NCLT Chandigarh Orders Handover Of Aabha Industries Factory To RP, Says Arbitral Award Hit By IBC Moratorium

The Chandigarh bench of the National Company Law Tribunal (NCLT) has directed Neel-Rattan Enterprises Pvt. Ltd. and its directors to hand over possession, custody, and control of factory premises and related assets belonging to Aabha Industries Limited to the resolution professional, holding that continued enforcement of an arbitral award allowing their occupation could not continue during the insolvency moratorium.

“The Tribunal further observes that the principle underlying Section 14 of the Code, which seeks to preserve and maximize the value of the assets of the Corporate Debtor, squarely applies in the present case. Any rights claimed by the Respondents flowing from the arbitral award cannot be enforced in a manner that affects the asset pool of the Corporate Debtor or interferes with the CIRP.”

A coram of Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh passed the order in an application filed by resolution professional Parvinder Singh in the corporate insolvency resolution process of Aabha Industries Limited.

The resolution professional had sought directions against Neel-Rattan Enterprises Pvt. Ltd. and its directors for handing over possession, custody, and control of the factory land and building at Village Raiyan, Ludhiana, which formed part of the corporate debtor's secured assets over which Punjab National Bank held a first pari passu charge.

The respondents opposed the application, contending that they were in lawful possession of the premises pursuant to an arbitral award dated June 26, 2020, passed before the commencement of CIRP.

According to them, the award arose out of disputes under a yarn supply arrangement and permitted use of the plant and machinery for a specified period.

They argued that any challenge to the arbitral award could only be brought before a competent civil court under Section 34 of the Arbitration and Conciliation Act.

Rejecting the objection, the Tribunal held that the dispute directly concerned custody and control of the corporate debtor's assets and therefore fell within the NCLT's jurisdiction under Section 60(5) of the IBC.

It clarified that it was not examining the validity of the arbitral award itself, but only whether its enforcement could continue during the moratorium.

“This Tribunal is not adjudicating upon the validity of the arbitral award per se; rather, it is examining its effect and enforceability in the context of the provisions of the Code, particularly the moratorium under Section 14 and the statutory duties of the Resolution Professional.”

The bench said Section 25 of the Code cast a mandatory duty on the resolution professional to take custody and control of all assets of the corporate debtor so that their value could be preserved during the insolvency process.

While noting that the arbitral award predated the insolvency proceedings and granted conditional usage rights till June 30, 2027, the Tribunal held that continued execution of the award could not deprive the resolution professional of control over the company's assets.

“While it is not in dispute that the arbitral award predates the initiation of CIRP and grants certain conditional rights of usage of the plant and machinery till 30.06.2027, the Tribunal observes that any enforcement or continued execution of such award, resulting in deprivation of control and custody of the assets of the Corporate Debtor from the IRP/RP, is hit by the moratorium.”

The tribunal directed the respondents to hand over peaceful possession, custody, and control of the premises and related assets within two weeks.

It said that if they failed to comply, the resolution professional could seek police assistance to enforce the order.