NCLT Notes Arbitral Award Challenge Doesn’t Bar Insolvency, Confirms ₹922 Crore Default and Orders CIRP [Read Order]

The National Company Law Tribunal (NCLT) has clarified that a pending challenge to an arbitral award does not prevent insolvency proceedings under the Insolvency and Bankruptcy Code. Also confirmed a default of ₹922 crore and commenced Corporate InsolvencyResolution Process (CIRP).

Bliss House Private Limited, engaged in real estate and construction, had availed a loan facility of ₹105 crore from Sammaan Capital Limited (formerly Indiabulls Housing Finance Limited) under a loan agreement dated 29 March 2019. The loan was secured through mortgage deeds, hypothecation, guarantees, and pledges executed by RAB group entities, with Rana Kapoor and Bindu Kapoor standing as personal guarantors.

In March 2020, following criminal investigations against the guarantors, Sammaan Capital declared a “Material Adverse Effect” event of default and issued a recall notice demanding immediate repayment. The company failed to comply, leading to the classification of the account as a Non-Performing Asset (NPA) on 9 June 2020.

Arbitration proceedings culminated in an award dated 28 March 2023 directing Bliss House and its obligors to pay ₹1,96,87,24,418 along with interest. Despite challenging the award under Section 34 of the Arbitration Act, the company did not secure a stay and failed to make payments.In March 2025, Sammaan Capital assigned its rights to J.C. Flowers Asset Reconstruction Pvt. Ltd., which then approached the NCLT seeking initiation of the Corporate Insolvency Resolution Process (CIRP).

The petitioner, J.C. Flowers Asset Reconstruction, argued that they had repeatedly defaulted—first in March 2020 upon failure to honor the recall notice, later during arbitral proceedings, and again after the arbitral award. They emphasized that the debt stood crystallized and remained unpaid, satisfying the conditions under Section 7 of IBC.

The respondent argued that the petition was not maintainable since the arbitral award was under challenge and hence not final. He argued that the recall notice was premature, that the petitioner was effectively seeking execution of an arbitral award under the guise of IBC proceedings, and that the claim was barred by limitation. He further submitted that initiation of CIRP would frustrate pending arbitration challenges and irreparably harm the company.

The bench, comprising Member (J) Ashok Kumar Bhardwaj and Member (T) Reena Sinha Puri, rejected the respondent’s objections. It noted that defaults had occurred well before the arbitral award, beginning with the recall notice in March 2020 and continuing through non-payment of EMIs and demand notices. The tribunal emphasized that the liability was not founded solely on the arbitral award but on the loan agreements themselves.

Citing the Supreme Court’s ruling in Dena Bank v. C. Shivakumar Reddy, the tribunal held that an arbitral award gives rise to a fresh limitation period, and the petition filed within three years of the award was well within time. It also underscored that Section 238 of IBC overrides other laws, meaning pendency of arbitration challenges does not bar insolvency proceedings.

The tribunal observed that "In pursuance of Section 13 (2) of the Code, we direct the IRP or the RP, as the case may be to make a public announcement immediately with regard to the admission of this application under Section 7 of the Code. The expression ‘immediately' means within three days as clarified by Explanation to Regulation 6 (1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016"

Accordingly, the tribunal admitted the insolvency petition.

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