In a significant ruling that clarifies the intersection between arbitration law and insolvency proceedings, the National Company Law Appellate Tribunal (NCLAT) has recently held that the termination of arbitration proceedings under Section 32(2) of the Arbitration & Conciliation Act, 1996, does not constitute a binding arbitral award. This determination has important implications for the jurisdiction of the National Company Law Tribunal (NCLT) in insolvency cases.
Background of the Case
The ruling emerged from two appeals challenging an order passed by the NCLT, New Delhi. The dispute centered around 36 acres and 4 guntas of land in Bangalore, which was the subject of a Collaboration Agreement dated July 5, 2008, between the landowners and developers M/s. Upkar Developers (India) Pvt. Ltd. and M/s. Era Landmarks (India) Ltd.
Under this agreement, later modified by an Addendum on October 28, 2009, the landowners were entitled to 37% of the gross sale proceeds, while the developers assumed various obligations, including repayment of a HUDCO loan amounting to ₹15 crores. Subsequently, the developers assigned their rights to M/s. Parinda Buildcon Pvt. Ltd. through an Assignment Agreement dated January 25, 2010.
The dispute arose when the landowners, alleging non-fulfillment of obligations, terminated the agreements through legal notices in February 2012. Arbitration proceedings followed, with the Karnataka High Court appointing Justice N. Santosh Hegde as the Sole Arbitrator. These proceedings were eventually terminated on July 15, 2015, a decision that was upheld by both the Additional City Civil & Sessions Judge, Bengaluru, and later by the Karnataka High Court in June 2019.
The Insolvency Angle
Meanwhile, Edelweiss Asset Reconstruction Company Ltd. initiated a Corporate Insolvency Resolution Process (CIRP) against M/s. Adel Landmarks Ltd. (formerly M/s. Era Landmarks Ltd.), which was admitted by the NCLT on December 5, 2018. The Resolution Professional included the disputed land in the Information Memorandum, prompting the landowners to file an application seeking its exclusion from the CIRP.
The NCLT initially dismissed this application, but upon remand from the NCLAT for adjudication on merits, it ultimately held that the dispute involved complex factual and legal issues requiring adjudication by a competent civil court rather than through summary proceedings under the Insolvency and Bankruptcy Code (IBC).
NCLAT’s Landmark Decision
The NCLAT, led by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, rejected the NCLT’s reasoning. The appellate tribunal held that determining whether an asset belongs to the Corporate Debtor is central to the CIRP process and falls squarely within the Adjudicating Authority’s jurisdiction under Section 60(5)(c) of the IBC.
In its analysis, the NCLAT relied on the Supreme Court’s decision in Victory Iron Works Limited v. Jitendra Lohia and Another (REEDLAW 2023 SC 03511), which established that development rights constitute “property” under Section 3(27) of the IBC.
Key Legal Principles Established
The NCLAT’s ruling established several important legal principles:
- Termination of arbitration proceedings is not a binding award: The termination of arbitration proceedings under Section 32(2)(c) of the Arbitration & Conciliation Act, 1996, does not constitute a binding arbitral award under Section 35 of the Act.
- NCLT’s jurisdiction under the IBC: The NCLT has jurisdiction under Section 60(5)(c) of the IBC to determine whether the subject land forms part of the corporate debtor’s assets in the CIRP, without relegating the parties to a civil court.
- Development rights as property: Development rights constitute “property” under the IBC and can be included in the Corporate Debtor’s assets during the CIRP.
- RP’s authority to include disputed assets: The Resolution Professional is justified in including development rights in the Information Memorandum as part of the Corporate Debtor’s assets, even when such rights are disputed.
Implications for Insolvency Practice
This ruling has significant implications for insolvency practice in India:
- It enhances the NCLT’s authority to make determinations about disputed assets in insolvency proceedings, potentially streamlining the resolution process.
- It clarifies that the termination of arbitration proceedings does not automatically settle disputes over property rights that may be relevant to insolvency cases.
- It reinforces the broad definition of “property” under the IBC, confirming that development rights and similar intangible assets can be included in the corporate debtor’s estate.
Conclusion
The NCLAT’s decision reinforces the comprehensive jurisdiction of the NCLT in insolvency matters, particularly in determining what constitutes the assets of a corporate debtor. By distinguishing between the termination of arbitration proceedings and a binding arbitral award, the ruling ensures that disputes over property rights remain open for determination during the CIRP.
This judgment represents an important development in the evolving jurisprudence at the intersection of arbitration law and insolvency proceedings in India. It underscores the primacy of the IBC framework in resolving questions about a corporate debtor’s assets, while respecting the distinct procedural mechanisms of arbitration law.
This blog post is for informational purposes only and does not constitute legal advice. For specific legal concerns, please consult with a qualified attorney.