The Delhi High Court has held that where a party participated in arbitral proceedings without disclosing the existence of moratorium under the Insolvency and Bankruptcy Code, 2016, such party cannot subsequently challenge the arbitral award under Section 34 on the ground that the proceedings were barred by moratorium.
Background
The dispute arose out of a loan transaction between Sahayog Micromanagement & Ors. (“Petitioners”) and NSDC (“Respondent”). Petitioner No.1 had availed a financial assistance facility of Rs.7.8 crores from the Respondent pursuant to a Loan Agreement dated 21.01.2014. The tenure of the loan was fixed at nine years and three months, while Petitioner Nos. 2 and 3 executed personal guarantees in favour of the Respondent.
The Petitioners subsequently defaulted in repayment obligations under the agreement. Notices dated 22.11.2016 and 22.02.2017 were issued by the Respondent intimating delay and default in repayment of outstanding dues. Thereafter, on 26.06.2018, the Respondent issued a legal notice demanding payment of Rs. 8.70 crores within fifteen days failing which the loan agreement would stand terminated. Personal guarantees were invoked on 20.08.2018. A further demand notice dated 03.09.2021 was issued seeking repayment of more than Rs. 10.53 crores.
When the Petitioners failed to discharge their obligations, arbitration was invoked by notice dated 06.01.2022 under Section 21 of the Arbitration and Conciliation Act, 1996. The Arbitral Tribunal eventually passed the impugned award dated 16.04.2024 in favour of the Respondent, which came to be challenged before the Delhi High Court under Section 34.
Petitioners’ Contentions
The Petitioners contended that the claims were barred by limitation since the initial default had occurred in November 2016 and limitation commenced upon expiry of forty-five days from the said notice and therefore invocation of arbitration on 06.01.2022 was beyond limitation.
It was argued that limitation begins from accrual of the right to sue and not from the stage the right is sought to be exercised. Reliance was placed upon decisions including Sundaram Finance v. Noorjahan Beevi, Amin Tharani v. Kotak Mahindra Prime Ltd., Shriram Transport v. V. Balanisamy and State Bank of India v. Ravindra.
The Petitioners further assailed the Tribunal’s finding that the cause of action was recurring in nature and argued that default in repayment of loan does not create recurring causes of action. Reliance was placed upon Mansab Ali v. Gulab Chand and Bhagwant Singh v. Daryao Singh.
Lastly, the Petitioners argued that moratorium under the Insolvency and Bankruptcy Code, 2016 was operating qua Petitioner No.2 and therefore continuation of arbitral proceedings was impermissible. Reliance was placed upon Tata Capital Ltd. v. Geeta Passi.
Respondent’s Contentions
The Respondent contended that the scope of interference under Section 34 was extremely narrow and the arbitral award could not be interfered with merely because another view was possible.
It was submitted that the loan agreement provided dual remedies to the lender. While earlier notices were merely intended to provide opportunities to rectify defaults, the actual cause of action for recall of the loan arose only upon issuance of legal notice dated 26.06.2018.
The Respondent further argued that the alleged moratorium was never disclosed before the Arbitral Tribunal and that moratorium merely suspends coercive proceedings without extinguishing rights and liabilities of parties.
Interpretation of Loan Agreement
The Court undertook a detailed examination of Clauses 5.1, 5.2, 5.4, 5.5 and 6.2 of the loan agreement dealing with “events and consequences of default”. The Court observed that the contractual framework provided dual remedies to the lender.
Under Clause 5.2, the lender was first required to issue a forty-five days’ notice to rectify the default. However, Clauses 5.4 and 6.2 separately empowered the lender to subsequently terminate or recall the agreement in case defaults continued. The Court therefore held that the notices dated 22.11.2016 and 22.02.2017 were opportunities granted to the Petitioners to clear outstanding defaults, whereas the actual recall of the loan occurred only through legal notice dated 26.06.2018.
Limitation Held to Be Within Time
Rejecting the Petitioners’ argument on limitation, the Court held that the cause of action arose only upon recall of the loan through notice dated 26.06.2018 and not from expiry of forty-five days after the initial notice dated 22.11.2016. Arbitration having been invoked on 06.01.2022 was therefore within limitation, due to extension of limitation granted by Hon’ble Supreme Court during the COVID-19 pandemic.
Recurring Cause of Action
The Delhi High Court upheld the Tribunal’s finding regarding recurring cause of action and observed that under the contractual framework, every default entitled the lender to seek clearance of outstanding dues, though once the loan stood recalled, the lender became entitled to recover the entire outstanding amount, which was claimed before the Arbitral Tribunal. The Court held that the judgments relied upon by the Petitioners were distinguishable in view of the specific contractual clauses providing dual remedies to the lender.
Moratorium Not Raised Before Tribunal
Rejecting the challenge based upon moratorium, the Court observed that Petitioner No.2 had actively participated in arbitral proceedings and had filed statement of defence before the Tribunal. However, the factum of moratorium was never brought to the Tribunal’s notice for unknown reasons.
The Court held that the Petitioners consciously permitted the proceedings to continue, awaited the outcome and only after suffering an adverse award sought to raise the issue under Section 34. Such conduct could not be permitted.
Decision
The Delhi High Court ultimately held that the arbitral award did not suffer from patent illegality, perversity or conflict with public policy of India. The Tribunal’s interpretation of the agreement was found to be a possible and legally sustainable view.
Accordingly, the petition under Section 34 was dismissed.
Case details
Case Name: Sahayog Micromanagement & Ors v. National Skill Development Corporation
Court: Delhi High Court
Case No.: OMP (COMM) 397/2024
Neutral Citation: 2026:DHC:4284
Date of Judgement: 14 May 2026
Coram: Justice Avneesh Jhingan