Your Counterparty Just Entered Insolvency: Can the Arbitration Against Them Continue?

By S&S Co. Advocates & Solicitors · Published 24 October 2026 · Informational content, not legal advice: see our disclaimer

Midway through an arbitration, a claimant can get word that the respondent has been admitted into the corporate insolvency resolution process. The moratorium under Section 14 of the Insolvency and Bankruptcy Code kicks in automatically on admission, and the claimant is suddenly unsure whether to keep showing up before the tribunal or to stop. Neither choice is free of risk. Carrying on could mean months of hearings and costs that later get treated as if they never happened. Stopping could mean losing ground on limitation, or handing the other side an argument that the claim was abandoned.

The Supreme Court settled the easy version of this question back in 2017, when it held that an arbitration started after the moratorium begins has no legal existence at all. What it has not settled quite as cleanly is what happens to a proceeding that was already running before the moratorium arrived, and a 2026 ruling on a related point shows the courts are still working out how far that 2017 position actually reaches.

What Section 14 Actually Freezes

Once the National Company Law Tribunal admits an insolvency application, Section 14 suspends the institution of new suits and the continuation of pending suits or proceedings against the corporate debtor, for the duration of the moratorium, which runs until a resolution plan is approved or a liquidation order takes its place. Courts have read 'proceedings' in that provision to include arbitral proceedings, not just civil suits in ordinary courts.

The bar is directional. It stops proceedings against the corporate debtor. It says nothing on its face about a claim the corporate debtor itself wants to pursue against someone else, which is why the direction of a claim, not merely its existence during the moratorium, tends to decide how a tribunal or court treats it.

Alchemist: Starting an Arbitration After the Moratorium Gets You Nowhere

In Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan Pvt. Ltd., decided in October 2017, a notice invoking the arbitration clause was issued after the moratorium against the corporate debtor had already begun. The Supreme Court held that arbitral proceedings instituted in that window are non est in law, meaning the law treats them as if they were never validly started at all, not simply paused or voidable.

The Court's reasoning rested on the purpose of the moratorium itself: a calm period meant to let the resolution process run without creditors racing to enforce individual claims, which a freshly invoked arbitration would directly undercut. Anyone thinking of invoking an arbitration clause against a company already under CIRP should treat this as settled law, not a point worth testing.

A Pending Arbitration Is a Murkier Question

Alchemist concerned a fresh invocation, not an arbitration that had already been running for months or years before the moratorium arrived. The NCLAT, in commentary and rulings on this point, has applied similar reasoning to ongoing proceedings by relying on Section 238 of the IBC, which gives the Code overriding effect over other laws including the Arbitration and Conciliation Act, 1996.

The Delhi High Court has pushed back against reading the bar quite that widely. In Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., the Court took the view that Section 14(1)(a) does not say 'all proceedings', and that a proceeding which is for the benefit of the corporate debtor, rather than a drain on it, sits outside the provision's purpose. The upshot reported in current commentary is that the position for a genuinely pending arbitration is still being worked out case by case, and a party should not assume either outcome without checking where the particular tribunal or bench sits on the question.

Claims the Corporate Debtor Itself Is Pursuing

Because the statutory bar runs against proceedings against the corporate debtor, a claim where the corporate debtor is the one asserting a right against a counterparty sits outside the plain words of Section 14(1)(a). Commentary on the provision draws this distinction directly: the moratorium does not, on its own text, stop the corporate debtor from being the claimant and pursuing that claim.

In practice this does not mean nothing changes. The resolution professional steps into management of the corporate debtor's affairs once CIRP begins, and typically takes over instructing counsel in any arbitration the corporate debtor is pursuing. Where the other side has filed a counterclaim against the corporate debtor in the same arbitration, that counterclaim brings the proceeding back within the bar even if the corporate debtor's own claim would not have been caught by it.

Ankhim Holdings: What a Substitution Application Cannot Decide

A February 2026 ruling, Ankhim Holdings Pvt. Ltd. & Anr. v. Zaveri Construction Pvt. Ltd. (2026 INSC 137), dealt with a related but distinct problem. The Bombay High Court, while appointing a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, had gone further and declared that everything the earlier tribunal did between 17 March and 25 August 2022 was a nullity, on the ground that this window fell within a Section 14 moratorium.

The Supreme Court set aside that part of the order. Flat sale agreements had already been executed by the appellants relying on interim orders the tribunal passed under Section 17 during that period, and unwinding those orders in a substitution proceeding, without the moratorium question being properly argued and decided on its own merits, risked being both unfair to parties who had relied on the earlier orders and wasteful of proceedings that had already progressed. The Court directed the substitute arbitrator to pick up from the existing stage rather than start over.

The ruling is narrower than it might sound. It does not say a proceeding run during a moratorium is automatically valid, nor does it dilute Alchemist. It says a Section 15(2) substitution application, which exists to appoint a new arbitrator, is the wrong forum to retroactively adjudicate whether the moratorium barred the earlier proceeding in the first place.

What a Claimant Facing a Moratorium Mid-Arbitration Should Actually Do

The safest course, given how unsettled the pending-arbitration question remains, is to notify the tribunal of the moratorium as soon as it is known and seek directions, rather than silently carrying on or silently stopping. Checking which stage the insolvency process has reached matters too: once a resolution plan is approved the moratorium ends, while if the corporate debtor instead moves into liquidation, Section 33(5) imposes its own, separately worded bar requiring the liquidator's or the Tribunal's leave before any suit or legal proceeding can be instituted or continued by or against the corporate debtor.

A claimant worried about limitation should not treat instituting a fresh proceeding in the teeth of the moratorium as a safe workaround, since a proceeding the law treats as non est does nothing to stop a limitation clock either. Where recovery against the corporate debtor is the real objective, filing a claim with the resolution professional as a creditor in the CIRP itself is usually the more productive route than fighting over whether the arbitration can technically continue.

Where the Law Still Isn't Settled

Whether a genuinely pending arbitration (as opposed to a fresh invocation) automatically halts the moment a moratorium begins, and how far the 'non est' label reaches on interim orders already passed, are argued differently depending on the bench and the facts in front of it. A party on either side of this situation is better served by getting a view specific to its tribunal, its stage of CIRP, and the particular high court's existing line of authority, rather than relying on a general rule drawn from any single ruling.

Frequently Asked Questions

References & Further Reading

The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.

1. Section 14, Insolvency and Bankruptcy Code, 2016 (moratorium on institution and continuation of proceedings against the corporate debtor)
2. Section 238, Insolvency and Bankruptcy Code, 2016 (overriding effect over other laws)
3. Section 33(5), Insolvency and Bankruptcy Code, 2016 (bar on suits during liquidation absent leave)
4. Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan Pvt. Ltd., Civil Appeal No. 16929 of 2017, Supreme Court of India, decided 23 October 2017
5. Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., Delhi High Court
6. Ankhim Holdings Pvt. Ltd. & Anr. v. Zaveri Construction Pvt. Ltd., 2026 INSC 137, decided 4 February 2026