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2021 (5) TMI 494 - HC - Insolvency and BankruptcyFresh claim after approval of Resolution Plan - Consequence of Award in the arbitration proceedings - petitioner s case is that by reason of the subsequent developments after the impugned Award, the application for setting aside of the Award is not maintainable any more - HELD THAT - The contentions of the respondent with regard to the principles of res judicata applying to different stages of the same proceedings must therefore be read down in fit cases where orders are capable of being altered or varied on the emergence of new facts or situations. The principle essentially is to guard the court from abuse of process where the same matter in issue, which had been heard and finally decided by a court, is urged again between the same parties. This is unlike the present case as the question of maintainability of the application under Section 34 of the 1996 Act can be considered at any point of time on the legal aspect and particularly on the pronouncement of a decision relevant to the matter. In COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA OTHERS 2019 (11) TMI 731 - SUPREME COURT , the Supreme Court held that a Resolution Plan, once approved under Section 31 of the IBC, is binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders. In the present case, from the date of the admission of the application of initiation of the CIRP against the petitioner namely 18th September, 2017 until approval of the resolution plan on 16th May, 2018, the respondent, as an Award-holder had sufficient opportunity to approach the NCLT for appropriate relief. Second, the amount demanded by the respondent/ Award-holder as on 31st March, 2014 featuring in the Information Memorandum does not really help the respondent since the IBC and the CIRP regulations provide for specific procedural provisions for submission of claims (Ref Regulations 7 and 12 read with Form B of the Schedule to the CIRP Regulations, 2016). The Award-holder hence was under an obligation to take active steps under the IBC instead of waiting for the adjudication of the application under Section 34 of the 1996 Act. Whether the respondent could have lodged and pursued its claim before the NCLT when the impugned Award was challenged by the Award-debtor/petitioner in this Court on 31st October, 2008? - HELD THAT - The merit of the stand taken must be seen in the light of Section 36 which has been modified and added by the 2016 amendment. The new Section 36 and sub-section (2) thereunder requires the Court to grant an order of stay of the operation of the Arbitral Award in accordance with Section 36(3) on a separate application for stay taken out by the Award-debtor. Section 36(2) marks a significant departure from the erstwhile provision in clarifying that filing of an application for setting aside of an Award under Section 34 shall not by itself make the Award unenforceable unless the Award is stayed by an order of Court in an application made in the manner provided under Section 36(3) of the Act. The view of the Supreme Court as crystallized in Essar is that pre-existing and undecided claims which have not featured in the collation of claims and consequent consideration by the Resolution Professional shall be treated as extinguished upon approval of the Resolution Plan under Section 31 of the IBC. This can be seen as a necessary and an inevitable fallout of the IBC in order to prevent, in the words of the Supreme Court, a hydra head popping up and rendering uncertain the running of the business of a corporate debtor by a successful resolution applicant. In essence, an operational creditor who fails to lodge a claim in the CIRP literally missed boarding the claims-bus for chasing the fruits of an Award even where a challenge to the Award is pending in a Civil Court. Petition disposed of as being rendered infructuous.
Issues Involved:
1. Whether the application for setting aside an arbitral award is maintainable after the approval of a Resolution Plan under Section 31 of the Insolvency and Bankruptcy Code (IBC), 2016. 2. The applicability of res judicata to the maintainability of the Section 34 application. 3. The impact of the Supreme Court's decisions in Essar Steel and Ghanshyam Mishra on pending claims during and after corporate insolvency resolution proceedings. Issue-wise Detailed Analysis: 1. Maintainability of the Application for Setting Aside the Arbitral Award: The petitioner argued that the application under Section 34 of The Arbitration and Conciliation Act, 1996, to set aside an arbitral award, has become infructuous due to the approval of a Resolution Plan by the National Company Law Tribunal (NCLT) under the IBC. The petitioner relied on Section 31 of the IBC, which states that an approved Resolution Plan is binding on the corporate debtor and its stakeholders, and cited the Supreme Court decision in Essar Steel to argue that the debts of the corporate debtor stand extinguished except for those taken over by the resolution applicant. The court acknowledged that the Supreme Court in Essar Steel and Ghanshyam Mishra held that once a Resolution Plan is approved, all claims not included in the plan are extinguished. The court emphasized that the law evolves and must be applied dynamically. It was concluded that the application for setting aside the arbitral award is rendered infructuous due to the approval of the Resolution Plan, which extinguished the respondent's claim. 2. Applicability of Res Judicata: The respondent contended that the principles of res judicata should apply, as the issues raised by the petitioner had been decided in previous orders. The court, however, clarified that res judicata does not apply when new facts or significant legal developments emerge. The court held that the principles of res judicata must be read down in cases where orders can be altered due to new legal developments, such as the Supreme Court's decision in Essar Steel. 3. Impact of Supreme Court's Decisions in Essar Steel and Ghanshyam Mishra: The court discussed the Supreme Court's rulings in Essar Steel and Ghanshyam Mishra, which emphasized that a Resolution Plan, once approved, binds all stakeholders and extinguishes all claims not included in the plan. The court noted that the respondent's claim did not survive as it was not part of the approved Resolution Plan. The court also highlighted that the IBC provides a structured process for creditors to submit their claims during the corporate insolvency resolution process, and the respondent had sufficient opportunity to do so but failed to take active steps. The court further noted that the Supreme Court in Kochi Cricket clarified that Section 36 of the Arbitration Act, as amended, applies to pending Section 34 applications, meaning that the arbitral award is not automatically stayed upon filing of the application. Therefore, the respondent could have pursued its claim before the NCLT. Conclusion: The court concluded that the application for setting aside the arbitral award is rendered infructuous due to the approval of the Resolution Plan under Section 31 of the IBC, which extinguished the respondent's claim. The court disposed of the application and emphasized the importance of adapting to the evolving legal landscape shaped by legislative changes and judicial pronouncements.
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