Arbitral Awards Passed After IBC Resolution Approval Are Nullities — Execution Cannot Override a Final Resolution Plan: Supreme Court

Lifting of the moratorium does not mean that the claim of the respondent would stand revived… in view of the resolution plan as approved, the claim stood extinguished”, Supreme Court of India delivered a decisive ruling on the clash between arbitration under the MSME Act and a resolution plan approved under the Insolvency and Bankruptcy Code, 2016. Setting aside the judgment of the Jharkhand High Court, the Court held that any arbitral award passed after the approval of a resolution plan under Section 31 of the IBC is a nullity if the claim had been extinguished under the plan. The Court firmly ruled, “the award dated 06.07.2018 is incapable of being executed. The Facilitation Council did not have the jurisdiction to arbitrate on the said claim.”

The dispute began when Ispat Carrier Pvt. Ltd., a supplier of equipment to Electrosteel Steel Ltd., raised outstanding claims worth ₹1.59 crore for services rendered under two purchase orders from 2011. The company filed claims before the West Bengal Micro, Small and Medium Enterprises Facilitation Council, which, after arbitration proceedings, passed an ex parte award on 06.07.2018 directing Electrosteel to pay the entire amount with interest.

However, prior to the award, the NCLT had imposed a moratorium on 21.07.2017, after initiating corporate insolvency resolution proceedings under Section 7 of the IBC. A resolution plan submitted by Vedanta Ltd. was approved on 17.04.2018, which settled all operational creditor claims at nil. After the moratorium ended, the Facilitation Council resumed arbitral proceedings without the participation of the appellant and proceeded to pass the award.

The award was not challenged under Section 34 of the Arbitration Act. Instead, Electrosteel opposed its execution, arguing that the claim had already been extinguished under the binding resolution plan. The Executing Court and the High Court, however, allowed execution of the award, prompting this appeal to the Supreme Court.

The Supreme Court framed and answered three pivotal questions:

Whether a challenge to an arbitral award on grounds of nullity can be raised during execution proceedings under Section 47 of the CPC without having filed a challenge under Section 34 of the Arbitration Act. The Court answered in the affirmative, stating, “An objection to execution of an award under Section 47 CPC is not contingent upon filing a petition under Section 34… A plea of nullity can be raised at the stage of execution if the award was without jurisdiction.”

Whether the Facilitation Council had the jurisdiction to continue arbitral proceedings and pass an award after the approval of the resolution plan. The Court held emphatically, “The Facilitation Council did not have the jurisdiction to arbitrate on the said claim… Since the award was passed without jurisdiction, the same could be assailed in a proceeding under Section 47 CPC.”

Whether the respondent’s claim had been extinguished under the resolution plan. The Court found that it had, noting that even though the claim was lodged with the resolution professional, the final resolution plan approved by the NCLT treated all such claims, including those under arbitration, as nil. The Court observed, “If the claims of the top 30 operational creditors were settled at nil, it goes without saying that the claim of the respondent could not be placed higher.”

Quoting from its earlier decision in Essar Steel, the Court reiterated that, “a successful resolution applicant cannot suddenly be faced with ‘undecided’ claims after the resolution plan has been accepted… This would amount to a hydra head popping up which would throw into uncertainty the amounts payable.”

Referring also to its authoritative ruling in Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction, the Court reaffirmed that, “once a resolution plan is duly approved by the adjudicating authority under Section 31, all claims which are not a part of the resolution plan shall stand extinguished.”

Setting aside the orders of both the High Court and the Executing Court, the Supreme Court allowed the appeal, holding categorically, “We have no hesitation to hold that upon approval of the resolution plan by the NCLT, the claim of the respondent being outside the purview of the resolution plan stood extinguished. Therefore, the award dated 06.07.2018 is incapable of being executed.”

In a direct rebuke of the High Court’s reasoning, the Court declared, “The view taken by the High Court that notwithstanding approval of the resolution plan, the Facilitation Council did not lose jurisdiction is erroneous and contrary to law.”

This judgment stands as a crucial reaffirmation of the primacy and finality of resolution plans under the IBC. The Court has made it clear that no parallel legal or arbitral proceeding can survive post-resolution, and that claims extinguished by a duly approved plan cannot be re-litigated or enforced under the guise of arbitral awards.

Through this ruling, the Court ensured that the “clean slate” principle remains intact, protecting resolution applicants from legacy liabilities and preserving the efficacy of the insolvency resolution mechanism.

As the Court concluded: “The object or the purport of IBC would be defeated if such claims are allowed to be enforced outside the plan. Once a resolution plan is approved, the curtain must fall on all extinguished claims.”

Date of Decision: April 21, 2025