The Supreme Court recently allowed an appeal filed by Electrosteel Steel Ltd. (now ESL Steel Ltd.) against the enforcement of an arbitral award by the Micro and Small Enterprises Facilitation Council (MSEFC). The Court ruled that since the claim was not part of the approved resolution plan under Section 31 of the Insolvency and Bankruptcy Code (IBC), 2016, it cannot be enforced.
Quoting the judgment, the Court said:
"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."
A bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan stressed that once a resolution plan is approved by the National Company Law Tribunal (NCLT), all claims not covered in the plan stand extinguished. The Court referred to previous rulings, including Essar Steel India Ltd., where it was observed:
"A successful resolution applicant cannot be faced with undecided claims after the resolution plan is accepted. Otherwise, this would amount to a hydra head popping up which would throw into uncertainty the amount payable by the resolution applicant."
Case Background
The case involved Ispat Carrier Pvt. Ltd., a registered MSME, which had supplied cranes and trailers to Electrosteel Steel Ltd. It filed claims worth Rs. 1.59 crores before the West Bengal MSE Facilitation Council. Although arbitration began, it was suspended due to the moratorium under Section 14 of the IBC after insolvency proceedings started.
Ispat Carrier submitted its claim to the interim resolution professional, but it was only partly admitted. Vedanta Ltd. later submitted a resolution plan proposing nil value for operational creditors, which the NCLT approved on 17 April 2018. The Court emphasized that Ispat Carrier did not challenge the resolution plan.
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After the moratorium ended, the Facilitation Council resumed arbitration and awarded Ispat Carrier the principal amount with interest. However, Electrosteel objected, arguing that the claim had been extinguished. Though the Executing Court and the Jharkhand High Court rejected Electrosteel's objections, the Supreme Court overturned their decisions.
The Court made it clear that Section 47 of the Civil Procedure Code (CPC) allows objections during execution if the decree or award is a nullity. It observed:
"Objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act."
The Court also relied on earlier precedents like Ghanashyam Mishra & Sons Private Limited and Ajay Kumar Goenka, which stated that once a resolution plan is approved, all earlier claims outside the plan cease to exist.
It was further noted that although the resolution professional and NCLT were aware of the arbitration proceedings involving Ispat Carrier, the claim was not among the top 30 operational creditors and was settled at nil value. The judgment emphasized that lifting of the moratorium did not revive such extinguished claims.
Finally, the Supreme Court set aside the orders of the High Court and the Executing Court, quashing the execution proceedings pending before the Commercial Court, Bokaro.
Case no. – Civil Appeal No. 2896 Of 2024
Case Title – Electrosteel Steel Limited (Now M/S ESL Steel Limited) vs Ispat Carrier Private Limited
