Creditors cannot pursue pending litigation or arbitration after claim is fairly acknowledged in Resolution Plan, NCLAT

The NCLAT has held that once a Creditor, Financial or Operational, files its claim before the Resolution Professional and a “successful resolution plan”, which gives them the same treatment as the other similarly situated creditors, comes into existence, the Creditor, thereafter, cannot take the benefit of Section 60(6) of the Insolvency and Bankruptcy Code and pursue any litigation or arbitration with respect to the same claim..The Judgment was passed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari. .The Appellants, Kotak Mahindra Investment Ltd and Kotak Mahindra Prime Ltd, had entered into Term Loan Agreements with the Corporate Debtor, M/s. Kitply Industries Limited for a sum of Rs. 6.03 Crore in March 2008..The amount was to be repaid by December 2009 along with interest @ 12% per annum and 24% (penal) and Liquidated Damages @ 24%..In February 2010, upon the failure of the Corporate Debtor to pay back the loan amount, the Appellants sent a Demand Notice to the Corporate Debtor for the outstanding financial debt of Rs. 8,13,37,961 along with interest and liquidation damages..In its reply sent in March 2010, the Corporate Debtor denied the liability to pay the outstanding debts as claimed by the Appellants..Subsequently, the Appellants sent a Statutory Notice to the Corporate Debtor In April 2010 under Sections 433 and 434 of the Companies Act, 1956 demanding their respective debt amounts with interest and liquidation damages..Based on this notice, the Corporate Debtor filed a suit before the Calcutta High Court seeking a direction to convert the entire outstanding amount outstanding into equity shares..It was the Corporate Debtor’s case that there was an oral Agreement with the Appellants that the entire Term Loan would be converted into equity shares, after receiving the sanction for the scheme of Arrangement from the High Court concerned..Meanwhile, the Appellants invoked the Arbitration Clause under the Term Loan Agreement and filed an application before the Calcutta High Court under Section 8 of the Arbitration & Conciliation Act, 1996..After a round of litigation which went up till the Supreme Court, the Calcutta High Court ultimately referred the Appellants and the Corporate Debtor to arbitration in June 2016..While the arbitration proceeding was still pending, IDBI Bank filed an application under Section 7 IBC against the Corporate Debtor in November 2017. The same was admitted on May 1, 2018, and the Arbitrator adjourned the arbitration proceedings sine die..In August 2018, the Appellants, who were initially unaware of the order of admission, filed their respective claims in Form C before the Resolution Professional..Subsequently, in December 2018, the Adjudicating Authority approved the Resolution Plan submitted by SREI Multiple Asset Investment Trust (Vision India Fund)..The Appellants argued before the NCLAT that the Resolution Plan was against the provisions of Section 30(2) IBC as it failed to take care of their claims. In the alternative, it was submitted that the Appellants would pursue the Arbitration Proceeding in terms of Section 60(6) IBC..In view of the appeal, the Successful Resolution Applicant revised the offer to the Appellants and agreed to provide more than Rs.31,87,829 on the basis of the claim made by the Appellants, as opposed to the earlier offer of Rs 3,02,000..The NCLAT observed that the offer appeared to be justified and granted an opportunity to the appellant to accept the same. After the same was refused, the NCLAT decided to conclude the appeal on merit..In view of the facts and circumstance, the NCLAT opined that the Appellants should have accepted the revised offer instead of agitating to litigate the matter by allowing them to continue with the Arbitration Proceeding..The NCLAT stated that as per Section 60(6) IBC, it was always open to a creditor to proceed with a pending suit or arbitration proceeding on completion of the moratorium..However, once a creditor files its claim before the Resolution Professional and a successful resolution plan gives them the same treatment as the other similarly situated creditors, the creditor cannot take the benefit of Section 60(6) to pursue any litigation or arbitration with respect to the same claim, NCLAT clarified..“However, once a Creditor/’Financial Creditor’ or ‘Operational Creditor’ files its claim before the ‘Resolution Professional’ and the same is taken into consideration by the ‘Successful Resolution Applicant’ and while submitting the plan or the revised plan providing them same treatment as has been given to the other similarly situated ‘Financial Creditors’/ ‘Operational Creditors’, the ‘Financial Creditors’/ ‘Operational Creditors’, thereafter cannot take the benefit of sub-section (6) of Section 60 of the ‘I&B Code’ nor they can pray to pursue the suit or arbitration proceeding or to file a fresh suit or arbitration proceeding for the same claim.”, it said..The NCLAT thus stated that in view of the approved Resolution Plan including the revised Resolution Plan which was in consonance with Section 30(2) IBC, the Appellants could not be allowed to pursue the alternative remedy of suit or arbitration proceeding even if it is pending..In view of the above, the NCLAT directed the Successful Resolution Applicant to provide the Appellants with the same treatment as has been given to the other similarly situated Financial Creditors and pay pro-rata amount i.e., the same percentage of the claim amount, as made available to other similarly situated Financial Creditors..The appeals were accordingly disposed of in the above terms..The Appellants were represented by Advocates P Nagesh, Dhruv Gupta, Mahip Datta. .The Respondents were represented by Advocates Abhijeet Sinha, Sanjay Bhatt, Niharika Sharma, K Dutta, Srishti Kapoor, Akshit Kapoor..Read the Judgement: