In a recent judgment in the matter of West Bengal Power Development Corporation Ltd v. Ujaas Energy Ltd (Fox & Mandal appeared for the Petitioner WBPDCL), the Calcutta High Court reaffirmed the established legal position regarding the recovery of dues from a successful resolution applicant post-Corporate Insolvency Resolution Process (CIRP). The court's ruling reinforced the finality of the resolution plan approved under the Insolvency and Bankruptcy Code (IBC), and emphasised that creditors, including government authorities, cannot make claims beyond what is outlined in the approved resolution plan.
A key component of the IBC is the protection and assertion of creditor rights - both financial and operational creditors are granted the right to make claims for dues from the corporate debtor undergoing CIRP. The right to submit claims is clearly enshrined in Section 18(1)(b) of the IBC, which mandates that the Interim Resolution Professional (IRP) shall receive and collate all claims made by creditors. These claims then form part of the Information Memorandum (IM), which is a key document that allows potential resolution applicants to assess the debtor's financial situation, and under Section 29 of the IBC, is vital for the preparation of a resolution plan by prospective applicants.
This process ensures that all legitimate claims are accounted for before the adjudicating authority approves the resolution plan. Once a resolution plan is approved by the adjudicating authority, it is binding on all parties involved. This finality is underscored in Section 31(1) of the IBC, which states that the approved plan is binding on the corporate debtor, its employees, members, creditors, and any other stakeholders involved. The Supreme Court of India has reinforced this view in various rulings, emphasizing that once a resolution plan is approved, creditors cannot claim any dues that weren't part of the plan.
Citing a landmark Supreme Court case - Ghanshyam Mishra & Sons Pvt Ltd v. Edelweiss Asset Reconstruction Company Ltd1 - the Calcutta HC underscored the finality of the resolution plan and ruled that once the resolution plan is approved, all claims that are not part of the plan are extinguished. This means that creditors, including central or state governments, cannot initiate or continue any proceedings for claims that were not included in the plan, thus ensuring that resolution applicants who take over the debtor company are not burdened by unforeseen claims post-CIRP. It provides certainty and allows the resolution applicant to operate the business on a 'clean slate', a crucial element in reviving the business without the threat of lingering liabilities.
One of the central tenets that courts have continuously upheld in numerous cases is that a resolution applicant should not face undecided claims after the resolution plan has been accepted. The Supreme Court has likened such claims to a 'hydra's head', using the analogy to illustrate the legal chaos that could arise if creditors were allowed to bring claims after a resolution plan is approved. In another case - 'Committee of Creditors of Essar Steel India Ltd. vs. Satish Gupta2,' the Supreme Court reinforced this principle, stating that all claims against the debtor must be resolved within the CIRP. If creditors were allowed to bring fresh claims after the resolution, it would lead to uncertainty regarding the liabilities of the resolution applicant, making it impossible for them to plan the revival of the debtor's business effectively.
Similarly, in another case - Shiv Shakti Inter Globe Exports Pvt Ltd v. KTC Foods Pvt Ltd3, the National Company Law Appellate Tribunal (NCLAT) had affirmed that claims for statutory dues or other liabilities that were not part of the resolution plan cannot be enforced after the CIRP is completed. This allows resolution applicants to take over the debtor's business without being bogged down by old, unsettled claims. In situations where a corporate debtor is not revived and liquidation becomes inevitable, the IBC outlines a clear process for distributing the proceeds of the debtor's assets. This process follows a strict order of priority, known as the 'waterfall mechanism', which ensures that creditors are paid in an orderly fashion. Once the proceeds are distributed and the debtor's assets are liquidated, no further claims can be raised by creditors.
The Calcutta HC reinforced the IBC's objective of providing certainty and closure to the CIRP process, ensuring that all claims are resolved during the insolvency resolution or liquidation process. The IBC and the CIRP are designed to provide a clear and structured process for resolving insolvency while protecting the rights of creditors and other stakeholders. However, once a resolution plan is approved, it achieves finality, and creditors cannot raise fresh claims post-CIRP. This principle has been consistently upheld by the courts to ensure that resolution applicants can take over the debtor's business without being burdened by lingering liabilities. Whether dealing with statutory dues or other claims, the courts have made it clear that the IBC's goal is to provide certainty and closure, allowing the debtor's business to operate on a clean slate.
Footnotes
1 2022 LiveLaw (SC) 771
2 8 SCC 531
3 Company Appeal (AT) (Insolvency) No. 650 of 2020
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