Execution of MSME Arbitral Award after Resolution Plan: Key Ruling

Introduction

In Electrosteel Steel Limited (now ESL Steel Limited) v. Ispat Carrier Private Limited, Civil Appeal No. 2896 of 2024 (decided on 21st April 2025), the Apex Court delivered an important decision regarding the enforceability of an arbitral award passed under the MSME Act after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (“IBC”).

This article discusses the facts, issues, arguments, and the reasoning adopted by the Court, particularly focusing on the precedents considered.

Brief Facts

• Ispat Carrier filed claims under the MSME Act, 2006 before the West Bengal Facilitation Council for outstanding dues.
  
• Arbitral proceedings commenced but were stayed due to initiation of CIRP against Electrosteel Steel under the IBC.
  
• Vedanta Ltd.’s resolution plan was approved by NCLT on 17.04.2018, settling all operational creditors’ claims at nil value.
  
• Post-moratorium, the Facilitation Council resumed proceedings and passed an award on 06.07.2018 in favour of Ispat Carrier.
  
• Electrosteel did not challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996 but contested execution under Section 47 CPC, arguing the award was a nullity.
  
• The Commercial Court and the High Court rejected Electrosteel’s objections, leading to the present appeal.

Issues

The Supreme Court considered the following issues:

1. Whether an arbitral award can be challenged as a nullity at the execution stage without invoking Section 34 of the Arbitration Act.
   
2. Whether the claim of the respondent survived post-approval of the resolution plan.
   
3. Whether the Facilitation Council retained jurisdiction to pass an award post-approval of the resolution plan.

Contentions of the Parties

Appellant (Electrosteel Steel Limited)

• The claim stood extinguished upon approval of the resolution plan.
  
• Award passed without jurisdiction was a nullity, thus unenforceable.
  
• Cited:
  
  • Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta (2020) 8 SCC 531
    
  • Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction (2021) 9 SCC 657
    
  • Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation (2023) 10 SCC 545
    
  • Adani Power Ltd. v. Shapoorji Pallonji & Co. Pvt. Ltd. (Civil Appeal No. 1741/2023)
    

Respondent (Ispat Carrier Private Limited)

• Resolution plan did not extinguish their claim specifically.
  
• Award was valid and executable since the appellant did not challenge it under Section 34.
  
• Arbitral proceedings revived post-moratorium.
  
• Cited factual submissions showing awareness and acceptance of the award by the appellant.

Reasoning of the Court

The Court closely analyzed the interplay between the IBC and the MSME Act and made the following observations:

• Scope of Section 47 CPC: An objection regarding nullity of an award can be raised during execution without filing a Section 34 petition.
  
• Effect of Approved Resolution Plan: Once a resolution plan is approved, all claims not forming part of the plan stand extinguished, as held in Ghanshyam Mishra, Essar Steel, and others.
  
• No Revival of Claims Post-Moratorium: Mere lifting of the moratorium does not revive extinguished claims; thus, the Facilitation Council lacked jurisdiction to proceed.
  
• Finality and Binding Nature of Resolution Plan: As per Section 31(1) IBC, an approved plan is binding on all creditors, including operational creditors.
  
• No Need to Challenge the Award under Section 34: Since the award was passed without jurisdiction, it could be attacked at the stage of execution itself.

Case Laws Relied Upon

The Court heavily relied on the following key precedents:

• Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta – No fresh claims can arise after resolution plan approval.
  
• Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction – All claims not part of the plan are extinguished.
  
• Ajay Kumar Radheshyam Goenka v. Tourism Finance Corporation – Resolution plan binds all, regardless of participation.
  
• Adani Power Ltd. v. Shapoorji Pallonji & Co. Pvt. Ltd. – Resolution applicant cannot face new liabilities beyond the plan.
  

The Court also reaffirmed that execution objections under Section 47 CPC can be entertained only on jurisdictional grounds, citing Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman (1970) 1 SCC 670.

Final Conclusion

The Court held:

• The Facilitation Council lacked jurisdiction post-approval of the resolution plan.
  
• The arbitral award was a nullity and hence non-executable.
  
• The execution proceedings and High Court judgment were both set aside.
  

Accordingly, the appeal was allowed and the execution proceedings were quashed.

FAQs:

Q1. Can an arbitral award be challenged as a nullity during execution without filing a Section 34 petition?
Yes. The Supreme Court held that an award passed without jurisdiction can be challenged at the execution stage under Section 47 of the CPC without the need to file a Section 34 challenge under the Arbitration and Conciliation Act.

Q2. What happens to claims of operational creditors once a resolution plan under the IBC is approved?
According to the Court, all claims not included in the approved resolution plan stand extinguished and cannot be revived even if the moratorium is lifted.

Q3. Did the Facilitation Council have jurisdiction to pass the arbitral award after approval of the resolution plan?
No. The Court ruled that the Facilitation Council lost jurisdiction to pass the award once the resolution plan was approved and claims were settled.

Q4. What is the significance of the resolution plan under Section 31(1) of the IBC?
The resolution plan is binding on all creditors, including operational creditors, and effectively settles or extinguishes claims not included in the plan.

Q5. What was the Court’s final decision regarding the arbitral award and execution proceedings?
The Court held the arbitral award was a nullity as it was passed without jurisdiction and quashed the execution proceedings as well as the High Court’s judgment allowing execution.

Q6. How does this judgment affect operational creditors under the MSME Act post-IBC resolution plans?
It clarifies that operational creditors’ claims are extinguished post-approval of a resolution plan, and such creditors cannot enforce awards or claims outside the terms of the plan.

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.