Claims Settled Under Resolution Plan Becomes Non-Arbitrable, Reference Of Those Claims Would Amount To Reopening Of The Resolution Plan: Delhi High Court

The bench of Justice Yashwant Varma held that the doctrine of clean slate demands that the successful resolution applicant begins on a clean slate and is only bound to meet the claims that formed part of the resolution plan and cannot be burdened with the duty to defend or oppose claims which are either not factored in the Resolution Plan nor can it be left to fend off actions that may be brought with respect to alleged or asserted dues of the corporate debtor which were not admitted.

The Court held that the Court exercising power under Section 11 of the A&C Act can refuse to appoint the arbitrator when the claims that are sought to be decided by the arbitral tribunal stood extinguished upon the approval of the resolution plan under the IBC.

Facts

A Gas Supply Agreement executed between the petitioner (IOCL) and Essar Steel India Limited (ESIL) (formerly known Essar Steel Limited). A dispute arose between the petitioner and ESIL under the GSA. However, in the meantime, ESIL was admitted into insolvency and a Resolution Professional was appointed.

The RP issued public notices inviting claims against ESIL. Consequently, the petitioner filed a claim for Rs. 376,58,74,503/-. However, the RP admitted the claim for a notional amount of Rs. 1 on the ground that the amount of the claim was admitted and there existed a dispute between the corporate debtor and the petitioner.

The resolution plan submitted by Arcelor Mittal Nippon Steel India Limited (Respondent) got the approval from the COC. The adjudicating authority while according its sanction to the resolution plan, did not agree with the view of the RP to admit the claims of the petitioner at a notional value of mere Rs. 1 and directed it to revise the plan to include the claims of operation creditors including the petitioner. Against the decision of the adjudicating authority, an appeal was preferred before the NCLAT. The appellate authority affirmed the view of the adjudicating authority and modified the plan to include certain claims including the claims of the petitioner.

Against the order of NCLAT, an appeal was preferred before the Hon’ble Supreme Court and the Court set aside the directions of both the NCLT and NCLAT in relation to inclusion of claims after the approval of the resolution plan. The Court held that once a resolution plan has been accepted, the successful resolution applicant cannot be burdened with additional claims by modifying the plan.

Pursuant to the seal of finality given by the Supreme Court to the resolution plan of the respondent, it acquired 100% shareholding of ESIL. Thereafter, the petitioner issued a notice of demand to the respondent asking it to pay the amount due under GSA. In response to the demand letter, the respondent denied its liability to pay any amount under GSA. Consequently, the petitioner invoked the arbitration clause and upon the failure of parties to mutually appoint the arbitrator, it approached the Court for the appointment of the arbitrator under Section 11 of the A&C Act.

Contention of the Parties

The petitioner sought the appointment of the arbitrator broadly on the following grounds:

• The admission of claims at INR 1 and the approval of the Resolution Plan cannot possibly be viewed as a conclusive adjudication of the claims of the petitioner as flowing from the GSA and consequently the Court must take appropriate step for constitution of an AT.
• Further, the obligations under the GSA would continue up to 2028 and go far beyond the date of approval of resolution plan, therefore, it would not have any impact on the amount due under GSA.
• The approval by the Supreme Court of the resolution plan with the petitioner’s claim being admitted at a notional value of Rs. 1 cannot be read as depriving the right of the petitioner to raise claims which otherwise arise out of the GSA.

The respondent objected to the maintainability of the petition on the following grounds:

• That upon the approval of the resolution plan all the claims that existed against the corporate debtor on such date stand extinguished regardless of the fact that they were or weren’t included in the resolution plan.
• The claims of the petitioner were admitted at a notional value of Rs. 1 as the original amount sought by the petitioner was not an admitted debt. With the approval of resolution plan, the adjudication on the claims stood finality and there can be no further adjudication on these claims.
• The Supreme Court has held that the doctrine of clean slate demands that the successful resolution applicant cannot be held accountable for claims which were either not included or rejected by the RP or though included but at notional value after the approval of resolution plan.
• The Supreme Court has granted the seal of approval to the plan submitted by the respondent, therefore, the constitution of the arbitral tribunal for the same claims would mean the reopening of the resolution plan which is not permissible.
• The claims that were part of the resolution plan becomes non-arbitrable after the plan is approved.

Analysis by the Court

The Court observed that the RP admitted the claims of the petitioner at a notional value of Rs. 1 and the resolution plan approved by CoC also reflected the same amount. However, the adjudicating as well as the appellate authority modified the plan to include the claims of the petitioner but the same direction was set aside by the Supreme Court and the original plan, with petitioner claims being admitted at notional amount of Rs. 1, was granted a seal of approval by the Apex Court.

The Court held that once a resolution plan is approved by the CoC and the adjudicating authority, it results in the extinguishment of all the existing claims that any party may have against the corporate debtor and no fresh adjudication can take place for any claim that was made part of the resolution plan. It held that the doctrine of clean slate demands that the successful resolution applicant begins on a clean slate and is only bound to meet the claims that formed part of the resolution plan and cannot be burdened with the duty to defend or oppose claims which are either not factored in the Resolution Plan nor can it be left to fend off actions that may be brought with respect to alleged or asserted dues of the corporate debtor which were not admitted.

The Court held that IBC does not contemplate matters being left inchoate but presses one to accept the seal of finality and quietude which stands attached to the approval of a Resolution Plan.

The Court held that once the Supreme Court has granted the seal of approval to the plan submitted by the respondent, therefore, the constitution of the arbitral tribunal for the same claims would mean the reopening of the resolution plan which is not permissible and the claims that were part of the resolution plan becomes non-arbitrable after the plan is approved.

Accordingly, the Court dismissed the petition.

Case IOCL v. Arcelor Mittal Nippon Steel India Limited

Citation: 2023 LiveLaw (Del) 951

Date: 10.10.2023

Counsel for the Petitioner: Mr. Atul Sharma, Mr. Abhinav Agnihotri, Ms. Harshita, Agarwal, Mr. Dipan Sethi, Mr. Prahhav Garg, Advs.

Counsel for the Respondent: Dr. A.M. Singhvi and Mr. Arun Kathpalia, Sr. Advs. with Ms. Ruby Singh Ahuja, Mr. Ripu Daman Bhardwaj, Mr. Varun Khanna, Mr. Vishal, Ms. Kritika Sachdeva, Mr. Ashutosh P. Shukla, Advs.

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