TaxTMI 
TaxTMI 
2026 (7) TMI 1134
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....ssed by the High Court of Bombay, Nagpur Bench in W.P.(C) No. 8620 of 2018 and Miscellaneous Civil Application No. 649 of 2019. By the said orders, the High Court dismissed the Writ Petition and Review Application filed by the Appellant-SRA and permitted the recovery suit being Civil Suit No. 153 of 2011 filed by one of the Operational Creditors (Respondent No. 1-Varsha), to proceed notwithstanding the approval of the Resolution Plan. 4. By order dated 27th August 2021, this Court permitted another Operational Creditor, Masyc Projects Private Limited ('Intervenor-Masyc') to address submissions confined to the limited issue as to whether the Operational Creditors may enforce claims for past dues by way of civil suit/arbitration, subsequent to approval of the Resolution Plan? BRIEF FACTS 5. Prior to the initiation of Corporate Insolvency Resolution Process ('CIRP') against the corporate debtor, Bhushan Steel Limited ('BSL'), Respondent No. 1-Varsha instituted a summary Civil Suit against BSL seeking recovery of Rupees Thirty-Eight Lakh Eighty-Nine Thousand Six Hundred Seventy-Four and Fourteen Paise only (Rs.38,89,674.14/-) together with interest at the rate of 18 per cent (....
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....o-rata among other Operational Creditors whose claims had been admitted. 10. On 20th March 2018, the Resolution Professional prepared the Final List of Creditors for claims received up to 20th March 2018 ('Final List of Creditors'). In this List, the claims of Respondent No. 1-Varsha and Intervenor-Masyc were again admitted at the notional value of Rupee One (Rs.1) each. The aggregate claims of Operational Creditors stood at approximately Rupees One Thousand Four Hundred Twenty-Two Crore only (Rs.14,22,00,00,000/-). Notably, Note 3 appended to Interim List of Creditors was omitted and, in its place, Note 2 was appended, stating, 'Claims which are subject to disputes pending before various authorities have been verified with a notional amount of INR 1 (Indian Rupee One only).' 11. On the same day, the Committee of Creditors approved the Resolution Plan submitted by the Appellant-SRA. By Order dated 15th May 2018, the National Company Law Tribunal ('NCLT') sanctioned the Resolution Plan of Appellant-SRA under Section 30 read with Section 31 of the Code. Appeals preferred by aggrieved parties were dismissed by the National Company Law Appellate Tribunal ('NCLAT') on 10th August ....
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....e sub-judice. The relevant passages of Essar Steel (supra) are reproduced hereinbelow: "107. For the same reason, the impugned NCLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed o....
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.... the approved Resolution Plan are extracted hereinbelow: "6.1. Overview Based on the information provided by the Resolution Professional, Tata Steel understands that: 6.1.1. The Resolution Debt Amount is Rs.57,160 Crore. 6.1.2. The total Outstanding Financial Debt of the Company admitted as of February 1, 2018, is Rs.5,60,51,46,40,323 (Indian Rupees Fifty Six Thousand and Fifty One Crore Forty Six Lakh Forty Thousand Three Hundred and Twenty Three), and details of the same are set out in Annexure 7 of this Plan. 6.1.3. The total Outstanding Operational Debt of the Company (excluding claims of workmen and employees and Other Creditors) verified and admitted amount, as of January 8, 2018, is Rs.10,50,88,68,566 (Indian Rupees One Thousand Fifty Crore Eighty Eight Lakh Sixty Eight Thousand Five Hundred and Sixty Six), and details of the same are set out in Annexure 8 of this Plan. 6.1.4. The total Outstanding Operational Debt of the Company to its workmen and employees, admitted as of January 8, 2018, is Rs.27,00,000 (Indian Rupees Twenty Seven Lakhs) ("Outstanding Employees Dues"), and details of the same are set out in Annexure 8 ....
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....forming part of the Operational Creditors, shall be paid by the Resolution Applicant only to the extent of valid claim amounts. (v) The aggregate amount to be paid to the Operational Creditors (excluding Operational Creditors being employees and workmen and Related Party Creditors) based on the details set out in this Section is Rs. 1,200 crore (Indian Rupees One Thousand Two Hundred Crore) ("Operational Creditors Settlement Amount"). (vi) If any further claims of Operational Creditors (other than employees and workmen), relating to the period prior to the Effective Date, arise and/or are made and/or are admitted, prior to approval of this Plan by the Adjudicating Authority, then the Operational Creditors Settlement Amount shall remain unaltered and shall be paid to the relevant Operational Creditors as specified above (whose claims have been admitted by the Resolution Professional, including those set out in Annexure 8) in accordance with the terms set out hereinabove" 18. He pointed out that Clause 8.2.2(ii) of the Approved Resolution Plan expressly stipulated that the Operational Creditors Settlement Amount was to be disbursed to 'certain' Operational Credit....
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.... the Effective Date (whether or not such claims are included in the list of claims of Operational Creditors as set out in Annexures 9, 10 and 12, and, including but not limited to any proceedings in relation to Taxes initiated against the Company), are collectively the "Sub Judice Claims". Each such Sub Judice Claim, is a "claim" and "debt" each as defined under the IBC, and would consequently qualify as "operational debt" (as defined under the IBC) and therefore the full amount of such Sub Judice Claims shall be deemed to be owed and due as of the Insolvency Commencement Date, the Liquidation Value of which is NIL and therefore no amount is payable in relation thereto other than the payment of Operational Creditors Settlement Amount as set out herein. xxx xxx xxx 8.6.10 Effect on Operational Creditors and Other Creditors (i) Except to the extent of the Operational Creditors Settlement Amount proposed to be paid (without an obligation to pay) payable to the relevant Operational Creditors in accordance with the terms of Section 8.2.2, the Company shall have no Liability towards any Operational Creditors and Other Creditors with regard to any claims (as def....
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....pany, in respect of the period prior to the Effective Date, and all such claims shall immediately, irrevocably and unconditionally stand extinguished." 21. Learned senior counsel emphasised that Clause 8.6.10(ii) of the Approved Resolution Plan specifically barred the continuation of any legal proceedings, including those involving sub-judice claims, insofar as they pertained to the period prior to approval of the Resolution Plan. He submitted that the Resolution Plan must be construed as an integrated whole and cannot be read in a piecemeal manner to suit the interpretation advanced by the Respondents. 22. He further submitted that sub-classification among Creditors is permissible, as affirmed by this Court in Essar Steel (supra) and Kalyani Transco vs. Bhushan Power and Steel Limited and Others, 2025 SCC Online SC 2093. Relevant portion of the judgment in Kalyani Transco (supra) is reproduced hereinbelow: "179. It can thus be seen that this court has held that the Legislature purposefully did not include a means to challenge the commercial wisdom exercised by the CoC. This makes a challenge to the same non-justiciable. It has been further held that a challenge cann....
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....providing for revival of the corporate debtor and to make it a going concern. The I&B Code is a complete Code in itself. Upon admission of petition under Section 7 there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the corporate debtor is revived and is made an on-going concern. After CoC approves the plan, the adjudicating authority is required to arrive at a subjective satisfaction that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the adjudicating authority can grant its approval to t....
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.... proceedings before various fora could not be permitted to continue thereafter. ARGUMENTS ON BEHALF OF RESPONDENT NO. 1-VARSHA 27. Mr. Garvesh Kabra, learned counsel appearing for Respondent No. 1-Varsha submitted that the Appellant-SRA procured approval of the Resolution Plan by perpetrating serious fraud and misleading both the Resolution Professional and the NCLT. He argued that under the scheme of the Code, the Resolution Professional alone is entrusted with the duty to collect, collate and verify claims. The List of Operational Creditors prepared under Regulation 13 and incorporated into the Information Memorandum constituted the very foundation of the Resolution Plan. He contended that the Successful Resolution Applicant had no authority to alter, suppress or selectively adopt a verified claim. He pointed out that Note 3 of the Interim List of Operational Creditors dated 17th March 2018 expressly recorded that sub-judice claims were admitted subject to adjudication. However, in the Final List dated 20th March 2018, the Appellant-SRA deliberately omitted Note 3. Such alteration, he argued, violated Respondent No. 1-Varsha's legitimate rights and amounted to 'an egregious....
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....Extinguishment and Waiver of Other Claims & Liabilities', explicitly provided that all claims and obligations relating to the period prior to the closing date stood extinguished, save those set out in Annexures 8, 9, 10, 11 and 12. Since the Intervenor-Masyc's claims were specifically recorded in Annexure 10 (sub-judice claims) and Annexure 8 (Operational Creditor claims), he argued that such claims did not stand extinguished upon approval of the Plan. Clause 8.7.3(i) of the Resolution Plan is extracted hereinbelow:- "8.7.3. Extinguishment and Waiver of Claims & Liabilities (i) Extinguishment and Waiver of Other Claims & Liabilities: The Resolution Applicant does not have any knowledge of any liabilities or claims against the Company other than those set out in Annexures 8, 9, 10, 11 and 12. Accordingly, other than the obligations, claims and liabilities set out in Annexures 8, 9, 10, 11 and 12; (i) all obligations, claims and Liabilities (whether final or contingent, whether disputed or undisputed, and whether or not notified to or claimed against the Company) of the Company; (ii) all outstanding disputes or legal proceedings against the Company....
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....the notional value as extinguished, but chose not to. By drafting Clause 8.2.4 and carving out Annexures 8 and 10 under Clause 8.7.3(i) the Appellant-SRA consciously preserved pending litigations. 38. He contended that the Intervenor-Masyc was entitled to payment from Rupees Two Hundred Crore Only (Rs.2,00,00,00,000/-) earmarked under Clause 8.2.2 for Operational Creditors (excluding related parties and employees/workmen), including those with sub-judice claims. He argued that Clause 8.2.2 was not confined to undisputed claims. He stated that the voluntary earmarking of Rupees Twelve Hundred Crore (Rs.12,00,00,00,000/-) as the Operational Creditors Settlement Amount was a commercial decision aimed at making the Plan more comprehensive and attractive to the Committee of Creditors. 39. He pointed out that the NCLT by order dated 15th May 2018 approved the Resolution Plan and the NCLAT by Order dated 10th August 2018 dismissed the Appeal, specifically recording the statement that the Rupees Twelve Hundred Crore (Rs.12,00,00,00,000/-) pool was payable to all Operational Creditors without qualification. He contended that earmarking this amount demonstrated clear intent to pay and ....
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.... 47. He contended that continuation of arbitral proceedings did not violate the 'clean slate' doctrine, since the claims were known, recorded and preserved in the Resolution Plan. The doctrine, he argued, was intended to protect against surprise claims, not those expressly carved out. 48. He further argued that the 'clean slate' doctrine could not override the Resolution Plan which expressly provided for continuation of certain litigations through Clause 8.7.3(i) and Clause 8.2.4. He noted that the Appellant-SRA had not challenged the Sole Arbitrator's Order dated 12th January 2019 rejecting its application under Section 16 of the Arbitration and Conciliation Act, 1996. 49. He emphasised that the Code was not intended to serve as a statutory shield for unjust enrichment. He stated that the Intervenor-Masyc, being a Micro, Small and Medium Enterprise ('MSME'), had supplied critical capital infrastructure to the Corporate Debtor, who continues to enjoy the same under the management of the Appellant-SRA while bypassing the Rupees Twelve Hundred Crore (Rs.12,00,00,00,000/-) settlement fund. This, he argued, amounted to unjust enrichment. 50. He concluded that the Code was des....
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....never challenged by Respondent No. 1-Varsha. The Intervenor-Masyc did assail the treatment of its claims in the Approved Resolution Plan, but its challenge was dismissed as withdrawn by the NCLT on 25th October 2018. That Order was never impugned and has attained finality. Consequently, the Resolution Plan in the present Appeals is final and binding on all parties. RESOLUTION PLAN NOT VITIATED BY MANIPULATION AND FRAUD 53. Although learned counsel for Respondent No. 1-Varsha urged that the Resolution Plan was vitiated by manipulation and fraud in securing approval from the NCLT, relying upon Greater Noida Industrial Development Authority (supra), this Court finds the said allegation to be baseless inasmuch as it is the treatment of creditors under the Approved Resolution Plan which is determinative and binding. This Court also finds that no application under Rule 11 of the NCLT Rules, 2016 has been filed till date. In the absence of such proceedings, allegations of fraud and manipulation cannot be entertained, particularly in an appeal preferred by the Successful Resolution Applicant. The aforesaid judgment, therefore, affords no assistance to the Operational Creditors. VA....
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....ith Clause 8.2.2. To place matters beyond controversy, Clause 8.2.4 clarifies that since the liquidation value of the Corporate Debtor is NIL, no amount is payable in respect of sub-judice claims, save for the Operational Creditors Settlement Amount as set out therein. Further, Clause 8.2.2(ii) mandates that the settlement amount be paid to 'certain' Operational Creditors on a pro-rata basis within twelve (12) months from the closing date i.e. 18th May 2018. Consequently, only Rupees Two hundred Crore only (Rs.2,00,00,00,000/-) was available for payment to Operational Creditors like the Respondent No. 1-Varsha and the Intervenor-Masyc on a pro-rata basis within twelve (12) months and that too for claims crystallised and approved by the Committee of Creditors as on 20th March 2018. PLAN PROVIDED FOR EXTINGUISHMENT OF ALL SUB-JUDICE CLAIMS 57. Additionally, Clauses 8.7.3 and 8.6.10 of the Resolution Plan unequivocally stipulate that all legal proceedings initiated by or on behalf of Operational Creditors, whether under Annexure 8 or Annexure 10 (which includes Respondent No. 1-Varsha and the Intervenor-Masyc), 'shall immediately, irrevocably and unconditionally stand withdrawn,....
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....ading of the Resolution Plan, this Court is of the opinion that all legal proceedings, including arbitration and civil suits which had not culminated in determinable, quantifiable claims by the date of approval of the Resolution Plan by the NCLT stand abated, extinguished, waived or withdrawn. Only crystallised claims as on the effective date (i.e. 18th May 2018) are payable on a pro-rata basis. Accordingly, no amount beyond Rupee One (Rs.1) each was payable to Respondent No. 1-Varsha and the Intervenor-Masyc, whose pending arbitration and civil proceedings stood abated/waived/ extinguished/withdrawn upon approval of the Resolution Plan. AN AFTERWORD 62. Before parting with the matter, this Court would like to observe that it is of the considered view that the present cases underscore the impact of the Code on small operational creditors such as MSMEs. There can be no doubt that the Code marks a substantial improvement over the regime under the Sick Industrial Companies (Special Provisions) Act, 1985, which followed a debtor-in-possession model and was often susceptible to misuse by promoters. While the distinction between financial creditors and operational creditors has bee....