Arbitral Award For Claims Not Included In IBC Resolution Plan Can't Be Enforced: Supreme Court

“we have no hesitation to hold that upon approval of the resolution plan by the NCLT, the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed”, the Court said.

A bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan reiterated that once a resolution plan is approved by the National Company Law Tribunal (NCLT) under Section 31(1) of the IBC, any claim that is not part of the plan stands extinguished and cannot be pursued further.

“it is by now well settled that once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, all claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan. In fact, this Court in Essar Steel India Ltd. (supra) had categorically declared that a successful resolution applicant cannot be faced with undecided claims after the resolution plan is accepted. Otherwise, this would amount to a hydra head popping up which would throw into uncertainty the amount payable by the resolution applicant”, the Court observed.

Ispat Carrier Pvt Ltd, a registered MSME, supplied cranes and trailers to Electrosteel Steel Ltd under two purchase orders dated, and filed two claims before the West Bengal MSME Facilitation Council for Rs. 1,59,09,214.33. After conciliation failed, arbitration began on June 7, 2017, but was suspended following the NCLT's moratorium under Section 14 of the IBC on July 21, 2017.

Ispat Carrier submitted its claim to the interim resolution professional, who partly admitted it. Vedanta Ltd submitted a resolution plan on March 29, 2018, proposing a nil value settlement for operational creditors. The NCLT approved the plan on April 17, 2018, declaring that operational creditors' claims stood settled at nil, and lifted the moratorium. Though several operational creditors challenged the approval, their appeals were dismissed, and Ispat Carrier did not file any challenge.

After the moratorium ended, the Facilitation Council resumed arbitration and passed an award on July 6, 2018, directing Electrosteel to pay the principal amount with interest under Section 16 of the MSME Act. Electrosteel did not challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996, but objected to its execution, arguing that the claim was extinguished under the resolution plan and that the award was a nullity.

The Executing Court rejected this objection on March 3, 2023, and directed compliance with the award. Electrosteel's challenge before the Jharkhand High Court was also dismissed, leading it to approach the Supreme Court.

Electrosteel argued that the resolution plan approved under Section 31 of the IBC extinguished all operational creditors' claims, including the respondent's, and that the Facilitation Council had no jurisdiction to continue arbitration or pass an award. It contended that the award, passed in respect of an extinguished claim, was a nullity and could be challenged under Section 47 CPC.

Ispat Carrier argued that its claim was submitted to the resolution professional and the arbitral proceedings were only stayed, not terminated. It contended that the Facilitation Council resumed proceedings lawfully after the moratorium ended, and that Electrosteel, having failed to challenge the award under Section 34 of the 1996 Act, could not object under Section 47 CPC. It supported the High Court's finding that the Facilitation Council's jurisdiction was unaffected by the resolution plan.

On the issue of maintainability of challenge to the award under section 47 CPC, the Supreme Court observed that Section 47 CPC allows an execution court to reject a decree or award only if it is a nullity or suffers jurisdictional defect, independent of any petition under Section 34 of the Arbitration Act. Section 36 of the Act deems an award a decree once the limitation period for filing Section 34 petition expires, the court noted.

“Objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act. High Court was not justified in taking the view that since the appellant did not file a petition under Section 34 of the 1996 Act, therefore, it was precluded from filing an application before the Executing Court to declare the award as void and hence non executable”, the Court held.

On merits, the Court reiterated the settled legal position that once a resolution plan is approved under Section 31(1) of the IBC, all claims not forming part of the plan stand extinguished and cannot be revived or enforced.

The Supreme Court relied on various precedents. In Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, it was held that a successful resolution applicant cannot face undecided claims after acceptance of the resolution plan, as it would amount to a “hydra head” popping up and create uncertainty over the amount payable. In Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, it held approved plans freeze and extinguish non-plan claims, including statutory dues. Ajay Kumar Goenka held that once approved, a plan binds all creditors, claimed or not. In JSW Steel Ltd. v. Pratishtha Thakur Haritwal, the Court reiterated that claims are extinguished.

The Court noted that although the resolution professional, committee of creditors and NCLT had taken note of the arbitration proceedings involving Ispat Carrier, the claim was not included among the top 30 operational creditors whose claims were settled at nil value. Therefore, its claim could not be placed higher. The Court also pointed out that the resolution plan clearly stated that all claims under pending litigations and arbitrations would be settled at nil.

The Court concluded that the award passed by the Facilitation Council was without jurisdiction and hence could be challenged in execution proceedings under Section 47 CPC. The Court held that the lifting of the moratorium did not revive extinguished claims and the MSEFC lacked jurisdiction to proceed once the plan was approved.

Therefore, the Supreme Court set aside the impugned orders of the High Court and the Executing Court and quashed the execution proceedings pending before the Commercial Court, Bokaro.

Case no. – Civil Appeal No. 2896 Of 2024

Case Title – Electrosteel Steel Limited (Now M/S ESL Steel Limited) vs Ispat Carrier Private Limited

Citation : 2025 LiveLaw (SC) 491