Arbitral Awards Can Not Be Set Aside On The Ground Of Striking Off Company’s Name By Roc Post-Commencement Of Arbitration – M/S Exotic Buildcon Pvt Ltd. V. M/S Medors Biotech Pvt Ltd

Summary:

The Delhi High Court has held that the Arbitral awards cannot be set aside under section 34 of the arbitration and conciliation on the ground of striking off the company’s name by REGISTRAR OF COMPANIES (ROC) post-commencement of arbitration. The Delhi high court bench comprising of Justice Vibhu Bakhru and Justice Tara Vitasta Ganju has dismissed the appeal of the appellant for setting aside the arbitral award on the ground that the company’s name is been struck off by the ROC post-commencement of arbitration. It upheld the principle that cancellation of a company’s incorporation does not affect the realization of amounts due to the company or the discharge of its obligation.

Facts Of The Case:

M/S Exotic Buildcon Pvt. Ltd (the appellant) filed an application under section 34 of the Arbitration and Conciliation Act, 1996 in commercial court to challenge the arbitral award in favour of M/S Medors Biotech Pvt. Ltd. (respondent). The appellant challenged the award merely on two grounds.

Firstly, the appellant argued that the respondent had been struck off by the Registrar of Companies (ROC) under Section 248(5) of the Companies Act, 2013. Secondly, there was a calculation error in the amount awarded. The Arbitral Tribunal had awarded a sum of ₹39,26,242/- in favour of the respondent. However, according to the appellant, the correctly calculated amount is ₹37,51,579/-.

The Commercial Court had rejected the appellant’s contention that the Arbitral award was required to be set aside on the ground that the proceedings had been initiated by the ROC for striking off the respondent’s name from the Register of Companies, Thus, the proceedings for realising the amounts due to the respondent would not be affected. Insofar as the calculation error is concerned, the learned counsel for the respondent had readily conceded to the same. Accordingly, the arbitral award for a sum of ₹39,26,242/- was confined to ₹37,51,579/- and was set aside to the extent of the amount awarded in excess of the said sum.

Issue:

Whether rejecting the appeal for setting aside the arbitral award on the ground of striking of company’s name by ROC post-commencement of Arbitration, carried out by the learned Commercial Court, in consonance with the principle of law?

Judgement:

The judgement in this case emphasizes Section 250 of the Companies Act which clearly states that (where a company stands dissolved under Section 248, it shall on and from the date mentioned in the notice under sub-section (5) of that section cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company). While acknowledging the necessity for a struck-off company to take steps for the restoration of the company’s name on the register of companies to peruse its claim, the high court held that setting aside the arbitral award on this ground is not justified.

The High Court also noticed that the parties were referred to arbitration before striking the respondent’s name. It also noticed that in 2015, a large number of companies, which had not complied with the provisions of the Companies Act were struck off from the record of the register of companies. The High Court referred to its decision in Value Advisory Services v. ZTE Corporation wherein the court had rejected the objection to enforcement of an arbitral award on the ground that the name of the award holder was struck off the Register of Companies after the arbitral proceedings had commenced. Considering these factors, the High Court concluded that setting aside an arbitral award on the ground of striking off the company’s name by ROC post-commencement isn’t justified, consequently, the High Court dismissed the appeal.

Analysis:

In the said judgement, the Delhi High Court ruled that arbitral awards cannot be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, due to the striking off of a company’s name by the Registrar of Companies (ROC) post-commencement of arbitration. The court dismissed the appeal, highlighting that the cancellation of a company’s incorporation does not impact the realization of amounts owed or the discharge of obligations. The decision referenced Section 250 of the Companies Act and a prior case (Value Advisory Services v. ZTE Corporation) where a similar objection was rejected.

The court considered the timing of ROC action and arbitration reference, noting that the parties were referred to arbitration before the striking off of the respondent’s name. The historical context of the widespread striking-off of companies in 2015 was also acknowledged.

In conclusion, the High Court held that setting aside an arbitral award based on ROC’s post-commencement actions was not justified, prioritizing the continued existence of a company for specific purposes.