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2026 Supreme(Online)(Ker) 29731
IN THE HIGH COURT OF KERALA AT ERNAKULAM
T.R. Ravi, J
R. Sampathkumar – Appellant
Versus
Marine Products Export Development Authority – Respondent
OP(C) NO. 77 OF 2026
For the Appellants/Petitioners: Bejoy Joseph P.J., M.Ramesh Chander, Govind G. Nair, Bonny Benny, Balu Tom
For the Respondents: C.S.Ajith Prakash, Amaljith, Haaris Moosa
The liquidation of a company does not automatically stay or invalidate arbitration proceedings concerning the personal obligations of its promoters, and a party seeking to stay an arbitral award must satisfy the specific mandatory requirements prescribed under Section 36 of the Arbitration and Conciliation Act, 1996.
Headnote:The petitioner challenged an order of the Commercial Court, which declined to grant a stay on the execution of an arbitral award. The primary contention was that the company involved was under liquidation, precluding arbitration under the Companies Act, 2013. The respondent argued that the petitioner failed to satisfy the mandatory requirements for a stay under Section 36 of the Arbitration and Conciliation Act, 1996. The Court found that the arbitration related to personal obligations of promoters rather than corporate claims and that the petitioner failed to demonstrate prejudice or incapacity. The central issue was whether the liquidation of a company acts as an automatic bar to arbitration proceedings against its promoters and whether the petitioner met the requirements for a stay of the arbitral award. Rule of law dictates that the invocation of Section 34 of the Arbitration and Conciliation Act, 1996 requires a specific showing of incapacity or invalidity that directly impacts the validity of the award against the specific parties involved. The Court observed that corporate incapacity does not extinguish the contractual obligations of promoters. The original petition fails and is dismissed.
| Table of Content |
|---|
| 1. summary of arbitral award and status of share buyback dispute. (Para 1 , 2 , 3) |
| 2. arguments regarding liquidation effects and criteria for staying an award. (Para 4 , 6) |
| 3. determination that corporate incapacity does not impact promoter obligations. (Para 7 , 9) |
JUDGMENT
The prayer in the original petition is to set aside Ext.P4 order passed by the Commercial Court II, Ernakulam in IA No.3 of 2025 in OP (Arb.) No.35 of 2025 and to allow IA No.3 of 2025 and stay the operation and execution of the arbitration award of the sole Arbitrator till the disposal of OP(Arb.)No.35 of 2025. The 1st respondent is a statutory body constituted under the Marine Products Export Development Authority Act. As per a scheme for promoting projects for seafood processing, etc., the 1st respondent participated in the equity capital by subscribing to the equity shares of the 4th respondent Company. A financial collaboration agreement was executed on 18.11.1993, as per which the 1st respondent was allotted 3,60,000 equity shares of ₹10/- each in the equity capital.
The share value was paid by the 1st respondent on 16.03.1994.
2. As per the agreement between the parties, the respondents before the Arbitrator were given the option to buy the equity shares held by 1st respondent at any time. The agreement also said that they were bound to buy the equity shares allotted to 1st respondent on the expiry of 5 years from the date of commencement of commercial production by the 4th respondent. The price for the purchase of the shares was also to be calculated as per the provisions of the agreement.
3. The 4th respondent commenced commercial production on 01.10.1998. When the Promoters failed to buy back the shares from the 1st respondent, the 1st respondent initiated the arbitration proceedings. On 13.03.2008, Justice J.M. James (Former Judge), was appointed as the sole Arbitrator. The Arbitrator passed an award on 04.05.2009. The said award was sought to be challenged by filing OP Arbitration No.407 of 2025, after the passage of 16 years. An application was filed to stay the execution of the arbitral award, which was dismissed by the Commercial Court by order dated 20.11.2025, copy of which has been produced as Ext.P4. The order has been challenged in these proceedings.
4. The main ground that has been raised is that the 4th respondent Company was under liquidation and when a Company is under liquidation no claims against the Company or its Directors are maintainable before any court or Arbitrator. According to the petitioners, the Arbitrator could not have proceeded with the arbitration after the order of winding up was issued. Reference is made to Sections 278, 279, 242 and 430 of the Companies Act. It is also contended that once the Company is wound up, the execution cannot be proceeded in view of Section 34(2)(a) of the Arbitration and Conciliation Act.
5. The respondents contended that a petition under Section
36(2) of the Arbitration and Conciliation Act is a mandatory requirement for staying an arbitral award. The petitioners had filed an application under Section 151 of the Code of Civil Procedure and ingredients of Section 36(2)and 36(3) have not been made out in the affidavit in support of the petition. Reliance is placed on the judgment of the Hon'ble Supreme Court in Lifestyle Equities C. V. & Anr. v. Amazon Technologies Inc. [2025 SCC OnLine SC 2153], wherein the Hon'ble Supreme Court held that the power of the appellate court to order stay of execution of a decree is to be exercised after ascertaining whether there will be substantial loss to the party applying for the stay, whether the application has been made without unreasonable delay and whether security has been given by the applicant for due performance of the decree. The counsel points out that none of the above aspects have been referred to in the affidavit in support of the petition. It is hence submitted that the order rejecting the stay cannot be interfered with.
6. In re
