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Informist, Friday, Jul. 17, 2026

 

NEW DELHI – The Supreme Court Friday held that all legal proceedings, including arbitration and civil suits, which had not culminated in determinable, quantifiable claims against debt-ridden companies till the date of approval of the resolution plan by the National Company Law Tribunal, stood abated, extinguished, waived or withdrawn. Only crystallised claims as on the effective date of the resolution plan are payable on a pro-rata basis, said the apex court.

 

No resolution plan can succeed if uncertain or unquantified claims are permitted to "linger" and resurface against successful resolution applicant years after approval, said the top court. Such a situation would be akin to a "hydra-headed recurrence" and is antithetical to the "clean slate" principle, said the court.        

 

The apex court allowed the plea filed by Tata Steel Ltd., the successful resolution applicant of Bhushan Steel Ltd., and set aside the Bombay High Court's order that had proceeded in a recovery suit filed by the debt-ridden company's operational creditor Varsha notwithstanding the approval of the resolution plan. The top court also dismissed another operational creditor Masyc Projects Pvt. Ltd.'s plea to enforce claims for past dues by way of civil suit or arbitration, subsequent to the approval of the resolution plan. Accordingly, no amount beyond INR 1 each was payable to Varsha and Masyc, whose pending arbitration and civil proceedings stood waived or extinguished upon approval of Tata Steel's resolution plan for Bhushan Steel.

 

The bench of Justice Manoj Misra and Justice Manmohan said there was no ambiguity in the resolution plan prepared by Tata Steel. Further, except to the extent of amounts payable under the resolution plan, operational creditors shall have no rights or claims against Bhushan Steel in respect of the period prior to the plan approval date, said the bench. Consequently, Tata Steel's resolution plan, read in its entirety, did not provide for an express carve-out protecting sub-judice claims from extinguishment, it said. On the contrary, all such claims stood extinguished, it added.

 

As an afterword, the top court observed that the present case underscores the impact of the Insolvency and Bankruptcy Code, 2016 on small operational creditors such as micro, small and medium enterprises. There can be no doubt that the 2016 Code marks a substantial improvement over the regime under the Sick Industrial Companies (Special Provisions) Act, 1985, which followed a debtor-in-possession model and was often susceptible to misuse by promoters, said the court. However, the 2016 Code does not adequately account for the position of small operational creditors, including micro, small and medium enterprises and statutory local bodies, who stand significantly disenfranchised under the present framework by being placed at the bottom of the repayment waterfall, it said.

 

Most micro, small and medium enterprises and statutory local bodies are ill-equipped to absorb even a minor financial setback and are, therefore, often compelled to adopt an aggressive and disruptive stance, as the facts of the present matters demonstrate, said the apex court. Since this issue lies within the legislative domain, the top court observed that the Law Commission of India and the legislature may usefully examine the matter to ensure a fair and balanced repayment mechanism alongside an efficient insolvency regime.

 

The case has its genesis from the tribunal admitted State Bank of India's insolvency petition against Bhushan Steel. Varsha and Masyc, who had earlier filed recovery suit and arbitration case respectively, placed their claims before the resolution professional of Bhushan Steel. Thereafter, the tribunal approved Tata Steel's resolution plan for Bhushan Steel. The plan provided that claims which were subject to disputes pending before various authorities have been verified with a notional amount of INR 1 only. When both the operational creditors sought continuance of their recovery suit and arbitration case after the plan approval, Tata Steel moved the high court and then the apex court to challenge the creditors' pleas.

 

Friday, the shares of Tata Steel Ltd. closed 0.2% higher at INR 185.89 on the National Stock Exchange.  End       

 

Reported by Surya Tripathi

Edited by Deepshikha Bhardwaj

 

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