Once a Resolution Plan is approved by the AA, the same, irrespective of whether or not they participated in the CIRP, binds all creditors and any claims not forming part of the approved Resolution Plan shall stand extinguished, held by Hon’ble Supreme Court in Ghanashyam Mishra And Sons Private Limited Through The Authorized Signatory Vs. Edelweiss Asset Reconstruction Company Limited Through The Director & Ors. (Civil Appeal No. 8129 of 2019, Decided On: 13.04.2021)
"…all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued."
The Supreme Court of India, vide its detailed judgment dated 13-4-2021 in Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.(GMSPL order) has settled that with respect to any statutory dues owed/claims raised in relation to the period prior to the 2019 Amendment, the resolution plan shall still be binding on the statutory creditors concerned, and the statutory dues owed to them, which were not included in the resolution plan, and such claims shall stand extinguished.
Section 14(1)(a) of the Code prohibits the institution of suits or the continuation of pending suits or proceedings against the corporate debtor (including the execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority), upon admission of the petitions filed under Section 7, Section 9 or Section 10 and passing of orders for initiation of corporate insolvency resolution process (CIRP). Thus, in terms of Section 14 of the Code, a “moratorium” is imposed against initiation or continuation of legal proceedings against the corporate debtor
In earlier judgments of the Supreme Court, including in Essar Steel (India) Ltd. v. Satish Kumar Gupta, K. Shashidhar v. Indian Overseas Bank, Maharashtra Seamless Limited v. Padmanabhan Venkatesh, Karad Urban Coop. Bank Ltd. v. Swapnil Bhingardevay and Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., on account of the imposition of the moratorium under Section 14, legal proceedings have been held to not continue and be adjudicated upon/determined against the corporate debtor. The Courts had held that all such claims, being undecided and disputed claims, are to be submitted to the resolution professional, in order to be addressed in the resolution plan, and that the resolution plan shall be the final authority on such claims if the plan is approved subsequently by the adjudicating authority. For all intents and purposes, in terms of the various judgments mentioned hereinabove, the undecided claims have been dealt with by resolution professionals and included/precluded from the resolution plan accordingly.
Facts in Brief:
Orissa Manganese and Mineral Ltd i.e. the Corporate Debtor was engaged in the business of mining ore, graphite, manganese ore and agglomerating iron fines into pellets through its facilities in Orissa and Jharkhand. CIRP was initiated agianst the Corporate Debtor by an application under Section 7 of I&B Code filed by the State Bank of India before NCLT, Kolkata Bench. CoC meeting was convened for voting on the Resolution Plan proposed by Ghanashyam Mishra & Sons Private Limited (GMSPL). Aand thereafter a Company Application was filed by Resolution Professional for approval of the same as it fulfiled the requirements under Section 30(2) of the I&B Code. Respondent contended the approval of Resolution Plan and sought application for a direction to GMSPL, to undertake to pay the full amount due and payable under the said corporate guarantee and further to issue directions for protecting the rights of the lenders of APNRL as pledgee.
Issue Raised before NCLT
Appellant filed an Application challenging the approval of the Resolution Plan of GMSPL and the decision of RP in not admitting its claim. Another Application was filed by the District Mining Officer, Department of Mining and Geology, Jharkhand challenging non-admission of its claim to tune of Rs.93,51,91,724/¬ and Rs.760.51 crore.
Held: The NCLT, vide Order dated 22.06.2018, rejected the claim of the of EARC on account of invalid grounds and abuse of Tribunal powers, thereby approving the Resolution Plan of GMSLP which was duly approved by CoC by voting share of more than 89.23%. The other Appliaction was dismissed on finding that the claim was not supported by any document or affidavit on record, thereby rejecting all claims.
Issue Raised before NCLAT
Four Appeals were filed before the Appellate Tribunal by EARC, Sundargarh Mines & Transport Workers Union and an employee of Adhunik Power and Natural Resources Limited (APNRL).
Held: The NCLAT, vide Order dated 23.4.2019, while upholding the Order of the NCLT, dismissed the two appeals of EARC as there was no illegality in approval of Resolution Plan of GMSLP. The appeal of Sundargarh Mines & Transport Workers Union was considered and observed that the appellant therein may move before the Court of competent jurisdiction against the Corporate Debtor. Further, the appeal of APNRL employee was granted. Therefore, GMSPL was aggrieved by the observation made by NCLAT to the effect that the claims of the parties who are not a party to Resolution Plan can be agitated by them before the other forums.
The Order of NCLAT was appealed before the Supreme Court in Civil Appeal No. 8129 of 2019 with Civil Appeal No. 1554 of 2021 and Civil Appeal Nos. 1550-1553 of 2021
The common facts in all the appeals being approval of the Resolution Plan by the NCLT, proceedings were sought to be initiated in alternative forums for recovery of dues not provided for in the Resolution Plan.
ISSUES: Whether any creditor including the Statutory Authority is bound by the Resolution Plan once it is approved by an Adjudicating Authority under sub-section(1) of section 31 of the I&B Code?
Whether the amendment to section 31 is clarifactory/declaratory or substantive in nature?
Whether after approval of Resolution Plan by the Adjudicating Authority, a creditor including any Statutory Authorities are entitled to initiate any proceedings for recovery of any of the dues from the Corporate Debtor, which are not a part of the Resolution Plan approved by the Adjudicating Authority?
OBSERVATIONS: The 2019 amendment to Section 31 of the I&B Code was “declaratory” and “clarificatory” in nature and shall have imperatively have retrospective application to keep the creditors from bypassing the clause by incorporating proceedings related to the debt. All claims and ongoing disputes pertaining to the such claims which are outside the Resolution Plan shall stand exterminated and no person shall be entitled to initiate any proceedings with respect to same on the date when the Resolution Plan is ratified by NCLT. Further, it affirmed that perusal of Section 31 states that once the Resolution Plan is duly approved by NCLT after due affirmation by CoC, the claims provided therein shall stand frozen thereby eliminating the element of surprise claims and will be binding on all stakeholders involved, including the Corporate Debtor and its employees, members, creditors, the Central Government, any State Government or any Local Authority.
HELD: The Apex Court stated that revival of Corporate Debtor to keep it a running concern is eminent to objective of the Code; therefore, the Information Memorandum must contain detailed liabilities of the Resolution Applicant in order for them to devise a plan for facilitating the said objective. The legislature has given paramount importance to the commercial wisdom of Committee of Creditors (CoC) and the scope of judicial review by the Adjudicating Authority is limited to the extent provided under section 31 of Code and of the Appellate Authority is limited to the extent provided under sub-section (3) of section 61 of the Code, is no more res integra.
Section 31 of the Code was amended to remedy the mischief that the Statutory Authorities, including the Tax Authorities continued the proceedings in respect of the debts owed to them even after the Adjudicating Authority approved the Resolution Plan. The Court clarified that the 2019 Amendment of section 31 subsection (1) of the Code stated all the dues including the statutory dues, if not part of the Resolution Plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under section 31 could be continued. The word “other stakeholders” squarely covers the Central Government, any State Government or any Local Authorities. Hence, 2019 Amendment is “declaratory”, “clarificatory” in nature and “retrospective” in operation.
A cardinal principle of law is that a statute has to be read as a whole. The Court stated that Harmonious Construction of subsection (10) of section 3 of the Code read with subsections (20) and (21) of section 5 thereof would reveal that even a claim in respect of dues arising under any law for the time being in force and payable to any Statutory Authority would come within the ambit of “operational debt”. The Central Government, any State Government or any local authority to whom an operational debt is owed would come within the ambit of “operational creditor" as defined under sub-section (20) of section 5 of the Code. Consequently, a person to whom a debt is owed would be covered by the definition of ‘creditor’ as defined under sub-section (10) of section 3 of the Code.
Jugraj Singh Bedi
Smiti Patnaik
