2024 (3) TMI 1048 - HC - Insolvency and Bankruptcy

Resolution plan under Section 31 IBC binding on all stakeholders, clean slate principle protects corporate debtor from pre-approval liabilities

Shirdi Industries Ltd., Mars Art Studio Versus Shirdi Industries Limited

The Bombay HC held that a sanctioned resolution plan under Section 31 of IBC is binding on all stakeholders and attains finality once approved by NCLT. ... Attachment of current account - seeking recall of the sanctioned resolution plan - Section 31 of the IBC - HELD THAT:- Once the resolution plan has been approved/sanctioned by the NCLT, it is binding on all the stakeholders. Under Section 32 of the IBC, any appeal from an order approving the resolution plan by the NCLT, can be made in the manner and on the grounds laid down under Section 61 (3) of the IBC and such an appeal can be filed within 30 days before the National Company Law Appellate Tribunal (NCLAT). The NCLAT can allow further extension of time for sufficient cause but not beyond a period of 15 days. As on date and as also recorded by the NCLT order dated 16th January, 2024, no appeal has been filed by the Respondent and the period for filing the same has also long expired. The Hon’ble Supreme Court in the case of Ghanshyam Mishra and sons private limited through the GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR & ORS. [2021 (4) TMI 613 - SUPREME COURT] has observed that it is trite law that the resolution applicant cannot be fastened with the liabilities in relation to the period upto the date of the resolution plan in case the resolution plan is approved under Section 31 of the IBC. There is no dispute that the resolution plan approved vide order dated 12th December, 2017 has attained finality and accordingly the claim of the creditors or statutory authorities has to be dealt with in accordance with the approved resolution plan. The principle of clean slate as propounded by the said decision requires that the corporate debtor viz. the Applicant herein cannot be fastened with any liability for a period upto the date of the approval viz. 12th December, 2017, even if such liability crystallizes after this date. That all liabilities payable to any creditor shall stand satisfied and discharged upon approval of the resolution plan, provided those sums are set aside against which all such liabilities are paid. The warrant of attachment on the said current account be set aside - application disposed off. Issues Involved:1. Setting aside the warrant of attachment.2. Binding nature of the NCLT-approved resolution plan.3. Compliance with the resolution plan by the Applicant.Summary:Issue 1: Setting Aside the Warrant of AttachmentThe Interim Application sought to set aside the warrant of attachment in respect of the current account no. 1112016583 with Kotak Mahindra Bank, standing in the name of the Applicant, to the extent of Rs. 8,73,159.70. The Applicant argued that the arrangement towards the claim of the Respondent had already been made as per the NCLT-approved resolution plan dated 12th December, 2017, which entitled the Respondent to 15% of the claim amount.Issue 2: Binding Nature of the NCLT-Approved Resolution PlanThe resolution plan approved by the NCLT on 12th December, 2017, was binding on all parties, including the Respondent. Under \u/s 31 of the Insolvency and Bankruptcy Code, 2016 (IBC), once the resolution plan is approved, it is binding on all stakeholders. The NCLT's order dated 16th January, 2024, dismissed the Respondent's application seeking a declaration that the resolution plan was not binding, holding that the claim must be dealt with per the approved resolution plan. The Supreme Court's decision in Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited reinforced that the resolution applicant cannot be fastened with liabilities relating to the period up to the date of the resolution plan's approval.Issue 3: Compliance with the Resolution Plan by the ApplicantThe Applicant made payments totaling Rs. 62,539/- towards the full and final settlement in accordance with the resolution plan. The Court noted that the Applicant had discharged its liability as per the approved resolution plan, which allowed the amount to be paid in eight installments from June 2022 to March 2024. Consequently, the warrant of attachment on the said current account was set aside.Conclusion:The Court concluded that the warrant of attachment on the said current account should be set aside, and the Interim Application was made absolute in terms of the prayer clause. Accordingly, the Execution Application also stood disposed.