2025 (4) TMI 698 - HC - IBC

Creditor's claim not included in approved resolution plan under IBC stands extinguished, bank guarantees released

Garden Silk Mills Limited Versus Gayatri Industries and M/s. Petrofiles Co-operative Ltd.

Bombay HC held that a creditor's claim not included in an approved resolution plan under the Insolvency and Bankruptcy Code stands extinguished. The ... Effect of approval of Resolution Plan upon the decree in favour of Respondent No.1 in a case where admittedly the Respondent No.1’s claim is not part of Resolution Plan due to failure of Respondent No.1 to lodge its claim with the Resolution Professional - HELD THAT:- Under Section 13 of IBC, upon admission of the application, the Adjudicating Authority is required to cause a public announcement of the initiation of corporate insolvency resolution process and call for submission of claims under Section 15 of IBC. The public announcement to specify the last date for submission of claims. Section 30 of IBC governs the contents of Resolution Plan and specifies that the Resolution Plan shall provide for payment of debts and Section 31 of IBC provides for approval of the Resolution Plan by the Adjudicating Authority. The issue is no longer res integra and all claims which are not part of the Resolution Plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of any such claim. As admittedly the Respondent’s claim was not part of Resolution Plan, the claim stood extinguished upon approval of the Resolution Plan on 1st January, 2021 and an embargo is placed on initiation or continuation of any proceedings for executing the decree. As the Respondent No.1’s claim did not form part of the Resolution Plan due to failure of the Respondent No.1 to lodge its claim with the Resolution Professional, upon approval of the Resolution Plan by NCLT vide order dated 1st January, 2021, the debt stood extinguished. Upon extinguishment of debt, no right vests in the Respondent No.1 in respect of the bank guarantees or to oppose the release of bank guarantees. Conclusion - Respondent No.1's claim was extinguished upon the approval of the Resolution Plan, and the bank guarantees should be released to the Appellant. The Interim Application stands allowed. ISSUES PRESENTED and CONSIDEREDThe core issues considered in this judgment are:1. Whether the claim of Respondent No.1, which was not lodged with the Resolution Professional during the Corporate Insolvency Resolution Process (CIRP), stands extinguished upon the approval of the Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).2. Whether the bank guarantees furnished by the Appellant as a condition for the stay of execution of the decree should be released in favor of the Appellant following the extinguishment of the debt.ISSUE-WISE DETAILED ANALYSISIssue 1: Extinguishment of Claim Post-Resolution Plan Approval- Relevant Legal Framework and Precedents: The IBC provides the framework for CIRP, where Section 31 specifies that once a Resolution Plan is approved, all claims not included in the plan are extinguished. The Supreme Court in Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. clarified that claims not part of the approved Resolution Plan are extinguished, and no proceedings can be initiated or continued for such claims.- Court's Interpretation and Reasoning: The Court interpreted the provisions of the IBC to mean that Respondent No.1's claim, which was not lodged with the Resolution Professional and thus not part of the Resolution Plan, stood extinguished upon the plan's approval.- Key Evidence and Findings: It was undisputed that Respondent No.1 failed to lodge its claim with the Resolution Professional, resulting in the claim not being part of the Resolution Plan approved on 1st January 2021.- Application of Law to Facts: The Court applied the legal principle that claims not included in the Resolution Plan are extinguished, concluding that Respondent No.1's claim was extinguished upon the plan's approval.- Treatment of Competing Arguments: The Appellant argued that the claim was extinguished due to non-inclusion in the Resolution Plan, supported by Supreme Court precedents. The Respondent argued for the application of equity, which the Court found inapplicable given the statutory provisions.- Conclusions: The Court concluded that Respondent No.1's claim was extinguished and could not be pursued further.Issue 2: Release of Bank Guarantees- Relevant Legal Framework and Precedents: The issue of whether assets like bank guarantees remain with the corporate debtor post-CIRP was considered in previous cases like Siti Networks Ltd. v. Rajiv Suri. The Court distinguished this case from Rajendra Prasad Bansal v. Reliance Communication Ltd, where the money deposited in court was considered custodia legis.- Court's Interpretation and Reasoning: The Court reasoned that since the debt was extinguished, the Respondent had no right to the bank guarantees, which should be released to the Appellant.- Key Evidence and Findings: The bank guarantees were furnished to secure the decree during the appeal. With the debt extinguished, the Court found no basis for the Respondent to claim the guarantees.- Application of Law to Facts: The extinguishment of the debt meant that the Respondent's claim to the bank guarantees was invalid, warranting their release to the Appellant.- Treatment of Competing Arguments: The Respondent's reliance on equity and custodia legis was rejected in light of the extinguishment of the debt and the statutory framework of the IBC.- Conclusions: The Court concluded that the bank guarantees should be released to the Appellant as the Respondent's claim was extinguished.SIGNIFICANT HOLDINGS- Verbatim Quotes of Crucial Legal Reasoning: '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... 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.'- Core Principles Established: The approval of a Resolution Plan under the IBC extinguishes all claims not included in the plan, precluding any further proceedings on such claims.- Final Determinations on Each Issue: The Court determined that Respondent No.1's claim was extinguished upon the approval of the Resolution Plan, and the bank guarantees should be released to the Appellant.