MSMED Act & IBC – Objection to Arbitral Award in execution petition without challenging it in section 34?

In 2014, the respondent filed two claim petitions for total sum of Rs.1,59,09,214/- before the WEB Micro, Small and Medium Facilitation Council, under MSMED Act, 2006.

On 7.6.2017, the arbitration proceedings were commenced after conciliation failure.

On 21.7.2017, NCLT imposed moratorium in section 7 IBC petition of the financial creditors of the appellant.  The arbitration proceedings were kept in abeyance.

The Resolution Professional partly admitted the claim of the respondent.

However, in the resolution plan submitted to the NCLT, which did not contain the claim of the respondent was approved on 17.4.2018.  NCLT declared that the claims of all operational creditors were settled at nil.  

No appeal was filed by the respondent.

The Award dated 6.7.2018 was passed in the arbitral proceedings resumed after moratorium was lifted.

The appellant did not challenge the arbitral award.  However, the appellant had taken the objection in the execution petition that the award was nullity since the claim was already settled at nil as per Resolution Plan.

The Executing Court dismissed the objection of the appellant.

Three important questions arose in the matter –

1. The arbitral award having not been challenged under Section 34 of the Act of 1996, whether the objection to execution of the arbitral award referrable to Section 47 of the Civil Procedure Code, 1908 (CPC) was maintainable by alleging that the arbitral award itself was a nullity and hence non-executable?
2. Whether the arbitral award in the present case could be assailed as a nullity and hence non-executable within the permissible grounds of raising such a plea?
3. Irrespective of maintainability of the objection to the arbitral award under Section 47 of the CPC, whether on facts, the Facilitation Council 7 lost its jurisdiction to proceed and pronounce the arbitral award in view of the insolvency resolution plan of the petitioner which was duly approved under Section 31 of the IBC?

HELD that the objection to the execution of an arbitral award under section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the Arbitration Act.

All claims which are not part of the Resolution Plan shall stand extinguished, and no person will be entitled to initiate or continue any proceeding in respect of a claim which is not part of the resolution plan.

Lifting the moratorium does not mean that the claim of the respondent would stand revived notwithstanding approval of the resolution plan.   Moratorium is intended to ensure that no further demands were raised or adjudicated upon during CIRP so that the process can be proceeded with and concluded without further complications.  Once the claim is extinguished with the Resolution Plan, the Facilitation Council did not have the jurisdiction to arbitrate on the said claim. Since the Award was passed without jurisdiction, it could be assailed in section 47 CPC proceedings.

Judgment dated 21.4.2025 of the Supreme Court of India in Civil Appeal No.2896 of 2024 of Electrosteel Steel Limited  Vs.  Ispat Carrier Private Limited