The claim of an arbitral award-holder can be frustrated on the approval of a Resolution Plan under Section 31 of IBC, 2016.

Sirpur Paper Mills Limited Vs. I.K. Merchants Pvt. Ltd. (A.P. 550/2008) decided on 07.05.2021 by Hon’ble Calcutta High Court.

Facts of the case:
The present matter deals with a petition u/s 34 of the Arbitration and Conciliation Act, 1996, for setting aside of an arbitration award dated 07.07.2008 passed between the Respondent (claimant- award holder) and the Petitioner (Award debtor) herein. However, the petitioner/award-debtor later on urged before the Hon’ble Court that the present petition u/s 34 has become infructuous because the management of the petitioner company (the Award-debtor) being taken over by a new entity following the approval of a Resolution Plan of the petitioner company by the NCLT under The Insolvency and Bankruptcy Code, 2016 (IBC).
The said contention was earlier rejected by this Hon’ble Court vide order dated 10.01.2020, wherein the Court held that CIRP cannot be used to defeat a dispute which existed prior to initiation of the insolvency proceedings. The Petitioner thereafter again urged before the Hon’ble Court that the application to set aside the arbitral award u/s 34 cannot be proceeded with after approval of the Resolution Plan.

Contentions of the parties:
The petitioner has relied upon sec 31 of IBC which provides that an approved Resolution Plan is binding on the corporate debtor and its employees, members and other stakeholders and strongly relied on a decision of the Hon’ble Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta; (2020) 8 SCC 531 to contend that a successful Resolution applicant cannot be faced with undecided claims after the Resolution Plan has been accepted.
The Respondent on the other hand argued that upon filing of the application u/s 34 of 1996 Act, the Award automatically stayed and the Respondent could not approach the NCLT for lodging its claim. He also contended that with the filing of sec 34 application, the dispute raised by the parties amounts to a pre-existing dispute which takes the Respondent outside the purview of the IBC.
Issue before the Hon’ble Court-
The question raised before the Hon’ble Court is whether the claim of an Award-holder can be frustrated on the approval of a Resolution Plan under Section 31 of IBC, 2016.
Observation of the Hon’ble Court-
The Hon’ble Court decided that there is a need to re-look at the earlier pronounced judgment of this Court dated 10.01.2020, keeping in mind the ratio reached by the Apex Court in Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited; 2021 SCC OnLine SC 313, which was delivered on 13.04.2021, wherein it was held that once a Resolution Plan is approved, a creditor cannot initiate proceedings for recovery of claims which are not part of the Resolution Plan.
The Court noted that section 25, 29, 30 and 31 of IBC read with the ratio of Essar and Edelweiss makes it evident that for a claim to be considered by the Resolution Professional and later by the Committee of Creditors for approval of the Resolution Plan, the said claim must feature in the Information Memorandum prepared by the Resolution Professional and provided to the resolution applicant which will ultimately take over the business of the corporate debtor. Court also noted that from the date of the admission of the application of initiation of CIRP against the petitioner on 18.09.2017 until approval of the resolution plan on 16.05.2018, the Respondent/award-holder had sufficient opportunity to approach the NCLT for appropriate relief.
The Hon’ble Court further noted that the view of the Supreme Court as crystallized in Essar and Edelweiss is that pre-existing and undecided claims which have not been submitted before the Resolution Professional would be treated as extinguished upon approval of the Resolution Plan under Section 31 of the IBC.
Calcutta High Court is therefore of the view that the claim of an arbitral award holder would be treated as extinguished if the award holder fails to lodge his claim in the approved CIRP. Consequently, the petition u/s 34 of the 1996 Act is disposed of as being rendered infructuous.