Supreme Court’s Landmark Judgment on the Binding Nature of Resolution Plans under IBC
- REEDLAW
- Nov 1
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the Supreme Court reaffirmed the binding and conclusive nature of resolution plans approved under the Insolvency and Bankruptcy Code, 2016. The Apex Court clarified that once a resolution plan is sanctioned under Section 31, it becomes final and binding on the corporate debtor, its employees, and all classes of creditors, thereby extinguishing all claims not captured within the plan. The judgment reinforces the IBC’s objective of granting a “clean slate” to the successful resolution applicant and ensuring a definitive closure to the insolvency process.
The Supreme Court Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan, while adjudicating an appeal arising from a Special Leave Petition, held that an approved resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016, attains statutory finality and is binding upon the corporate debtor, its employees, creditors—including financial and operational creditors—and all other stakeholders. The Court observed that any claim not forming part of the approved resolution plan stands irrevocably extinguished, and no further legal proceedings can be initiated regarding such excluded claims. This pronouncement underscored the legislative intent to ensure finality, certainty, and revival of the debtor through a “clean slate” principle, which is central to the IBC framework.
The Supreme Court delivered a significant judgment clarifying the binding nature of approved resolution plans under the Insolvency and Bankruptcy Code (IBC). The case involved an appellant challenging the execution of an arbitral award passed by the West Bengal Micro, Small and Medium Facilitation Council, which was directed to be complied with despite the resolution plan approved by the National Company Law Tribunal (NCLT) settling operational creditors’ claims at nil. The appellant contended that the exclusion of the respondent’s claim in the approved plan rendered the arbitral award null and non-executable.
The Court analysed the interaction between the resolution plan and arbitration proceedings, noting that the plan’s approval under Section 31 of the IBC extinguishes claims not incorporated within it. It reiterated the principles established in prior decisions, including Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, REEDLAW 2023 SC 03569 and Ghanashyam Mishra and Sons private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534, highlighting that once a resolution plan is approved, it binds all stakeholders, irrespective of claim submissions or omissions. The Court emphasised that pending claims outside the plan cannot revive or be enforced post-approval, ensuring the debtor’s fresh start without lingering unresolved liabilities.
Furthermore, the Court held that the Facilitation Council lacked jurisdiction to continue arbitral proceedings after the plan’s approval concerning excluded claims, rendering the resulting award void. It clarified that challenges to arbitral awards in execution proceedings are strictly limited to issues of nullity or jurisdiction, and a failure to challenge under Section 34 of the Arbitration and Conciliation Act does not preclude objections under Section 47 of the Code of Civil Procedure. The moratorium’s lifting does not resurrect extinguished claims, protecting the integrity of the insolvency resolution process.
Ultimately, the Court set aside the execution order and the High Court’s confirmation, underscoring the primacy of the IBC’s statutory framework in resolving insolvency matters efficiently and conclusively. This judgment reinforced the finality and binding effect of resolution plans, safeguarding the interests of all stakeholders and promoting commercial certainty in corporate insolvency resolutions.
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