IBC

GHANASHYAM MISHRA VS. EDELWEISS ASSET RECONSTRUCTION LTD. (CASE SUMMARY)

The Supreme Court has held in Ghanashyam Mishra and Sons Vs. Edelweiss Asset Reconstruction Ltd.  (Civil Appeal No. 8129 of 2019) that debts including the ones owed to Central Government, State Government or local authority, which does not form a part of the approved resolution plan, shall stand extinguished.

The Supreme Court was considering a bunch of matters. The issues before the Court were – firstly whether Central Government, State Government or any Local Authority is bound by resolution plan; secondly whether amendment to Section 7 is clarificatory/declaratory or substantive in nature and thirdly whether Central Government, State Government or Local Government is entitled to initiate any proceedings for recovery after approval of resolution plan.

NCLT/NCLAT HAS LIMITED POWER TO REVIEW COC DECISION

Hon’ble Supreme Court relied on K Shashidhar Vs Indian Overseas Bank 2019 12 SCC 150Committee of Creditors of Essar Steel India Limited through Authorised Signatory vs Satish Kumar Gupta (2020) 8 SCC 531, Karad Urban Cooperative Bank Ltd vs Swappnil Bhingadevay&Ors (2020) 9 SCC 729, Kalpraj Dharamshi and Anr vs Kotak Advisors Ltd. 2021 SCC OnLine SC 204 and observed that paramount importance has been given to commercial wisdom of Committee of Creditors. There are limited scope available for judicial review by NCLT. Judicial review of decision of CoC can be done on the ground to the extent given under Section 31.

EXTINGUISHMENT OF CLAIMS WHICH ARE NOT PART OF RESOLUTION PLAN

The Hon’ble Supreme Court held that no surprise should be flung on the Resolution Applicant after approval of the resolution plan. The Supreme Court noted that the Resolution Plan has provision for payment to operational creditor and financial creditor. Under the Code an Information Memorandum has to be prepared by the RP so that Resolution Applicant may be aware of assets and liabilities of the Corporate Debtor including the claims of the creditors. The Supreme Court relied upon Committee of Creditors of Essar Steel India Limited and held that claim which does not form part of the resolution plan shall be extinguished.

AMENDMENT OF SECTION 31 (1) DECLARATORY & CLARIFICATORY

That   Supreme Court has held  that amendment  of  Section 31 (1) is declaratory and clarificatory and hence applicable with retrospective effect.  The Supreme Court observed that “other stakeholders ” will cover Central Government, State Government or Local Government. The legislature noticing that some tax authorities are not abiding by the code has brought about the amendment.

FINDING OF THE SUPREME COURT

Hon’ble Supreme Court held that once the Resolution Plan is approved by the Adjudicating Authority , resolution Plan will stand frozen. The resolution plan will be binding on Corporate Debtor, its employees, debtors, members and creditors including Central Government, State Government or any local authority. On the date of approval of the Resolution Plan, all claims which do not form part of Resolution Plan, stand extinguished. No person can initiate proceedings in respect of any claim which do not form part of Resolution Plan. The Supreme Court further held that 2019 amendment to Section 31 of the Code is clarificatory and declaratory and hence will be effective from the date on which the Code has been enforced. All dues owned to Central Government or Local Government , which do not form part of Resolution Plan, will stand extinguished.

_______________________________________

Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Leave a Reply

Your email address will not be published. Required fields are marked *