IBC Resolution Ends Pre-Resolution Claims, Arbitration Cannot Continue: Bombay High Court

The Bombay High Court has recently held that once a corporate debtor is resolved under the Insolvency and Bankruptcy Code, there is no residual cause of action from a pre-resolution claim that can be pursued through arbitration or Section 9 proceedings.

Justice Somasekhar Sundaresan observed that the insolvency resolution process brings such claims to an end, whether the creditor recovers some, none or all of the amount claimed.

The court held, “That a corporate debtor who is resolved under the IBC starts with a clean slate, is now well declared in numerous judgements. Causes of action against the corporate debtor prior to resolution would come to an end with the assessment and determination of claims under the resolution process. A creditor may recover some or none or all of the debt claimed from and owed to it by the corporate debtor. Regardless of how much is recovered, there would be no residual cause of action to agitate. Arbitration agreements governing such discharged causes of action would not be available to give any continued life to the Section 9 jurisdiction.”

The ruling arose from proceedings concerning hot rolled steel coils supplied by JSW Steel Ltd. to Delta Iron and Steel Co. Pvt. Ltd. under a July 1, 2018 Franchise Agreement. JSW claimed it had not been paid for the coils.

JSW approached the Bombay High Court under Section 9 of the Arbitration and Conciliation Act, 1996, which enables a party to seek interim measures from the court in aid of arbitration.

On August 23, 2019, the court passed an interim order pursuant to which the Court Receiver attached, sealed and took possession of 160 steel coils stored in multiple warehouses. Seven of the 11 Subject Coils later involved in the present proceedings were stored at the warehouse of Karu Metals Private Limited.

Aashna Yatin Khanna, proprietress of Aashna Steel Traders, had filed an interim application seeking release of the 11 Subject Coils. Karu also filed an application complaining that no one was paying for the use of its warehouse space.

An arbitral tribunal was constituted, and the Section 9 petition was disposed of on June 13, 2022. The arbitration proceedings themselves were subsequently withdrawn by JSW on November 11, 2025.

The order also records that Delta and Yatin Steels India Pvt. Ltd. had been referred to the corporate insolvency resolution process under the IBC. JSW filed its claims in the CIRP, which were dealt with under the IBC.

The court found that the resolution process had brought the underlying claim to an end. It rejected JSW's contention that the cause of action survived because it had received nothing under the resolution plan.

The court also noted that JSW had withdrawn the arbitration. Since Section 9 measures are intended to operate in aid of arbitration, the court held that they could not continue after the arbitration had ended.

“The jurisdiction under Section 9 is inextricably linked to arbitration proceedings. The protective and preservative measures under Section 9 of the Act are necessarily in aid of arbitration. If the arbitration proceedings terminate, the interim measures must necessarily come to an end. There can be no scope for protective measures already granted, being able to continue in the absence of any scope whatsoever for the arbitration to take place. Therefore, the Interim Order is hereby vacated.”

The Court also rejected JSW's attempt to re agitate questions concerning ownership of the coils, noting that similar contentions had already been rejected in earlier proceedings and that JSW's cause of action had ceased to exist.

As regards storage, the Court held that JSW must bear the costs incurred pursuant to the attachment obtained at its behest. It directed the warehouses to raise invoices for the applicable periods to be verified by the Court Receiver.

Accordingly, the Court recalled the interim order, released all attachments and directed JSW to pay ₹1.5 lakh to Karu Metals and ₹2.5 lakh to Aashna towards costs within four weeks.

For Applicants: Advocates Vishal Muglikar, a/w Chaula Solanki, H.H. Nagi, Niranjan Pradhan, i/b Nagi & Associates, A.K. Singh, a/w Piyush A. Singh, K.A. Singh

For Original Petitioner: Advocates Ankita Singhania, a/w Siddharth Srivastava, Yasmeen Sabir, Jahnvi Pandey, i/b Link Legal

Deepak S. Bhalerao, 2nd Asst. to Court Receiver