India: The Insolvency And Bankruptcy Code 2016 – Arbitral Award Holder's Claim And Award Debtor's Resolution Plan: Sirpur Paper Mills Ltd v IK Merchants Pvt Ltd*

The Calcutta High Court has held that an award holder's claim against an award debtor will be extinguished once the latter's Resolution Plan (RP) is approved, if the award holder has not pressed his claim during Corporate Insolvency Resolution Process (CIRP).

Brief Facts

The award debtor challenged the Arbitral Award under §34 of the Arbitration & Conciliation Act 1996. Thereafter, upon a successful CIRP, the RP for the award debtor was accepted by the NCLT and its management was taken over by a new entity. According to the award debtor, its challenge of the Arbitral Award could not be continued in light of the acceptance of the RP, which did not feature the award holder's claim.

High Court's Decision

Upon approval of the RP, a creditor cannot commence action for the recovery of claims, which do not feature in it. The RP is binding on the corporate debtor and all other stakeholders. Claims that do not form a part of the RP stand extinguished. Only the claims that feature in the RP, are binding on the new management of the corporate debtor.

The award holder had sufficient opportunity to submit its claim to the resolution professional or approach the NCLT for relief. The award holder was under an obligation to take active steps, especially when there was no automatic stay of the Arbitral Award.

Reliance was placed on the Supreme Court's decisions in Ghanshyam Mishra and Sons Private Ltd v Edelweiss Asset Reconstruction Company Ltd¹ andEssar Steel India Ltd v Satish Kumar Gupta².

Footnotes

*A.P. No 550 of 2008 decided on 7 May 2021.

1. (2021) SCC Online SC 313

2. (2020) 8 SCC 531.

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