Approved Resolution Plan Extinguishes Undecided Claims and Ousts Arbitral Jurisdiction Over Pre-Insolvency Disputes

The Petitioner (MBL) was awarded a contract by Haryana PWD for road construction and subsequently issued a work order to the Respondent on November 22, 2012, for piling work

Disputes arose regarding delays, defective machinery, and slow progress, leading the Petitioner to terminate the contract and award the remaining work to another firm

The matter was referred to a Sole Arbitrator in 2014

During the pendency of arbitration, a Corporate Insolvency Resolution Process (CIRP) was initiated against the Petitioner on March 30, 2017

A Resolution Plan was approved by the NCLT on April 18, 2018, and attained finality via the NCLAT on August 16, 2019

Despite these developments, the Arbitrator proceeded to pass an Award on July 26, 2021, granting a net sum to the Respondent

The Petitioner challenged the Award under Section 34 of the Arbitration and Conciliation Act, 1996.

1. Whether the Arbitral Tribunal had the jurisdiction to adjudicate claims and pass an award after a Resolution Plan had been approved under the Insolvency and Bankruptcy Code (IBC), 2016?

2. Whether claims that arose prior to the CIRP, but were not part of the approved Resolution Plan, stand extinguished by operation of Section 31 of the IBC?

Section 31(1) of the Insolvency and Bankruptcy Code, 2016, which stipulates that an approved Resolution Plan is binding on the corporate debtor, its employees, members, and all creditors

Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which established that upon approval of a resolution plan, all claims not included therein stand extinguished and cannot be initiated or continued

Electrosteel Steel Limited v. Ispat Carrier Private Limited, which held that the expiration of a moratorium does not revive extinguished claims and that adjudicatory forums lose jurisdiction to decide on such claims once the Resolution Plan is approved

The Court observed that the Respondent’s claims against the Petitioner existed prior to the commencement of the CIRP in March 2017

Under the statutory scheme of the IBC, the Respondent was required to lodge these claims with the Resolution Professional following the public announcement

The Court rejected the Arbitrator's reasoning that claims "not yet crystallized into a debt" fall outside the ambit of the IBC, labeling this view as contrary to established law

Once the Adjudicating Authority (NCLT) approved the Resolution Plan, all pre-existing claims not specifically accounted for in that plan were "frozen" and "extinguished"

Consequently, the continuation of the arbitration and the subsequent rendering of the award violated the "clean slate" principle of the IBC, as the Arbitrator no longer possessed the jurisdiction to adjudicate upon extinguished liabilities

The direct answer to the issues is that dues not forming part of the Resolution Plan cannot survive its approval, regardless of whether they were "crystallized" or not

Accordingly, the Court set aside the Impugned Award dated July 26, 2021, and disposed of the petition in favor of the Petitioner