TMI Blog2021 (5) TMI 494X X X X Extracts X X X X X X X X Extracts X X X X ..... A LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS [ 2019 (11) TMI 731 - SUPREME COURT] , the Supreme Court held that a Resolution Plan, once approved under Section 31 of the IBC, is binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders. In the present case, from the date of the admission of the application of initiation of the CIRP against the petitioner namely 18th September, 2017 until approval of the resolution plan on 16th May, 2018, the respondent, as an Award-holder had sufficient opportunity to approach the NCLT for appropriate relief. Second, the amount demanded by the respondent/ Award-holder as on 31st March, 2014 featuring in the Information Memorandum does not really help the respondent since the IBC and the CIRP regulations provide for specific procedural provisions for submission of claims (Ref: Regulations 7 and 12 read with Form B of the Schedule to the CIRP Regulations, 2016). The Award-holder hence was under an obligation to take active steps under the IBC instead of waiting for the adjudication of the application under Section 34 of the 1996 Act. Whether the respondent could have lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 34 of The Arbitration and Conciliation Act, 1996, has become infructuous by reason of the management of the petitioner company (the Award-debtor) being taken over by a new entity following the approval of a Resolution Plan of the petitioner company by the National Company Law Tribunal (NCLT) under The Insolvency and Bankruptcy Code, 2016 (IBC). The petitioner s case is that by reason of the subsequent developments after the impugned Award, the application for setting aside of the Award is not maintainable any more. 3. Mr. Jishnu Saha, Senior Counsel appearing for the petitioner relies on the provisions of the IBC, particularly Section 31 thereof, which provides that an approved Resolution Plan is binding on the corporate debtor and its employees, members and other stakeholders and relies on a decision of the Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta; (2020) 8 SCC 531. Counsel contends that a successful Resolution applicant cannot be faced with undecided claims after the Resolution Plan has been accepted. Counsel places strong reliance on Essar to urge that the debts of the corporate debtor (the petitioner before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not been challenged by the petitioner. Counsel relies on Satyadhyan Ghosal vs. Deorajin Debi (Smt); AIR 1960 SC 941 and Arjun Singh vs. Mohindra Kumar; (1964) 5 SCR 946 for the proposition that res judicata can apply to different stages of the same proceeding. Counsel submits that upon filing of the application under Section 34 of 1996 Act in October 2008, the Award was automatically stayed and the respondent could not approach the NCLT for lodging its claim. Counsel relies on Board of Control for Cricket in India vs. Kochi Cricket Private Limited; (2018) 6 SCC 287 and Government of India vs. Vedanta Limited (Formerly Cairn India Limited); (2020) 10 SCC 1 for the proposition that amendments will only have prospective application. Counsel submits that with the filing of an application under Section 34 is filed, the dispute raised by the party amounts to a pre-existing dispute which takes the respondent/Award-holder outside the purview of the IBC; Mobilox Innovations Private Limited vs. Kirusa Software Private Limited; (2018) 1 SCC 353 and K. Kishan vs. Vijay Nirman Company Private Limited; (2018) 17 SCC 662 . On the factual aspect, counsel submits that the petitioner co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment which was rejected by this court by an order dated 3rd February, 2020. In rejecting the application, it was clarified that the question on which the judgment was pronounced was whether the Section 34 application can be proceeded with in view of the Award-holder not having filed a claim in the resolution proceedings before the NCLT. The court also held that the apprehension of the Award-debtor that it may risk the effect of the observations made by the Court at the time of enforcement of the Award was misplaced since the Court had not gone into the merits of the application. 11. This is the second round in the recourse against the Arbitral Award dated 7th July, 2008 where the petitioner/Award-debtor has urged that the application for setting aside of the Award cannot be proceeded with after approval of the Resolution Plan in relation to the petitioner (corporate debtor before the NCLT). The petitioner has relied upon Essar in respect of its renewed plea before the court. This court is of the view that the threemember Bench decision of the Supreme Court in Essar constitutes a significant -and subsequent- development of the law in relation to the fate of existing claims duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders, as emphasized in paragraph 107 of the report which is reproduced below; 107. For the same reason, the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the Resolution Professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with undecided claims after the Resolution Plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the Resolution Professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan shall stand frozen and will be binding on the Corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of Resolution Plan by the Adjudicating Authority, all such claims, which are not a part of Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the Resolution Plan; (ii) 2019 amendment to Section 31 of the I B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I B Code has come into effect; (iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the Resolution Plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. The opinion of the Court culminates in:- As held by this Court, the successful resolution applicant cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational creditor is given notice of the commencement of the CIRP against a corporate debtor. The provisions also take into account claims of parties who have not initiated proceedings against the corporate debtor as operational creditors. The arrangement of the sections are conducive not only to making all creditors aware of the CIRP but also to invite claims and include them as part of the list of claims which are collated by the Resolution Professional and approved in the Resolution Plan by the Committee of Creditors and finally by the Adjudicating Authority. The sequence of stages would be evident from :- Section 8 - Insolvency resolution by operational creditor Section 9 - Application for initiation of creditor insolvency resolution process by operational creditor Section 15 - Public announcement of corporate insolvency resolution process Section 21 - Committee of Creditors: collation of claims received by the Interim Resolution Professional Section 25 - Maintaining an updates list of claims by the Resolution Professional Section 29 - Preparation of Information Memorandum Section 30 - Submission of resolution plan Section 31 - Appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Award-debtor. Section 36(2) marks a significant departure from the erstwhile provision in clarifying that filing of an application for setting aside of an Award under Section 34 shall not by itself make the Award unenforceable unless the Award is stayed by an order of Court in an application made in the manner provided under Section 36(3) of the Act. In Board of Control for Cricket in India vs Kochi Cricket Pvt. Ltd.; (2018) 6 SCC 287 the Supreme Court held that Section 36, prior to the amendment, can only be seen as a clog on the right of a decree-holder who is unable to execute the Award in his favour in the absence of the conditions set forth in Section 36. The Supreme Court further clarified that the aforesaid does not translate to a corresponding right in the judgment debtor to stay the execution of the Award. The most significant clarification of the Supreme Court in Kochi Cricket was expressed in the following words:- Since it is clear that execution of a decree pertains the realm of procedure, and that there is no substantive vested right in a judgment debtor to resist execution, Section 36, as substituted, would apply even to pending Section 34 applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opposite to that of K. Kishan. The corporate debtor/Award-debtor before this court seeks to take recourse in the culmination of the CIRP and the approval of the Resolution Plan whereas the Award-holder/operational creditor seeks to proceed with the application for setting aside of the Award. As stated above, the view of this court as to a pre-existing dispute in the judgment of 10th January, 2020 must be revisited -and revised- in the light of both Essar and Edelweiss. 23. The view of the Supreme Court as crystallized in Essar and Edelweiss is that pre-existing and undecided claims which have not featured in the collation of claims and consequent consideration by the Resolution Professional shall be treated as extinguished upon approval of the Resolution Plan under Section 31 of the IBC. This can be seen as a necessary and an inevitable fallout of the IBC in order to prevent, in the words of the Supreme Court, a hydra head popping up and rendering uncertain the running of the business of a corporate debtor by a successful resolution applicant. In essence, an operational creditor who fails to lodge a claim in the CIRP literally missed boarding the claims-bus for chasing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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