IBC “clean slate” principle requires DGFT to remove company from denied-entry list over pre-CIRP export defaults, Delhi High Court rules

The petitioner challenged ten orders placing its Importer Exporter Code on the Denied Entry List (DEL) for alleged non-fulfilment of export obligations under Advance and EPCG Authorisations.

The petitioner’s CIRP commenced on 9 June 2023; nine of the ten impugned orders were issued on 5 September 2023, during the Section 14 moratorium.

The respondents filed a claim for approximately ₹15.66 crore in government dues arising from the same alleged defaults.

The NCLT approved the petitioner’s resolution plan on 2 August 2024, under which the respondents’ claim was admitted but settled at nil.

The petitioner’s subsequent representations seeking removal of the DEL status were not acted upon.

The respondents raised objections to territorial jurisdiction, an alternative remedy and non-impleadment of DGFT Kanpur; the Court rejected those objections.

Whether the Court had territorial jurisdiction to entertain the petition despite the respondents’ objection that the matter arose in Kanpur.

Whether the impugned DEL orders and the continued DEL status could be sustained after approval of the resolution plan, where the underlying government dues were settled at nil.

Whether the respondents could undertake fresh verification or take action for any independent default after the petitioner’s removal from the DEL.

Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) imposes a moratorium during CIRP; the Court held that coercive or adverse administrative orders passed against a corporate debtor in breach of that moratorium are void ab initio.

Under Section 31(1) of the IBC, an approved resolution plan binds stakeholders, including government authorities.

Applying the “clean slate” principle, the Court relied on Ghanshyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657, for the rule that claims not forming part of an approved resolution plan stand extinguished and cannot be pursued thereafter.

The Court also recognised that extinguishment of monetary claims does not bar fresh verification or action based on an independent, subsequent cause of action.

The Court found that nine impugned orders were issued during the Section 14 moratorium and were therefore void ab initio.

Independently, the government dues underlying the DEL status had been submitted as a claim in the CIRP and recorded in the approved resolution plan as payable at nil.

Because the respondents had not challenged the NCLT’s approval order, continuing the DEL status to enforce those pre-CIRP defaults would undermine the binding effect of the plan and the IBC’s clean-slate principle.

The Court rejected the preliminary objections, including territorial jurisdiction, noting that DGFT Headquarters in Delhi was seized of the matter and that the respondents’ counter-affidavit was filed through an officer of DGFT Kanpur.

It clarified that the respondents may conduct fresh verification under applicable law and may take appropriate action if they identify an independent default or non-fulfilment of export obligations.

The petition and pending application(s) were disposed of.