Claims Not Part Of Insolvency Resolution Plan Cannot Be Revived Through Arbitration: Delhi High Court

The Delhi High Court has held that claims that are not part of an approved insolvency resolution plan cannot later be revived through arbitration.

Justice Harish Vaidyanathan Shankar observed:

“Once the corporate insolvency resolution process attains finality within the statutory framework contemplated under the IBC, the claims of all stakeholders stand crystallized and are thereafter governed exclusively by the terms of the Resolution Plan. Such claims cannot be revived, re-agitated, or pursued through proceedings outside the insolvency mechanism. The contrary view adopted by the learned Arbitral Tribunal, which permits the resurrection of such claims in arbitral proceedings, runs counter to the legislative intent and the settled legal position, and is therefore liable to be set aside.”

The court held unsustainable an arbitral award directing MBL Infrastructure Ltd to pay a net amount of ₹5.35 crore to Pradeep Colonisers and Suppliers Pvt. Ltd. after adjustment of claims and counterclaims arising out of canal restoration works under the Western Gandak Canal System project in Bihar.

The dispute arose from a work order issued on April 23, 2015 by MBL Infrastructure to Pradeep Colonisers for execution of restoration works pursuant to a parent contract awarded by the Government of Bihar.

Pradeep Colonisers claimed that Rs. 7.29 crore remained unpaid towards running account bills and deductions under the work order. The dispute escalated after the parent contract was foreclosed on July 26, 2016 and later terminated on January 13, 2018.

Meanwhile, insolvency proceedings were initiated against MBL Infrastructure before the National Company Law Tribunal. The resolution plan approved on April 18, 2018 was later upheld by the National Company Law Appellate Tribunal and the Supreme Court.

Although Pradeep Colonisers submitted its claims during the insolvency process, those claims were not included in the approved resolution plan.

An arbitral tribunal headed by former Supreme Court judge Justice R. Banumathi partly allowed claims raised by both parties and directed payment of a net sum of Rs.5.35 crore in favour of Pradeep Colonisers along with interest.

MBL Infrastructure challenged the award before the High Court, arguing that once the resolution plan attained finality under Section 31 of the Insolvency and Bankruptcy Code, all claims not included in the plan stood extinguished and could not later be pursued through arbitration proceedings.

Pradeep Colonisers argued that its claims had been submitted and partially verified during the insolvency process and that the “clean slate” principle should not apply because the same management continued after the resolution process.

Rejecting the contention, the Court held that grievances regarding exclusion of claims ought to have been pursued before the insolvency fora and could not be revived through arbitral counterclaims.

The Court observed:

“The contrary view adopted by the learned Arbitral Tribunal, which permits the resurrection of such claims in arbitral proceedings, runs counter to the legislative intent and the settled legal position, and is therefore liable to be set aside.”

The Court further clarified that impleadment before the Supreme Court in proceedings concerning the resolution plan did not preserve or revive claims excluded from the approved plan.

Holding that the arbitral tribunal lacked jurisdiction to entertain counterclaims extinguished under the insolvency framework, the Court set aside the findings permitting such counterclaims and the consequential monetary relief granted in favour of Pradeep Colonisers.

For MBL Infrastructure Ltd: Advocates Anusuya Salwan, Nikita Salwan, Rachit Wadhwa, Bankim Garg.

For Pradeep Colonisers and Suppliers Pvt Ltd: Advocates Gaurav Gupta, Rahul Sinha, Muskan Rathore, Rupal Gupta, Shivee Pandey Sinha.