ELECTROSTEEL STEEL LIMITED (NOW M/S ESL STEEL LIMITED) versus ISPAT CARRIER PRIVATE LIMITED (21/04/2025) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

The Supreme Court held that an arbitral award passed by an MSME Facilitation Council after NCLT approval of the corporate debtor's resolution plan, on an operational creditor's claim that was not part of the plan, is a nullity: on approval under Section 31 IBC all claims not included in the plan stand extinguished, lifting of the moratorium does not revive them, and the Council lacked jurisdiction. Such an award can be objected to under Section 47 CPC at the execution stage without a Section 34 challenge under the Arbitration Act, and the execution proceedings were quashed.

Issues

Whether an objection that an arbitral award is a nullity for inherent lack of jurisdiction can be raised in execution under Section 47 CPC when the award was not challenged under Section 34 of the Arbitration and Conciliation Act, 1996.
Whether, upon approval of the resolution plan by the NCLT under Section 31 IBC, the claim of an operational creditor that had been lodged with the resolution professional but was not provided for in the plan stood extinguished.
Whether the MSME Facilitation Council retained jurisdiction, after lifting of the moratorium, to resume arbitral proceedings and pass an award on such a claim.

Provisions considered

Section 31, Insolvency and Bankruptcy Code, 2016On approval by the adjudicating authority, the resolution plan binds the corporate debtor, its employees, members, creditors (including governments and local authorities), guarantors and other stakeholders, and the Section 14 moratorium ceases. Applying Essar Steel, Ghanshyam Mishra, Ruchi Soya, Ajay Kumar Radheshyam Goenka and JSW Steel, the Court held that all claims not part of the approved plan stand extinguished and no one may initiate or continue proceedings on them; the respondent's claim, treated at nil at par with the top 30 operational creditors and covered by the plan's clause settling all claims in suits and arbitrations at nil, stood extinguished. (¶¶ 26, 29, 30, 31, 32, 33, 50, 52)
Section 30, Insolvency and Bankruptcy Code, 2016Described the submission of the resolution plan, its examination by the resolution professional, approval by at least 66 per cent of the committee of creditors and submission to the adjudicating authority; the Vedanta plan was approved with 100 per cent voting share. (¶¶ 25, 40)
Sections 32 and 61(3), Insolvency and Bankruptcy Code, 2016An appeal against approval of a resolution plan lies to the NCLAT only on the grounds in Section 61(3), including that operational creditors' debts were not provided for as specified by the Board; the respondent did not challenge the plan, while other operational creditors' appeals were dismissed by the NCLAT and the Supreme Court. (¶¶ 27, 42)
Section 238, Insolvency and Bankruptcy Code, 2016The IBC has effect notwithstanding anything inconsistent in any other law; noted as part of the statutory scheme giving finality to the approved plan. (¶ 28)
Section 14, Insolvency and Bankruptcy Code, 2016The moratorium ensures that no further demands are raised or adjudicated during the CIRP; its lifting on approval of the plan does not revive a claim that stood extinguished by the approved plan. (¶¶ 26, 35, 50.1)
Section 34, Arbitration and Conciliation Act, 1996The appellant had not applied to set aside the award. The Court held that an objection to execution under Section 47 CPC on the ground of nullity is not dependent on or contingent upon filing a Section 34 petition, and the High Court erred in holding otherwise. (¶¶ 15, 43, 44, 45, 49, 50.1)
Section 36, Arbitration and Conciliation Act, 1996Once the time for a Section 34 application has expired, an award is enforced under the CPC as if it were a decree of the court; hence objections to executability available under the CPC, limited to jurisdictional infirmity or voidness, apply to awards. (¶¶ 48, 48.1)
Section 47, Code of Civil Procedure, 1908All questions relating to execution, discharge or satisfaction of the decree are to be decided by the executing court. Following Vasudev Dhanjibhai Modi, only a decree which is a nullity, not one merely erroneous in law or fact, can be objected to under Section 47; a plea that an arbitral award is a nullity may be raised in execution within this narrow compass, and the award here, passed without jurisdiction, was so assailable. (¶¶ 18, 19, 44, 47, 48.1, 49, 50.1)
Sections 16 and 18, Micro, Small and Medium Enterprises Development Act, 2006The Facilitation Council, after failed conciliation, arbitrated the supplier's claims and awarded the principal with interest under Section 16; the buyer had objected under Section 18(3) that an independent arbitration agreement existed. The Court held the Council lost jurisdiction over the claim once the resolution plan was approved. (¶¶ 4, 5, 14, 35, 41, 50.1, 51)
Article 227, Constitution of IndiaThe appellant challenged the executing court's order before the High Court under Article 227; the High Court's dismissal of that petition was set aside. (¶¶ 2, 18, 44, 52)

Held

A plea that an arbitral award is a nullity can be raised in a proceeding under Section 47 CPC, but such a challenge lies within a very narrow compass: under Section 36 of the 1996 Act an award is enforced as a decree, and at the execution stage only an objection of jurisdictional infirmity or voidness, not mere error of law or fact, can be entertained, as laid down in Vasudev Dhanjibhai Modi. (¶¶ 47, 48, 48.1)
An objection to execution of an award under Section 47 CPC is not dependent or contingent upon filing a petition under Section 34 of the 1996 Act; the High Court was not justified in holding that failure to file a Section 34 petition precluded the judgment debtor from applying to the executing court to declare the award void and non-executable. (¶¶ 49, 50.1)
Once a resolution plan is approved by the adjudicating authority under Section 31(1) IBC, all claims not part of the plan stand extinguished and no person may initiate or continue any proceeding in respect of such a claim; a successful resolution applicant cannot be faced with undecided claims after the plan is accepted. Where the respondent's claim was noted by the resolution professional, committee of creditors and NCLT but not included among the top 30 operational creditors whose claims were settled at nil, and the plan settled all claims in suits and arbitrations at nil, the respondent's claim could not be placed higher and was treated as nil. (¶¶ 29, 30, 32, 33, 50)
Lifting of the moratorium does not revive a claim notwithstanding approval of the resolution plan; the moratorium only ensures that no further demands are raised or adjudicated during the CIRP. The Facilitation Council therefore had no jurisdiction to arbitrate the extinguished claim, and the award passed without jurisdiction could be assailed under Section 47 CPC. (¶¶ 50.1, 51)
Upon approval of the resolution plan by the NCLT, the respondent's claim, being outside the purview of the plan, stood extinguished; the award dated 06.07.2018 is incapable of execution and the execution proceedings were quashed. (¶ 52)

Result

Appeal allowed; executing court's order dated 03.03.2023 set aside; Commercial Execution Case No. 21 of 2022 (Execution Case No. 77 of 2018) before the Commercial Court, Bokaro quashed; High Court order dated 17.07.2023 set aside; no order as to costs.