Article: A Legal Analysis of Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd., Decided on April 21, 2025
Introduction
In a significant judgment dated April 21, 2025 (Electrosteel Steel Ltd. [now M/s. ESL Steel Ltd.] v. Ispat Carrier Pvt. Ltd., Civil Appeal No. 2896 of 2024), the Court addressed whether an arbitral award rendered under the MSME Act can be enforced after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court ultimately held that such an award is non-executable if the claim it is based upon stood extinguished under the approved resolution plan.
Factual Background
The dispute arose when Ispat Carrier Pvt. Ltd. (the respondent), an operational creditor, raised claims of ₹1.59 crore against Electrosteel Steel Ltd. (the appellant) for equipment hire dues. Proceedings were initiated under the Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) before the West Bengal MSME Facilitation Council.
The matter entered arbitration after failed conciliation efforts. However, before conclusion, a moratorium was imposed by the NCLT, Kolkata on July 21, 2017, under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), when Electrosteel’s financial creditors initiated corporate insolvency resolution proceedings (CIRP). A resolution plan submitted by Vedanta Ltd. was approved by the NCLT on April 17, 2018, settling all operational creditor claims at nil. Ispat’s claim was not included in the resolution plan.
Despite this, the Facilitation Council resumed arbitral proceedings and passed an ex parte award on July 6, 2018, directing payment of ₹1.59 crore plus interest. The award was not challenged under Section 34 of the Arbitration and Conciliation Act, 1996, but was sought to be enforced through execution proceedings.
Legal Issues
The Court examined three key issues:
- Maintainability of execution objections alleging the arbitral award was a nullity.
- Whether the award was without jurisdiction and hence non-executable.
- Whether the approval of a resolution plan under IBC extinguishes pending arbitral claims.
Court’s Reasoning and Findings
- Award Can Be Challenged in Execution if Void:
The Court upheld that while an arbitral award can generally be challenged only under Section 34 of the Arbitration Act, it can be attacked in execution if it is a nullity due to lack of jurisdiction. This is a narrow but established exception. - Effect of Resolution Plan:
Referring to landmark rulings like Essar Steel (2020) 8 SCC 531 and Ghanshyam Mishra (2021) 9 SCC 657, the Court reiterated that once a resolution plan is approved under Section 31 of the IBC, all claims not included in it stand extinguished and cannot be pursued in any forum. - No Revival Post Moratorium:
The Court clarified that the lifting of the moratorium does not revive extinguished claims. It only permits continuation of proceedings not extinguished by the resolution plan. Since Ispat’s claim was settled at nil and not included in the plan, it ceased to exist in law. - Award Passed Without Jurisdiction:
The Court held that the Facilitation Council lacked jurisdiction to continue the arbitration after approval of the resolution plan. Thus, the award was void ab initio, making its execution legally impermissible.
Case Laws Relied Upon
- Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531
- Ghanshyam Mishra & Sons v. Edelweiss ARC (2021) 9 SCC 657
- Ajay Kumar Radheshyam Goenka v. Tourism Finance Corp. (2023) 10 SCC 545
- Ruchi Soya Industries Ltd. v. Union of India (2022) 6 SCC 343
- Adani Power Ltd. v. Shapoorji Pallonji & Co. Pvt. Ltd., Civil Appeal No. 1741 of 2023
- Sarwan Kumar v. Madan Lal Aggarwal (2003) 4 SCC 147
- Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman (1970) 1 SCC 670
Conclusion
The Court allowed the appeal, quashing the execution proceedings and setting aside the award and all subsequent orders. It reaffirmed that no operational creditor, including MSMEs, can enforce extinguished claims after the resolution plan’s approval. This judgment underscores the finality and binding nature of resolution plans under IBC and strengthens the framework for corporate debt resolution with clarity and predictability.
FAQs
Q1: Can MSME claims be enforced after insolvency resolution?
No, if a claim was settled at nil under a resolution plan approved by NCLT, it cannot be enforced, even if an MSME award exists.
Q2: What happens if a creditor doesn’t challenge the resolution plan?
The claim gets extinguished once the resolution plan is approved. Even unchallenged awards can’t override this.
Q3: Is an arbitration award valid if passed after insolvency resolution approval?
No, such an award is considered without jurisdiction and is treated as void if it pertains to an extinguished claim.
Accordingly, the appeal was allowed and the execution proceedings were quashed.
Stay informed with insights that matter. Follow us for more updates on key legal developments.
Disclaimer
The content provided here is for general information only; it does not constitute legal advice. Reading them does not create a lawyer-client relationship, and Mahendra Bhavsar & Co. disclaims all liability for actions taken or omitted based on this content. Always obtain advice from qualified counsel for your specific circumstances. © Mahendra Bhavsar & Co.
