The Supreme Court while upholding the “Clean Slate Theory” ruled that creditors can not initiate Proceedings to recover claims not a part of the Resolution Plan.
The issue raised in this case was whether, after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the Corporate Debtor, which are not a part of the Resolution Plan approved by the adjudicating authority.
The Adjudicating Authority in each of these cases had approved the resolution plans exercising jurisdiction under section 31 of the IBC. On appeal, the approval of these resolution plans was upheld.
However, the NCLAT had given the liberty to a various class of creditors namely, workmen can move appropriate applications before the labour court for recovery, Statutory dues of various government departments are dues outstanding and would qualify as operational debt and Corporate Guarantee can be invoked against the new entity.
The effect of these observations was that the creditors were now filing claims/suits/recovery actions against the corporate debtor under a new management. The statutory authority continued to press their demands for outstanding dues.
The three-judge bench of Justices R.F.Nariman, B.R.Gavai, and Hrishikesh Roy observed that once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of the resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.
The Apex court said that 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect.
“Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued,” the Supreme Court said.
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