Calcutta High Court: Approval Of Resolution Plan By NCLT Resets Corporate Entity's Liability

Calcutta High Court: Approval Of Resolution Plan By NCLT Resets Corporate Entity's Liability

Justice Sugato Majumdar of the Calcutta High Court has ruled that following the conclusion of insolvency proceedings and the approval of a resolution plan by the National Company Law Tribunal, the corporate entity begins afresh with a clean slate upon rejuvenation.

Defendant No. 1 merged with Defendant No. 5 in 2008, as per a Court Order. Subsequently, Defendant No. 1 ceased to exist, and Defendant No. 5's operations were suspended for over fourteen years. This led to the initiation of Corporate Insolvency Resolution Process by the National Company Law Tribunal (NCLT), Kolkata Branch, under the Insolvency and Bankruptcy Code, 2016. The resolution plan, approved by the Committee of Creditors and endorsed by NCLT, Kolkata Branch, directed the implementation within thirty days through an Order. Defendant No. 5 approached the Calcutta High Court seeking removal from the lawsuit.

Defendant No. 5 argued that after the conclusion of insolvency proceedings and the approval of the resolution plan, the corporate entity begins anew, devoid of past liabilities. It contended that as per the resolution plan, the company emerged with a clean slate, leading to the extinguishment of claims against Defendant No. 5.

The High Court referenced several cases including Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd, Sirpur Paper Mills Limited v. I.K. Merchants Pvt. Ltd, CoC of Essar Steel India Limited through Authorised Signatory vs. Satish Kumar Gupta & Ors, India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. & Anr, and Innovative Industries Limited v. ICICI Bank & Anr to establish that once insolvency proceedings are finalized and a corporate resolution plan is approved, the affected companies start afresh without prior liabilities.

Hence, the High Court concluded that the Union of India's claims against Defendant No. 5 are no longer valid and should be deemed relinquished. It affirmed that after the approval and implementation of Defendant No. 5's resolution plan as directed by the National Company Law Tribunal, Kolkata Branch, the company legally began anew, unburdened by past claims.

Consequently, the High Court ordered the removal of Defendant No. 1 and Defendant No. 5 from the list of parties in the case. Defendant No. 1 had ceased to exist after merging with Defendant No. 5, while the claims against Defendant No. 5 ceased to exist following the resolution process. Therefore, the High Court directed the amendment of the cause title to reflect the exclusion of Defendant No. 1 and Defendant No. 5 from the parties involved.