TaxTMI 
TaxTMI 
Finality of Approved Resolution Plans and Extinguishment of Pending Operational-Creditor Claims under Section 31 of the IBC, 2016
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....r claims that had been lodged in CIRP but remained subject to civil or arbitral adjudication. The Court held that, where the final list quantified such disputed claims at a notional amount of one rupee and the approved plan, read as a whole, extinguished pre-effective-date liabilities and proceedings, the pending proceedings could not continue after approval. Only claims crystallised and quantified within the operative framework of the plan could participate in the stipulated distribution. The decision therefore draws an important distinction between the existence of a broad statutory "claim" and a claim that remains enforceable against the corporate debtor after plan approval. A disputed right to payment may be a claim for CIRP purposes; it does not follow that the underlying litigation survives where the approved plan has finally dealt with its treatment. Legal & Statutory Context Section 3(6) defines a "claim" broadly as "a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured". Section 3(6)(b) also includes a right to remedy for breach of contract where the breach gives rise to a right to....
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....ng inconsistent in any other law or instrument having effect under such law. Thus, an otherwise available civil, arbitral or statutory remedy cannot override a binding resolution plan insofar as there is inconsistency. Interpretative Issues Does inclusion of a disputed claim preserve the underlying proceeding? The principal issue was whether a claim admitted at a notional amount of one rupee because it was sub judice remained open for full adjudication after plan approval. The Court answered this by treating the final list and the approved plan, rather than the pendency of the external proceeding, as determinative. A disputed claim may be submitted and verified for CIRP purposes, but its ultimate post-approval treatment turns on the plan's terms. How should apparently competing plan clauses be read? The operational creditors relied on a clause that excluded obligations, claims and liabilities recorded in identified annexures from a general extinguishment provision. They contended that inclusion of their claims in those annexures preserved their suits and arbitrations. The Court rejected an isolated reading of that clause. A resolution plan is to be construed as a....
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....ther than the payment of Operational Creditors Settlement Amount as set out herein." The Court did not read this saving of the settlement amount as a perpetual right to recover the full eventual result of litigation. It was confined by the plan's distribution terms, the final claims position and the stipulated payment timeline. Clause 8.6.10 supplied the decisive extinguishment language. Except to the extent of the settlement amount payable under Clause 8.2.2, the corporate debtor was to have no liability for pre-effective-date operational-creditor and other-creditor claims; such liabilities would "immediately, irrevocably and unconditionally stand fully and finally discharged and settled." Clause 8.6.10(ii) further provided that legal proceedings initiated by or on behalf of operational creditors would "immediately, irrevocably and unconditionally stand withdrawn, abated, settled and/or extinguished." The Court consequently held that Clause 8.7.3 could not be employed as an express carve-out for unresolved claims recorded in the annexures. Read alongside Clauses 8.2.2, 8.2.4 and 8.6.10, it did not preserve pending adjudication. The operative result was that all civil and....
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....must pay. The present decision applies that principle specifically to pending civil and arbitral claims recorded at a nominal value. 2021 (4) TMI 613 - Supreme Court held that, once a plan is approved under Section 31(1), plan claims stand frozen and claims not forming part of the plan stand extinguished; no person may initiate or continue proceedings regarding excluded claims. Its importance lies in making clear that the binding effect extends to governmental and statutory creditors as well as private creditors. 2022 (3) TMI 60 - Supreme Court applied that rule to a revenue demand not lodged with the resolution professional following public notices. The claim did not survive approval. The decision confirms that the source of the liability-commercial, statutory or revenue-does not dilute Section 31 finality where the claim was not retained by the plan. 2023 (9) TMI 516 - Supreme Court addressed a belated claim based on an arbitral award when the plan had already been approved by the Committee of Creditors. It refused admission because reopening the claims process would expose the successful applicant to uncertain liabilities and defeat the time-bound character of CIRP. Tha....