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TMI Blog2023 (10) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The approval of the Resolution Plan is statutorily recognised as conferring a closure upon all claims that persons or entities may have had against the corporate debtor. The claims or liabilities which could have been enforced against the corporate debtor are duly considered in the course of the CIRP with the Adjudicating Authority undertaking a detailed exercise with respect to identification of the various creditors of the corporate debtor, including the classes thereof, the scrutiny of claims received and the ultimate apportionment of the amounts deposited by the successful Resolution Applicant amongst the creditors inter se. However, once the aforesaid process has been completed and the Resolution Plan comes to be approved, no fresh claims can be laid or enforced against the successful Resolution Applicant. The successful Resolution Applicant is only bound to meet the claims as may have been accepted and ultimately form part of the approved Resolution Plan. This issue assumes seminal importance since the successful Resolution Applicant cannot be left open to defend or oppose claims which are either not factored in the Resolution Plan nor can it be left to fend off actions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, Advs. for R-1. JUDGMENT 1. Indian Oil Corporation Ltd. seeks to invoke the jurisdiction conferred upon this Court by Section 11 of the Arbitration & Conciliation Act, 1996 for the constitution of an Arbitral Tribunal in respect of disputes which are stated to exist and emanate from a Gas Supply Agreement [GSA] which was executed by it in favour of Essar Steel Ltd. [ESL] (originally) and which was thereafter assigned to Essar Oil Limited. [EOL] The GSA is dated 15 January 2009 and the dispute which stands raised essentially arises out of the "Take or Pay" obligation as contained in Article 14 thereof, and which empowered IOCL to call upon ESL to take remedial steps for payment in case it failed to lift the entire Adjusted Annual Contract Quantity [AACQ]. 2. The record would reflect that on 18 January 2012 the name of ESL was changed to Essar Steel India Ltd. [ESIL] and an Assignment Agreement dated 14 November 2013 is stated to have been executed between IOCL, ESIL and EOL which constituted the "First Assignment Agreement" and was to remain valid upto 31 August 2014. In terms of the aforesaid agreement, ESIL assigned all its rights and obligations as flowing from the GSA to E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of INR 1. The relevant extracts of the aforesaid email are reproduced hereinbelow: "Dear Sir/Madam, This is to inform you upon verification of your claim Form - B dated 16 August 2017 against Essar Steel India Limited, the following is the status of your claim filed under regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016: Amount of Claim submitted INR 3762,58,74,503 Amount of Claim admitted Notional amount of INR 1 (Indian Rupee One only) to ensure your participation in the corporate insolvency Reason for non-admission of entire claim amount The remaining claim amount is not admitted because of pending dispute with respect to this claim as the arbitration proceedings were initiated by Indian Oil Corporation Limited You may take your own independent advice in this matter keeping in view the provisions of the Insolvency and Bankruptcy Code, 2016 and rule/regulations made under the said Code. This is also to inform you that the erstwhile management of Essar Steel India Limited (Company) is stating that Indian Oil Corporation Limited (IOCL) sold the gas that was to be supplied to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the RP to admit the claims of operational creditors including the petitioner herein at INR 1. It, accordingly, and while disposing of the IAs that had been filed for its consideration observed as follows: "5. Therefore, these I.As. can be partially succeed only to the extent of such direction may be issued to the Resolution Professional to register their respective claims and to update the claims in the list of creditors, because we have already held in our separate order passed in I.As. Nos. 54 & 55 of 2018. However, the apportionment of these claims cannot be made as a matter of right, but only their interest, if any, can be taken care of while dealing with the I.A.No.431 of 2018 in succeeding paragraphs for consideration and approval of the Resolution Plan." 9. For the purposes of evaluating the issues which arise in the present petition, it would also be apposite to briefly notice the contentions which were raised by the petitioner before the NCLT in its IA. The Court extracts paras 12, 13, 15, 16, 17 & 18 thereof hereinbelow: "12. The Resolution Plan is wholly one sided and arbitrary as it provides that after the distribution of amounts to the Financial Credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Since the claim of the operational creditors came to be introduced and made part of the Resolution Plan, various appeals against the decision of the NCLT came to be preferred before the National Company Law Appellate Tribunal [NCLAT]. In terms of its decision dated 04 July 2019 rendered in Standard Chartered Bank vs. Satish Kumar Gupta 2019 SCC OnLine NCLAT 388 and other connected appeals, while dealing with the claim of operational creditors including the petitioner herein it rendered the following pertinent observations: "41. In Interlocutory Applications filed by 'Dakshin Gujarat Vij. Co. Ltd.'; 'State Tax Officer'; 'Gujarat Energy Transmission Corporation Ltd.'; 'Bharat Petroleum Corporation Limited'; 'Indian Oil Corporation Ltd.'; 'MSTC Limited'; 'Gail (India) Limited' and 'Global Transnational Trading FZE' before the Adjudicating Authority, the Adjudicating Authority passed following directions: "That these I.As. can be partially succeed only to the extent of such direction may be issued to the Resolution Professional to register their respective claims and to update the claims in the list of creditors, because we have already held in our separate order passed in I.As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Corporate Insolvency Resolution Process'. If one or other 'Financial Creditors' would have invested money during the 'Corporate Insolvency Resolution Process' to keep the 'Corporate Debtor' as a going concern, it can claim that it should get the interest out of the profit amount." 11. The aforesaid judgment was questioned before the Supreme Court in Committee of Creditors of Essar Steel India Ltd. vs Satish Kumar Gupta and Ors. (2020) 8 SCC 531. The Supreme Court upon a detailed consideration of the statutory scheme underlying the resolution process as contemplated under the IBC explained the importance liable to be attached to the clean slate doctrine which had come to be enunciated and the statutory closure which ensues once a Resolution Plan comes to be duly approved. This Court deems it apposite to extract the following passages from that decision hereinbelow: "107. For the same reason, the impugned NCLAT judgment 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 again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de clear that the CIRP of the corporate debtor in this case will take place in accordance with the resolution plan of ArcelorMittal dated 23-102018, as amended and accepted by the Committee of Creditors on 27-3-2019, as it has provided for amounts to be paid to different classes of creditors by following Section 30(2) and Regulation 38 of the Code." 12. It becomes pertinent to observe that while dealing with the admission of claims at a notional value of INR 1 and which was the action proposed by the RP, the Supreme Court set aside the order of the NCLT as well as the NCLAT which had held that the claims of the operational creditors were liable to be factored in full in the Resolution Plan. The effect of the said decision was that the action of the RP admitting the claims of the petitioner at a notional value of INR 1 came to be affirmed and the Resolution Plan so amended conferred a seal of finality. 13. The respondent who was the successful Resolution Applicant acquired 100% of the shareholding of ESIL on 16 December 2019 and took over its management. Once the Resolution Plan had come to be successfully implemented and one would have thought that all controversies would have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 1 cannot lead to such a conclusion. It was his submission further that the validity of the purported termination also did not form part of the proceeding which ensued before the Adjudicating Authority under the IBC. Mr. Sharma submitted that this too would constitute a valid ground and evidence the imperatives of an AT being constituted. It was also his submission that the petitioner asserts that the GSA is a continuing contract and, therefore, the liabilities which arise therefrom and which relate to the non-payment of dues is clearly a cause of action which continues to subsist notwithstanding the closure of proceedings under the IBC, and thus the petitioner is justified in calling upon the Court to exercise its jurisdiction conferred by Section 11. 16. On a more fundamental plane, Mr. Sharma argued that the various objections which are addressed by the respondent relate to the merits of the dispute all of which should be left open for the consideration of the AT. Learned counsel submitted that bearing in mind the contours of the Section 11 power and which proceeds on the principle of a prima facie consideration alone, all disputes must be left open for the consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amounts) against the Corporate Debtor till or as of the Insolvency Commencement Date, shall stand irrevocably and unconditionally settled and extinguished in perpetuity. c. Upon approval of the Resolution Plan by the Adjudicating Authority, subject to Clause (g) below, all contingent liabilities of the Corporate Debtor till or as of the Insolvency Commencement Date arising out of any Proceedings to which the Corporate Debtor is a party shall, unless otherwise stated in this Resolution Plan and irrespective of the final outcome of such Proceedings, stand irrevocably and unconditionally reduced to and capped at the amounts that would be realizable by the Claimant, if the contingent liability had fructified at any time prior to the Insolvency Commencement Date. d. With effect from the Plan Approval Date, all Encumbrances created or suffered to exist over the assets of the Corporate Debtor or over the Securities of the Corporate Debtor, whether by contract or by Applicable Law, whether created for the benefit of the Corporate Debtor or any Third Party (except the Security Interest that is created or purported to be created for the benefit of the Resolution Applicant and/or its Conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of, and in order to secure the financial assistance availed by the Corporate Debtor, which have been invoked prior to the Effective Date, claims of the guarantor on account of subrogation, if any, under any such guarantee shall be deemed to have been abated, released, discharged and extinguished. It is hereby clarified that, the aforementioned clause shall not apply in any manner which may extinguish/affect the rights of the Financial Creditors to enforce the corporate guarantees and personal guarantees issued for and on behalf of the Corporate Debtor by the Existing Promoter Group or their respective affiliates, which guarantees shall continue to be retained by the Financial Creditors and shall continue to be enforceable by them. h. Upon the approval of the Resolution Plan by the Adjudicating Authority, all the outstanding negotiable instruments issued by the Corporate Debtor including demand promissory notes, postdated cheques and letters of credit, till or as of the Insolvency Commencement Date, shall stand terminated and the liability of the Corporate Debtor under such instruments shall stand extinguished unless otherwise determined by the Corporate Debtor in compliance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Adjudicating Authority, a challenge to the validity of termination as well as the claim of the petitioner being pegged at INR 1 were clearly and admittedly canvassed and urged. Apart from the IA which was filed before the Adjudicating Authority Dr. Singhvi also drew our attention to the following averments as appearing in the appeal which was filed by the petitioner before the NCLAT: - "31. It is pertinent to mention herein that after the directions passed by the Adjudicating Authority on Appellant's application, the Resolution Profession (Respondent No. 1) has updated the list of Creditors of the Corporate Debtor to include the amount being claimed by the Appellant but the same is meaningless and of no avail in as much as the Resolution Plan has already been passed by the Adjudicating Authority on 08.03.2019. 32. It is also pertinent to mention herein that the Corporate Debtor had, by way of the communication dated 10.03.2017, sought to wrongfully terminate the GSA between the parties, which had been opposed to by the Appellant. The issue of termination of the GSA vitally affects the rights of the parties, more so of the Appellant. However, the Resolution Plan and/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate debtor and to make it a running concern. 66. The resolution plan submitted-by the successful resolution applicant is required to contain various provisions viz: provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor under Section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paíd to such creditors if accordance with subsection (1) of Section 53 in the event of a liquidation of the corporate debtor. Explanation 1 to clause (b) of sub-section (2) of Section 30 of the I&B Code clarifies for the removal of doubts that a distribution in accordance with the provisions of the said clause shall be fair and equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern. 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 informatic 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 nay. 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 the plan. It is at this stage that the plan becomes binding on the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute. 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resource . Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen arbitrator , as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd." 22. It was the submission of learned Senior Counsel that in proceedings like the present the Court would not be guided or influenced by the mere expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al importance since the successful Resolution Applicant cannot be left open to defend or oppose claims which are either not factored in the Resolution Plan nor can it be left to fend off actions that may be brought with respect to alleged or asserted dues of the corporate debtor which were not admitted. Taking any other position would clearly violate the clean and fresh slate doctrines which inform and imbue the resolution process under the IBC. The Supreme Court while alluding to the intent of the resolution process underlying the IBC had described this aspect as the "hydra headed monster". In fact, Ghanashyam Mishra significantly observes that all claims which are not part of the Resolution Plan shall stand extinguished and no person would be entitled to "initiate or continue" any proceedings in respect of the claim. 26. Undisputedly and as would be evident from the challenges which were raised by the petitioner against the decision of the RP to admit its claim at a notional value of INR 1, it had assailed all aspects of the said decision including with respect to termination as well as the abridgment of its claim itself. Although the NCLT and NCLAT had accorded relief to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought falls within the genre of non-arbitrability. 28. However, while examining the aforesaid aspects, the Section 11 court should also be conscious of delaying tactics that are sometimes adopted to stave off a reference as also being cognizant of the limited extent of review that it is obliged to undertake. If in the course of that limited review, it finds that a determination would remain inconclusive, it must defer those aspects of non-arbitrability to be considered by the AT. These aspects have been lucidly explained in the recent decision of the Supreme Court in NTPC where it was held that it is only in cases where the question of non-arbitrability is self-evident, ex facie manifest and where it is possible to come to a clear and definite conclusion on the question of non-arbitrability that the Courts would refuse to refer parties to arbitration. In NTPC, while accepting that the Section 11 court is not expected to act mechanically and succumb to the expediency of referring parties to arbitration, it was pertinently observed that a refusal to refer would be justified when there is not "even a vestige of doubt" with respect to non-arbitrability or where it is evident that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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