Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and Others
"Once a resolution plan is approved under Section 31(1), it binds all stakeholders, including the Central and State Governments and local authorities, and every claim not part of the plan, including statutory dues for the period before approval, stands extinguished; the 2019 amendment so providing is clarificatory and operates from the Code's commencement."
Issues Before the Court
- (i)
Whether creditors, including the Central Government, State Governments and local authorities, are bound by a resolution plan once it is approved by the Adjudicating Authority under Section 31(1) of the Insolvency and Bankruptcy Code, 2016?
- (ii)
Whether the 2019 amendment to Section 31, which expressly made approved plans binding on governments and local authorities, is clarificatory, and so effective from the commencement of the Code?
- (iii)
Whether, after approval, a creditor can initiate or continue proceedings for dues that were not part of the plan?
Law & Rules Applicable
- (i)
Insolvency and Bankruptcy Code, 2016, Section 31(1) (approval of a resolution plan and its binding effect), as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, and Section 238 (overriding effect).
- (ii)
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (a successful resolution applicant cannot be faced with undecided claims after the plan is accepted).
Application to Facts & Circumstances
A batch of appeals and a writ petition raised the question whether creditors, including tax and other statutory authorities, could pursue claims that had not been included in an approved resolution plan, by raising fresh demands or continuing pending proceedings against the corporate debtor.
Writing for the Bench, Gavai J. held that the scheme of the Code is that the successful resolution applicant takes over the corporate debtor on a clean slate. Once the Adjudicating Authority approves the plan, the claims provided in it stand frozen, and the plan binds the corporate debtor, its employees, members and creditors, including the Central Government, any State Government and any local authority, as well as guarantors and other stakeholders. All claims not part of the plan stand extinguished, and no one may initiate or continue proceedings in respect of them.
The 2019 amendment, which made express that approved plans bind governments and local authorities to whom statutory dues are owed, is clarificatory and declaratory, and therefore effective from the date on which the Code came into force.
Consequently, statutory dues owed to governments and local authorities that are not part of the resolution plan stand extinguished, and no proceedings for such dues relating to the period before approval can be continued.
Conclusion & Ruling
- (i)
The appeals and the writ petition succeeded: claims not included in the approved resolution plans could not be pursued.
- (ii)
On approval under Section 31(1), every claim not forming part of the resolution plan stands extinguished, and the plan binds all creditors, including governments and local authorities.
- (iii)
The 2019 amendment to Section 31 is clarificatory and operates from the commencement of the Code.
Authorities Cited
Full texts open on Indian Kanoon in a new tab.
- Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531Case brief →Full text of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta on Indian Kanoon