Will Arbitral Award-Holder’s Claim Be Extinguished On Approval Of Award-Debtor’s Resolution Plan Under IBC? Yes, Rules Calcutta High Court

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Will Arbitral Award-Holder’s Claim Be Extinguished On Approval Of Award-Debtor’s Resolution Plan Under IBC? Yes, Rules Calcutta High Court

Case: Sirpur Paper Mills Limited v. I.K. Merchants Pvt. Ltd. (Formerly Known as I.K. Merchants)


Case No: A.P. 550 of 2008

Court Observation: “This can be seen as a necessary and an inevitable fallout of the IBC in order to prevent, in the words of the Supreme Court, a hydra head popping up” and rendering uncertain the running of the business of a corporate debtor by a successful resolution applicant. In essence, an operational creditor who fails to lodge a claim in the CIRP literally missed boarding the claims bus for chasing the fruits of an Award even where a challenge to the Award is pending in a Civil Court.”

“A decision-making process must be attuned to a dynamic legal landscape shaped by legislative intervention and judicial pronouncements. The most predictable aspect of the law is its constant evolution. It would hence be judicial short-sightedness, even stubbornness, to hold on to a view when the law, in the meantime, has transformed into a different avatar.”

“The principle essentially is to guard the court from abuse of process where the same matter in issue, which had been heard and finally decided by a court, is urged again between the same parties. This is unlike the present case as the question of maintainability of the application under Section 34 of the 1996 Act can be considered at any point of time on the legal aspect and particularly on the pronouncement of a decision relevant to the matter.”

“These facts would show that from the date of the admission of the application of initiation of the CIRP against the petitioner namely 18th September 2017 until approval of the resolution plan on 16th May 2018, the respondent, as an Award-holder had sufficient opportunity to approach the NCLT for appropriate relief… The Award-holder hence was under an obligation to take active steps under the IBC instead of waiting for the adjudication of the application under Section 34 of the 1996 Act.” “Every litigant has a right to argue that an action commenced in a court of law or a statutory forum is not maintainable by reason of the law existing as on that date.

A challenge to the maintainability of action must be considered by the court before the substance of the dispute is adjudicated on merits. A court must also decide whether the argument pertaining to maintainability is such that the entire proceeding is rendered infructuous. The present proceeding is precisely such a case where deciding on the merits of the application, i.e. whether the Award should be set aside or sustained, would be a complete waste not only of judicial time as well as of the parties since the claim of the Award-holder has been extinguished upon approval of the Resolution Plan under Section 31 of the IBC.

Further adjudication on the legality of the impugned Award cannot lead to its logical conclusion and would hence be irrelevant. The parties would only be compelled to travel the road to further proceedings (appeal, enforcement, etc.) without an end-point in the resolution to the dispute or any consequent relief to either of the parties. This surely cannot be the objective of any proceedings before any court of law.”

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