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

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. The court applied the "clean slate" principle, ruling that the corporate debtor cannot be held liable for obligations arising before the resolution plan's approval date, even if such liabilities crystallize afterward. Since no appeal was filed within the prescribed 30-day period under Section 61(3) of IBC, the attachment warrant on the current account was set aside, and the application was disposed of.

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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 Attachment
The 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 Plan
The 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 Applicant
The 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.

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