The Orissa High Court held that claims before approval of resolution plan were extinguished on approval of plan under section 31 of the Insolvency and Bankruptcy Code ( IBC ), 2016. The court held that the resolution plan was approved on June 22, 2018 extinguished all liabilities predating the date of approval of resolution plan therefore the claims of the state with respect to the period prior to the approval date cannot be entertained.
Three writ petitions were filed against demand letters issued by the state (opposite parties) demanding statutory dues. The State Bank of India , financial creditor filed an application under section 7 of the Insolvency and Bankruptcy Code (IBC) against Orissa Manganese and Minerals Ltd.-OMML , corporate debtor for initiating Corporate Insolvency Resolution Process (CIRP). The application was admitted on August 3, 2017 by the NCLT. The NCLT approved a resolution plan submitted by a successful resolution applicant on June 22, 2018. This plan was approved by the Committee of Creditor (CoC) with 89.23% voting shares.
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The petitioner contended that once a resolution plan is approved, it is binding on all parties including government authorities. New liabilities cannot be imposed as it would defeat the purpose of the IBC that is to revive the corporate debtor.
Per contra, the state submitted that statutory liabilities were not negated especially arising from the Supreme Court judgement in Common Cause v. Union of India (2017) in which the court awarded the compensation under section 21 of the MMDR Act. It was further argued that these dues directed by the court to be recovered cannot be effaced after the approval of resolution plan. It was submitted that no authority whether NCLT or CoC or NCLAT could have refused to enforce the statutory demands by approving the resolution plan.
The division bench of Mr. Justice D.Dash and Mr. Justice V. Narasingh upheld the contention of the petitioner and observed that once a resolution is approved, it binds all the stakeholders as per section 31 of the IBC. The court referred to the Supreme Court judgment in CoC of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors.(2019) wherein it was held that approval of resolution plan is binding on all the stakeholders under section 31 of the IBC.
The court held that the resolution plan was approved on June 22, 2018 extinguished all liabilities predating the date of approval of resolution plan therefore the claims of the state with respect to the period prior to the approval date cannot be entertained.
It was noted that section 31 of the IBC binds state and central government therefore any claim raised by the government authorities which fall in the period till the resolution plan is approved cannot be countenanced.
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The High Court directed the state to issue demand letters afresh from June 22, 2018 onwards. The court set aside the impugned letters under which demands were made against the petitioner. Accordingly, all three writ petitions were disposed of.
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