2026 (1) TMI 570 - HC - IBC

Arbitral tribunal's jurisdiction over claim after IBC resolution plan approval extinguished u/s 31(1), award set aside

Dominant issue: Whether an arbitral tribunal retained jurisdiction to adjudicate a claim after approval of a resolution plan under the IBC. Reasoning: The ... Maintainability of the present petition - patent lack of inherent jurisdiction - Scope of interference under Article 226/227 in challenges to orders by an arbitral tribunal - CIRP - contravention to the fundamental principles and the legislative intent of the IBC - Binding effects of an approved Resolution Plan under Section 31(1) - pending arbitral claims - Liability of the corporate debtor stands frozen upon the approval of the Resolution Plan - Commercial wisdom - sub-judice claim - HELD THAT:- While passing the impugned order, the learned Arbitral Tribunal after examining the contentions of both the parties, held that the claim of the Respondent No. 2 was kept as “contingent” by the IRP in terms of the Resolution Plan, therefore, the same did not form part of the Information Memorandum in terms of the Section 29 of the IBC. The Resolution Plan in Clause no. 8.6.2, has duly considered the sub-judice claim of Respondent No. 2, and has duly noted that the sub-judice claim is a “claim” and “debt”, as defined in the IBC, and would consequently qualify as “operational debt.” This, as per record, was duly approved by the CoC, and subsequent approval was granted by the Adjudicating Authority. It is also pertinent to note that TSL had submitted its Resolution Plan to the RP on 11.06.2018, and on 01.09.2018 an amended and restated Resolution Plan was submitted based upon negotiations and consultation with CoC and RP. It is only thereafter on 30.07.2018, a letter was sent by RP as noted hereinbefore, wherein it was stated that the claim of Respondent No. 2 cannot be treated as a crystallised liability and can only be treated as a “contingent liability”. In the said letter, it was clearly stated and informed to Respondent No. 2 that the treatment of contingent liability in the Resolution Plan will be entirely up to the said resolution applicant and subject to the decision of CoC while considering the Resolution Plan in accordance with law. Thus, in these circumstances there was a full disclosure, and Respondent No. 2 was put to notice of the same. The Petitioner had contended that subsequent to the approval of the Resolution Plan by the Adjudicating Authority, Respondent No. 2 had preferred an appeal against the same before the learned NCLAT, under the provisions of the IBC, however, in the Counter Affidavit filed by Respondent No. 2 the same is denied and it is averred that no appeal is pending before the learned NCLAT. Thus, the Resolution Plan had attained finality and would be binding in terms of Section 31(1) of the IBC. Insofar as the objection with regard to the maintainability of the present petition is concerned, useful reference can be made to the decisions of the Hon’ble Supreme Court in Deep Industries [2019 (11) TMI 1632 - SUPREME COURT] Punjab State Power Corporation [2020 (9) TMI 1276 - SUPREME COURT] and decision of this Court in Surender Kumar Singal [2021 (3) TMI 1391 - DELHI HIGH COURT], wherein it has been held that the Court can exercise jurisdiction under Articles 226 and 227 of the Constitution of India, 1950, against an order passed by an Arbitral Tribunal, if such order is completely perverse, or is patently lacking in inherent jurisdiction. In view of the Resolution Plan being approved by the Adjudicating Authority, the claim of Respondent No. 2 stood extinguished, and therefore, in terms of the judgment of the Hon’ble Supreme Court in Electro steel [2025 (4) TMI 1246 - SUPREME COURT], the learned Arbitral Tribunal did not have the jurisdiction to proceed further with the adjudication of the said claim. Thus, the impugned order dated 07.10.2020 is hereby set aside. The arbitral proceedings before the learned Arbitral Tribunal stands terminated. The present petition is allowed in the aforesaid terms. Issues: (i) Whether an Arbitral Tribunal had jurisdiction to continue/arbitrate and quantify a claim against the corporate debtor after approval of a Resolution Plan under Section 31 of the IBC which treated the claim as extinguished; (ii) Whether the writ petition under Articles 226/227 was maintainable to challenge the Arbitral Tribunal's order on the ground of patent lack of inherent jurisdiction.Issue (i): Whether the Arbitral Tribunal could continue proceedings on Respondent No.2's claim after the Resolution Plan was approved treating the claim as addressed/settled.Analysis: The Court examined the terms of the approved Resolution Plan, communications of the Resolution Professional and the statutory scheme of the IBC, including Section 31(1), Sections defining 'claim' and 'operational debt', and relevant clauses of the plan that expressly treated sub-judice and contingent operational claims as claims/debts and determined their treatment (including reduction to nil). The Court considered Supreme Court precedents (including Essar Steel, Ghanashyam Mishra, Electrosteel) on the binding effect of an approved plan and the consequence that claims not forming part of the plan stand extinguished. The Court contrasted that scheme with the Arbitral Tribunal's reasoning that a claim kept contingent by the RP was not part of the information memorandum and thus not bound by the plan, and found on the record that the plan explicitly dealt with and rejected the claim of Respondent No.2 and that the RP had informed the claimant that treatment would depend on the resolution applicant and CoC.Conclusion: The Court concluded that the approved Resolution Plan had dealt with the sub-judice/contingent claim and, upon approval under Section 31, the claim stood extinguished with the consequence that the Arbitral Tribunal lacked jurisdiction to proceed; this conclusion is in favour of the Petitioner.Issue (ii): Whether the writ under Articles 226/227 was maintainable to set aside the Arbitral Tribunal's order given the alleged lack of jurisdiction.Analysis: The Court applied established principles limiting writ interference with arbitral orders to exceptional cases of patent lack of jurisdiction or perversity. It evaluated whether the Arbitral Tribunal had acted in excess of jurisdiction by adjudicating a claim that, after approval of the Resolution Plan, no longer subsisted as an enforceable claim against the corporate debtor. Relying on precedents permitting High Court supervisory jurisdiction where there is a clear lack of jurisdiction and on the statutory exclusivity of the IBC remedies, the Court found that the Arbitral Tribunal's continuation of proceedings, despite the approved plan extinguishing the claim, amounted to a patent lack of inherent jurisdiction.Conclusion: The writ petition was maintainable and must be allowed; this conclusion is in favour of the Petitioner.Final Conclusion: The impugned arbitral order dated 07.10.2020 was set aside and the arbitral proceedings terminated because the approved Resolution Plan, as sanctioned under Section 31 of the IBC, had already determined and extinguished the claim such that the Arbitral Tribunal had no jurisdiction to continue adjudication.Ratio Decidendi: Upon approval by the Adjudicating Authority under Section 31 of the IBC, the Resolution Plan is binding on the corporate debtor and stakeholders and extinguishes or fixes the treatment of claims not included in or otherwise addressed by the approved plan; any forum (including an Arbitral Tribunal) lacks jurisdiction to adjudicate claims which have been finally dealt with by an approved resolution plan.