Approved IBC Resolution Plan Extinguishes Non‑Included Claims; Arbitral Award Non‑Executable

A bench of Justices Abhay S. Oka and Ujjal Bhuyan heard an appeal by special leave in Civil Appeal No. 2896 of 2024 arising out of SLP (C) No. 15823 of 2023, challenging a High Court judgment that upheld an executing court order directing compliance with an arbitral award. The dispute concerned whether an award granted by the West Bengal Micro, Small and Medium Facilitation Council could be executed after a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC) had been approved and whether objections to an award's executability could be raised under Section 47 of the Civil Procedure Code (CPC) without first assailing the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The Court allowed the appeal, set aside the executing court order and the High Court judgment, and quashed the execution proceedings. It held that once a resolution plan is duly approved under Section 31 of the IBC, claims not included in the approved plan stood extinguished and no forum could thereafter entertain proceedings on such claims; accordingly the Facilitation Council lacked jurisdiction to decide the respondent’s claim and the award was non‑executable. The Court, in its reasoning, observed: “In so far the second and third issues are concerned, it is by now well settled that once a resolution plan is duly approved by the adjudicating authority under sub‑section (1) of Section 31, all claims which are not part of the resolution plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan… Moreover, the resolution plan itself provides that all claims covered by any suit, cause of action, arbitration etc. shall be settled at nil. Therefore, it is crystal clear that in so far claim of the respondent is concerned, the same would be treated as nil at par with the claims of the top 30 operational creditors.” The Court further recalled that “only a decree which is a nullity can be the subject matter of objection under Section 47 CPC and not one which is erroneous either in law or on facts,” and held that an award passed without jurisdiction qualified as a nullity capable of being challenged in execution.

Background The respondent filed claims under the MSME Act for Rs. 1.59 crore before the West Bengal Facilitation Council; conciliation failed and arbitration proceeded. Meanwhile financial creditors initiated CIRP against the corporate debtor (appellant) and the NCLT imposed moratorium. Vedanta submitted a resolution plan dated 29.03.2018, approved by NCLT on 17.04.2018, which, among other provisions, treated many operational claims as settled at nil (including clause 3.8(i) and related clauses indicating nil treatment of claims arising from litigations or arbitrations). The facilitation council, proceedings having been kept in abeyance during moratorium, resumed and passed an award on 06.07.2018 directing payment.

The appellant did not challenge the award under Section 34 but sought to oppose execution on the ground that the claim stood extinguished by the approved resolution plan. The executing court dismissed that objection and directed compliance; the High Court, while observing that nullity pleas were narrowly maintainable under Section 47 CPC, upheld the execution. This Court noted an interlocutory deposit by the respondent of Rs.15,48,70,890 which the Court directed to be placed in an interest‑bearing fixed deposit pending disposal. Applying precedents including Essar Steel and Ghanshyam Mishra, the Supreme Court found that the resolution plan extinguished the respondent’s claim and that the facilitation council lacked jurisdiction; it allowed the appeal, quashed the execution proceedings and set aside the impugned orders. The appeal was allowed with no order as to costs.

Case Details: Case No.: CIVIL APPEAL NO. 2896 OF 2024 (arising out of SLP (C) No. 15823 of 2023) Case Title: ELECTROSTEEL STEEL LIMITED (NOW M/S ESL STEEL LIMITED) v. ISPAT CARRIER PRIVATE LIMITED Appearances: For the Petitioner(s): Senior Counsel (name not specified in the judgment) For the Respondent(s): Senior Counsel (name not specified in the judgment)