Delhi High Court: In a case wherein, the petitioner, Indian Oil Corporation Limited, sought to invoke the jurisdiction of the present Court under Section 11 of the Arbitration and Conciliation Act, 1996, Yashwant Varma, J.*, opined that the approval of the Resolution Plan clearly amounted to the extinguishment of all the debts that were owed by the corporate debtor except to the extent as was admitted in the Resolution Plan. The Court opined that once it was accepted that the approval of the Resolution Plan resulted in the extinguishment of all claims that the petitioner might have had, the dispute which was sought in the present case, could not be permitted to urged again before the Arbitral Tribunal, as that would amount to rewriting upon the clean slate. Thus, the Court applied the eye of the needle test and concluded that the disputes mentioned in the petition were non-arbitrable and no reference to Arbitral Tribunal was warranted.
Background
On 18-01-2012, Essar Steel Limited (‘ESL’), was changed to Essar Steel India Limited (‘ESIL’) and on 14-11-2013, the First Assignment Agreement was executed between Indian Oil Corporation Limited (‘IOCL’), ESL and Essar Oil Limited (‘EOL’), which was valid up to 25-09-2014. The parties entered into the ‘Second Assignment Agreement’ on 25-09-2014 and that was valid up to 30-09-2015. On 04-05-2016, IOCL sent the notice to ESIL on its failure to comply with the Adjusted Annual Contract Quality (‘AACQ’) for the contract year 2015 and consequently, the IOCL invoked Article 14.1 of the Gas Supply Agreement (‘GSA’), which was executed by IOCL in favour of ESL later assigned to EOL.
On 10-03-2017, the ESIL invoked the powers conferred under Article 19.1 of the GSA and issued the notice of termination. This termination was disputed by IOCL, wherein it asserted that Article 19.1 could had been invoked only if there had been a failure to provide the cumulative Properly Nominated Daily Contract Quantity for over a period of 180 days. As per IOCL, since it had not committed any breach of its contractual obligations, the termination notice was ineffective.
Thereafter, the IOCL issued a demand notice and on not receiving any payments, issued a notice of dispute dated 08-05-2017. It also called ESL to participate in the amicable settlement procedures as provided under GSA. Since ESL did not respond, on 11-07-2017, the IOCL invoked the arbitration as per the provisions of the GSA.
On 02-08-2017, National Company Law Tribunal, Ahmedabad, (‘NCLT’) admitted petitions filed by the State Bank of India and Standard Chartered Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) seeking initiation of Corporate Insolvency Resolution Proceedings (‘CIRP’) against ESIL. The petitions were admitted, and Resolution Professional was appointed.
When the Resolution Professional (‘RP’) took over, public notices were issued, and claims were invited from all the interested parties. The IOCL responded to the notice issued by the Resolution Profession and filed a claim of approximately Rs 3762 crores. The RP vide communication dated 07-12-2018 apprised IOCL that the claim was being admitted for a notional amount of Re 1. The Resolution Plan was approved by the Committee of Creditors on 25-10-2018 and it was also accorded sanction by the Adjudicating Authority as per the order dated 08-03-2019. However, the Adjudicating Authority did not agree with the Resolution Professional to admit the claims of operational creditors including the petitioner’s at Re 1.
Further, appeal was also filed against the decision in National Company Law Appellate Tribunal, (‘NCLAT’). Thereafter, the Supreme Court in Essar Steel (India) Ltd. Committee of Creditors of v. Satish Kumar Gupta, (2020) 8 SCC 531, set aside the order of NCLT and NCLAT and thus, the action of the RP admitting the claims of the petitioner at the notional value of Re 1 was affirmed and the Resolution Plan conferred a seal of finality.
The respondent, Arcelor Mittal who was the successful Resolution Applicant, acquired 100% shareholding of ESIL on 16-12-2019 and took over its management. Once the Resolution Plan was successfully implemented, the petitioner issued a notice to the respondent to pay various amounts which according to it were payable in terms of GSA. The respondent by its letter repudiated the claims raised by the petitioner. Thus, the petitioner invoked the arbitration against the respondent. IOCL issued another notice and called the respondent to appoint the nominee arbitrator within a period of seven days. But since, the respondent took no steps, the petitioner filed the present petition before the Court.
Analysis, Law, and Decision
The Court observed that the Court was called upon to principally answer the two fundamental questions:
-
Whether the approval of Resolution Plan resulted in an extinguishment of all claims that the petitioner could enforce against the respondent; and
-
Whether the approval of the Resolution Plan would render the disputes which were sought to be referred for the consideration of an Arbitration Tribunal non-arbitrable
With regard to the first issue, the Court relied on Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657 and opined that the underlying theme had always been the recognition of the right of the successful Resolution Applicant to take over the corporate debtor on a ‘clean’ or ‘fresh’ slate. The Court opined that the approval of Resolution Plan was statutorily recognised as conferring the closure upon all claims that persons or entities might have had against the corporate debtor. The claims or liabilities which could have been enforced against the corporate debtor were duly considered in the course of CIRP.
However, the Court opined that once the aforesaid process had been completed and the Resolution Plan was approved, no fresh claim could be laid or enforced against the successful Resolution Applicant. The successful Resolution Applicant was only bound to meet the claims as might had been accepted and formed the part of Resolution Plan. The Court further opined that the Resolution Applicant could not be left open to defend or oppose claims which were either not factored in the Resolution plan nor it could be left to fend off actions that might be brought with respect to alleged or asserted dues of the corporate debtor which were not admitted. Taking any other position would clearly violate the clean and fresh slate doctrines which was instilled in the resolution process under the IBC.
The Court opined that although the NCLT and NCLAT had accorded relief to the petitioner and reinstated its claim to an extent, those decisions were set aside in Essar Steel (India) Ltd. Committee of Creditors of v. Satish Kumar Gupta, (2020) 8 SCC 531 (‘Essar Steel case’). Thus, the Court opined that the approval of the Resolution Plan clearly amounted to the extinguishment of all the debts that were owed by the corporate debtor except to the extent as was admitted in the Resolution Plan. The Court opined that once it was accepted that the approval of the Resolution Plan resulted in the extinguishment of all claims that the petitioner might have had, the dispute which was sought in the present case, could not be permitted to urged again before the Arbitral Tribunal, as that would amount to rewriting upon the clean slate.
Considering the second issue, the Court opined that a reference to disputes as sought by the petitioner would amount to reopening of the Resolution Plan, which was impermissible in the light of finality which was accorded by the Supreme Court in Essar Steel case (supra). The Court opined that empowering the Arbitral Tribunal to adjudicate or rule upon these disputes would be contrary to the principles laid down in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., (2021) 9 SCC 657. Thus, the Court applied the eye of the needle test and concluded that the disputes mentioned in the petition were non-arbitrable and no reference to Arbitral Tribunal was warranted.
[Indian Oil Corpn. Ltd. v. Arcelor Mittal Nippon Steel India Ltd., 2023 SCC OnLine Del 6318, decided on 10-10-2023]
*Judgment authored by- Justice Yashwant Varma
Advocates who appeared in this case :
For the Petitioner: Atul Sharma, Abhinav Agnihotri, Harshita, Agarwal, Dipan Sethi, Prahhav Garg, Advocates;
For the Respondent: A.M. Singhvi and Arun Kathpalia, Senior Advocates with Ruby Singh Ahuja, Ripu Daman Bhardwaj, Varun Khanna, Vishal, Kritika Sachdeva, Ashutosh P. Shukla, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
