2024 (12) TMI 363 - HC - IBC

Operational creditor cannot execute against corporate debtor after resolution plan approval under Section 31(1) IBC

Chetraj N. Khadka Versus Dighi Port Limited

The Bombay HC dismissed an execution application filed by an operational creditor against a corporate debtor whose resolution plan had been approved by ... Validity of the Execution Application in light of the approved Resolution Plan - Respondent has submitted that in view of the finality attained by the order approving the Resolution Plan in respect of the Respondent, the Execution Application does not survive - HELD THAT:- The law as settled by the Hon'ble Supreme Court in the case of Ghanshyam Mishra and Sons Private Limited, Through the Authorised Signatory vs. Edelweiss Asset Reconstruction Company Limited, Through the Director and Others [2021 (4) TMI 613 - SUPREME COURT] enunciates that once the Resolution Plan has been approved by the Adjudicating Authority under Section 31 (1) of the IBC, all such claims which are not a part of the Resolution Plan shall stand extinguished and no person will be entitled either to initiate or to continue any proceedings in respect of a claim which is not part of the Resolution Plan and if the dues owed are not part of the Resolution Plan, they 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 can be continued. The resolution process is over as the Resolution Plan has been approved by the NCLT on 5th March 2020. The order of the NCLAT dated 6th July 2023 referred to by the learned Counsel for the Respondent also records that the Resolution Plan was finally approved on 5th March 2020 and while rejecting the application filed by the Applicant herein under Section 60 (5) and Section 9 of the IBC on the ground that the same was filed after expiry of several months from the date of the Resolution Plan approved by the Adjudicating Authority observed that the same was also approved by the Appellate Tribunal, of course with a liberty to either of the parties to pursue legal remedy in accordance with law. The order of the NCLAT has not been challenged any further by the Applicant. It would also not be necessary for an operational creditor of the nature of an Applicant, to be shown separately as a Decree holder or dealt with any differently although a Decree holder undisputedly is a separate class of creditor. This Execution Application, which has been filed on 28th October 2015 with respect to a claim prior to the date of approval of the Resolution Plan and had admittedly been lodged with the Resolution Professional by the Applicant as an operational creditor, is to receive NIL payment as per paragraph 27 of the order approving the Resolution Plan. Therefore, the claim stands rejected and extinguished and the execution proceeding cannot be continued - thus, no useful purpose would be served in perusing the Resolution Plan or directing the Respondent to furnish the Resolution Plan except to satisfy academic curiosity, in as much as, the Resolution Plan has been approved even by the NCLAT and admittedly there is no challenge to the order of the NCLAT approving the Resolution Plan and even the request for the Resolution Plan by application under Section 60 (5) and Section 9 of the IBC has not been entertained by the NCLT as well as the NCLAT. The Execution Application and the connected Notice are dismissed as infructuous. Issues Involved:1. Validity of the Execution Application in light of the approved Resolution Plan.2. Classification and rights of a Decree Holder under the Insolvency and Bankruptcy Code (IBC).3. Impact of the approved Resolution Plan on claims not included within it.Issue-wise Detailed Analysis:1. Validity of the Execution Application in light of the approved Resolution Plan:The primary issue revolves around whether the Execution Application filed by the Applicant can proceed despite the Resolution Plan's approval by the National Company Law Tribunal (NCLT) on 5th March 2020. The Applicant, a Decree Holder, seeks execution of a decree dated 17th December 2012. The Respondent argues that the Execution Application does not survive due to the finality of the Resolution Plan, which extinguishes claims not included within it. The Court acknowledges the established legal position that once a Resolution Plan is approved under Section 31 (1) of the IBC, all claims not part of the Resolution Plan are extinguished, and no proceedings can continue regarding such claims. The Execution Application, filed prior to the Resolution Plan's approval, falls within this category, rendering it infructuous.2. Classification and rights of a Decree Holder under the IBC:The Applicant contends that as a Decree Holder, they form a separate class of creditor under the IBC, distinct from financial, operational, secured, or unsecured creditors. The Applicant argues that their claim should be considered separately, as the NCLT's order approving the Resolution Plan does not explicitly address Decree Holders. The Court refers to Section 3 (10) of the IBC, which includes Decree Holders in the definition of 'creditor.' However, the Court concludes that despite being a separate class, a Decree Holder's claim is subject to the resolution process and must be satisfied along with other claims under the IBC's waterfall mechanism. The Court notes that the Applicant filed their claim as an operational creditor, and the Resolution Plan's approval extinguishes such claims.3. Impact of the approved Resolution Plan on claims not included within it:The Court examines the implications of the approved Resolution Plan on claims not explicitly included. The Respondent highlights that the Resolution Plan, as per paragraph 27 of the NCLT's order, provides NIL payment to operational creditors, excluding certain categories like workmen and employees. The Court reiterates that claims not part of the Resolution Plan stand extinguished, and proceedings concerning such claims cannot continue. The Applicant's claim, filed as an operational creditor, is deemed extinguished as per the Resolution Plan. The Court emphasizes that the Resolution Plan's finality, approved by both the NCLT and the National Company Law Appellate Tribunal (NCLAT), precludes further proceedings on claims not included within it.Conclusion:The Court concludes that the Execution Application is infructuous due to the extinguishment of claims not included in the approved Resolution Plan. The Applicant's status as a Decree Holder does not alter the outcome, as their claim, filed as an operational creditor, is subject to the Resolution Plan's terms. The Court dismisses the Execution Application and the connected Notice as infructuous, affirming the Resolution Plan's binding nature on all creditors.