“The IBC ensures a clean slate; claims outside the approved resolution plan cannot be revived via arbitration.” — Hon’ble Supreme Court Bench
New Delhi, April 27, 2025 – The Supreme Court of India has ruled that an arbitral award addressing claims not incorporated in a resolution plan approved under the Insolvency and Bankruptcy Code (IBC), 2016, is unenforceable. This significant judgment, delivered on April 21, 2025, arose from a dispute between Electrosteel Steel Limited (now M/s ESL Steel Limited) and Ispat Carrier Private Limited, reinforcing the binding effect of an approved resolution plan under Section 31 of the IBC.
A bench of Justices Abhay S. Oka and Ujjal Bhuyan allowed an appeal challenging the enforcement of an arbitral award issued by the West Bengal Micro and Small Enterprises Facilitation Council (MSEFC) in favor of Ispat Carrier. The Court held that claims excluded from the National Company Law Tribunal (NCLT)-approved resolution plan are extinguished, rendering the award void and incapable of execution.
Case Background
The dispute originated from two purchase orders under which Ispat Carrier, a registered Micro, Small, and Medium Enterprise (MSME), supplied cranes and trailers to Electrosteel. In December 2014, Ispat Carrier filed claims worth Rs. 1,59,09,214.33 before the West Bengal MSEFC under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. After conciliation failed, arbitration commenced on June 7, 2017. However, on July 21, 2017, the NCLT imposed a moratorium under Section 14 of the IBC following a petition by Electrosteel’s financial creditors, halting the arbitration.
Ispat Carrier submitted a claim of Rs. 4.34 crore to the interim resolution professional, with Rs. 1.59 crore admitted and Rs. 2.84 crore rejected. Vedanta Limited’s resolution plan, submitted on March 29, 2018, proposed a nil value settlement for operational creditors, including Ispat Carrier. The NCLT approved the plan on April 17, 2018, lifting the moratorium. The plan explicitly settled all claims under pending litigations and arbitrations at nil, and Ispat Carrier did not challenge the NCLT’s approval.
After the moratorium was lifted, the MSEFC resumed arbitration and issued an award on July 6, 2018, directing Electrosteel to pay Rs. 1,59,09,214.33 with interest. Electrosteel did not challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996, but contested its execution under Section 47 of the Code of Civil Procedure (CPC), arguing that the claim was extinguished by the approved resolution plan. The Commercial Court, Bokaro, and the Jharkhand High Court dismissed Electrosteel’s objections, prompting the appeal to the Supreme Court.
Supreme Court’s Ruling
The Supreme Court addressed two critical issues:
Maintainability of Objections Under Section 47 CPC: The Court held that objections to the execution of an arbitral award under Section 47 CPC do not require a prior challenge under Section 34 of the Arbitration Act. An award lacking jurisdiction, such as one addressing an extinguished claim, can be challenged as void during execution proceedings.
Effect of IBC Resolution Plan: The Court reaffirmed the “clean slate theory,” stating that claims not included in an NCLT-approved resolution plan are extinguished upon approval under Section 31 of the IBC. The MSEFC lacked jurisdiction to arbitrate a claim settled at nil in the resolution plan, and the lifting of the moratorium did not revive extinguished claims.
The Court emphasized that allowing undecided claims post-approval would undermine the IBC’s objective of providing certainty to resolution applicants. Citing Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021), the Court underscored the binding nature of approved resolution plans, which supersede conflicting claims under other laws, including the MSMED Act.
Outcome
The Supreme Court set aside the orders of the Jharkhand High Court and the Commercial Court, Bokaro, and quashed the execution proceedings. The ruling clarifies that arbitral awards cannot override an NCLT-approved resolution plan and strengthens the IBC’s framework by ensuring finality for creditors’ claims.
Case Reference
Case Title: Electrosteel Steel Limited (Now M/s ESL Steel Limited) v. Ispat Carrier Private Limited
Case Number: Civil Appeal No. 2896 of 2024 arising out of SLP (C) No. 15823 of 2023
Neutral Citation: 2025 INSC 525
Coram: Justices Abhay S. Oka and Ujjal Bhuyan
Date of Judgment: April 21, 2025
Implications
This judgment bolsters the IBC’s efficacy by protecting resolution applicants from unforeseen liabilities and clarifying the interplay between the IBC and arbitration laws. It affirms that jurisdictional defects in arbitral awards, particularly those concerning extinguished claims, can be challenged during execution, ensuring the supremacy of the IBC’s resolution process.
Published by Literal Law on April 27, 2025
