Arbitral Award Holder Loses Right After Missing CIRP Claim Deadline; Delhi High Court Orders Refund of Deposited Amount
Facts
Bharat Heavy Electricals Limited (BHEL) invited bids for supplying two barrel-type blender reclaimers. McNally Bharat Engineering Company Limited (MBECL) entered into an agreement with Metso India Pvt. Ltd., under which Metso would provide technical support and later execute the subcontract if MBECL secured the project. MBECL was awarded the contract and executed a subcontract with Metso in July 2011.
Disputes arose between the parties, leading MBECL to terminate the agreement in November 2011. Metso invoked arbitration, resulting in an arbitral award directing MBECL to pay approximately ₹5.52 crore along with post-award interest. MBECL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 and deposited the awarded amount pursuant to a stay order of the Delhi High Court.
During the pendency of the Section 34 proceedings, MBECL entered Corporate Insolvency Resolution Process (CIRP). A Resolution Plan was subsequently approved by the National Company Law Tribunal. Metso did not submit its arbitral award claim before the Resolution Professional during the CIRP. MBECL thereafter sought dismissal of the Section 34 petition as infructuous and requested refund of the amount deposited before the Court.
Issues
- Whether the arbitral award holder’s claim survives after approval of the Resolution Plan when the creditor failed to lodge its claim before the Resolution Professional.
- Whether the Section 34 petition challenging the arbitral award becomes infructuous after approval of the Resolution Plan.
- Whether the amount deposited before the High Court during the pendency of the Section 34 petition should be refunded to the corporate debtor or released to the award holder.
Petitioner’s Arguments
The petitioner contended that:
- The respondent failed to submit its claim during the CIRP despite public notice.
- Upon approval of the Resolution Plan, all claims not forming part of the plan stood extinguished under Section 31 of the Insolvency and Bankruptcy Code, 2016.
- Since the respondent’s claim no longer existed in law, the Section 34 proceedings had become purely academic.
- The amount deposited before the High Court was only security for the award and remained the property of the petitioner.
- Consequently, the deposited amount should be refunded together with accrued interest.
Respondent’s Arguments
The respondent argued that:
- Deposit of the awarded amount before the High Court amounted to payment of the decretal amount.
- Since the amount already stood secured before commencement of the CIRP, there was no necessity to submit a separate claim before the Resolution Professional.
- The deposited amount ought not to be refunded because it was no longer an asset available to the corporate debtor.
- The Resolution Professional failed to disclose the deposited amount in the Information Memorandum, and any grievance arising therefrom could not prejudice the respondent’s entitlement.
Analysis of the Law
The Court examined:
- Sections 3(6), 3(10), 3(11), 29 and 31 of the Insolvency and Bankruptcy Code, 2016.
- The statutory definition of “claim,” “creditor,” and “debt.”
- The binding effect of an approved Resolution Plan.
- The “clean slate” doctrine underlying the Insolvency and Bankruptcy Code.
The Court observed that every creditor, including an arbitral award holder, must submit its claim before the Resolution Professional. Once the Resolution Plan receives approval, every claim not included therein stands extinguished by operation of law.
The Court further held that a deposit made pursuant to a stay order under Section 34 is merely a security deposit. Ownership of the money remains with the corporate debtor until the Court directs its release. Such deposit does not amount to unconditional payment to the decree holder merely because it is lying in Court.
Precedent Analysis
The Court relied upon:
- Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. — held that all claims not forming part of the approved Resolution Plan stand extinguished and the successful resolution applicant receives a “clean slate.”
- Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta — emphasized that no undecided claims can survive after approval of the Resolution Plan.
- Tata Steel Ltd. v. Varsha (2026) — reaffirmed that unresolved proceedings not resulting in crystallised claims before approval of the Resolution Plan stand extinguished.
- JSW Ispat Special Products Ltd. v. Bharat Petroresources Ltd. — held that arbitration claims excluded from the Resolution Plan cannot thereafter be pursued.
- Akash Construction v. Indira Priyadarshini Hydro Power Pvt. Ltd. — held that arbitral award holders are obliged to lodge claims before the Resolution Professional.
- Vijay Prakash v. Alok Industries Ltd. — reiterated that claims omitted from the Resolution Plan cannot subsequently be enforced.
On the issue of court deposits, the Court preferred the later Bombay High Court decisions in Siti Networks Ltd. v. Rajiv Suri, Reliance Naval & Engineering Ltd. v. Afcons Infrastructure Ltd., and Garden Silk Mills Ltd., holding that monies deposited in Court remain assets of the corporate debtor and may be refunded following CIRP.
Court’s Reasoning
The Court held that the respondent’s arbitral award constituted a “claim” under the IBC and therefore had to be submitted before the Resolution Professional.
Since the respondent failed to lodge its claim, the approved Resolution Plan extinguished that claim by operation of Section 31 of the IBC. Consequently, irrespective of the merits of the arbitral award, enforcement could no longer continue.
The Court further reasoned that the deposit made before the High Court was only intended to secure the award pending adjudication of the Section 34 petition. Such deposit never transferred ownership to the respondent and therefore remained an asset of the corporate debtor.
The Court rejected the respondent’s argument that deposit in Court amounted to payment, observing that earlier authorities concerning payment dealt with entitlement to interest and not ownership of the deposited money.
Accordingly, the Section 34 petition had become infructuous because the underlying claim itself had ceased to exist.
Conclusion
The Delhi High Court held that once the Resolution Plan was approved, the respondent’s arbitral award claim stood extinguished because it had not been submitted during the CIRP.
The Section 34 proceedings consequently became infructuous.
The Court directed that the entire amount deposited before the High Court, together with accrued interest, be released to McNally Bharat Engineering Company Limited.
Case Details
Case: McNally Bharat Engineering Company Limited v. Metso India Pvt. Ltd.
Court: Delhi High Court
Case Number: O.M.P. (COMM) 362/2018
Judge: Hon’ble Mr. Justice Avneesh Jhingan
Date: 03 August 2026
Result: Section 34 petition held infructuous after approval of the Resolution Plan; respondent’s arbitral claim held extinguished for failure to lodge claim during CIRP; deposited amount with accrued interest directed to be refunded to the petitioner.
