2025 (3) TMI 630 - Tri - IBC

Extinguishment of claim under the approved resolution plan - direction to Respondent to disclose the treatment of Applicant s claim under the resolution plan - determination of the tenability/validity of a contractual agreement falls in the realm of a civil dispute or not - scope and jurisdiction of this Adjudicating Authority - HELD THAT - It is relevant to examine the main objective of the CIRP is the revival of the Corporate Debtor. This Objective of the IBC code is based on two paramount factors i.e the restructuring of the Corporate debtor and that such restructuring is carried out in a time bound manner. Reliance is placed on the judgment of Hon ble Apex Court in the case of Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors 2019 (1) TMI 1508 - SUPREME COURT where it was held that Timely resolution of a corporate debtor who is in the red by an effective legal framework would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy business then eases up which leads overall to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not in any manner refer to liquidation which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation the liquidator can sell the business of the corporate debtor as a going concern. The entire code is consolidated to foresee the effective implementation of the Resolution Plan by provisioning various principles that have to be satisfied to the CoC before the approval of a Resolution Plan. The burden shifts to the commercial wisdom of a COC to foresee any contingency and to satisfy the feasibility and viability of the plan. Once the Plan has been approved by the CoC we do not find it legally tenable to direct any such changes in the plan that will be effective only in the future and will be contingent to the adjudication of Arbitration Proceedings. Moreover it is pertinent to point out that even in the NCLAT order in the case of Shaapoorji Pallonji Co (P) Ltd v. Kobra West Power Co. Ltd 2023 (3) TMI 70 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI relied upon by the Applicant herein the Hon ble Appellate Tribunal has not disturbed the Resolution Plan and only observed that the Applicants are at liberty to pursue all the contentions available to them. Conclusion - i) 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 and will be binding on the Corporate Debtor and its employees members creditors including Central Government any State Government or any local authority guarantors and other stakeholders. ii) The prayer of the Applicant that the claim should not be allowed to be extinguished is not tenable in law hence is not acceptable. Application dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The Tribunal addressed the following core legal questions:

1. Whether the Applicant's claim should be extinguished under the approved resolution plan.

2. Whether the Applicant's claim and the counterclaim by Katerra should be adjudicated together in arbitration proceedings.

3. Whether the resolution professional (RP) has the authority to extinguish claims that are disputed and not admitted.

4. Whether the approval of the resolution plan extinguishes any claims not included in it, in line with the "Clean Slate" principle.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Extinguishment of Applicant's Claim under the Resolution Plan

The Applicant argued that its claim should not be extinguished by the resolution plan, as it was disputed and not admitted due to a counterclaim by Katerra. The Applicant contended that extinguishing the claim would be unjust and detrimental, depriving them of asserting their claim in arbitration proceedings. The Tribunal noted that the resolution plan's approval binds all claims, and any claim not included in the plan is extinguished, as established in Ghanshyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Company Ltd. The Tribunal upheld the "Clean Slate" principle, emphasizing that the resolution applicant should not face undecided claims post-approval.

Issue 2: Adjudication of Claims in Arbitration Proceedings

The Applicant asserted that the claims and counterclaims between ECPWPL and Katerra should be resolved in arbitration, citing the interlinked nature of the claims arising from the same contractual circumstances. The Tribunal acknowledged that the claims were subject to arbitration, as previously held in Shaapoorji Pallonji & Co (P) Ltd v. Kobra West Power Co. Ltd. The Tribunal allowed the continuation of arbitration proceedings but clarified that any determination in arbitration would not affect the approved resolution plan, as established in Adani Power Ltd. v. Shapoorji Pallonji and Co Pvt. Ltd.

Issue 3: Authority of the Resolution Professional

The Applicant contended that the RP lacked the authority to extinguish disputed claims, which should be adjudicated by a competent forum, such as an arbitral tribunal. The Tribunal recognized the RP's role in collating claims but emphasized that the RP's actions must align with the approved resolution plan. The Tribunal reiterated that the RP cannot substitute its views for those of the arbitral tribunal, as supported by NTPC v. Rajiv Chakraborty.

Issue 4: "Clean Slate" Principle and Resolution Plan Approval

The Tribunal emphasized the "Clean Slate" principle, which ensures that once a resolution plan is approved, all claims not part of the plan are extinguished. This principle supports the revival of the corporate debtor as a going concern without unexpected liabilities. The Tribunal referenced the Swiss Ribbons Pvt. Ltd. and Anr. v. Union of India and Ors decision, highlighting the importance of timely resolution and the finality of the resolution plan.

SIGNIFICANT HOLDINGS

The Tribunal concluded that the Applicant's claim cannot be preserved outside the resolution plan, reinforcing the "Clean Slate" principle. The Tribunal held that:

"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 and will be binding on the Corporate Debtor and its employees, members, creditors, including Central Government, any State Government or any local authority, guarantors and other stakeholders. 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 and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan."

The Tribunal dismissed the Applicant's request to prevent the extinguishment of its claim, affirming the resolution plan's binding nature and the finality it provides to the corporate insolvency resolution process.