Supreme Court Holds Pending Claims Extinguished After the Resolution Plan Has Been Approved
Overview
In this matter, the Supreme Court considered whether civil suits and arbitration proceedings related to the claims of Operational Creditors could still continue after a Resolution Plan has been approved under the Insolvency and Bankruptcy Code, 2016 (IBC).
Tata Steel became the Successful Resolution Applicant for Bhushan Steel Limited (BSL). Soon thereafter disputes arose. Varsha had a recovery suit pending against BSL, while Masyc Projects Private Limited (MPPL) had six pending arbitral references. Claims were submitted by both the creditors during the Corporate Insolvency Resolution Process (CIRP).
The Court examined whether these claims survived the approval of the Resolution Plan. It also considered the “clean slate” principle and the position of small Operational Creditors under the IBC.
Facts of the Case
BSL had business dealings with Varsha, the respondent herein, and MPPL. She filed a suit for recovery for ?38,89,674.14 with 18% interest. MPPL also initiated six arbitral references for the goods engineered and supplied to BSL. When the CIRP began, both the proceedings were pending.
During the CIRP, Varsha submitted an operational claim of ?34,27,895, while MPPL submitted ?31,30,67,354. Since both the claims had pending proceedings and were disputed, they were admitted by the Resolution Professional at a notional value of ?1 each.
Tata Steel, the appellant herein, submitted its Resolution Plan on 3 February 2018. The Plan provided for ?1200 crore towards Operational Creditors, including ?200 crore for pro rata distribution among the other Operational Creditors. This Plan was approved by the Committee of Creditors on 20 March 2018, and was sanctioned by the NCLT on 15 May 2018.
In the final list of the creditors, both claims were shown at ?1, but the note which referred to their pending disputes was removed.
The appellant thereafter sought the dismissal of the respondent’s suit and termination of MPPL’s arbitrations. Those requests were rejected. Following the same, the appellant approached the Supreme Court.
Legal Issues
- Whether pending civil suits and arbitrations stood extinguished after the Resolution Plan was approved under Section 31.
- Whether the “clean slate” principle restricted the Operational Creditors from continuing the proceedings after approval and bound all stakeholders.
- Whether there was any carve-out in the Resolution Plan which allowed the proceedings which were pending to continue.
- Whether admitting the claims in dispute at a notional value of ?1 preserved their complete value for adjudication in future.
Decision
The Supreme Court allowed the appeals and it was held that the pending proceedings couldn’t continue after the Resolution Plan was approved. It set aside the orders of the High Court and held that Varsha’s suit and arbitration proceedings of MPPL stood extinguished.
The Court reiterated the “clean slate” principle in the case of Essar Steel and Ghanashyam Mishra. It was noted that once a Resolution Plan is approved, claims which are not mentioned in the Plan cannot be later pursued against the Successful Resolution Applicant.
The Court also held that showing the claims in dispute at ?1 in the Final List did not protect their complete value for future adjudication. Removing the contingent note and the terms of the approved plan showed that the claims had finally been dealt with.
The Court further observed that IBC does not properly protect Small Operational Creditors including MSMEs and suggested that the legislature should examine this issue.
Case Reference :- M/s. Tata Steel Ltd. Vs. Varsha & Anr.Civil Appeal Nos. 9052-9053 of 2026 (DB, Before Manmohan and Manoj Misra, JJ.)
