NCLT Chennai Says Parties Cannot 'Cherry-Pick' Between Arbitral Award and Settlement In Landmark Housing CIRP

Holding that parties cannot “cherry-pick” between an arbitral award and a subsequent settlement to maximize recovery, the National Company Law Tribunal (NCLT) at Chennai dismissed a plea by landowners who sought Rs. 62.72 crore despite having agreed to settle their dues at Rs. 45 crore.

A bench of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy passed the order in the insolvency of Landmark Housing Projects Chennai Private Limited, upholding the liquidator's decision to admit the claim to the extent of Rs 45 crore and classify the landowners as operational creditors.

The dispute traces back to a 2014 land deal, where Savitri Naidu and other landowners agreed to sell 9.8 acres to the company for Rs. 73.5 crore, along with a premium. Payment did not fully come through. When the balance remained unpaid, the applicants moved to arbitration and secured an award on September 14, 2020, directing the company to pay Rs. 28.73 crore with interest. The award also carried an attachment over the property.

Less than a year later, on April 29, 2021, the company was admitted into the corporate insolvency resolution process (CIRP). A resolution plan followed, receiving approval on June 27, 2022.

While that plan was still being implemented, the applicants entered into a Memorandum of Compromise on August 4, 2024. This arrangement was struck not just with the corporate debtor but also with its directors in their personal capacity. Under it, the parties agreed to settle the dues at Rs. 45 crore. The document also included a default clause, which the applicants later relied on to claim that the liability had escalated to Rs. 62.72 crore.

Things shifted again when the resolution plan failed, leading to liquidation on April 16, 2025. At that stage, the applicants approached the liquidator as financial creditors, pressing for admission of Rs. 62.72 crore by invoking both the arbitral award and the default clause in the compromise.

The liquidator did not accept that position. The claim was admitted only to the extent of Rs. 45 crore, and these landwoners were classified as operational creditors.

The reasoning was that the underlying transaction was a sale of land, and the arbitral award did not change the nature of that claim.

Upholding this view, the Tribunal held that once a resolution plan is approved, any subsequent settlement entered into without the authorisation of the monitoring committee or implementing authority lacks legal backing under the Insolvency and Bankruptcy Code.

“This tribunal observes that once a Resolution Plan is approved, the management of the Corporate Debtor is bound by the specific terms of that plan and any subsequent independent settlement or MOC entered into by the suspended directors even if purportedly on behalf of the Corporate Debtor without the express authorization of the Monitoring Committee or the implementing authority lacks legal backing.”

The bench further held that the applicants, having entered into a compromise, could not fall back on the arbitral award to claim higher amounts.

“We also note that settlement agreement was entered between the parties in personal capacity by the directors and in the title of the corporate debtor, and it is a well-settled law that once parties enter into a subsequent settlement agreement or a Memorandum of Compromise that purports to settle the dues arising out of a prior decree or award, they effectively estopped their rights. "

It added that the applicants had clearly intended to replace the arbitral award by entering into the compromise.

“The applicants by their own conduct of entering into the MOC for a sum of ₹45,00,00,000 demonstrated a clear intent to supersede the Arbitral Award and enter into the compromise.”

Rejecting the attempt to rely on both instruments, the Tribunal held:

“We are of the considered view that applicant cannot be permitted to 'cherry-pick' which legal instrument to enforce based on the shifting stages of the insolvency proceedings.”

The Tribunal also clarified that an arbitral award-holder does not automatically become a secured creditor under the Insolvency and Bankruptcy Code, noting that an attachment order is only a protective measure and does not create a security interest.

“It is a well-settled principle that a decreeholder or an award holder does not automatically acquire the status of a Secured Creditor under the IBC. An order of attachment passed by an Arbitral Tribunal is a protective measure and does not equate to the creation of a "security interest" as defined under Section 3(31).”

Finding no error in the liquidator's decision, the tribunal dismissed the application and upheld the admission of the applicants' claim at Rs 45 crore as operational debt..

For Petitioners: Advocate Anirudh A Sriram

For Respondent: B Thilak Narayanan