Madras HC Directs Claimant to File Claims Before Liquidator, Bypassing Futile Arbitration Amid IBC Proceedings

Navigating the Impasse: Madras High Court Streamlines Claims Against Companies in Liquidation

In a pragmatic decision addressing the overlap between the Arbitration and Conciliation Act and the Insolvency and Bankruptcy Code (IBC), the Madras High Court has resolved a long-standing procedural dispute by directing a claimant to approach the liquidator directly rather than pursuing a potentially futile arbitration. The ruling, delivered by Hon’ble Mr. Justice N. Anand Venkatesh, underscores the judiciary's preference for avoiding "wasteful exercises" when corporate entities enter insolvency.

The Backdrop: A Procedural Web

The dispute originated between M/s. AL TIRVEN STEELS LTD (the petitioner) and M/s. IVRCL Assets and Holding Ltd (the respondent). Following a complex history of corporate restructuring and a subsequent insolvency filing under the IBC at the National Company Law Tribunal (NCLT) Hyderabad, the respondent entity faced liquidation.

The petitioner had initially sought to set aside an arbitral order dating back to 2019 under Section 34 of the Arbitration and Conciliation Act . During the proceedings, the petitioner requested the Court to reframe the application as one under Section 14(2) of the Act , aiming to address the termination of proceedings that occurred in the wake of the company's financial collapse.

Conflicting Arguments

The petitioner argued that their claim should be addressed, notwithstanding their earlier tactical errors in filing, emphasizing that they had been kept in the dark regarding the NCLT proceedings initiated against the respondent.

Conversely, the Liquidator raised two primary objections:

1. Legal Bar: Pointing to Section 33(5) of the IBC , the Liquidator argued that the court proceedings were barred, citing conflicting stances in various High Court precedents.

2. Time-Barred Claims: Relying on the Supreme Court’s judgment in RPS Infrastructure Limited Vs. Mukul Kumar and another , the Liquidator contended that the petitioner had missed the statutory window for filing claims under the IBC and was thus precluded from further seeking relief.

The Court’s Reasoning

Justice N. Anand Venkatesh observed that even if the court were to allow the arbitration to culminate in an award, the practical utility of such an award—given the liquidation status of the respondent—remained highly questionable. The Court reasoned that forcing the parties back into the arbitral process would be a "wasteful exercise."

Distinguishing the case, the Court highlighted that the petitioner’s lack of awareness regarding the NCLT proceedings warranted a fair opportunity to present their case before the Liquidator, who is statutorily empowered and obligated to consider claims on their merits.

Key Observations

• On the utility of litigation: “In the considered view of this Court... even if this Court permits the arbitration proceedings to continue and an award is also passed in favour of the petitioner, it is not certain as to what subsequent remedy can the petitioner seek even after obtaining the award.”
• On potential redundancy: “In this situation, it may even be a wasteful exercise for the petitioner to go before the Arbitrator and start the proceedings all over again.”
• On equitable relief: “Taking into consideration the facts and circumstances of the case... this Court is inclined to grant liberty to the petitioner to make the claim before the Liquidator by raising all the grounds.”

Final Verdict and Implications

The High Court disposed of the petition, granting the petitioner a period of three months to submit their claims to the Liquidator. The Liquidator has been instructed to consider these claims on their own merits and in accordance with the law.

This decision serves as a reminder that courts are increasingly prioritizing the efficiency of the insolvency resolution mechanism over the pursuit of protracted arbitral proceedings when a company is already under the control of a liquidator. For creditors, it simplifies the route to recovery, provided they act with transparency and within the stipulated timelines under the IBC.