Summary: The Delhi High Court, in McNally Bharat Engineering Company Limited v. Metso India Pvt. Ltd., has held that an amount deposited in court as a condition for stay of an arbitral award, pending a challenge under Section 34 of the Arbitration & Conciliation Act, does not amount to payment to the award-holder and remains an asset of the award-debtor. Therefore, upon the award-debtor going into CIRP under the Insolvency and Bankruptcy Code during the pendency of such challenge, if a claim is not submitted to the Resolution Professional and does not form part of an approved resolution plan, it stands extinguished. Consequently, the pending Section 34 petition challenging the underlying arbitral award is rendered infructuous, and the deposited amount is to be refunded to the award-debtor turned corporate debtor.
Introduction
A recurring question in the interplay between arbitration and insolvency law is what happens to a court deposit made to secure a challenged arbitral award when the award-debtor goes into corporate insolvency resolution process (“CIRP”) before the challenge under the Arbitration & Conciliation Act, 1996, is decided. Award-holders often assume that once money has been deposited in court as security, it is effectively earmarked for them and need not be separately claimed before the Resolution Professional (“RP”). Corporate debtors, on the other hand, take the opposite view: that a court deposit remains their asset until released by the court, and that a claim not lodged before the RP is extinguished upon approval of the resolution plan.
The Delhi High Court’s decision in McNally Bharat Engineering Company Limited v. Metso India Pvt. Ltd[1]. addresses this question head-on, settling both the fate of an unclaimed award and the character of a court deposit made to secure it.
Background
M/s McNally Bharat Engineering Company Limited (“MBECL”/ award-debtor/ corporate debtor) had contracted with Metso India Private Limited (“Metso”/award-holder) to commission blender reclaimers, sub-contracted pursuant to a tender awarded to MBECL by Bharat Heavy Electricals Limited. Disputes arose between the parties and MBECL terminated the agreement. Metso invoked arbitration, resulting in an award dated May 5, 2018, in its favour for approximately INR 5.52 crore, along with a post-award interest at 12% per annum.
MBECL challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). As a condition for stay of the award’s execution, the High Court directed MBECL to deposit the awarded amount, which it did in 2021 by way of a fixed deposit receipt towards the Registrar General of the court.
Pending challenge, MBECL was admitted to CIRP under the Insolvency and Bankruptcy Code, 2016 (“IBC”), pursuant to which the RP issued a public notice inviting claims on May 7, 2022. A resolution plan was eventually approved in December 2023. Metso did not submit its claim in respect of the arbitral award to the RP at any stage. Following approval of the plan, MBECL sought refund of the deposited amount, while Metso applied to withdraw it.
The Issues Before the Court
Should the amount deposited in court during pendency of a challenge under Section 34 be refunded to the corporate debtor?
Court Analysis
Survival of the claim after approval of the resolution plan
The Court held that the amount awarded to Metso, reduced to writing in the arbitral award, constituted a “claim” under Section 3(6) of the IBC, making Metso a creditor and MBECL a debtor for the purposes of the IBC. Since Metso had failed to submit this claim to the RP, it was not factored into the resolution plan.
The Court reiterated the well-established “clean slate” principle underlying the IBC, i.e., once a resolution plan is approved, it is binding on all stakeholders, and any claim not forming a part of the plan stands extinguished, with no person entitled to initiate or continue proceedings in respect of such a claim.
Drawing on subsequent decisions of the Supreme Court and various High Courts, the Court held that Metso’s claim, never having been placed before the RP or incorporated into the resolution plan, stood extinguished upon the plan’s approval. Consequently, the Section 34 petition challenging the award had become academic, since its outcome, whether the award was upheld or set aside, would have no bearing on the revival of a claim that no longer existed.
Character of the amount deposited in court
Metso contended that the deposit of the awarded amount in court, made as a condition for stay, was tantamount to payment to it as the award-holder.
The Court rejected this contention, holding that the deposit was made solely to secure the amount due to the award-holder as a pre-condition for stay, and remained subject to the outcome of the Section 34 petition. It did not affect ownership of the asset, which continued to vest in MBECL. The Court distinguished the decisions cited by Metso, noting that those decisions addressed whether a deposit amounted to “payment” for the specific purpose of computing post-award interest under Section 37(1)(b) of the Act, and were not concerned with ownership of the deposited amount in the context of an intervening CIRP.
The Court instead relied on the Division Bench of the Bombay High Court in Siti Networks Limited v. Rajiv Suri[2], which held that money deposited in court by a corporate debtor as security prior to CIRP does not cease to be the corporate debtor’s asset, merely because possession lies with the court. The Bombay High Court’s subsequent decisions applied the same reasoning to direct that deposited amounts be returned to the corporate debtor, or even clawed back if already released, once the underlying claim stood extinguished for want of submission to the RP.
The Court also noted that release of a court deposit requires the court’s permission and can be made conditional, meaning no vested right accrues in favour of the award-holder for its unconditional receipt merely by virtue of the deposit.
Metso also argued that the deposit did not feature in the information memorandum prepared by the RP, and more broadly that MBECL had failed to disclose it as an asset, that the RP ought to have sought its refund, and that Metso itself was never named as a creditor or made a party to the CIRP. The Court gave this argument short shrift on the facts that the deposit had in fact been reflected as “security” in MBECL’s balance sheet. In any event, it held that grievances about compliance with the IBC framework, or about how the RP or CoC dealt with the plan, belong under the IBC itself and cannot be raised collaterally in a Section 34 proceeding.
Implications
First, the decision confirms that an award-holder cannot treat a court deposit made to secure a challenged award as a substitute for lodging its claim before the RP. Award-holders with pending Section 34 proceedings against a corporate debtor undergoing CIRP must actively submit their claims within the CIRP timeline, regardless of any parallel deposit made in court, failing which the claim is extinguished on approval of the resolution plan.
Second, a deposit made as a condition for stay retains its character as security and as an asset of the corporate debtor, not as payment to the decree-holder. This clarification is significant for resolution professionals and successful resolution applicants, who can proceed on the basis that undisclosed or unclaimed court deposits remain available to the corporate debtor’s estate rather than being treated as already discharged in favour of an award-holder.
Third, the ruling reinforces the finality intended by Section 31 of the IBC. Grievances relating to the treatment of assets, disclosures in the information memorandum, or the conduct of the RP must be pursued through the mechanisms available under the IBC and cannot be raised collaterally to resist refund of a court deposit in proceedings under the Arbitration Act.
Conclusion
The judgment provides useful clarity at the intersection of arbitration and insolvency law. It reaffirms that the “clean slate” doctrine applies with full force to claims based on arbitral awards under challenge. A security deposit made in court as a pre-condition for grant of stay of an arbitral award is treated as an asset of the corporate debtor that survives CIRP rather than as constructive payment to an award-holder who failed to stake its claim in time.
For further information, please contact:
Anush Mathkar, Partner, Cyril Amarchand Mangaldas
anush.mathkar@cyrilshroff.com
[1] 2026:DHC:6218.
[2] 2024 SCC Online Bom 3550.
