Supreme Court Clarifies Binding Nature of IBC Resolution Plans on MSME Claims

The Supreme Court of India delivered a landmark judgment on April 21, 2025 in the case of Electrosteel Steel Limited (now M/s ESL Steel Limited) vs. Ispat Carrier Private Limited, settling a crucial dispute regarding the binding nature of Insolvency and Bankruptcy Code (IBC) resolution plans on pending MSME claims. The bench comprising Justices Abhay S. Oka and Ujjal Bhuyan ruled in favor of the corporate debtor, setting aside an arbitral award obtained by an operational creditor after approval of the resolution plan.

The case originated from claims filed by Ispat Carrier before the West Bengal Micro, Small and Medium Facilitation Council in 2014 for Rs. 1.59 crore for equipment supplied to Electrosteel. While arbitration proceedings were ongoing, Electrosteel entered corporate insolvency resolution process (CIRP) in 2017. The resolution plan approved by NCLT in 2018 settled operational creditors’ claims at nil value. Despite this, the Facilitation Council proceeded to pass an award in favor of Ispat Carrier in 2018 after moratorium was lifted.

The appellant’s senior counsel argued forcefully that: “Upon approval of the resolution plan by the NCLT, claim of the respondent stood extinguished. Thus, respondent had no claim against the appellant (corporate debtor) in law.” They cited precedents including Ghanshyam Mishra case to emphasize that “once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen.”

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The respondent countered that: “Proceedings initiated by them would continue post lifting of moratorium for the purpose of quantification of their claims.” They maintained that since their claim wasn’t among the top 30 operational creditors specifically mentioned in the resolution plan, it wasn’t extinguished.

The Supreme Court’s analysis provides crucial clarity on three key aspects of IBC jurisprudence. First, it reaffirmed that “all claims which are not part of the resolution plan shall stand extinguished” upon NCLT approval, following the Ghanshyam Mishra precedent. Second, it clarified that operational creditors cannot continue pending proceedings after plan approval, even if their specific claim wasn’t individually addressed. Third, it established that such awards passed without jurisdiction can be challenged in execution proceedings under Section 47 CPC.

The Court’s reasoning was categorical: “Lifting of the moratorium does not mean that the claim of the respondent would stand revived notwithstanding approval of the resolution plan.” It emphasized that allowing such claims would defeat IBC’s objective of providing a clean slate to resolution applicants.

This judgment significantly strengthens the finality of IBC resolution plans while providing much-needed clarity on treatment of MSME claims. It ensures that successful resolution applicants aren’t faced with unexpected liabilities after taking over corporate debtors, thereby protecting the sanctity of the insolvency resolution process.

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Petitioner Name: Electrosteel Steel Limited (now M/s ESL Steel Limited).
Respondent Name: Ispat Carrier Private Limited.
Judgment By: Justice Abhay S. Oka, Justice Ujjal Bhuyan.
Place Of Incident: Bokaro, Jharkhand.
Judgment Date: 21-04-2025.
Result: allowed.

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