All Claims Before Approval Of Resolution Plan Are Extinguished Once Plan Is Approved U/S 31 Of IBC: Orissa High Court

Brief Facts

The State Bank of India (financial creditor) filed an application under section 7 of the Insolvency and Bankruptcy Code (IBC) against Orissa Manganese and Minerals Ltd.-OMML (corporate debtor) for initiating Corporate Insolvency Resolution Process (CIRP). The application was admitted on August 3, 2017 by the NCLT. The NCLT approved a resolution plan submitted by a successful resolution applicant on June 22, 2018. This plan was approved by Committed of Creditor (CoC) with 89.23% voting shares.

This approval of plan attained finality after it was approved by the Supreme Court in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. & Ors. (2021) wherein the court upheld that NCLT decision and quashed the observation of the NCLAT to the extent it directed the corporate debtor to pay the dues owed arising from other forums. Three writ petitions were filed challenging demand letters issued by the state to the corporate debtor. Al these petitions were heard and disposed of together as all pertained to the same subject matter.

Contentions

The petitioner contended that once a resolution plan is approved, it is binding on all parties including government authorities. New liabilities cannot be imposed as it would defeat the purpose of the IBC that is to revive the corporate debtor. The petitioner relied on the Supreme Court judgment in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. & Ors.(2021) wherein it was held that approval of a resolution plan extinguishes all liabilities predating the date of approval under section 31 of the IBC.

Per contra, the state submitted that statutory liabilities were not negated especially arising from the Supreme Court judgment in Common Cause v. Union of India (2017) in which the court awarded the compensation under section 21 of the MMDR Act. It was further argued that these dues directed by the court to be recovered cannot be effaced after the approval of resolution plan. It was further submitted that no authority whether NCLT or CoC or NCLAT could have refused to enforce the statutory demands by approving the resolution plan. It was further submitted that as per the Supreme Court judgment in Lalit Kumar Jain -V- Union of India and Others (2020), the statutory liabilities of the corporate debtor cannot be discharged due to section 31 of the IBC.

High Court's Analysis

The High Court agreed with the contention of the petitioner and observed that once a resolution is approved, it binds all the stakeholders as per section 31 of the IBC. The court referred to the Supreme Court judgment in CoC of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors.(2019) wherein it was held that approval of resolution plan is binding on all the stakeholders under section 31 of the IBC.

The court referred the Supreme Court judgment in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. & Ors. (2021) again in which it was held after analysing the provisions of the IBC that once a resolution plan is approved, it binds all the stakeholders involved including creditors.

The court held that in the present case the resolution plan was approved on June 22, 2018 by the NCLT. It extinguished all liabilities predating the date of approval of resolution plan therefore the claims of the state with respect to the period prior to the approval date cannot be entertained.

The court further observed that no new surprising claims can be demanded from the SRA. After the approval of resolution plan, clean slate theory gets triggered which negates all the liabilities owed by the corporate debtor prior to the approval of resolution plan. The court further observed that after the approval of the plan, the corporate debtor no more remains a corporate debtor, it is under a legal obligation only as per the plan.

The court further noted that section 31 of the IBC binds state and central government therefore any claim raised by the government authorities which fall in the period till the resolution plan is approved cannot be countenanced. It was observed as under:

“No surprise claim should be flung on the Resolution Plan as the Resolution Plan provides the Corporate Debtor's business on a clean state to the successful Resolution Applicant. Further, the Resolution Applicant “should start with fresh slate on the basis of the Resolution Plan approved shunning its prior status as 'Corporate Debtor'.”

Conclusion

The High Court directed the state to issue demand letters afresh from June 22, 2018 onwards. The court set aside the impugned letters under which demands were made against the petitioner. Accordingly, all three writ petitions were disposed of.

Case Title: Orissa Manganese & Minerals Ltd. v. State of Odisha and Ors.

Court: High Court, Orissa

Case Reference: W.P.(C) No. 1497 of 2024 with W.P. (C) No. 2304 of 2024 and W.P.(C) No. 2307 of 2024

Judgment Date: 01/10/2024