Case Brief Ghanashyam Mishra And Sons v Edelweiss Asset Reconstruction

Abhishek Bhushan Singh

Ghanashyam Mishra And Sons v Edelweiss Asset Reconstruction

Citation: 2021 SCC OnLine SC 313

Court: Hon’ble Supreme Court of India

Bench: Rohinton Fali Nariman, B.R. Gavai, Hrishikesh Roy

Date of Decision: 13 April 2021

once a resolution plan is approved by the NCLT, all creditors are bound by it. Any claims that are not included in the approved resolution plan will be dismissed.

Facts of The Case

The financial creditor, State Bank of India, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to begin a corporate insolvency resolution proceedings against the corporate debtor, Orissa Manganese & Minerals Limited. Following the NCLT's acceptance of the application, a Resolution Professional was assigned to begin the resolution process. Following that, Edelweiss Asset Reconstruction Company Limited ("EARC"), Orissa Mining Private Limited ("OMPL"), and Ghanashyam Mishra & Sons Private Limited ("GMSPL") each submitted three resolution plans.

EARC was declared H1 Bidder at the meeting of the Committee of Creditors. However, EARC failed to satisfy the Committee during the negotiations, and as a result, the resolution plan submitted by EARC was rejected. The resolution plan submitted by GMSPL (H2 bidder) was also found to be unacceptable by the Committee, and as a result, it was decided to cancel the existing process and start a new one, inviting Resolution Plans only from applicants who had previously submitted their EOI. GMSPL, EARC, and Srei Infrastructure Finance Limited each submitted three Resolution Plans (SIFL). The Committee of creditors selected GMSPL as the H1 Bidder after evaluating the Resolution Plans submitted by GMSPL's plan.

GMSPL's plan, which was also accepted by the Committee of Creditors with an 89.23 percent voting share, was approved by the NCLT, which rejected all other applications. EARC then filed an appeal with the NCLAT, challenging the denial of its claims. The appellate authority highlighted that, while the GMSPL plan had more potential, there was a risk of agitation before other venues by parties whose claims were not included in the resolution plan. As a result, GMSPL petitioned the Supreme Court to overturn the NCLAT's verdict.

Issues

• Whether any creditor including the Central Government, State Government, or any local authority is bound by the Resolution Plan once an adjudicating authority approves it under sub­section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016?

• Whether the amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature?

• 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?

Judgment

While addressing the issues as mentioned above, the Supreme Court stated categorically that once a resolution plan is approved, it is binding on all creditors (including the central government, state governments, and local governments), corporate debtors, their employees, and other stakeholders. Furthermore, the Supreme Court stated that all claims not included in the resolution plan would be extinguished. All creditors would be precluded from recovering any dues from the corporate debtor accruing before the successful resolution applicant taking over administration of the corporate debtor. The Supreme Court further stated that the revision to Section 31 is "clarificatory and declaratory" in nature and thus would apply retroactively.

In view of the facts mentioned above, the Supreme Court decided that the NCLAT's observation that EARC could use alternative remedies accessible to it under the law is unenforceable. This Supreme Court ruling will prevent many lawsuits and give the corporate debtor the option to start with a clean slate, free of past liabilities.