The High Court sets aside the arbitral tribunal's order, deeming proceedings initiated against a dissolved company null and void.
In a significant judgment, the Telangana High Court quashed arbitral proceedings initiated against a dissolved company, setting aside the tribunal's order under Article 227 of the Indian Constitution. The case involved M/s Rihim Developers Private Limited, who filed a civil revision petition against an arbitral tribunal's decision dismissing their application challenging the jurisdiction of the tribunal. The tribunal had been constituted based on a notice under Section 21 of the Arbitration and Conciliation Act, 1996, issued to a company that ceased to exist.
The dispute arose from a Development Agreement-cum-General Power of Attorney dated October 15, 2006, between the respondent M. Ramana Rao and M/s IVR Prime Urban Developers Limited, which was later renamed as M/s IVRCL Assets and Holdings Limited. The respondent invoked the arbitration clause of the agreement following alleged breaches and issued a notice to the dissolved company, seeking arbitration. However, the Telangana High Court found that the notice was issued to an entity that had ceased to exist following a court-approved scheme of arrangement, rendering the notice and subsequent arbitral proceedings null and void.
The court emphasized that the commencement of arbitral proceedings under Section 21 requires a valid notice to be received by the respondent, which was not the case here. The court further noted that the scheme of arrangement, which dissolved the original company and transferred its business to Rihim Developers Pvt. Ltd., operated as a judgment in rem, binding all parties involved.
Citing the Supreme Court's decision in CIT v. Maruti Suzuki (India) Ltd., the High Court ruled that any statutory notice issued to a non-existent entity is a nullity, vitiating the entire arbitral process. The arbitral tribunal's decision was deemed perverse, as it failed to recognize this fundamental jurisdictional flaw.
The court concluded that the arbitral tribunal lacked inherent jurisdiction over the petitioner and set aside its order dated January 10, 2026. The respondent, M. Ramana Rao, was granted the liberty to initiate fresh proceedings against Rihim Developers Pvt. Ltd. by issuing a valid notice under the Arbitration and Conciliation Act or other applicable laws.
Bottom line:-
Arbitral proceedings initiated based on a notice issued to a company that had ceased to exist are null and void, as they contravene Section 21 of the Arbitration and Conciliation Act, 1996. The constitution of the arbitral tribunal under such circumstances stands vitiated.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 21, Articles 227 of the Constitution of India
M/s Rihim Developers Private Limited v. M. Ramana Rao, (Telangana)(DB) : Law Finder Doc id # 2927115
