The judgment arose from Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd. and overturns both the orders passed by the Commercial Court in Bokaro and the Jharkhand High Court, which had upheld the enforcement of the MSME Facilitation Council’s arbitral award dated July 6, 2018.
“The resolution plan once approved under Section 31 of the IBC is binding on all stakeholders. Any claim not included stands extinguished,” Justice Ujjal Bhuyan stated in the judgment. The Court referred to the legal precedent set in Ghanshyam Mishra & Sons v. Edelweiss ARC and Essar Steel v. Satish Kumar Gupta, asserting that allowing such claims post-resolution approval would defeat the purpose of corporate insolvency resolution.
The Dispute
Ispat Carrier had supplied cranes and other equipment to Electrosteel Steel in 2011, for which a total sum of Rs. 1,59,09,214 was claimed under the MSME Act. The arbitration proceedings were delayed due to the moratorium imposed under IBC in 2017 after financial creditors triggered insolvency. Upon lifting of the moratorium in April 2018, the Facilitation Council resumed proceedings and passed the award.
However, the resolution plan submitted by Vedanta Ltd., approved by NCLT on April 17, 2018, declared all operational creditor claims—except those of top 30 creditors—as settled at nil value. Ispat Carrier’s claim was not included.
In execution proceedings, Electrosteel argued that the award was “a nullity” due to extinguishment of claims via the resolution plan. Although the High Court permitted limited objections under Section 47 of the CPC, it upheld the award’s validity. The apex court disagreed.
Key Observations
“A successful resolution applicant cannot suddenly be faced with undecided claims... this would throw into uncertainty amounts payable,” the bench noted, quoting from Essar Steel.
The Supreme Court emphasized that once a resolution plan is in force, "no person will be entitled to initiate or continue any proceeding in respect to a claim which is not part of the resolution plan."
The Court further stated, “The Facilitation Council lacked jurisdiction to arbitrate on a claim that was settled at nil under the resolution plan. Thus, the award passed is void ab initio and unenforceable.”
Ispat Carrier had withdrawn Rs.15.48 crore during earlier proceedings, but was directed by the Court to deposit the amount back with the Executing Court, which in turn was to invest it in a fixed deposit.
Setting aside the earlier orders, the Supreme Court quashed the ongoing execution case and disallowed any further claim from Ispat Carrier in this regard. The ruling reinforces the supremacy of the IBC in cases of conflict with other statutes, especially concerning operational creditors under the MSME Act, and clarifies that no claim survives outside the resolution plan once it is judicially approved.
Read The Judgment Here
keywords: ibc resolution plan, msme arbitration award, supreme court judgment, insolvency code, electrosteel steel, operational creditors
