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

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. ... Binding effect of an NCLT approved resolution plan - principle of clean slate under the Insolvency and Bankruptcy Code - finality of resolution plan and extinguishment/freeze of claims - effect of compliance with an approved resolution plan on execution proceedings - statutory appeal window against approval of resolution planBinding effect of an NCLT approved resolution plan - finality of resolution plan and extinguishment/freeze of claims - The resolution plan approved by the NCLT is binding on all stakeholders and freezes or extinguishes claims not provided for in the plan. - HELD THAT: - The Court held that once the Adjudicating Authority approves a resolution plan under Section 31 of the IBC, the plan becomes binding on the corporate debtor and all stakeholders and that claims not included in the approved plan stand frozen or extinguished. The Court relied upon the statutory mandate in Section 31 and recent authoritative exposition that the purpose of approval is to provide the resolution applicant a clean slate so that the plan is workable; consequently liabilities up to the date of approval cannot be fastened on the corporate debtor beyond what is provided in the plan. The order of the NCLT dismissing the application seeking to render the sanctioned plan non binding was noted and treated as establishing the plan's finality in this matter. [Paras 11, 12, 13, 15, 17]Resolution plan approved by NCLT is binding and claims are to be dealt with in accordance with the approved plan.Effect of compliance with an approved resolution plan on execution proceedings - principle of clean slate under the Insolvency and Bankruptcy Code - statutory appeal window against approval of resolution plan - The warrant of attachment on the corporate debtor's bank account is to be set aside because the debtor has discharged its liability in accordance with the approved resolution plan and no appeal against the NCLT approval remains pending. - HELD THAT: - Applying the principle that an approved resolution plan binds all stakeholders and that claims are to be satisfied in accordance with that plan, the Court found that the Applicant was liable to pay 15% as per the approved plan and had made the payments permitted under that plan. The Court noted that the Respondent had the opportunity to appeal the NCLT order within the statutory window under Section 32 (and Section 61(3) procedure) but had not done so and that the NCLT had dismissed the Respondent's challenge to recall the plan. In view of the plan's finality and the Applicant's compliance with it, the execution remedy in the form of a warrant of attachment against the bank account could not be sustained to the extent sought, and therefore the warrant was set aside and the execution application disposed. [Paras 18, 19, 20, 21, 22]Warrant of attachment set aside and execution application disposed as applicant has paid in terms of the approved resolution plan and no appeal against the plan remains pending.Final Conclusion: The Court upheld the binding and final effect of the NCLT approved resolution plan, recorded that the applicant has discharged its liability under that plan, set aside the warrant of attachment on the specified bank account to the extent challenged, and disposed of the execution proceedings. 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.