Arbitral award payout during CIRP after resolution plan approval: award claim extinguished, s.34 challenge infructuous, re-deposit ordered.

The dominant issue was whether, after completion of CIRP and approval of a resolution plan, the judgment creditor's entitlement under an arbitral award (and the pending s.34 challenge) survived, and whether cash earlier released pursuant to the award could be retained. Applying IBC principles and the HC's approach that court-held cash remains an asset of the corporate debtor to be dealt with in accordance with the approved plan, the Court held that the award-based entitlement was merely a "claim" and stood extinguished/effaced by the resolution plan, rendering the s.34 petition infructuous. Consequently, the creditor was directed to re-deposit the released amount within four weeks, failing which the bank guarantee would be invoked and the realised sums released to the corporate debtor.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, after approval of a resolution plan under the insolvency law that extinguishes the award-holder's entitlement (save to the extent provided in the plan), a sum earlier deposited in court by the award-debtor and withdrawn by the award-holder against a bank guarantee must be returned and released to the resolved corporate debtor.

(ii) Whether the award-debtor can obtain, in the same interim application, an order directing the award-holder to pay interest (including at 18% per annum) on the withdrawn amount from the date of deposit/withdrawal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Return of the withdrawn amount; invocation of bank guarantee; effect of approved resolution plan

Legal framework (as discussed by the Court): The Court examined the insolvency law concepts of "claim", "debt" and "creditor" and applied the principle that, upon approval of a resolution plan, the corporate debtor proceeds with a "clean slate" and the pre-existing enforceable right to receive amounts under an award stands curtailed/extinguished to the extent provided in the plan. The Court also treated the deposited amount as being in custodia legis, released to the award-holder only on the strength of a securing bank guarantee pending the award challenge.

Interpretation and reasoning: The Court held that the award-holder's right to receive the awarded sum constituted a "claim" and the liability under the award constituted a "debt", with the award-holder as a "creditor". Since the approved resolution plan reduced the award-holder's entitlement under the award to a nominal amount, the substantive right to receive the earlier-awarded amount stood effaced. Consequently, the pending award-challenge proceedings became infructuous because there was no longer any enforceable award entitlement capable of being enjoyed or executed (beyond what the plan permitted). In that situation, the amount earlier deposited in court and released to the award-holder on an equitable, conditional basis (secured by a bank guarantee) could not continue to remain with the award-holder and had to be restored, failing which the security was to be enforced.

Conclusions: The Court conclusively directed the award-holder to return the withdrawn sum to the court registry within a fixed time. If the award-holder failed, the registry was mandated to invoke the bank guarantee and, upon recovery, release the realised amount to the corporate debtor. The Court also permitted the corporate debtor to withdraw the returned/realised amount. No costs were awarded.

Issue (ii): Maintainability/availability of interest claim within the interim application

Legal framework (as discussed by the Court): The Court treated the interest demand as requiring an independent legal basis and assessed whether such relief could be granted within the narrow compass of the interim application seeking restoration of the withdrawn sum in light of the resolution plan's effect.

Interpretation and reasoning: The Court found no basis to award interest in the interim application, particularly at the claimed rate. It further reasoned that the interest claim, especially framed from the date of the deposit order (rather than the withdrawal date), would involve pursuit of a separate cause of action distinct from what was in issue in the arbitral proceedings or in the award-challenge proceedings. Such a claim could not be granted as part of the interim relief sought for restoration of the sum withdrawn against security.

Conclusions: The Court rejected the prayer for interest (including the claim at 18% per annum), while expressly leaving it open to the applicant to pursue any such interest claim through appropriate independent proceedings, if so advised.

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