Whether award-holder’s claim would stand extinguished upon the approval of a Resolution Plan for the Corporate Debtor under CIRP, when such award holder has not pressed its claim during CIRP?

• An Arbitral Award was given in favour of I K Merchant Private Limited (i.e., a Creditor) on 07.2008. However, an application was filed by the Corporate Debtor (i.e, Sirpur Paper Mills Limited) u/s. 34 of the Arbitration and Conciliation Act, 1996, for setting aside of the Arbitral Award on 31.10.2008.The Corporate Debtor was admitted under the Corporate Insolvency Resolution Process (“CIRP”) vide the Order dated 26.09.2017 passed by the NCLT, Hyderabad Bench.
• However, it is to be noted that vide an Order dated 19.07.2018, the NCLT approved the resolution plan submitted by JK Paper Limited and declared that the moratorium order under Section 14 passed whilst commencing CIRP shall cease to have effect.In the meanwhile, it is pertinent to note that the Arbitral Award holder had refrained from filing his claim form before the Resolution Professional (‘RP’) during the pendency of the Section 34 Application.
• The Hon’ble High Court relied upon Committee of Creditors of Essar Steel India Limited Satish Kumar Gupta; (2020) 8 SCC 531 and Ghanshyam Mishra vs Edelweiss Asset Reconstruction Company Limited, 2021 SCC OnLine SC 313 where it was held that a successful Resolution Applicant could not suddenly be faced with undecided claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution Applicant who successfully takes over the business of the corporate debtor.
• The Hon’ble Court in the instant matter had relied upon the interpretation of Section 36 of the Arbitration & Conciliation Act, 1996 and stated that mere pendency of a Section 34 application would not render an Arbitral Award unenforceable and that a specific stay would have to be ordered by the concerned Court for it become so. Thus, until such an order of stay is passed by the Court, the Award holder should be vigilant and take steps to file necessary claim forms before the RP and press its case forward, especially in those cases where no express stay on an Award has been ordered by a Court.
• The Court held that it would be a complete waste of judicial time as well as that 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. It held that further adjudication on the legality of the impugned Award cannot lead to its logical conclusion and would hence be irrelevant and thus disposed of the Section 34 application as infructuous.

AMA View:

• The Hon’ble Court has held that 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.
• Thus, by relying upon landmark cases of the Hon’ble Supreme Court in Essar and in Gyansham Mishra, the High Court has passed this Order further clarifying on the position of the claims of award-holders and the impact of the status of corresponding proceedings arising out of the said Award, post the approval of a resolution plan by the NCLT.
• The uncrystallised claims and undecided claims for sure would be extinguished in the light of the numerous Orders passed by the Apex Court, but whether such arbitral award holder has an uncrystallised claim or not is something that should be decided at the time of commencement of CIRP of the Corporate Debtor and appropriate decision taken in order to ensure that the resolution plan, if any approved, takes care of such claim too and is not left out because of inaction on part of the award-holder.
• As a good business and legal practice, it is advisable for creditors to file their Claim Forms with the Resolution Professional within the time period as envisaged under the Code, 2016, unless there exists a specific stay ordered by the Court on an Award or Decree which will affect the claim of the Creditor.