Clean slate insolvency resolution bars punitive blacklisting for past defaults after a resolution plan and management change.

After approval of a resolution plan under the Insolvency and Bankruptcy Code and a change in management, punitive blacklisting based on defaults of the erstwhile management was inconsistent with the clean slate objective of insolvency resolution. The Court treated Sections 31 and 32A as supporting revival of the corporate debtor as a going concern, so past contractual breaches already attributable to the former management should not continue to burden the revived company. Where the performance bank guarantee had already been forfeited for the breach, a further three-year debarment was held disproportionate and unnecessary. The blacklisting and debarment were therefore quashed.

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Issues: Whether the blacklisting and debarment of the petitioner, after approval of the resolution plan and change in management under the Insolvency and Bankruptcy Code, 2016, was valid in law.

Analysis: The resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016 was treated as effecting a fresh start for the corporate debtor under the new management. The Court relied on the statutory scheme of Sections 31 and 32A, together with the settled principle that approval of a resolution plan freezes claims not forming part of the plan and is intended to revive the corporate debtor as a going concern on a clean slate. The impugned blacklisting was founded on alleged defaults of the erstwhile management in execution of the contract, while the company had already undergone insolvency resolution and change of management. The Court also considered that the respondents had already forfeited the performance bank guarantee for the contractual breach. In these circumstances, continuing a three-year blacklisting would perpetuate the consequences of past conduct against the revived company and would materially impede its ability to carry on business and participate in future tenders.

Conclusion: The blacklisting and debarment were held not to be proper in law and were quashed in favour of the petitioner.

Ratio Decidendi: After approval of a resolution plan resulting in a change of management, punitive blacklisting based on the past defaults of the erstwhile management is inconsistent with the clean slate objective of insolvency resolution and is disproportionate where the contractual breach has already been visited with forfeiture of security.

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