NCLAT held that the termination of arbitration proceedings under Section 32(2) of the Arbitration & Conciliation Act, 1996, does not constitute a binding award, and consequently, the NCLT retains jurisdiction under the IBC to determine the Corporate Debtor’s rights over disputed assets.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra, reviewed two appeals and held that an order terminating arbitral proceedings under Section 32(2) of the Arbitration & Conciliation Act, 1996, does not constitute an arbitral award and is not binding under Section 35 of the Act. Consequently, the NCLT has jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016, 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.
The National Company Law Appellate Tribunal (NCLAT) adjudicated two appeals challenging the order dated 30.04.2024, passed by the National Company Law Tribunal (NCLT), New Delhi, Court-III. The appeals arose from the Adjudicating Authority's decisions in IA No. 4648 of 2020 and IA No. 58 of 2023 concerning the intervention application of M/s. Art Constructions Pvt. Ltd., the Successful Resolution Applicant (SRA). As both appeals stemmed from common facts, they were heard together and decided by a common judgment.
The appellants, owners of 36 acres 04 guntas of land in Bangalore, had entered into a Collaboration Agreement dated 05.07.2008 with M/s. Upkar Developers (India) Pvt. Ltd. and M/s. Era Landmarks (India) Ltd. The agreement, later modified by an Addendum on 28.10.2009, entitled the owners to 37% of the gross sale proceeds and imposed development obligations on the developers, including the repayment of a HUDCO loan of ₹15 crores. However, the developers assigned their rights to M/s. Parinda Buildcon Pvt. Ltd. through an Assignment Agreement dated 25.01.2010. Alleging non-fulfillment of obligations, the owners terminated the agreements via legal notices in February 2012. Arbitration proceedings ensued, with the Karnataka High Court appointing Justice N. Santosh Hegde as the Sole Arbitrator. The arbitrator ultimately terminated the proceedings on 15.07.2015, a decision upheld by the Additional City Civil & Sessions Judge, Bengaluru, and later by the Karnataka High Court in MFA No. 10068 of 2018 on 25.06.2019.
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.), leading to an admission order by the NCLT on 05.12.2018. The Resolution Professional (RP) included the disputed land in the Information Memorandum, prompting the appellants to file IA No. 4648 of 2020, seeking its exclusion from the CIRP. The NCLT initially dismissed the application, prompting a remand from the NCLAT on 27.07.2022 for adjudication on merits. The Corporate Debtor and Parinda Buildcon contested the application, while the SRA intervened through IA No. 58 of 2023. The NCLT subsequently disposed of IA No. 4648 of 2020 and allowed the intervention, leading to the present appeal.
The appellants argued that the Corporate Debtor had no rights over the land as it was not in its possession when the CIRP commenced. They contended that the Sole Arbitrator's orders had attained finality, effectively negating any claim by the Corporate Debtor. Furthermore, they asserted that the Resolution Professional had no authority to include the land in the Information Memorandum under Section 18(1)(f) of the Insolvency and Bankruptcy Code, 2016 (IBC). The NCLT, however, held that the dispute involved complex factual and legal issues, requiring adjudication by a competent civil court rather than summary proceedings under the IBC.
The NCLAT rejected the NCLT’s reasoning, holding that the determination of whether an asset belonged to the Corporate Debtor was central to the CIRP process and within the Adjudicating Authority’s jurisdiction. It relied on the Supreme Court’s decision in Victory Iron Works Limited v. Jitendra Lohia and Another, REEDLAW 2023 SC 03511, which held that development rights constituted “property” under Section 3(27) of the IBC. Accordingly, the NCLAT ruled that the NCLT had the jurisdiction to adjudicate the matter and could not relegate the parties to a civil court.
Regarding the effect of the arbitrator’s orders, the NCLAT observed that the termination of arbitration proceedings under Section 32(2)(c) of the Arbitration & Conciliation Act, 1996, did not constitute a binding arbitral award. Since the Additional City Civil & Sessions Judge had found the termination order non-maintainable under Section 34, the NCLAT concluded that there was no final adjudication of the Corporate Debtor’s rights over the subject land. Consequently, the Corporate Debtor’s claim to development rights remained open for determination.
The NCLAT affirmed that the Resolution Professional was justified in including the development rights in the Information Memorandum, as this constituted part of the Corporate Debtor’s assets. It further held that the RP’s inclusion of the land did not violate the rights of third parties, as the CIRP process was concerned with the Corporate Debtor’s development rights rather than ownership of the land. Accordingly, the NCLAT upheld the Adjudicating Authority’s jurisdiction to decide the matter and dismissed the appeals.
Mr. Maninder Singh Sr. Advocate with Mr. Zoheb Hussain, Mr. Udai Khanna, Mr. Vivek Gurnani, Mr. Pranjal Tripathi, Mr. Rangasaran Mohan and Ms. Ashita Chawla, Advocates, represented the Appellants.
Mr. Arijit Prasad Sr. Advocate with Mr. Sanjay Bhatt and Ms. Apoorva Chowdhury, Advocates appeared for RP/R-3.
Mr. Krishnendu Datta Sr. Advocate with Ms. Nishtha Kauza, Ms. Alina Mathew and Mr. Kumar Shubham, Advocates, appeared for the Art.
Mr. Abhijeet Sinha Sr. Advocate with Mr. Apoorv Agarwal, Mr. Manav Goyal, Ms. Ritika Prasad and Ms. Tanushvi Singh, Advocates, appeared for the Parinda.
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