All claims not part of resolution plan get extinguished on approval of resolution plan by Adjudicating Authority under S. 31 IBC

Ghanashyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited [Civil Appeal No. 8129 of 2019]

Brief: In the said appeal the Hon’ble Supreme Court interpreting section 31(1) of the IBC, 2016 held that (a) the claims of the parties, which are not included in the resolution plan cannot be agitated by them before the other fora, and (b) the respondents are not entitled to recover any claims or claim any debts owed to them from the CD accruing prior to the transfer to resolution applicant.

RELEVANT PARAGRAPH

2. The short but important questions, that arise for consideration in this batch of matters, are as under:

i. As to whether any creditor including the Central Government, State Government or any local authority is bound by the Resolution Plan once it is approved by an adjudicating authority under subsection (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘I&B Code’)?

ii. As to whether the amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature?

iii. As to whether after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority is 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?

95. In the result, we answer the questions framed by us as under:

i. That once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;

ii. 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;

iii. Consequently, 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.