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2025 (4) TMI 1246 - SC - IBCMaintainability of objection to execution of the arbitral award referrable to Section 47 of the Civil Procedure Code 1908 (CPC) - arbitral award was a nullity and hence non-executable? - Facilitation Council lost its jurisdiction to proceed and pronounce the arbitral award in view of the insolvency resolution plan of the petitioner which was duly approved under Section 31 of the IBC. HELD THAT - As an independent arbitration agreement existed between the parties Facilitation Council should not proceed under Section 18(3) of the MSME Act. Already arbitration process was going on as per the arbitration agreement. Facilitation Council in its proceedings dated 31.07.2017 noted that it appeared from newspaper reports and order copy of the NCLT that moratorium was declared under Section 14 of IBC in the matter of State Bank of India Vs. Electrosteel Steels Ltd. It was decided that the matter should be kept in abeyance till the moratorium period was over. The resolution plan was submitted by Vedanta Ltd. as resolution applicant and is dated 29.03.2018. Clause 3 contained the mandatory contents of the resolution plan. Clause 3.2(v) declared that while the liquidation value of the corporate debtor was Rs. 2, 899.98 crores the admitted debts of the financial creditors aggregated to approximately Rs.13, 395.25 crores. The liquidation value was not sufficient to cover the debts of the financial creditors in full. Therefore the liquidation value of the operational creditors or the other creditors or stakeholders of the corporate debtor including dues of the employees (other than workmen) government dues taxes etc. and other creditors and stakeholders was nil. As such they would not be entitled to any payment. The dissenting financial creditors would be entitled to receive 21.65 percent of the value of their admitted debt which would be paid in priority to any payment to the assenting financial creditors. On 16.05.2018 Facilitation Council noted that the moratorium period of the corporate insolvency resolution process had expired. The buyer did not appear in the conciliation process as well as in the arbitration proceeding. Thereafter the Facilitation Council passed the award dated 06.07.2018 holding that claim of the respondent was genuine. The buyer unit was liable to pay the outstanding amount of Rs. 1, 59, 09, 214.33 with interest at the rate of 3 times of the prevailing bank rate. Since the appellant did not file any application under Section 34 of the 1996 Act the Executing Court dismissed the application of the appellant dated 14.05.2019 observing that the appellant was trying to deprive the decree holder of the fruits of the award by unnecessarily delaying the execution - High Court concluded that the plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass. High Court rejected the contention of the appellant that since the award suffered from patent or inherent lack of jurisdiction objection to the award can be taken at the stage of execution without challenging the award under Section 34 of the 1996 Act. While rejecting the said contention High Court held that the arbitral proceedings culminating in the award cannot be said to be suffering from inherent lack of jurisdiction. After observing that the respondent was not included in the top 30 operational creditors whose claims were settled at nil High Court held that the Facilitation Council had the jurisdiction to proceed and pronounce the award even after approval of the resolution plan. The arbitral proceedings were initiated prior to the resolution insolvency date suspended during the moratorium period and resumed upon expiry of the moratorium period. High Court further observed that the approved resolution plan did not determine the claim of the respondent as nil and that the proceedings before the Facilitation Council was taken note of in the resolution plan - High Court is correct in answering the first issue that a plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass. Objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act. High Court was not justified in taking the view that since the appellant did not file a petition under Section 34 of the 1996 Act therefore it was precluded from filing an application before the Executing Court to declare the award as void and hence nonexecutable. The view taken by the High Court that notwithstanding approval of the resolution plan by the NCLT the Facilitation Council did not lose jurisdiction to proceed and pronounce the arbitral award is erroneous and contrary to the law laid down by this Court. Conclusion - There are no hesitation to hold that upon approval of the resolution plan by the NCLT the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore the award dated 06.07.2018 is incapable of being executed. Appeal allowed.
The core legal questions considered by the Court in this appeal were:
(a) Whether an objection to the execution of an arbitral award on the ground that the award is a nullity, without challenging it under Section 34 of the Arbitration and Conciliation Act, 1996 (the 1996 Act), is maintainable under Section 47 of the Civil Procedure Code, 1908 (CPC). (b) Whether the arbitral award in the present case could be assailed as a nullity and hence non-executable within the permissible grounds for raising such a plea at the execution stage. (c) Whether, irrespective of the maintainability of the objection under Section 47 CPC, the Facilitation Council lost jurisdiction to proceed and pronounce the arbitral award in view of the insolvency resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC). Issue-wise detailed analysis: 1. Maintainability of objection to execution of arbitral award under Section 47 CPC without challenging under Section 34 of the 1996 Act The relevant legal framework includes Sections 34, 36 of the 1996 Act and Section 47 of the CPC. Section 34 provides the exclusive remedy to challenge an arbitral award on specified grounds within a stipulated time. Section 36 permits enforcement of an arbitral award as a decree once the time for challenge expires or if no challenge is pending. Section 47 CPC allows the executing court to determine questions relating to execution, discharge or satisfaction of a decree. Precedents establish that only a decree which is a nullity can be challenged under Section 47 CPC; mere errors in law or fact are not grounds for objection at execution. The Court reiterated the principle from Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman that objections under Section 47 CPC are limited to jurisdictional infirmities or voidness of the decree. The Court held that a plea of nullity of an arbitral award can be raised at execution under Section 47 CPC, but only within a very narrow compass-where the award is void ab initio or suffers from inherent lack of jurisdiction. The High Court erred in holding that failure to file a Section 34 petition precludes raising a nullity plea at execution. The Court clarified that the appellant was entitled to raise the nullity plea under Section 47 CPC even without filing a Section 34 challenge. 2. Whether the arbitral award was a nullity due to lack of jurisdiction of the Facilitation Council post approval of the resolution plan The Insolvency and Bankruptcy Code, 2016, governs the resolution of insolvency and liquidation of corporate debtors. Sections 30 and 31 deal with submission and approval of resolution plans. Once approved by the adjudicating authority (NCLT), the resolution plan is binding on the corporate debtor, its creditors, and other stakeholders, and the moratorium under Section 14 ceases to have effect. Section 32 provides the grounds and manner for challenging the approval of a resolution plan before the NCLT or NCLAT. Section 63 bars civil courts from entertaining suits or proceedings in respect of matters within the jurisdiction of the NCLT or NCLAT under the IBC. Section 238 states that the IBC shall prevail over any inconsistent laws. Judicial precedents such as Essar Steel India Ltd., Ghanshyam Mishra & Sons (P) Ltd., Ruchi Soya Industries Ltd., and Ajay Kumar Radheshyam Goenka have firmly established that once a resolution plan is approved, all claims not included in the plan stand extinguished and no proceedings can be initiated or continued in respect of such claims. The resolution plan provides a "fresh and clean slate" to the corporate debtor, and the claims of operational creditors not included in the plan are effectively wiped out. In the present case, the resolution plan approved by the NCLT settled the claims of operational creditors, including those arising from ongoing litigations and arbitrations, at nil value. The respondent's claim was not included in the top 30 operational creditors whose claims were settled at nil, but the plan expressly provided that all claims arising from suits, arbitrations, and litigations prior to the effective date shall be settled at nil. The moratorium imposed by the NCLT suspended the arbitral proceedings before the Facilitation Council. After lifting the moratorium, the Facilitation Council resumed proceedings and passed the award. The High Court held that the Facilitation Council did not lose jurisdiction because the claim of the respondent was not determined to be nil in the resolution plan. The Court disagreed with the High Court's view, holding that the claim of the respondent stood extinguished upon approval of the resolution plan as it was not part of the plan. The moratorium's lifting did not revive the extinguished claim. Therefore, the Facilitation Council lacked jurisdiction to proceed with the arbitration or pass the award. Since the award was passed without jurisdiction, it was a nullity and non-executable. 3. Treatment of competing arguments The appellant contended that the resolution plan settled the respondent's claim at nil, which was binding and extinguished the claim. Hence, the Facilitation Council lacked jurisdiction to pass the award. The appellant also argued that the award could be challenged as a nullity under Section 47 CPC even without a Section 34 challenge. The respondent argued that the moratorium merely stayed the proceedings and did not terminate them. The respondent's claim was pending adjudication and was not included in the resolution plan's extinguished claims. The respondent contended that the appellant did not challenge the award under Section 34 and therefore could not raise objections at execution. The respondent relied on the fact that the appellant had knowledge of the award and had not availed the remedy of challenge under Section 34. The Court rejected the respondent's arguments, emphasizing the binding effect of the resolution plan and the extinguishment of claims not included therein. The Court held that the moratorium's lifting did not revive extinguished claims. It also held that the appellant was not precluded from raising the nullity plea at execution despite not filing a Section 34 challenge. 4. Application of law to facts and conclusions The Court applied the provisions of the IBC and the binding precedents to conclude that the resolution plan extinguished the respondent's claim. The Facilitation Council's jurisdiction to pass the award was lost post approval of the resolution plan. Consequently, the award was a nullity and could not be executed. The Court set aside the order of the Executing Court dismissing the appellant's application to declare the award non-executable. It quashed the execution proceedings and set aside the impugned order of the High Court which had upheld the execution order. The appeal was allowed without any order as to costs. Significant holdings and core principles established: "A plea of nullity qua an arbitral award can be raised in a proceeding under Section 47 CPC but such a challenge would lie within a very narrow compass." "Once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, all claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan." "Lifting of the moratorium does not mean that the claim of the respondent would stand revived notwithstanding approval of the resolution plan by the adjudicating authority." "The Facilitation Council did not have the jurisdiction to arbitrate on the said claim. Since the award was passed without jurisdiction, the same could be assailed in a proceeding under Section 47 CPC." "The view taken by the High Court that because the appellant did not challenge the award under Section 34 of the 1996 Act, it was precluded from objecting to execution of the award at the stage of Section 47 CPC is wholly unsustainable." "The claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed."
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