Once the resolution plan is approved, no surprise claim can be made against the corporate debtor: High Court of Delhi

The Delhi High Court folding bench Chief Justice Manmohan AND Justice Tushar Rao Gedela reiterated that once the resolution plan is approved by the NCLT, all prior claims against the Corporate Debtor are extinguished under the clean slate theory. The court stated: “According to the said theory, the successful Problem Resolution Applicant to get a fresh breath or a new lease of life can proceed to resurrect the “continuing problem” and no surprise claims are made in connection with it so that all the effort of revitalization and restarting the Corporate Debtor is wasted .“. The court noted that the appellant had allowed the claim to lapse without protest or objection. She also stated that just because the NCLT did not allow the waiver while approving the resolution plan, it will not ipso facto restore the right to claim.

Quick facts:

On March 2, 2015, a Hard Coal Mine Development and Production Agreement was entered into between the respondent, OCL Iron and Steel Ltd. and the appellant (Designated Authority, Ministry of Coal) relating to the development of the Ardhagram mine. The Hard Coal Mine Agreement provided for the loss of the Performance Bank Guarantee (“PBG”) in the event of termination of the Agreement by the Defendant.

On December 31, 2021, the appellant terminated the contract due to the failure of the Defendant PBG to extend it. The resolution officer filed a termination complaint with the NCLT, which was dismissed. However, NCLAT passed an interim order which restored the suspension of the contract.

On September 20, 2021, the Cuttack Bench of NCLT initiated Insolvency Resolution Process (CIRP) against the respondent. The Resolution Panel dismissed the appellant’s claim as a financial creditor in respect of the PBG amount as it failed to disclose the “financial debt” as required by Art. 3 section 31 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The NCLT has approved the Applicant’s effective Scheme of Arrangement dated 27/05/2022 under Art. 31 section 1 of the IBC, on March 20, 2023. After its approval, the defendant submitted an application to submit a bid for the purchase of the Lalgarh South coal mine. In a letter dated May 22, 2024, the appellant prohibited the defendant from participating in potential mine auctions until the outstanding contributions were paid.

The defendant submitted a written request to appeal against this decision. The basis of this objection was that the respondent who had undergone CIRP should not be liable for the outstanding dues which had been included in the Resolution Plan. By the appealed judgment of July 26, 2024, the Single Judge quashed the appellant’s order of May 22, 2024 disqualifying the defendant from participating in mine auctions until the outstanding contributions were paid. It held that the defendant could not be held liable for expired liabilities and that under the IBC scheme the defendant was entitled to a clean slate proceeding.

The appellant filed an appeal under Clause

disputes:

The Appellant’s claims:

• The appellant’s claim of Rs 92.25 crore is still a standing claim and has never been rejected or adjudicated by any authority.
• The return of the claim on the ground that the appellant was not a “financial creditor” and required re-filing/resubmitting the claim in the appropriate format cannot amount to a rejection of his claim.
• The NCLT approved the Scheme of Arrangement while rejecting the respondent’s application to waive the appellant’s claims. The NCLT’s confirmation meant that the appellant’s claims had not been waived or extinguished under the resolution plan.
• Even if it is deemed time-barred, only the right to pursue a claim may expire, not the claim itself. This may impact the respondent’s eligibility for future auctions under a clause in the tender document that requires “payment of outstanding amounts”.
• Reliance was placed on Swiss Ribbons Sp. Ltd. v. Union of Indiawhich stated that the resolution professional had no adjudicatory powers, and Greater Noida Industrial Development Authority v. Prabhjit Singh Soniwhere it was stated that “since the claim was presented with evidence, it could not have been disregarded merely because it was in a different form. …the form in which a complaint should be submitted is a catalogue. It is necessary to support the claim with evidence”

Defendant’s claims:

• The appellant’s claim as a “financial creditor” had already been rejected in the notice of 6 January 2022. Despite the possibility of re-submitting the claim to the resolution professional by means of a letter of 7 January 2022, the appellant did not exercise this option. took advantage. Therefore, the appellant can no longer pursue a dead claim.
• Once the resolution plan was approved, the appellant could not argue that the amount claimed was still due.
• The appellant’s arguments are contrary to the clean slate principle. It was relied upon Ghanashyam Mishra & Sons Private Limited v. Edelweiss Asset Reconstruction Co. Ltd. & Ors. claim that the approved Resolution Plan entitles the Resolution Applicant to operate the Corporate Debtor as a “continuing issue” free from the burden of past liabilities which are included in the Resolution Plan. Therefore, the Appellant cannot impose any obstacles on the Respondent’s participation in potential auctions of hard coal mines.

Observations:

The court observed that the appellant had neither re-filed/re-filed the suit nor opposed the approval of the Scheme of Liquidation by the NCLT on March 20, 2023. Reliance on Ghanashyam Mishra & Sons Private LimitedThe Court noticed this “It is trivial that once the resolution plan is formally approved by the NCLT, all other outstanding claims etc. will be deemed to have expired.”

The court noted that the appellant allowed the claim to lapse without protest or objection. It claimed so just because the NCLT did not allow the waiver while approving the resolution plan, it will not ipso facto restore the right to claim. It further held that the appellant’s right to claim expressly terminates upon the approval of the resolution plan.

The Court noted that in the case of Ghanashyam MishrAND introduced the “clean slate” theory/principle. “According to the said theory, the successful Problem Resolution Applicant to get a fresh breath or a new lease of life can proceed to resurrect the “continuing problem” and no surprise claims are made in connection with it so that all the effort of revitalization and restarting the Corporate Debtor is wasted .”, he stated. Taking into account the adopted principle, the Court found that there were no grounds to interfere with the judgment under appeal.

The court found that the relationship Swiss ribbons would not apply because the appellant had not taken any action at all to challenge the Liquidation Plan. The court noticed this “after returning the complaint, there was no longer a substantive basis for inclusion in the Liquidation Plan in the absence of re-submission of the complaint.Therefore, the mere absence of a claim also caused intercourse Greater Noida Industrial Development Authority does not apply to the case.

The court found that the complainant had chosen not to pursue its claims in relation to the claim. It therefore dismissed the complaint.

Case title: Union of India v. OCL Iron and Steel Limited

Case number: LPA 964/2024, CAV 485/2024 and CM APPL. 56652-55/2024

On behalf of the Appellant: Mr. Kirtiman Singh, CGSC with Mr. Waize Ali Noor, Mr. Maulik Khurana, Mr. Varun Pratap Singh and Mr. Ranjeev Khatani, Advocates.

For Respondent: Mr. Sandeep Sethi, Senior Advocate along with Mr. Divyakant Lohoti, Mr. Kartik Lohoti, Ms. Anushka Awasthi, Ms. Riya Kumari, Ms. Praveena Bisht, Ms. Vindhya Mehra, Mr. Samridhi Bhat and Mr. Adith Menon, Advocates.

Judgment date: 22/10/2024

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