Arbitral award unenforceable when claims are not part of insolvency resolution plan: Supreme Court

The Supreme Court on Monday ruled that an arbitral award passed by a Micro, Small and Medium Enterprises (MSME) Facilitation Council after the approval of an insolvency resolution plan is unenforceable [Electrosteel Steels Limited v. Ispat Carrier Private Limited]..A Bench of Justices Abhay S Oka and Ujjal Bhuyan clarified that once a resolution plan is approved by the National Company Law Tribunal (NCLT), all claims not included in it are extinguished, and no person is entitled to initiate or continue proceedings for such claims which are not part of the resolution plan.The Court made the observations while setting aside execution proceedings initiated against an MSME. “Upon approval of the resolution plan by the NCLT, the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed," the Court said. .The dispute arose from claims by Ispat Carrier for equipment it had supplied to Electrosteel Steels Limited (ESL). When Electrosteel underwent insolvency proceedings, Vedanta Limited submitted a resolution plan that was approved by the NCLT in April 2018. After the moratorium was lifted, the West Bengal Micro, Small and Medium Facilitation Council passed an arbitral award in favor of Ispat Carrier..The Supreme Court found that the High Court erred in concluding that the Facilitation Council maintained jurisdiction to arbitrate the claim after the resolution plan was approved by NCLT.“A successful resolution applicant cannot be faced with undecided claims after the resolution plan is accepted. Otherwise, this would amount to a hydra head popping up which would throw into uncertainty the amount payable by the resolution applicant," the Court emphasised..The Court held that since the arbitral award was passed without jurisdiction, it could be challenged during execution proceedings under Section 47 of the Civil Procedure Code even without filing a separate application to set aside the award under Section 34 of the Arbitration and Conciliation Act.On the impact of lifting of moratorium, the Court explained that,"Lifting of the moratorium does not mean that the claim of the respondent would stand revived notwithstanding approval of the resolution plan by the adjudicating authority. Moratorium is intended to ensure that no further demands are raised or adjudicated upon during the corporate insolvency resolution process," the judgment stated..Once a resolution plan is approved, the claim of Ispat stood extinguished, the Court ruled."In terms of the resolution plan, as approved, the claim of the respondent stood extinguished. Therefore, the Facilitation Council did not have the jurisdiction to arbitrate on the said claim," the Court concluded..Hence, the appeal was allowed and both the High Court's judgment and the execution proceedings that were pending before the commercial court in Bokaro were set aside..Electrosteel was represented by Senior Advocate Gopal Jain with advocates Anusuya Sadhu Sinha and Siddharth Naidu from KSN & Co..Ispat was represented by Senior Advocate Rajshekhar Rao and advocates Sameer Kumar, Shahrukh Ahmad, Somi Sharma, and Mandeep Baisala..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.