In a recent landmark decision, the Division Bench of Delhi High Court comprising of Acting Chief Justice Manmohan and Justice Tushar Rao Gedela, in Union of India Versus Ocl Iron And Steel Limited LPA 964/2024 reinforced the “clean slate” principle under the Insolvency and Bankruptcy Code (IBC), 2016, ruling that all pre-resolution claims against a corporate debtor that are not raised before the resolution professional become void once a resolution plan is approved. The ruling also barred what the court referred to as “hydra head” claims—claims re-emerging after approval of the resolution plan—emphasizing the finality and binding nature of the National Company Law Tribunal’s (NCLT) approval of a resolution plan. The appeal was filed by the Union of India challenging the order of Single Bench of Delhi High Court Justice Sanjeev Narula in W.P.(C) 8316/2024 titled ‘OCL Iron and Steel Limited Vs. Union of India’, in favor of the respondent herein.
Case Background
The dispute involved OCL Iron and Steel Limited (OCL), under its new management HI A MMT Pvt. Ltd., represented by Lahoti Advocates, which had entered into a Coal Mine Development and Production Agreement with the Union of India for the Ardhagram coal mine. After the Coal Mine Agreement was terminated due to OCL’s alleged failure to renew a Performance Bank Guarantee (PBG) worth ₹92.25 crore, the company was subsequently admitted into the Corporate Insolvency Resolution Process (CIRP). As part of the CIRP, OCL’s creditors, including the government, were required to file claims with the appointed Resolution Professional.
The Union of India submitted two separate claims: the PBG claim of ₹92.25 crore and an incremental fixed cost of ₹9.21 crore. The latter claim was included in the resolution plan and partially compensated according to the Resolution Plan. However, the PBG claim was not admitted as a “financial debt” as per proviso to Section 3(31) of the Insolvency and Bankruptcy Code, 2016 (for short ‘IBC’), and thus, the appellant was not found eligible to be a “Financial Creditor”. The appellant was advised to re-submit the said claim in the appropriate form, a step the appellant failed to take and did not file the PCG claim of ₹92.25 with the resolution professional. Consequently, the NCLT approved the resolution plan, leading to the extinguishment of remaining claims, as stipulated by the IBC.
Issues
The limited question was whether the respondent was liable for the alleged dues, thereby ascertaining its eligibility to participate in the coal mine auctions, and whether claims not admitted or raised during CIRP and explicitly addressed in the resolution plan, such as the PBG claim in this case, could survive the CIRP and be raised against the corporate debtor post-resolution.
Court’s Analysis and Findings
The High Court, referred the decision of Hon’ble Supreme Court in Ghanashyam Mishra & Sons Private Limited vs. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9SCC 657 underscored that the resolution plan effectively functions as a “clean slate” for the corporate debtor. Once approved by the NCLT, it binds all creditors and stakeholders, extinguishing any residual or past claims or liabilities. The court noted that allowing claims to be raised post-approval would disrupt the corporate debtor’s revival process, undermining the fundamental objectives of the IBC. Respondent also relied upon Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) 10 SCC 545 and Committee of creditors of Essae Steel India Ltd v. Satish Kumar Gupta and Others (2020) 8 SCC 531.
Further, the court evaluated the government’s reliance on precedents, including Swiss Ribbons Pvt. Ltd. vs. Union of India (2019) 4 SCC 17, Greater Noida Industrial Development Authority vs. Prabhjit Singh Soni, (2024) 6 SCC 767, and UOI vs. Jor Bagh Association Regd. 2012 SCC OnLine Del 1230. In each instance, the court found these cases inapplicable, distinguishing them on factual and procedural grounds. For instance, in Greater Noida Industrial Development Authority (supra), the Supreme Court was considering a dispute similar to the one in the present case, however, in that case, the aggrieved person therein challenged the Resolution Plan itself and the Supreme Court held that the form in which the claim was submitted with the Resolution Professional is inconsequential so long as a proper claim is laid. The appellant’s failure to re-file a claim led to its exclusion from the resolution plan, reinforcing the IBC’s requirement for precise and timely claim submissions. Similarly, in Jor Bagh, the court highlighted that merely having a past liability does not keep it actionable post-resolution, as all liabilities are resolved or extinguished under the approved plan’s provisions.
Conclusion
The Delhi High Court’s judgment fortifies the “clean slate” doctrine under the IBC, reiterating that once a resolution plan is approved by the Adjudicating Authority, no surprise/past/existing claims that were not filed with the resolution professional can be brought forward by stakeholders, including government entities. This case serves as a precedent for future disputes involving hydra head claims and reinforces the IBC’s mandate to streamline the insolvency process by conclusively resolving all liabilities within the resolution plan framework.
This decision reaffirms the IBC’s intent of providing successful resolution applicants a fresh start, free from unforeseen claims, and bolsters the confidence of potential investors in the CIRP.
OLC Iron and Steel Ltd was represented by the team of Lahoti Advocates, lead by Mr. Divyakant Lahoti, Mr. Kartik Lahoti, Ms. Anushka Awasthi, and Mr. Adith Menon, Advocates.