All claims not part of resolution plan get extinguished on approval of resolution plan by Adjudicating Authority under S. 31 IBC: Supreme Court

The Supreme Court on Tuesday held that once a resolution plan is approved by the Adjudicating Authority under Section 31(1) of the of Insolvency and Bankruptcy Code, 2016 all claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan (Ghanashyam Mishra and Sons Private Ltd v. Edelweiss Asset Reconstruction Company)..Once a resolution plan is duly approved, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central government, any State government or any local authority, guarantors and other stakeholders, the Court ruled..“On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan,” the judgment said..Further, the Court also ruled that 2019 amendment to Section 31 of the IBC is clarificatory and declaratory in nature and therefore, will be effective from the date on which IBC came into effect.Consequently, all the dues including the statutory dues owed to the Central government, any State government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued..The Court was hearing a batch of cases in which these issues came up for consideration..On the resolution plan, the Court observed that legislature has given paramount importance to the commercial wisdom of Committee of Creditors (CoC) and the scope of judicial review by Adjudicating Authority is limited to the extent provided under Section 31 of IBC and of the Appellate Authority is limited to the extent provided under sub-section (3) of Section 61 of IBC.Once the resolution plan is approved by the Adjudicating Authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the IBC is, revival of the Corporate Debtor and to make it a running concern.The legislative intent of making the resolution plan binding on all the stakeholders after it gets he seal of approval from the Adjudicating Authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant.With regard to the issue of statutory claims of the State Government and the Central Government in respect of the period prior to the approval of resolution plan by Adjudicating Authority, the Court proceeded to examine the object of the amendment.."Perusal of the Statement of Objects and Reasons would reveal, that one of the prime objects of IBC was to provide for implementation of insolvency resolution process in a time bound manner for maximisation of value of assets in order to balance the interests of all stakeholders. However, it was noticed, that in some cases there was extensive litigation causing undue delays resultantly hampering the value maximisation," the Court observed. The legislative intent in amending sub-section (1) of Section 31 of IBC, the apex court said, was to clarify, that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities..In this regard, reliance was also placed on Rajya Sabha debates and Finance Minister’s speech to conclude that the amendment was clarificatory in nature."The legislative intent in amending sub-section (1) of Section 31 of I&B Code was to clarify, that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities," the Court concluded. .[Read Judgment]