2024 (8) TMI 1343 - AT - Insolvency and Bankruptcy

NCLAT clarifies arbitral awards against IL&FS group companies cannot be enforced despite sealed cover opening under Sections 241-242

Union of India Versus Infrastructure Leasing and Financial Services Ltd. & Ors., Infrastructure Leasing & Financial Services Ltd. & Anr. Versus Sadbhav Engineering Ltd. & Anr. And Sadbhav Engineering Ltd. & Anr. Versus Infrastructure Leasing & Financial Services Ltd. & Anr. In Re : Edelweiss Alternative Asset Advisors Limited

NCLAT Principal Bench clarified its order dated 26.05.2022 regarding arbitral award enforcement against IL&FS group companies. The tribunal held that ... Prayer for clarification of the order dated 26.05.2022 passed by this Tribunal - prayer that Respondent - seeking Restraint on enforcement or execution of Arbitral Awards - HELD THAT:- It is noted that by order dated 11.01.2019, this Tribunal directed for continuation of pending proceedings before Arbitral Tribunals, which was with a caveat that Arbitral Tribunals are prohibited to pass any order under Section 17 of the Arbitration & Conciliation Act, 1996 against IL&FS or any of its Group Companies. Award passed, if any was to be kept in sealed cover till final decision of the petition under Section 241 and 242 of the Companies Act, 2013 pending before the NCLT. It was further observed that after the Award is given in favour of the IL&FS or any of its Group Companies, in such case, the Award need not be kept in sealed cover, even during the pendency of the Company Petition. An IA No.2114 of 2021 was filed by Respondent - Sadbhav Engineering Ltd. This Tribunal in the order has observed that the order dated 26.05.2022 clearly indicate that Tribunal did not enter into the issues raised by the respective parties. It was further observed that the observations made in the order dated 26.05.2022 cannot be read to mean that it has in any manner varied the order dated 15.10.2018 passed in the Appeal, which was operating till date. It is reiterated that order dated 26.05.2022 neither vary, nor modified the order dated 15.10.2018 or the entire order dated 11.01.2019. The only modification was made in paragraph 2 of the order dated 11.01.2019 that sealed cover be opened, which was directed to be kept till the final decision of the Company Petition filed under Section 241 and 242. When the order dated 15.10.2018 has not been varied or modified, even if an Award has been opened from the sealed cover and communicated to the Respondents, the Respondents are not entitled to enforce the Award during the continuation of the interim direction dated 15.10.2018, which was subsequently affirmed by this tribunal on 12.03.2020. Application allowed. Issues Involved:1. Clarification of the order dated 26.05.2022.2. Restraint on enforcement or execution of Arbitral Awards.3. Status and classification of JRPICL as Green or Red Entity.4. Continuation of interim order dated 15.10.2018.Issue-wise Detailed Analysis:1. Clarification of the order dated 26.05.2022:The application filed by IL&FS and JRPICL sought clarification that the order dated 26.05.2022 only allowed the Arbitral Award dated 06.08.2020 to be opened from its sealed cover and did not permit any recovery actions against IL&FS Group entities. The Tribunal clarified that the order dated 26.05.2022 did not modify the interim order dated 15.10.2018, which restrained the institution or continuation of suits or any other proceedings against IL&FS and its group companies. The Tribunal reiterated that the order dated 26.05.2022 only modified paragraph 2 of the order dated 11.01.2019, allowing the sealed cover to be opened, but did not entitle the Respondent to enforce the Award.2. Restraint on enforcement or execution of Arbitral Awards:IL&FS and JRPICL prayed for a permanent restraint on Sadbhav Engineering Ltd. and GKC Projects Ltd. from enforcing or executing the Arbitral Awards dated 06.08.2020 and 28.03.2023. The Tribunal noted that the interim order dated 15.10.2018, which prohibited enforcement actions, was still in effect. The Tribunal emphasized that the order dated 26.05.2022 did not modify the interim injunction order and, therefore, the Respondents were not entitled to enforce the Award during the continuation of the interim direction dated 15.10.2018.3. Status and classification of JRPICL as Green or Red Entity:The Respondent contended that JRPICL was categorized as a Green Entity, capable of meeting its financial obligations, and thus should not be protected under the moratorium. However, the Applicant argued that JRPICL was reclassified as a Red Entity, and an application for reclassification was pending. The Tribunal noted that the classification of JRPICL as a Green or Red Entity was crucial in determining its ability to discharge its debts and obligations. The Tribunal also observed that the classification and financial status of JRPICL were subject to the resolution framework approved by the Tribunal.4. Continuation of interim order dated 15.10.2018:The Tribunal acknowledged that the interim order dated 15.10.2018, which provided protection to IL&FS and its group entities, was intended to protect the corpus of IL&FS for appropriate resolution. However, the Tribunal recognized that sufficient time had elapsed since the order was passed, and it could not continue indefinitely. The Tribunal decided to put IL&FS and its group entities on notice to show cause why the order dated 15.10.2018 should not cease to operate from 15.10.2024. The Tribunal granted time to IL&FS and its group entities to respond and scheduled the matter for further consideration on 14th October 2024.Conclusion:The Tribunal allowed the clarification sought in IA No.1288 of 2024, confirming that the order dated 26.05.2022 did not modify the interim order dated 15.10.2018. The Tribunal also directed IL&FS and its group entities to show cause why the interim order should not cease to operate from 15.10.2024, thus providing a reasonable timeframe for resolution. The matter was scheduled for further consideration on 14th October 2024.