Calcutta High Court: Claims Of Arbitral Award Holder Not Filed Under The IBC Rendered Infructuous Upon Approval Of Resolution Plan

• Published date: 09 June 2021
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Phoenix Legal
• Author: Mr Vasanth Rajasekaran, Saurabh Babulkar and Anand Chichra

The Calcutta High Court ("High Court") in its recent judgement of Sirpur Paper Mills Limited v. I. K. Merchants Pvt. Ltd.¹ settled the debate on an integral point of law on the interplay between the Insolvency and Bankruptcy Code, 2016 ("IBC") and the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). The High Court held that the approval of a resolution plan under the IBC in relation to a corporate debtor, would extinguish the claims of the award holder under the Arbitration Act against such corporate debtor.

Background

On 31 October 2008, Sirpur Paper Mills Limited ("Petitioner") preferred an application before the High Court under Section 34 of the Arbitration Act seeking annulment of award dated 07 July 2008, passed in arbitration proceedings against I. K. Merchants Pvt. Ltd. ("Respondent").

During pendency of the Section 34 proceedings, corporate insolvency resolution proceedings ("CIRP") were initiated against the Petitioner sometime in September 2017 and subsequently moratorium was also issued under Section 14 of the IBC.

In lieu of the CIRP, the Petitioner contended that the Section 34 application should be kept in abeyance following invocation of the provisions of the IBC against it. However, the contention was rejected by the High Court vide its judgement dated 10 January 2020 wherein the High Court observed that CIRP cannot be used to defeat a dispute which existed prior to initiation of insolvency proceedings.

Subsequently, in light of the judgment rendered in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta² (" Essar Steel") & more recently in Ghanshyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited³ ("Edelweiss"), and in lieu of the fact that the resolution plan vis-à-vis the Petitioner company under the IBC proceedings stood approved, the maintainability of the Section 34 proceedings was once again challenged by the Petitioner before the High Court.

Contentions of the parties

The Petitioner contended that the proceedings under Section 34 of the Arbitration Act had become infructuous, since the management of the Petitioner company had been taken over by a new entity following the approval of the resolution plan for the Petitioner by the NCLT. While relying on the case of Essar Steel and Edelweiss, the Petitioner made the following submissions:

1. Section 31 of the IBC states that an approved resolution plan is binding on the corporate debtor and its employees, members and...