Company Liquidation Does Not Shield Promoters From Buyback Obligations: Kerala HC

The Kerala High Court has dismissed a petition seeking a stay on the execution of an arbitral award passed in a dispute involving equity share buyback obligations, holding that the liquidation of a company does not automatically invalidate arbitration proceedings against its promoters or prevent enforcement of their independent contractual liabilities. The bench of Justice T.R. Ravi has observed that the core obligation under the arbitration proceedings was not against the company itself, but against the promoters who had independently undertaken contractual responsibilities to buy back MPEDA's shares. Therefore, the Court held that provisions relating to winding-up could not automatically halt arbitral proceedings or nullify obligations undertaken by promoters. The dispute originated from a financial collaboration arrangement under a scheme formulated for promoting seafood processing projects. Under the arrangement, the Marine Products Export Development Authority (MPEDA), a statutory body constituted under the relevant legislation, subscribed to equity shares of Sudesh Seafoods Ltd. Pursuant to a financial collaboration agreement executed in November 1993, MPEDA was allotted 3,60,000 equity shares having a face value of ₹10 each, with the share value being paid in March 1994. As per the terms of the agreement, the promoters had been granted an option to repurchase the equity shares held by MPEDA at any point of time. Further, the agreement imposed a mandatory obligation upon the promoters to buy back the shares after completion of five years from commencement of commercial production. The price mechanism for such repurchase was also prescribed under the agreement itself. The company commenced commercial production on October 1, 1998. Since the promoters failed to buy back the shares as required, MPEDA initiated arbitration proceedings. A sole arbitrator was appointed on March 13, 2008 and ultimately an arbitral award was passed on May 4, 2009. Surprisingly, the award was challenged after a lapse of nearly sixteen years through arbitration proceedings filed in 2025, along with an application seeking stay of execution. The petitioner argued that since the company had gone into liquidation, proceedings before an arbitrator could not continue and any claims against the company or its directors would become legally unsustainable. Reliance was placed upon provisions of the Companies Act, including Sections 242, 278, 279 and 430. It was further argued that continuation of execution proceedings would be barred under the Arbitration and Conciliation Act because of the alleged incapacity arising from liquidation. The respondents, however, argued that a stay of an arbitral award cannot be granted automatically and requires compliance with statutory conditions under Section 36 of the Arbitration and Conciliation Act. They submitted that the petitioner had merely invoked Section 151 of the Civil Procedure Code and had failed to establish essential requirements such as substantial loss, absence of unreasonable delay, and furnishing of security. Reliance was also placed on the Supreme Court's decision in Lifestyle Equities C.V. v. Amazon Technologies Inc. The Court specifically noted that Sections 278 and 279 of the Companies Act apply to claims against a company and not to separate liabilities of promoters. It further held that incapacity of the company does not by itself create incapacity for the promoters for purposes of Section 34(2)(a)(i) of the Arbitration and Conciliation Act. While examining the stay request, the Court also observed that arbitral awards can be stayed only in limited situations such as lack of jurisdiction, invalid arbitration agreements, incapacity of parties, denial of opportunity to present a case, fraud, corruption, or violation of public policy. It found that the petitioner merely asserted incapacity and public policy violations without providing any supporting material. The High Court ultimately concluded that no legal infirmity existed in the Commercial Court's order refusing stay and held that the petitioner failed to establish any valid ground for interference. Case Details Case Title: R.Sampathkumar Versus The Marine Products Export Development Authority Citation: Jurishour-1332-HC-2026(Ker) Case No.: OP(C) No. 77 Of 2026 Date: 21/05/2026 Counsel For Petitioner: Bejoy Joseph P.J. Counsel For Respondent: C.S.Ajith Prakash Click Here To Read Order Read More: CAs vs Advocates: ICAI Concludes Arguments Before Delhi HC in 21-Year-Old Battle Over Right of Appearance Before Tribunals

Company Liquidation Does Not Shield Promoters From Buyback Obligations: Kerala HC

Membership Required

Latest articles

Punjab & Haryana HC Grants Bail in Rs. 66.60 Crore Fake ITC Case

Functional Similarity, Turnover Differences Crucial for Comparable Selection: Delhi HC Remands Transfer Pricing Issue in American Express Case

CJI’s Comment Gives Birth To ‘Cockroach Janta Party’: How Did It Overtake BJP on Instagram?

Punjab & Haryana HC Directs Reconsideration of Contractors’ Claim for Additional GST Payment After Tax Rate Hike From 12% to 18%

More like this

Punjab & Haryana HC Grants Bail in Rs. 66.60 Crore Fake ITC Case

Functional Similarity, Turnover Differences Crucial for Comparable Selection: Delhi HC Remands Transfer Pricing Issue in American Express Case

CJI’s Comment Gives Birth To ‘Cockroach Janta Party’: How Did It Overtake BJP on Instagram?

About us

Company

Categories