NCLT refuses to modify approved resolution plan despite challenge, confirms Section 31(1) IBC makes all claims binding and frozen

The NCLT Bengaluru dismissed an application challenging claim extinguishment under an approved resolution plan. The tribunal held that once a resolution plan is approved under Section 31(1) of IBC, all claims become frozen and binding on all stakeholders including the corporate debtor, creditors, and guarantors. The court emphasized that IBC's primary objective is timely corporate revival through restructuring, relying on commercial wisdom of Committee of Creditors. The tribunal refused to direct modifications to the approved plan based on future contingent arbitration proceedings, noting that even NCLAT precedent did not disturb resolution plans but only preserved parties' rights to pursue available remedies.

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ISSUES PRESENTED and CONSIDERED

The Tribunal addressed the following core legal questions:

1. Whether the Applicant's claim should be extinguished under the approved resolution plan.

2. Whether the Applicant's claim and the counterclaim by Katerra should be adjudicated together in arbitration proceedings.

3. Whether the resolution professional (RP) has the authority to extinguish claims that are disputed and not admitted.

4. Whether the approval of the resolution plan extinguishes any claims not included in it, in line with the "Clean Slate" principle.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Extinguishment of Applicant's Claim under the Resolution Plan

The Applicant argued that its claim should not be extinguished by the resolution plan, as it was disputed and not admitted due to a counterclaim by Katerra. The Applicant contended that extinguishing the claim would be unjust and detrimental, depriving them of asserting their claim in arbitration proceedings. The Tribunal noted that the resolution plan's approval binds all claims, and any claim not included in the plan is extinguished, as established in Ghanshyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Company Ltd. The Tribunal upheld the "Clean Slate" principle, emphasizing that the resolution applicant should not face undecided claims post-approval.

Issue 2: Adjudication of Claims in Arbitration Proceedings

The Applicant asserted that the claims and counterclaims between ECPWPL and Katerra should be resolved in arbitration, citing the interlinked nature of the claims arising from the same contractual circumstances. The Tribunal acknowledged that the claims were subject to arbitration, as previously held in Shaapoorji Pallonji & Co (P) Ltd v. Kobra West Power Co. Ltd. The Tribunal allowed the continuation of arbitration proceedings but clarified that any determination in arbitration would not affect the approved resolution plan, as established in Adani Power Ltd. v. Shapoorji Pallonji and Co Pvt. Ltd.

Issue 3: Authority of the Resolution Professional

The Applicant contended that the RP lacked the authority to extinguish disputed claims, which should be adjudicated by a competent forum, such as an arbitral tribunal. The Tribunal recognized the RP's role in collating claims but emphasized that the RP's actions must align with the approved resolution plan. The Tribunal reiterated that the RP cannot substitute its views for those of the arbitral tribunal, as supported by NTPC v. Rajiv Chakraborty.

Issue 4: "Clean Slate" Principle and Resolution Plan Approval

The Tribunal emphasized the "Clean Slate" principle, which ensures that once a resolution plan is approved, all claims not part of the plan are extinguished. This principle supports the revival of the corporate debtor as a going concern without unexpected liabilities. The Tribunal referenced the Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors decision, highlighting the importance of timely resolution and the finality of the resolution plan.

SIGNIFICANT HOLDINGS

The Tribunal concluded that the Applicant's claim cannot be preserved outside the resolution plan, reinforcing the "Clean Slate" principle. The Tribunal held that:

"Once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan."

The Tribunal dismissed the Applicant's request to prevent the extinguishment of its claim, affirming the resolution plan's binding nature and the finality it provides to the corporate insolvency resolution process.

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