Introduction
In the case of Chetraj N. Khadka v. Dighi Port Limited[i], the High Court of Bombay examined whether a Decree Holder could seek execution of a decree after the approval of a resolution plan (‘Plan’) under the Insolvency and Bankruptcy Code, 2016 (‘IBC’).
As a background, s. 31(1) of the IBC stipulates that once a Plan is approved by the adjudicating authority (‘AA’)/National Company Law Tribunal (‘NCLT’), it becomes binding on the corporate debtor (‘CD’) and its employees, members, creditors, guarantors, and other stakeholders. Consequently, any claims or liabilities not included in the approved Plan are extinguished and cannot be pursued further.
The core issue before the High Court was whether the Applicant/Decree Holder could enforce a decree through an execution application in light of the approved Plan.
Brief Facts
The case revolved around an execution application filed by the Applicant, who was the Decree Holder, against the Respondent, the CD. The Applicant sought enforcement of a decree dated 17.12.2012, which was obtained before the NCLT’s approval of the Plan under s. 31(1) of the IBC on 05.03.2020. On 06.07.2023, the National Company Law Appellate Tribunal (‘NCLAT’) upheld the Plan and dismissed the Applicant’s objections filed under ss. 60(5) and 9 of the IBC. Aggrieved by this, the Applicant approached the High Court.
The Applicant contended that as a Decree Holder, he fell within the definition of a ‘creditor’ under s. 3(10) of the IBC, forming a distinct class of creditors separate from financial or operational creditors. Therefore, his claim could not be extinguished without proper consideration, and he sought execution of the decree despite the Plan’s approval.
On the contrary, the Respondent argued that no proceedings concerning dues prior to the NCLT’s approval date could continue, including the Applicant’s decree. The Respondent relied on the Hon’ble Supreme Court’s judgment in Ghanshyam Mishra[ii], asserting that the Applicant’s claim was classified as NIL in the approved Plan, rendering the execution application unsustainable.
Held
The High Court dismissed the Applicant’s execution application, holding it infructuous due to the finality of the Plan approved under s. 31(1) of the IBC. The Court relied on the Hon’ble Supreme Court’s decision in Ghanshyam Mishra (supra), which held that once a Plan is approved under s. 31(1) of the IBC, all claims not included in the plan are extinguished. It was emphasized that no proceedings could be initiated or continued for claims not forming part of the approved Plan, and any dues not accounted for in the plan are considered extinguished.
The Court noted that while the definition of ‘creditor’ under s. 3(10) of the IBC includes Decree Holders; their claims are subject to the same resolution process and waterfall mechanism under s. 53 of the IBC as other creditors. It was further observed that the Applicant had filed a claim as an operational creditor in Form B during the insolvency resolution process, thereby classifying his claim as operational debt. Thus, the Court found no legal basis to treat Decree Holders differently from other creditors under the IBC framework.
The Court also noted that the Applicant had not challenged the NCLAT order and that his application was filed several months after the Plan’s approval. Given the finality of the plan and the facts of the case, the Court concluded that any attempt to enforce the decree was legally unsustainable.
Our Analysis
The Bombay High Court’s ruling brings forth the finality of Plans and their binding nature on all stakeholders, including Decree Holders. By aligning its findings with Ghanshyam Mishra (supra), the judgment strengthens the legal certainty that claims not included in approved Plans stand extinguished.
This decision clarifies that a Decree Holder is not entitled to special treatment solely because they hold a decree. Instead, they are subject to the same waterfall mechanism under s. 53 of the IBC as other creditors. The ruling highlights that the resolution process aims to treat all creditors within a structured framework without favouring one class over another.
The judgment also emphasizes that a resolution applicant is absolved of liabilities not forming part of the approved Plan, provided the liabilities are clearly specified in the plan. In this case, the Applicant’s claim as an operational creditor was duly considered during the insolvency resolution process. The Plan expressly recorded that no payments were due to operational creditors other than the MMB and employees/workmen. As a result, the Applicant’s claim stood extinguished.
The ruling reinforces the comprehensive nature of the IBC framework, ensuring that once a Plan is approved, it provides a clean slate to the CD, extinguishing all pre-approval claims. The Court’s refusal to treat Decree Holders as a distinct class outside the IBC’s framework highlights the importance of participating in the insolvency process and submitting claims in a timely manner.
End Notes
[i] 2024 SCC OnLine Bom 3734.
[ii] Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657.
Authored by Aayan Birla at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.