Calcutta High Court Refers SREI–Orissa Steel Dispute To Arbitration Despite Pending IBC Proceedings Before NCLT

The Calcutta High Court has referred the dispute between SREI Infrastructure Finance Limited and Orissa Steel Expressway Private Limited to arbitration, holding that issues relating to arbitrability, fraudulent transactions, and the role of a non-signatory party can be decided by the arbitral tribunal even though parallel proceedings under Section 66 of the Insolvency and Bankruptcy Code (IBC) are pending before the National Company Law Tribunal (NCLT). The bench of Justice Shampa Sarkar passed the order while deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator in disputes arising out of an assignment agreement dated September 29, 2018. The dispute arose after Corporate Insolvency Resolution Process (CIRP) proceedings were initiated against SREI Infrastructure Finance Limited (SIFL) and SREI Equipment Finance Limited (SEFL) before the NCLT, Kolkata, in October 2021. An Administrator had subsequently sought consolidation of the CIRP proceedings, following which a consolidated Committee of Creditors was formed. National Asset Reconstruction Company Limited (NARCL) later submitted a consolidated resolution plan for both companies, which was approved by the NCLT on August 11, 2023. According to the petitioners, prior to commencement of CIRP, SIFL had transferred its lending business along with assets and liabilities to SEFL under a business transfer agreement effective from October 1, 2019. They argued that all receivables and rights stood assigned to SEFL, enabling SEFL to invoke the arbitration clause despite being a non-signatory to the original assignment agreement executed between SIFL and the respondent company. The respondent company, engaged in development of roads and highways, had earlier obtained financial assistance of ₹150 crore from SIFL under a loan agreement executed in 2016. Additional advances were also allegedly made between 2013 and 2017. Following foreclosure of a National Highways Authority of India (NHAI) contract awarded to the respondent, disputes arose between the respondent and NHAI, which culminated in arbitral proceedings. Buy Now: 50+ PMLA JUDGEMENTS : CASE LAWS The respondent subsequently defaulted in repayment obligations owed to SIFL. Consequently, the parties entered into an assignment agreement under which receivables arising from the arbitral award against NHAI were assigned in favour of SIFL. The respondent admitted that an amount of ₹129.56 crore was due to SIFL at the time of execution of the agreement. The arbitral tribunal in the NHAI dispute later passed an award of ₹322.78 crore in favour of the respondent on March 31, 2019. Although the award was challenged before the Delhi High Court, the challenge was dismissed and the respondent withdrew the deposited amount. The respondent contended that it had already paid the crystallised liability of ₹129.56 crore to the petitioners and had fully complied with the assignment agreement. However, the petitioners argued that the assignment agreement covered the entire receivables from the arbitral award and not merely ₹129.56 crore. After disputes arose regarding interpretation of the agreement, arbitration was invoked through a notice dated May 10, 2025. The respondent opposed the Section 11 application on several grounds. It argued that SEFL, being a non-signatory to the assignment agreement, could not maintain the arbitration application. The respondent also contended that the alleged business transfer agreement relied upon by the petitioners did not survive or receive sanction under the approved resolution plan. Additionally, it was argued that proceedings under Section 66 of the IBC involving allegations of fraudulent transactions were already pending before the NCLT, and therefore arbitration should not proceed due to the overriding effect of Section 238 of the IBC. The High Court, however, held that these were disputed questions of fact requiring adjudication on evidence and could appropriately be decided by the arbitral tribunal. The Court observed that issues concerning joinder of parties, impleadment of non-signatories, and the effect of the business transfer agreement fall within the jurisdiction of the arbitral tribunal under Section 16 of the Arbitration and Conciliation Act. Relying upon the Supreme Court’s judgment in ASF Buildtech Private Limited vs. Shapoorji Pallonji and Company Private Limited, the High Court reiterated that arbitral tribunals are empowered to determine their own jurisdiction, including whether a non-signatory is bound by the arbitration agreement. The Court noted that questions relating to the relationship between signatories and non-signatories, composite transactions, and conduct of parties are matters to be examined by the arbitrator. On the issue of pending IBC proceedings, the Court held that Section 66 of the IBC is confined to fraudulent trading and recovery from persons involved in fraudulent conduct. Whether the underlying loan transactions or assignment agreement were fraudulent, or whether allegations of “ever-greening” and “round-tripping” were established, were factual matters requiring evidence and could also be considered by the arbitrator. The Court ultimately concluded that the scope of a referral court under Section 11 is limited to examining the existence of an arbitration agreement and not detailed merits or jurisdictional objections. Accordingly, the Court appointed former Chief Justice of the Calcutta High Court, Justice T.S. Sivagnanam, as the sole arbitrator to adjudicate disputes between the parties. Case Details Case Title: SREI Infrastructure Finance Limited & Anr. Vs Orissa Steel Expressway Private Limited Citation: JURISHOUR-1178-HC-2026(CAL) Case No.: AP-COM/595/2025 Date: 07/05/2026 Counsel For Petitioner: Debnath Ghosh, Senior Advocate Counsel For Respondent: Rohit Das, Advocate Click Here To Read Order Read More: Calcutta High Court Quashes PNB Fraud Classification Based on Audit Report Discredited by Insolvency Tribunals

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