All Claims Which Are Not Part Of Resolution Plan Shall Stand Extinguished, No Person Entitled To Initiate Any Proceedings Over Such Claims: Bombay HC

Brief Facts

The present case involves Garden Silk Mills Limited as the appellant and Gayatri Industries along with other respondents. The dispute arose form a monetary decree which was issued on January 20, 2003, against the appellant. In May 2003, Garden Silk Mills Limited filed a first appeal before the Bombay High Court challenging this judgement. Subsequently, on June 17, 2003, the High Court granted a stay on the decree, subject to the appellant furnishing a bank guarantee which was periodically renewed and remains valid until August 16, 2025.

While the appeal was pending, the Corporate Insolvency Resolution Process (CIRP) was initiated against Garden Silk Mills Limited under the IBC Code, 2016 (IBC). The National Company Law Tribunal (NCLT), Ahmedabad admitted the insolvency application and a Resolution Professional (RP) was appointed to oversee claims. On January 1, 2021, the NCLT approved the Resolution Plan under Section 31 of the IBC. However, Gayatri Industries failed to submit its claims before RP, meaning that their claim was not included in the Resolution Plan.

The Appellant draws support from the decision of the Apex Court in Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co., Ltd and the decision in Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta stating that once the Resolution Plan is approved under Section 31(1) of IBC, all claims as provided in resolution plan stand frozen and all claims not forming part of the Resolution Plan stand extinguished.

The Respondent argues that the money deposited in the court as a condition for stay of execution of the decree had ceased to remain the asset of Garden Silk Mills Limited and instead the money had become custodia legis. The argument was also supported by the Bombay High Court ruling in Rajendra Prasad Bansal v. Reliance Communication Ltd.

The respondent also contended that the bank guarantee furnished by Garden Silk Mills Limited should not be released because they were given as a condition for the stay of execution of the decree. They relied on Supreme court precedent including P.S.L Ramanathan Chettiar v. O. Rm. Ramanathan Chettiar.

The Appellant in response to the monies deposited in Court becoming custodia legis based on the judgment of this Court in Rajendra Prasad Bansal v. Reliance Communication Ltd has been considered in the decision of Siti Networks Ltd. v. Rajiv Suri holding that judgment in the case of Rajendra Prasad Bansal v. Reliance Communication Ltd apply only to the parties in that case and that the statement of law contained therein has been overtaken by the Supreme Court's order in the matter of Siti Networks Ltd. v. Rajiv Suri permitting the withdrawal of bank guarantees.

High Court Judgement

The court after considering the submissions of both the parties gave its reasoning whether a debt can be claimed after a resolution plan has been approved and whether the Appellant was entitled to the bank guarantee. The court for the first issue relied on the judgement of the Hon'ble Apex Court in the case of Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co., where 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 part of resolution plan approved by the Adjudicating Authority.

The apex court stated that all claims which are not part of the Resolution Plan shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of any such claim. As admittedly the court held that Respondent's claim was not part of Resolution Plan and the claim stood extinguished upon approval of the Resolution Plan.

Pertaining to the issue of bank guarantee, the court stated that,

“Permitting the Respondent No.1 to stake a right to the bank guarantees would amount to satisfying the debt of Respondent No.1 which is precisely prohibited, once the claim does not form part of the Resolution Plan.”

As a result, the court concluded stating that the debt of respondent stand extinguished and no right vests in the Respondent in respect of the bank guarantees or to oppose the release of bank guarantees.

Case Title: Garden Silk Mills Limited v. Gayatri Industries

Case Number: INTERIM APPLICATION NO. 3540 OF 2021 in FIRST APPEAL NO. 748 OF 2003

Court: Bombay High Court

Coram: Sharmila U. Deshmukh, J

Mr. Shyam Kapadia, Mr. Shayan Dasgupta and Mr. Surya Ravikumar i/b Khaitan & Co., for the Applicant / Appellant.

Mr. Aseem Naphade, Ms. Nishtha Malik, Ms. Sonali Kochar, Ms. Bijal Soni, Mr. Tejas Horambe and Ms. Naqqiya Saifee i/b NAS Legal Advocates for the Respondent

Date of Judgement: March 10, 2025

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