Petitioner proposed converting the OCRPS invested by Respondent into equity shares. During the negotiations, a dispute arose with regard to the calculation and conversion formula to be applied in converting the preference shares of the Respondents into equity shares. The stance of Respondent was that it was entitled to 30% of the total paid-up share capital in equity shares. Per contra, the stance of Petitioner was that Respondents Nos. 1 to 4 were entitled to receive 10% of the total paid-up share capital.

Accordingly, Respondents Nos. 1 to 4, relying on their estimation, contended that on redemption of OCRPS, a sum of Rs. 367,08,56,503/- became due and payable. Consequently, as Petitioner company did not pay the aforesaid sum, Respondent approached the National Company Law Tribunal (“NCLT”) to invoke the jurisdiction of the Adjudicating Authority by initiating the Corporate Insolvency Resolution Process (“CIRP”) as provided for under the IBC. Respondent No.2 filed a petition under Section 7 of IBC before the NCLT in IBC No. 3077/2019 dated 16.08.2019 seeking appointment of Resolution Professional. In the above petition, Petitioner filed a Miscellaneous Application No. 3597/2019 under Section 8 of the Act, 1996, seeking a direction to refer the parties to arbitration. The NCLT, Mumbai Bench-IV, through its order dated 09.06.2020 after considering all contentions of the parties, allowed the application filed by the Petitioner under Section 8 of the Act, 1996. The relevant extracts of the order of NCLT that illustrate that there was no default under the meaning of Section 3(12) while considering the petition under Section 7 of IBC is as below:

5.13 Therefore, in a Section 7 petition, there has to be a judicial determination by the Adjudicating Authority as to whether there has been a ‘default’ within the meaning of Section 3(12) of the IBC. 5.14 In the present case, the dispute centres around three things-(1) The valuation of the Respondent/Financial Creditor’s OCRPS; (2) The right of the Respondent/Financial Creditor to redeem such OCRPS when it had participated in the process to convert its OCRPS into equity shares of the Applicant/Corporate Debtor; and (3) Fixing of the QIPO date. All of these things are important determinants in coming to a judicial conclusion that a default has occurred. The invocation of arbitration in a case like this seems to be justified. 5.15 Looking at the contention raised, and that the facts are not in dispute, we are not satisfied that a default has occurred. We note Mr. Mustafa Doctor’s statements that the Applicant/Corporate Debtor is a solvent, debt free and profitable company. It will unnecessarily push an otherwise solvent, debt-free company into insolvency, which is not a very desirable result at this stage. The disputes that form the subject matter of the underlying Company Petition, viz., valuation of shares, calculation and conversion formula and fixing of QIPO date are all arbitrable, since they involve valuation of the shares and fixing of the QIPO date. Therefore, we feel that an attempt must be made to reconcile the difference between the parties and their respective perceptions. Also, no meaningful purpose will be served by pushing the Applicant/Corporate Debtor into CIRP at this stage. (emphasis supplied)

On being aggrieved by the above order of the NCLT, the Respondents approached the Hon’ble Supreme Court by filing a Special Leave Petition (“SLP”). At the outset, the Court clarified that in the ordinary course, the appropriate legal remedy against the NCLT order dated 09.06.2020 was to file an appeal in the NCLAT as stipulated under Section 61 of IBC. However, the Court noted that as the NCLT order was passed in the backdrop of a petition under Section 7 of IBC, in the context of Petitioners seeking for resolution of the dispute through arbitration and the fact that the Arbitration Petition was already pending before the Hon’ble Supreme Court as on the date the order was passed by the NCLT, under exceptional circumstances it would entertain the petition filed and examine the matter on merits.

B. Scope of Proceedings under Section 7 of the IBC

The Hon’ble Supreme Court of India, before commencing its analysis, deemed it appropriate to analyze the ambit of Section 7 of the IBC. To that extent, the Court observed that Section 7 of IBC postulates for the ‘financial creditor’ to file an application for initiating Corporate Insolvency Resolution Process against a corporate debtor before the Adjudicating Authority when a default has occurred. Further, the Court also observed that the provision categorically stipulates four factors which are necessary to trigger an application under Section 7 of the IBC viz., (i) there should be a ‘debt’ (ii) ‘default’ should have occurred (iii) debt should be due to ‘financial creditor’ and (iv) such default which has occurred should be by a ‘corporate debtor’: on such application being filed with the compliance required under sub-section (1) to (3) of Section 7 of IBC, a duty is cast on the Adjudicating Authority to ascertain the existence of a default if shown from the records or based on other evidence furnished by the financial creditor, as contemplated under sub-section (4) to Section 7 of IBC.

The Court further referred and relied on the case of Innoventive Industries Limited v. ICICI Bank and another[13] to explain the scheme and working of proceedings under Section 7 of the IBC. The germane portions which are relevant for the present purposes are as below:

28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor--it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made Under Sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under Sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be…

C. Action in rem v. Action in personal

An essential facet of the judgment was determining whether a proceeding under Section 7 of IBC was an action in rem or action in personam. The Respondents argued that it is an action in rem, implying that insolvency and winding-up matters were non-arbitrable. Additionally, the Respondents also argued that when the petition is filed under Section 7 of the IBC, the adjudicating authority ought to have looked into that aspect alone and not considered an application filed under Section 8 of the Act, 1996. With regard to the above contentions, the Hon’ble Supreme Court opined that a proceeding under Section 7 of the IBC becomes an action in rem on the date of admission and from that point onwards, the matter would not be arbitrable as the only course of action to be followed thereafter, according to the court, is the resolution process under IBC.

Thereafter, as per the Court, the crucial facet of determining whether an insolvency matter is arbitrable or not is ascertaining whether the Adjudicating Authority has concluded that there has been a default or not. The Court also clarified that mere filing of an application under Section 7 of IBC does not trigger a bar on arbitration. In light of the evidence placed before it coupled with the fact that the conversion formula was still in dispute, the Court held that it would be inappropriate to hold that there was a default and admit the petition of Respondents merely based on the petition filed under Section 7 of IBC. The Apex Court observed that if a default is assumed automatically in an application under Section 7 of IBC, then it may so happen that a company which is running its administration ably and discharging its debts in a planned manner may also be pushed to the CIRP and get entangled in a proceeding with no point of return.

With a view to concretising its aforesaid observation, the Court relied upon the case of Vidya Drolia and Ors. v. Durga Trading Corporation[14] wherein the tests to be applied to determine when the subject matter is not arbitrable or not was laid down. Notably, the tests formulated by the Apex Court in the above case are as below:

76. In view of the above discussion, we would like to propound a fourfold test for determining when the subject matter of a dispute in an arbitration agreement is not arbitrable: 76.1(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem. 76.2(2) when cause of action and subject matter of the dispute affects third party rights; have ergaomnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable; 76.3(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and 76.4(4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s)… 77. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem…

Accordingly, the Court observed that since the petition under Section 7 of IBC was not yet admitted, it had not assumed the status of proceedings in rem.

D. Finding of the Court

The Court ultimately held that it would be premature to conclude that there was a default in payment of any debt as the conversion formula was still in dispute. Therefore, the amount repayable by the Petitioner company to Respondents was still to be determined. However, the Court also stated that after the amount had been determined and not paid by the Petitioner company, then the same will amount to a default. INTERNATIONAL ASPECTS OF THE TUSSLE BETWEEN INSOLVENCY AND ARBITRATION

The intersection of Insolvency laws and arbitration laws and their tussle in respect of the international framework requires to be studied in two different aspects. In this section, the authors shall attempt to conduct a comparative analysis of the Indian regime with other legal regimes prevailing in countries, like the USA, England and France where the insolvency regime is more developed. Further, this section will also examine the practice of enforcement of foreign arbitral awards under the insolvency law regime of India.

1. Intersection of insolvency and arbitration proceedings: The international scenario

The Hon’ble Supreme Court of India in the year 2021 in its landmark judgment of Indus Biotech Private Limited v. Kotak India Venture[15] held that in case a petition has already been admitted under Section 7 of the IBC[16] thereafter any application that has been made under Section 8 of the Arbitration Act[17] shall not be maintainable.

The Hon’ble Court further held that in case the application under Section 8 of the Arbitration Act was filed first and the petition under Section 7 of IBC was not admitted by then in that scenario the adjudicating authority will be required to decide the petition under Section of the IBC first and thereby ascertain whether a default had taken place or not and only then take note of the application of Section 8 of the Arbitration Act.[18]

Now, let’s take a look at the legal regime of some other countries and how the intersection between the jurisprudence of insolvency laws and arbitration laws unfolds in those jurisdictions:

A. USA B. England C. France

A. United States of America (USA)

As per the United States Bankruptcy Code, when a bankruptcy petition is filed, it leads to the automatic triggering of stay[19] against most civil actions and proceedings against the debtor due to which the property of the debtor can also not be proceeded against. [20]This implies that even arbitration proceedings are automatically stayed upon the filing of the bankruptcy petition.[21] This stay covers any potential claim against the debtor as well as claims that may be made in existing arbitration proceedings, and in order to further proceed against the debtor, such claimants/parties are required to then obtain special permission by making a motion in the court overseeing the particular bankruptcy proceedings because the said court itself has the power to annul, modify, or terminate the stay.[22]

It is pertinent to note that under the US Bankruptcy Code, the debtor is not required to take any active action or send any notice to any claimant to give effect to the stay on claims[23] mentioned above. Notably, the stay on claims is not only triggered by filing a petition under Chapter 11 of the Bankruptcy Code for a reorganization of the debtor but also when a petition under Chapter 7 of the Code for liquidation of the debtor, or when an involuntary petition against a debtor under section 303 of the Code is registered.[24]

B. England and Wales

The jurisprudence of laws prevalent in England and Wales under the Insolvency Act 1986 provides that when an individual or a corporation has become a subject of insolvency proceedings, an automatic stay is given against any legal proceedings against that individual or corporation. The said individual or corporation may become subject to insolvency proceedings and thereby immediately trigger the automatic stay/ moratorium in the following ways:

1. A bankruptcy order being made against an individual[25]

2. The court making a winding-up order against the company[26]

3. The company entering into administration[27]

The legal proceedings against which this moratorium applies also include arbitration proceedings as well.[28]

As per the English Insolvency Act, 1986, in order to be able to proceed in the arbitration matter against the individual or the corporation against which the legal moratorium is triggered, the following methods may be adopted:

1. By the permission of the insolvency court

2. by the permission of the administrator appointed to the company

3. By the permission of the individual’s trustee in bankruptcy

It should be noted here that in case the court does not grant permission to continue the arbitration proceedings against the insolvent debtor, the claimant will have to file a proof of debt in the insolvency process, and later in case the claimant feels that the concerned insolvency officer’s decision is not satisfactory in respect of the debt amount, the claimant will have two options. It can either challenge such a decision using the insolvency process or it can try to negotiate a settlement of the claims with the concerned insolvency officer.[29]

C. France

The Insolvency regime in France lays down three significant types of insolvency proceedings, namely safeguard (“sauvegarde”), receivership (“redressementjudiciaire”), and liquidation (“liquidation judiciaire”).

The significant differences between these three kinds of insolvency proceedings boils down to the fact that safeguard proceedings are voluntary in nature and in such a scenario the debtor before it reaches a state of insolvency, is the one who files the application to open these proceedings. On the other hand, receivership insolvency proceedings and liquidation insolvency proceedings are mandatory in nature and are required to be commenced within 45 days of the date when the debtor became insolvent. If there is a possibility that the debtor will recover from the insolvency, the receivership proceedings are commenced. And if it is apparent that there is no such possibility, liquidation proceedings are opened either directly at the time the debtor becomes insolvent or when the recovery plan adopted in the context of the receivership is not successful.[30]

It should be noted that even though the legal regime under the laws of France do not provide for any provision which specifically ascertains what the effect of the opening of insolvency proceedings will be on arbitration proceedings, however, the French Commercial Code addresses the impact of insolvency proceedings on pending judicial proceedings and the possibility to bring new proceedings against the debtor.[31] This inevitably leads to these provisions being applicable to arbitration.[32]

As per the said provisions, when the insolvency court orders for the insolvency proceedings to be commenced, the pending judicial or enforcement proceedings relating to both moveable and immoveable property are stayed up until the point when the claimant files with the insolvency practitioner, which is appointed by the insolvency court, its submission of claim.

Another important thing to note is that when the insolvency proceedings are ordered by the insolvency court, the claimants/ creditors are not allowed to start any new judicial or enforcement proceedings and new judicial proceedings against the debtor for payment of a sum of money or termination of a contract on the grounds of non-payment of a sum of money.[33]

Hence, if the arbitration proceedings did not commence before the initiation of the insolvency proceedings, new proceedings cannot be initiated before the arbitral tribunal. The claimant in such a case can only submit its claims to the insolvency practitioner and wait for the claim to be verified.[34]

2. Enforcement of Foreign arbitral awards under the Indian legal framework

India is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards,[35] also known as the “New York Arbitration Convention” or the “New York Convention” which follows the principle of refusal to enforce an award on the ground of public policy if the award is against the notion of justice and morality of the jurisdiction of the court in which enforcement is sought. Further, the New York Convention also lays down that the contracting parties should recognize foreign arbitral awards under their respective national insolvency frameworks.

Binding nature of arbitral awards against corporate debtors

The moratorium passed by the NCLT effectively leads to the prohibition of continuing any pending suits against the corporate debtor as well as the institution of new suits against it. Under the Code of Civil Procedure, 1908, a ‘reciprocating territory’ implies a foreign country that the Central Government of India may notify in its Official Gazette declare it to be a reciprocating territory having 'Superior Courts' in relation to such country.[36] When a creditor, who is the holder of a decree from a foreign court in a reciprocating country and is desirous of enforcing the said decree, it shall be required to file execution proceedings in India before a District Court. However, if the decree is rendered in a non-reciprocating country, a fresh suit must be filed in India.

Hence, when a creditor has obtained a foreign arbitral award against a certain corporate debtor and the said arbitral award is accepted by the NCLT against a corporate debtor, the principles under Section 44A of CPC are borrowed in the interest of justice.[37] Hence, this provision confers a right on the creditor/decree holder of the foreign arbitral award regarding its enforcement in India.[38]

In the case of Agrocorp International Private (PTE) Ltd. v. National Steel and Agro Indus,[39] the corporate debtor, against whom the insolvency petition was filed by the operational creditor, raised the objection that foreign arbitral awards should not be considered as having a binding nature unless they are declared as enforceable the Arbitration and Conciliation Act, 1996. However, the NCLT took note of the fact that England is a reciprocating country and thereby rejected this objection of the corporate debtor. In this regard, it is essential to mention that Explanation 2 of Section 44A of CPC provides that the term “decree” shall not include an arbitration award, even if such an award is enforceable as a decree or judgment. This was not taken note of in the Agrocorp judgment.

Further, it should be noted that when the foreign arbitral award is passed, it can be used as the basis for initiating insolvency proceedings against the party against whom the foreign arbitral award was passed. However, it should also be given due attention that the credit amount in respect of which the award was passed should be undisputed in nature. The Hon’ble Supreme Court in K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd.[40] categorically stated that it is true that the arbitral awards can be used as proof of existence of operational debts however, such debts have to be undisputed in nature for the corporate insolvency resolution process to be initiated by the operational creditor under IBC. On this basis the Hon’ble Supreme Court in the abovementioned case noted that since the claim amount is currently under challenge before the Court, the corporate insolvency resolution process cannot be entertained at this stage.

In the case of Fuerst Day Lawson Ltd v. Jindal Exports Ltd.,[41] the Hon’ble Supreme Court has shed light on the different stages through which the foreign arbitral award goes through in respect of the scheme prescribed under the Act, 1996. The Hon’ble Supreme Court held that first the enforceability of the foreign arbitral award has to be determined, and only then the concerned party can proceed to take the necessary steps in respect of execution of the said foreign arbitral award.[42]

However, in the abovementioned recent judgment of Agrocorp International Private (PTE) Limited v. National Steel and Agro Industries Limited[43]it was stated by the Hon’ble NCLT Mumbai bench that enforcement of a foreign award is not a requirement in order to establish an insolvency claim against the corporate debtor. The Hon’ble NCLT in this case held that the foreign arbitral award was not under challenge and had attained finality and therefore, it can be treated as a valid proof of debt thereby enabling a foreign creditor to initiate insolvency proceedings in India.

Further, the Vedanta[44] decision of the Hon’ble Supreme Court is also a welcome step in the right direction as it clarified two significant issues: (i) the limitation period of enforcement of arbitral awards and (ii) the interpretation of public policy in the context of enforcement of awards. This decision came in the same year i.e., 2020 after NAFED v. Alimenta[45]wherein the Hon’ble Supreme Court took a broad approach to interpreting ‘public policy’ and refused enforcement of a foreign arbitral award; stating it to be in violation of public policy. However, the authors are of the opinion that the narrow interpretation of the Hon’ble Supreme Court in Vendanta[46] would not only help in the enforcement of foreign arbitral awards but also help in bringing Indian legal framework in tandem with international jurisprudence.

Decree/Award without merits

It is also worth noting in this regard that earlier in 2001, the Hon’ble Supreme Court had noted in its decision in International Woolen Mills v. Standard Wool (UK) Ltd.[47]which was later affirmed in 2014 in the Bombay High Court case of Marine Geotechnic LLC v. Costal Marine Construction & Engineering Ltd.[48] that if a decree follows a judgment that is not on merits then whether the decree is from reciprocating or non-reciprocating territory, it cannot be enforced in India. Hence, if such a decree was passed ex-parte and devoid of any merits, it shall not be enforceable in India.

Status of foreign arbitral awards under the Arbitration and Conciliation Act, 1996

The Hon’ble Supreme Court in 2020 in the case of Govt. of India vs. Vedanta Limited &Ors.[49] examined the issue of the enforceability of foreign arbitral awards under the legal framework established under the Arbitration Act and asserted that a foreign award does not become a “foreign decree” at any stage of the proceedings. The germane portions of the judgment are as below:

“The foreign award is enforced as a deemed decree of the Indian Court which has adjudicated upon the petition filed under Section 47, and the objections raised under Section 48 by the party which is resisting enforcement of the award. A foreign award is not a decree by itself, which is executable as such under Section 49 of the Act. The enforcement of the foreign award takes place only after the court is satisfied that the foreign award is enforceable under Chapter 1 in Part II of the 1996 Act. After the stages of Sections 47 and 48 are completed, the award becomes enforceable as a deemed decree, as provided by Section 49. The phrase “that court” refers to the Indian court which has adjudicated on the petition filed under Section 47, and the application under Section 48. In contrast, the procedure for enforcement of a foreign decree is not covered by the 1996 Act, but is governed by the provisions of Section 44A read with Section 13 of the CPC.”

It is also necessary to note here that the Supreme Court also clarified the position regarding the period of limitation for enforcement of a foreign arbitral award. The Hon’ble Supreme Court taking into consideration its decision in Bank of Baroda v. Kotak Mahindra Bank[50] noted that such enforcement shall be dealt with under Article 137 of the Limitation Act, which prescribes a limitation period of three years starting from the time when the right to apply for enforcement is accrued. Further, it was also clarified that Article 136 of the Limitation Act, 1963 applies only to decrees of a civil court in India and therefore, the period of limitation under Article 137 of the Limitation Act should apply.


In light of the above, the authors are of the opinion that different jurisdictions across the world take different approaches in respect of their insolvency law regimes; however, there is one common aspect to be observed in this regard i.e., every regime discussed above has incorporated a system wherein if the debtor has become insolvent or is unable to pay its debts, then the arbitration proceedings are put on hold. After this, some countries provide an option to the claimants for approaching the insolvency court and obtaining special permission to proceed with the arbitration proceedings. The authors are of the view that this is the best approach for resolving the tussle between the framework under the two laws and this should be the next step that needs to be taken in the context of the Indian policy framework.

Finally, the authors are of the opinion that ideally it would be a better exercise that an international guidance note is introduced that would serve to ensure coherency and clarity in international practice in the context of invoking insolvency proceedings by using a foreign arbitral award. The above guidance note will not only ensure clarity of procedure but will also aid in avoiding conflicts with domestic procedural and substantive laws of the country in which the arbitral award is relied to initiate insolvency proceedings. Furthermore, it would also be helpful for the smooth functioning of international trade and commerce if a clear framework is established by the nations through treaties.

The authors are further of the opinion that the enforcement of foreign arbitral awards under the domestic legal framework especially under the Insolvency law framework would further help in the betterment of commerce in the country as opposed to just having a mechanism under the Arbitration law framework. Countries such as USA, France and England have already successfully proceeded in this direction and put in place the necessary framework under their insolvency laws.[51] If we look at the Indian Insolvency framework enshrined under the IBC, the law is silent in this regard as of now. The authors believe that amendments are thus required in IBC so as to include the concept of enforcement of foreign arbitral awards so that NCLT when presented when the opportunity to align Indian legal framework with the international jurisprudence is able to exercise rightful jurisdiction in a procedurally correct manner from time to time.


[1] Gautam Mohanty is currently a doctoral student at Kozminski University, Warsaw, Poland researching on Third Party Funders in Investment Arbitration. He is also an advocate enrolled at the bar in India and an Assistant Professor (on leave) at Jindal Global Law School India (JGLS) and an arbitration consultant with Arbitrator Justice Deepak Verma, Former Judge of Supreme Court of India. He can be reached at [2]Shivam Hargunani is an independently practicing advocate before courts and tribunals in the state of Madhya Pradesh. He completed his graduation in B.B.A. LL.B. with Honors in Corporate Laws from National Law University Odisha in 2015 and later also completed LL.M. in Commercial Laws from the University of Edinburgh in 2017. [3] Société Nationale Algerienne v. Distrigas Corporation, 80 B.R. 606 (D. Mass. 1987). [4] Alipak Banerjee and Payel Chatterjee, ‘Arbitration and Insolvency: Co-relation or Collision?’ (2021) 23(3) Asian Dispute Review 117-121. [5] Indus Biotech Pvt. Ltd v. Kotak India Venture (Offshore) Fund and Ors., AIR 2021 SC 1638. [6] Insolvency and Bankruptcy Code 2016, s 14. [7] Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudayan Pvt. Ltd., AIR 2017 SC 5124. [8] Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC Online Del 12729. [9] Jharkhand Bijli Vitran Nigam Ltd. v. IVRCL Ltd. (Corporate Debtor) and another, 2018 SCC Online NCLAT 296. [10] SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd., 2019 SCC Online Del 9339. [11] Nahar Builders Ltd v. Housing Development and Infrastructure Limited, 2020 SCC OnLine Bom 1044. [12] Morgan Securities and Credits Pvt. Ltd. v. Videocon Industries Ltd., FAO(OS) 96 of 2019. [13] Innoventive Industries Ltd. v. ICICI Bank and another, (2018) 1 SCC 407. [14] Vidya Drolia and others v. Durga Trading Corporation, (2021) 2 SCC 1. [15] Indus Biotech Private Ltd. v. Kotak India Venture, 2021 SCC OnLine SC 268 (Indus Biotech). [16] Insolvency and Bankruptcy Code 2016, s 7. [17] Arbitration and Conciliation Act 1996, s 8. [18] Indus Biotech (n 15). [19] United States Bankruptcy Code, 11 U.S.C. § 362, s 362(a)(1). [20] United States Code, Title 11 (United States Bankruptcy Code). [21] In re US Lines Inc., 197 F.3d. 631, 640 (2d Cir 1999). [22] In re Edwin A. Epstein Jr. Operating Co., 314 B.R. 591 (Bankr. S.D. Tex. 2004). [23] ACandS Inc. v. Travelers Casualty and Surety Co., 435 F.3d. 252, 259 (3d Cir 2006). [24] Hon. Allan L. Gropper and Thomas W. Walsh, IBA Toolkit On Insolvency And Arbitration: National Report of United States of America (January 2021) <> [25] United Kingdom Insolvency Act 1986, s 285. [26] United Kingdom Insolvency Act 1986, s 130(2). [27] United Kingdom Insolvency Act 1986, Schedule B1, para 43. [28] Bristol Airport plc and another v. Powdrill and others, [1990] 2 All ER 493. [29] Patrick Taylor and Gavin Chesney, IBA Toolkit on Insolvency and Arbitration: National Report of England and Wales (January 2021) <> [30] Flore Poloni and Nicolas Partouche, IBA Toolkit on Insolvency And Arbitration: National Report of France (January 2021) <> [31] French Commercial Code, arts L. 622-21, L.631-14, L.641-3. [32] Appeal no. 02-13.940, Commercial Division, French Cour de Cassation (2 June 2004). [33] French Commercial Code, arts L.622-21 and L.631-14. [34] Appeal no. 95/80373, Paris Court of Appeals (8 September 1998). [35] United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (signed 10 June 1958, entered into force 7 June 1959) <> [36] Code of Civil Procedure 1908, s 44A, explanation 1. [37] Gurpartap Singh and another v. Vista Hospitality Pvt. Ltd. and others, [2014] 186 Comp Cas 202 (Delhi). [38] Manoj Moolekkudi Subramanyan v. Rajesh Palliparambil Ravi, OP(C). No. 950 OF 2020 (Kerala). [39] Agrocorp International Private (PTE) Ltd. v. National Steel and Agro Indus. Ltd., CP(IB) no. 798/MB/C-IV/2019 (Agrocorp). [40] K. Kishan v. M/s Vijay Nirman Company Pvt. Ltd., Civil Appeal No. 21825 OF 2017 (Supreme Court). [41] Fuerst Day Lawson Ltd. v. Jindal Exports Ltd., (2001) 6 SCC 356. [42] ibid; Government of India v. Vedanta Ltd. and others, 2020 SCC Online SC 749 (Vedanta). [43] Agrocorp (n 39). [44] Vedanta (n 42). [45] NAFED v. Alimenta, 2020 SCC OnLine SC 381. [46] Vedanta (n 42). [47] AIR 2001 SC 2134. [48] Company Petition No. 69 of 2013 (Bombay). [49] Vedanta (n 42). [50] Bank of Baroda v. Kotak Mahindra Bank, AIR 2020 SC 1474. [51] Alexis Mourre, ‘Arbitrability of Antitrust Law from the European and US Perspectives’ in Gordon Blanke & Philip Landolt (eds.), EU and US Antitrust Arbitration: a Handbook of Practitioners (Kluwer Law International 2011) at 1, 161.

251 views0 comments


bottom of page