Once Resolution Plan Is Approved By NCLT, Corporate Entity Starts With Clean Slate : Calcutta High Court

Brief Facts:

Defendant No. 1 merged with Defendant No. 5 in 2008, according to an Order by Court. Consequently, Defendant No. 1 ceased to exist, and subsequently, Defendant No. 5's operations were halted for over fourteen years. This led to the initiation of the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, by the National Company Law Tribunal (NCLT), Kolkata Branch. The resolution plan was approved by the Committee of Creditors and was largely endorsed by the NCLT, Kolkata Branch. By an Order dated, the NCLT directed the implementation of the approved resolution plan within thirty days. Defendant No. 5 approached the Calcutta High Court for striking its name from the suit.

Defendant No. 5 argued that after insolvency proceedings conclude and a resolution plan is duly approved, the corporate entity begins anew, free from past liabilities. It contended that, in accordance with the resolution plan, the company emerged with a clean slate which resulted in the extinguishment of claims against Defendant No. 5.

Observations by the High Court:

The High Court held that once insolvency proceedings are concluded and a corporate resolution plan is approved, the affected companies commence operations with a clean slate (referred to Ghanashyam Mishra & Sons (P.) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd, Sirpur Paper Mills Limited vs. I.K. Merchants Pvt. Ltd, CoC of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors, India Resurgence ARC Pvt. Ltd. vs. Amit Metaliks Ltd. & Anr and Innovative Industries Limited vs. ICICI Bank & Anr.)

Therefore, the High Court held that the claims by the Union of India against Defendant No. 5 no longer subsist and should be considered relinquished. It held that once the resolution plan for Defendant No. 5 was approved and implemented as directed by the National Company Law Tribunal, Kolkata Branch, the company was legally regarded as starting anew, free from prior claims.

Consequently, the High Court decided to strike off the names of Defendant No. 1 and Defendant No. 5 from the list of parties involved in the case. Defendant No. 1 ceased to exist following its merger with Defendant No. 5, and the claims against Defendant No. 5 became non-existent post the resolution process. Therefore, the High Court ordered the amendment of the cause title to reflect the removal of Defendant No. 1 and Defendant No. 5 from the array of parties.

Case Title: Union Of India & Anr. Vs M/S Ramswarup Lohh Udyog & Ors

Case Number: IA NO. GA/2/2024

Advocate for the Applicant: Ms Rajashree Roy, Adv. Mr. Asit Kumar De, Adv. Ms. Susmita Senapati, Adv

Advocate for the Respondent: Mr. Mainak Bose, Adv. Mr. Suddhasatva Banerjee, Adv. Mr. Somdutta Bhattacharyya, Adv. Ms. Arti Bhattacharyya, Adv.

Date of Judgment: 21st May, 2024

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