Mcnally Bharat Engineering Company Limited vs Metso India Pvt. Ltd.

“i.

Releasing the sum of INR 5,52,30,693/-(Indian Rupees Five Crore Fifty-Two Lakh Thirty Thousand Six Hundred Ninety-Three only), deposited by the Petitioner vide an FDR dated April 03, 2021 of Bank of India issued in the name of „Registrar General, High Court of Delhi‟ prepared from the bank account No. 404445110003480, LCB Branch, Kolkata along with interest accrued thereon;

ii.

Dismissing the present petition, being O.M.P. (COMM) 362 of 2018 and the corresponding enforcement proceedings initiated by the Respondent herein, being O.M.P.(ENF.)(COMM) No. 270 of 2018 as infructuous by operation of law;

iii.

Pass such other and further orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the present case.”

“3.

Definitions.—In this Code, unless the context otherwise requires,—

(6)

“claim” means—

(a)

a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b)

right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

(10)

“creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;

(11)

“debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;”

“29. Preparation of information memorandum.—(1)

The resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan.

(2)

The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes—

(a)

to comply with provisions of law for the time being in force relating to confidentiality and insider trading;

(b)

to protect any intellectual property of the corporate debtor it may have access to; and

(c)

not to share relevant information with third parties unless clauses (a) and (b) of this sub-section are complied with.

Explanation.—For the purposes of this section, “relevant information” means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified.”

“31. Approval of resolution plan.—(1) If the

Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.

[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.]

(2)

Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3)

After the order of approval under sub-section (1), —

(a)

the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b)

the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.

(4)

The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.”

“65.

Bare reading of Section 31 of the I&B Code would also make it abundantly clear that 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 I&B Code is revival of the corporate debtor and to make it a running concern. *** *** ***

68.

All these details are required to be contained in the information memorandum so that the resolution applicant is aware as to what are the liabilities that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the corporate debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets the 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. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved.

69.

This aspect has been aptly explained by this Court in Essar Steel (India) Ltd. (CoC) [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] : (SCC p. 616, para 107)

“107.

For the same reason, the impugned N^CLAT judgment in Standard Chartered Bank v. Satish Kumar Gupta [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] in holding that claims that may exist apart from those decided on merits by the resolution professional and by the adjudicating authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, N^CLAT judgment [Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC OnLine NCLAT 388] must also be set aside on this count.” *** *** ***

74.

As such, with respect to the proceedings, which arise after 16-8-2019, there will be no difficulty. After the amendment, any debt in respect of the payment of dues arising under any law for the time being in force including the ones owed to the Central Government, any State Government or any local authority, which does not form a part of the approved resolution plan, shall stand extinguished. *** *** ***

102.

In the result, we answer the questions framed by us as under:

102.1.

That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, 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. 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.

102.2.

The 2019 Amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which the I&B Code has come into effect.

102.3.

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.”

“55.

This Court is further of the view that no Resolution Plan can succeed if uncertain or unquantified claims are permitted to linger and resurface against the Successful Resolution Applicant years after approval. Such a situation would be akin to a hydra-headed recurrence and is antithetical to the „clean slate‟ principle. *** *** ***

61.

Consequently, upon a harmonious reading of the Resolution Plan, this Court is of the opinion that all legal proceedings, including arbitration and civil suits which had not culminated in determinable, quantifiable claims by the date of approval of the Resolution Plan by the NCLT stand abated, extinguished, waived or withdrawn. Only crystallised claims as on the effective date (i.e. 18th May 2018) are payable on a pro-rata basis. Accordingly, no amount beyond Rupee One (₹1) each was payable to Respondent No.1-Varsha and the Intervenor-Masyc, whose pending arbitration and civil proceedings stood abated/waived/ extinguished/withdrawn upon approval of the Resolution Plan.”

“39.

It is thus clear from a conspectus of the aforementioned judgments that all such claims, which are not a part of the resolution plan on the date of approval, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect of claims, which are not part of the resolution plan and so much so this would apply to the statutory dues owed to the Central/State Governments, local bodies, etc. In the instant case, the claims which were referred to arbitration were not part of the approved resolution plan and stood extinguished and were thus not arbitrable.”

“18.

The proposition of law having been crystallized that once a successful Resolution Plan is accepted, all the Claims against Corporate Debtor gets extinguished and only such debts which form part of Resolution Plan would be taken up by the Successful Resolution Applicant.

19.

The question which now arises is whether the petition under Section 34 challenging the Award, would become not maintainable. The scheme as envisaged in IBC is that a Notice is required to be given at various stages since the inception of the petition till the approval of the Resolution Plan, by the IRP. The Claims so submitted by the Operational Creditors before the Interim Resolution Professionals pursuant to these Public Notices, are then considered and made into Information Memorandum which becomes the basis for the Resolution Applicant to submit its plan. If any other claims after the acceptance of the Resolution Plan by the NCLT/NCLAT, are to be permitted to be agitated, it would completely derail the Plan submitted by the Successful Resolution Applicant, for the simple reason that such Claims are not in its contemplation and are beyond its assessment of the debts.

20.

The amounts as determined under the Arbitral Award and challenged under Section 34 are also qualified as ‘claims’ as defined under Section 3(6) of IBC. The Award holder is, therefore, under an obligation to submit its Claims before the Interim Resolution Professional to be incorporated in the Information Memorandum, rather than to wait for the adjudication of their application under Section 34 of the Act.”

“24.

The Supreme Court has, therefore, clarified that on the approval of the Resolution Plan, all claims which were not part of the Resolution Plan stand extinguished and the plaintiff will not be entitled to initiate or continue the proceedings in respect of such claim which is not part of the Resolution Plan, as is the case herein.”

“53.

……..it is clarified that the ruling in Rajendra Bansal [Reliance Communication Ltd. v. Rajendra P. Bansal, (2023) 237 Comp Cas 30 (Bom); 2023 SCC OnLine Bom 33.] applies only to the parties in that case, although the statement of law as contained therein, has been overtaken, as explained above. Since the Supreme Court has conclusively released the ICICI guarantee in this very case, no question of law remains for reference to any larger Bench.

54.

In the result, we hold that taking into account the decision of the Supreme Court in respect of the ICICI guarantee, and that too based on similar pleadings made by the parties before the Supreme Court; and also taking into account the provisions of the Insolvency and Bankruptcy Code and its implications for decree-holders, the monies deposited in this court are indeed assets under the ownership of the applicant-appellant, with possession being in the hands of the court. No meaningful purpose would be served in continuing with the deposit, since even if the appeal were to fail, the respondent would need to be subjected to the corporate insolvency resolution process run by the committee of creditors through the resolution professional. If the resolution attempts fail, the respondent's rights under the impugned judgment would be subject to the waterfall mechanism for distribution of liquidation proceedings, stipulated under the Insolvency and Bankruptcy Code.

55.

In the result, in view of the corporate insolvency resolution process proceedings pending in relation to the applicant-appellant:

(A)

We hold that monies or any other asset deposited by a corporate debtor in court prior to commencement of the corporate insolvency resolution process by way of security (to protect against execution of any judgment or decree), would not cease to be the asset of the corporate debtor;

(B)

Consequently, the monies deposited by the applicant-appellant in this court constitute assets owned by the applicant-appellant although they are not in possession of the applicant-appellant;

(C)

Therefore, we hereby permit the applicant-appellant to withdraw Appeal No. 597 of 2016, and indeed withdraw the amounts deposited in this court in these proceedings, along with all earnings thereon. Refund of court fees shall be processed as per rules;

(D)

The amounts deposited in court shall be released to the applicant-appellant within a period of two weeks from today, subject to compliance with the procedural rules of this court, administered by the Registry; and

(E)

The substantive rights of the respondent who is the judgment creditor under the impugned judgment shall be subject to the provisions of the Insolvency and Bankruptcy Code.”

“15.

Based on the aforesaid provisions, in Siti Networks it was held that the cash deposited in court by the corporate debtor was an asset to which the corporate debtor had title, even while such asset was held in the custody of the court. If, pending hearing of the challenge under the court's consideration, the corporate debtor were to be admitted to CIRP, then during the CIRP, it was held, the assets of the corporate debtor deserved to be conserved. Therefore, the assets belonging to the corporate debtor were held to be liable to be returned to the custody of the resolution professional. If a resolution plan were to be approved, it would abide by the approved resolution plan, and if the resolution were to fail, the assets in question would form part of the liquidation estate of the corporate debtor.

16.

The matter in hand is far more conclusive than the factual matrix obtaining in Siti Networks. The resolution plan has indeed been approved and has been completed. Possession of the asset (the cash) had been handed over to the Court by Reliance, which later went insolvent. Before CIRP commenced, possession of the cash was further handed over to Afcons, taking care to ensure that Afcons provided a bank guarantee to secure the return of the amount so released should the need arise. This was a discretionary equitable measure permitted by the Court, pending and subject to the outcome in the Section 34 Petition.

17.

The right to receive the amount awarded in the Arbitral Award was nothing but a “claim” of Afcons validly held against the debt declared as being payable by Reliance to Afcons, the creditor. The amount owed by Reliance (corporate debtor) to Afcons (judgment creditor) has since been effaced by the approved Resolution Plan. Therefore, the Section 34 Petition has been rendered infructuous.

18.

Meanwhile, the amount deposited pending the hearing of the Section 34 Petition, has been released to Afcons. Now that the Section 34 Petition has been rendered infructuous, there is no prospect of execution of the Arbitral Award, and indeed the very challenge to the Arbitral Award is redundant. Therefore, with nothing being owed under the Arbitral Award (other than Re. 1) the amount withdrawn by Afcons ought to be brought back, failing which, the guarantee provided by Afcons would need to be invoked. *** *** ***

23.

Therefore, Afcons is directed to bring back the amount of Rs. 12,76,91,279 to the Registry. The Respondent must do so within a period of four weeks from the upload of this order on the website of this Court.”

“21.

Resultantly, the inevitable conclusion is that as Respondent 1's claim did not form part of the resolution plan due to failure of Respondent 1 to lodge its claim with the resolution professional, upon approval of the resolution plan by the National Company Law Tribunal vide order dated 1-1-2021, the debt stood extinguished. Upon extinguishment of debt, no right vests in Respondent 1 in respect of the bank guarantees or to oppose the release of bank guarantees. Consequently, the interim application stands allowed in terms of prayer clauses (a) and (b) as under:

“(a)

That this Court be pleased to direct that the order and decree dated 20-1-2023 stands extinguished and no proceeding in respect thereto can be continued and/or initiated.

(b)

That this Court be pleased to release all bank guarantees issued by the appellants'-banks in favour of Registrar pursuant to the order dated 17-6-2003.”