Introduction
In an authoritative pronouncement concerning the interplay between arbitration proceedings and the Insolvency and Bankruptcy Code, 2016 (“IBC”), the Hon’ble Supreme Court in Electrosteel Steel Limited v. Ispat Carrier Private Limited (Civil Appeal No. 2896 of 2024, decided on April 21, 2025)[1] (“Electrosteel”) has reinforced the legal position that once a resolution plan is approved by the adjudicating authority under Section 31 of the IBC, all claims not forming part of the plan stand extinguished. This includes claims that are subject to pending legal proceedings.
This decision removes lingering ambiguity about whether pre-existing arbitral claims (even those initiated before and suspended during the moratorium) can be pursued post-resolution. It provides much-needed certainty to successful resolution applicants seeking a clean break from past liabilities. It also serves as a vital precedent on the jurisdictional limitations faced by arbitral tribunals and executing courts when confronted with extinguished claims post the corporate insolvency resolution process (“CIRP”).
Background
Disputes arose under a contract for the supply of cranes and equipment between Ispat Carrier Private Limited (“Respondent”) and Electrosteel Steel Limited (“Appellant”). Upon alleged payment default, jurisdiction of the West Bengal Micro, Small and Medium Facilitation Council (“Facilitation Council”) was invoked under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”).
After the conciliation process under the MSME Act did not materialise, the dispute progressed to arbitration. While the arbitration proceedings were pending, a CIRP commenced against the Appellant, leading to the suspension of the arbitration proceedings on account of the moratorium imposed by the National Company Law Tribunal, Kolkata Bench (“NCLT”) under Section 14 of the IBC. A resolution plan submitted by Vedanta Limited was approved by the NCLT (“Plan”). Despite the non-inclusion of its claims in the Plan, the Respondent did not challenge the order of the NCLT approving it. Upon lifting of the moratorium, the Respondent resumed the arbitration proceedings (without it being contested by the Appellant) and earned a favourable arbitral award (“Award”) issued by the Facilitation Council. The Award was not challenged by the Appellant under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). It was only when the execution proceedings were filed by the Respondent that the Appellant filed an application before the executing court and challenged the validity of the Award. The executing court dismissed the Appellant’s challenge, and the High Court of Jharkhand (“High Court”) upheld the executing court’s ruling. It was this decision of the High Court which was challenged before the Supreme Court in the instant case.
Key Questions before the Court
The central questions before the Supreme Court were:
- Whether objection to an arbitral award (relating to claims that are not part of an approved resolution plan) is maintainable before the executing court when such award has not been challenged under Section 34 of the Arbitration Act?
- Whether the execution of such awards can be resisted on the ground that they are a nullity in law?
- Whether an arbitral tribunal retains jurisdiction over such claims after the resolution plan is approved?
The Supreme Court’s Answer: Resolution Plan is the Final Word
The Court emphatically held that once the Plan was approved by the NCLT, all claims not incorporated in the Plan are deemed to be extinguished. The Court ruled that the Facilitation Council had no jurisdiction to arbitrate on such claims and therefore the Award was incapable of being executed.
The Court clarified that the lifting of the moratorium does not revive the pre-CIRP claims. Instead, once the resolution plan is approved, it operates with binding finality – “binding everyone under the sun”. The Court reiterated the position that making of a claim under IBC, its acceptance, or not making any claim under the IBC would not affect the treatment of claims and the resolution plan will be binding in all such situations. The Court emphasised that the successful resolution applicant cannot be burdened with unresolved or legacy claims, else this would amount to “a hydra head popping up”, which would throw into uncertainty the commercial decision of the resolution applicant.
Though the Supreme Court agreed with the High Court’s ruling to the extent that the plea of nullity qua an arbitral award can be raised in the execution proceedings, it rejected the High Court’s conclusion that such a plea would not be available when the arbitration award was not challenged under Section 34 of the Arbitration Act.
Reaffirming Core IBC Principles vis-à-vis Arbitration Proceedings
The Court’s reasoning in the Electrosteel case relied heavily on its earlier landmark rulings in the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (“COC of Essar Steel”),[2] Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. (“Ghanshyam Mishra”),[3] and Ajay Kumar Radhesyam Goenka v. Tourism Finance Corporation India Ltd.[4] In these cases the Supreme Court had laid down the following principles:
- A successful resolution applicant acquires the corporate debtor on a clean slate and, therefore, cannot be saddled with undecided legacy claims.
- All claims against the corporate debtor must be submitted to the resolution professional.
- Claims not included in the resolution plan – whether submitted or not, admitted or not, pending adjudication, etc. – are all deemed to be extinguished.
In the instant ruling, the Supreme Court reiterated these principles with clarity and added that even when an arbitral award is passed post-moratorium, it is a nullity if the underlying claim is not recognised in the resolution plan.
Reflecting on the Arcelor Mittal Case
In Indian Oil Corporation Limited v. Arcelor Mittal Nippon Steel India Limited,[5] the Delhi High Court (“DHC”) addressed a similar issue after considering a petition filed by Indian Oil Corporation Limited (“IOCL”) under Section 11 of the Arbitration Act. During the CIRP, IOCL had filed a claim of over INR 3,700 crore against Essar Steel India Limited (“ESIL”) which the resolution professional had admitted at a notional value of INR 1.
The approved resolution plan, which transferred the ownership of ESIL to Arcelor Mittal Nippon Steel India Limited (“Arcelor Mittal”), clearly provided that all claims not forming part of the plan would stand extinguished. Post approval of the plan, IOCL once again sought to invoke the arbitration for its “pre-existing” claims. The DHC, however, rejected IOCL’s arguments that their rights under the contract continued and the resolution plan did not conclusively deal with their claim. It held that permitting arbitration in such cases would amount to a reopening of settled claims and violate the finality of the resolution process under the IBC.
Relying on the judgments of the Supreme Court in COC of Essar Steel and Ghanshyam Mishra, the DHC refused to refer the matter to arbitration holding that such disputes were non-arbitrable post the approval of the resolution plan, as the claims stood extinguished in law.
Although this ruling of the DHC was later set aside by the Supreme Court, it may be noted that the order of the Supreme Court was based on the consent of the parties to appoint their respective arbitrators and not on the merits of the dispute.
Key Takeaways from the Ruling
The ruling in Electrosteel settles a contentious issue and provides critical assurance to the resolution applicants that their liability is limited to what has been provided for in the resolution plan. The decision underscores that a resolution plan approved under Section 31 of the IBC is not just binding but sacrosanct; and it can only be challenged through the mechanism provided under the IBC.
The judgment acts as a cautionary note for arbitral tribunals and courts, including the executing courts, to carefully assess whether a claim survives the CIRP. It clearly sets out the principle that the arbitral awards passed in relation to extinguished claims would be without jurisdiction and incapable of execution.
The judgment in Electrosteel also serves as a reminder to operational creditors to be proactive during the CIRP and submit their claims in time.
Conclusion
The Electrosteel decision is a strong reaffirmation of the primacy of the IBC and the finality accorded to approved resolution plans. It decisively addresses the lingering uncertainty around the fate of arbitral claims in the post-resolution scenario. Giving full effect to the clean slate doctrine, the ruling sets out a clear rule: if it is not part of the plan, it does not survive.
Through this ruling, the Supreme Court has bolstered the credibility and finality of the IBC framework and offered helpful guidance on how courts and arbitral tribunals should approach the intersection of insolvency and arbitration.
For further information, please contact:
Abhileen Chaturvedi, Partner, Cyril Amarchand Mangaldas
abhileen.chaturvedi@cyrilshroff.com
[1] 2025 INSC 525.
[2] (2020) 8 SCC 531.
[3] (2021) 9 SCC 657.
[4] (2023) 10 SCC 545.
[5] (2023) SCC OnLine Del 6318.
