Amendment of 2019 in Section 31 of I&B code is said to be Clarificatory & Declaratory in nature: SC

NCLAT observed that, In the present case, since it is not possible either for the adjudicating authority or for adjudicating authority or for this appellate tribunal to give any specific finding, we are of the view that the appellant may move before the civil court or court of competent jurisdiction and may file an application before the labour court for appropriate relief in favour of the concerned workmen or against the ‘corporate debtor’ if they have actually worked and have not been taken care in the ‘resolution plan’ due to lack of knowledge and non filing of the claim within time. (Para 41 of NCLAT)

GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORISED SIGNATORY Vs EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR AND ORS.

Civil Appeal No.8129 Of 2019

April 13, 2021

The Hon’ble Supreme Court Justice R.F. Nariman, B.R. Gavai, Hrishikesh Roy decided the present appeal. The Corporate Debtor (Orissa Manganese & Minerals Limited) filed an application under Section 7 of Insolvency and Bankruptcy Code by State Bank of India before NCLT. The application was admitted, CIRP was initiated. The Interim Resolution Professional was appointed and it was confirmed by the Committee of Creditors. The IRP continued with the resolution process by inviting applications for resolution plan and moved an application for the extension of CIRP period. Edelweiss Asset Reconstruction Company Limited (EARC) declared the as H1 bidder and failed to satisfy COC in the negotiations and it was rejected. Further, COC proceeded for negotiations for H2 bidder for GMSPL. Later, it decided to initiate a fresh process of resolution plan. From the application received, GMSPL was considered as H1 bidder. After several negotiations, COC approved. EARC filed an application challenging the approval of the resolution plan of GMSPL. NCLT stated the resolution plan of GMSPL was approved by COC by voting share more than 89.23%. Being aggrieved by the order passed by NCLT, EARC preferred an appeal before NCLAT. The resolution plan submitted by GMSPL was a better one than the one submitted by others and there was no illegality in accepting the resolution plan of GMSPL. NCLAT observed, the appellant therein may move before the civil court or a court of competent jurisdiction for appropriate reliefs in favour of the concerned workmen or against the corporate debtor. Thus, GMSPL aggrieved by the observations made by NCLAT, has preferred the present appeal.

The learned senior counsel appearing for appellant stated that once the adjudicating authority approves the resolution plan, it shall be binding on everyone including corporate debtor, members, creditors, including Central Government, State Government, local authority, to whom a debt is owned in respect of the payment of dues arising under any law in force. Once it is accepted, the entire plan would be unworkable. Further it stated that NCLT has found the conduct of EARC not to be bona fide and imposed costs of Rs. 1 Lakh.

The learned senior counsel appearing on behalf of the respondent submitted that NCLAT has reserved the right of EARC to invoke the corporate guarantee in its favour. He submitted that on hand RP has not recognized EARC as a financial creditor thereby, depriving its nomination to CoC and participation in finalization of the proceedings. EARC has not preferred an appeal against the order of NCLAT through its appeal was disposed of its concerned. In case of Banarasi and Another V. Ram Phal submitted, that since the findings recorded by NCLAT are in its favour, there was no occasion for is to prefer an appeal.

The shares owned by the corporate debtor in APNRL, which had been pledged by IIFCL, which had been assigned by EARC being invoked on 30. 04. 2018 is concerned. NCLT found the claim to be without merit. NCLT also stated that the moratorium was in force and therefore invoking pledge by EARC was not permissible by law. RP had rightly not admitted claim. NCLT found no merit in the contentions raised on behalf of the District Mining officer with regard to the claim on the basis of section 25 of the Mines and Mineral Amendment Act, 1972. It was therefore found, that error was committed by RP in not admitting the claim of the District Mining Officer since it was not supported by any document or affidavit. NCLT therefore rejected the said application with cost of Rs. 1, 00, 000/-. The order passed by the NCLT was challenged before NCLAT.

NCLAT observed that, In the present case, since it is not possible either for the adjudicating authority or for adjudicating authority or for this appellate tribunal to give any specific finding, we are of the view that the appellant may move before the civil court or court of competent jurisdiction and may file an application before the labour court for appropriate relief in favour of the concerned workmen or against the ‘corporate debtor’ if they have actually worked and have not been taken care in the ‘resolution plan’ due to lack of knowledge and non filing of the claim within time. (Para 41 of NCLAT)

The respondent submits that NCLAT itself in the said case had directed EXIM Bank and Axis Bank to be treated as ‘financial creditors’ and had further directed them to be given representation on COC. He submits that however, in the present case, NCLAT has taken a contrary view. That the court should direct the RP to treat EARC as a ’financial creditor’ and give it, representation on COC and take a decision according to law. The claim of EARC was rejected, as EARC participated in the proceedings and it was one of the resolution applicants. That EARC could be considered as the financial creditor, it could have had voting right only to the extent of 9% and even in that eventuality, and resolution plan of GMSPL would have been approved by COC with the majority of more than 80%.

The Jharkhand Government has not even appealed against the order passed by NCLT. The workman has liberty to claim in civil court, it could be conflict with the provisions of Insolvency and Bankruptcy Code. The Judgment and order passed by NCLT dated 22. 06. 2018 is upheld.

From this judgment we state that once a resolution plan is duly approved by the adjudicating authority under subsection (1) of section 31, the claims as provided in the resolution plan stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, State Government, local authority, guarantors, stake holders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan. That section 31 of the Insolvency and Bankruptcy Code is declaratory in nature and therefore will be effective from the date on which Insolvency and Bankruptcy Code has come into effect. Consequently all the dues including the statutory dues owed to the Central Government, State Government, Local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under section 31 could be continued.

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Shantha Gopika R