Court Reaffirms Finality of Resolution Plan Under IBC, 2016; Counterclaims Not Included in Resolution Plan Extinguished and Not Maintainable in Arbitration
In a landmark judgment dated May 4, 2026, the Delhi High Court, presided over by Justice Harish Vaidyanathan Shankar, delivered a comprehensive verdict in the case of M/s MBL Infrastructure Ltd v. M/s Pradeep Colonisers and Suppliers Pvt Ltd. The Court dealt with a pivotal question arising from arbitration proceedings — whether counterclaims filed by an operational creditor, which were excluded from an approved Corporate Insolvency Resolution Process (CIRP) Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC), are maintainable in arbitration.
The factual matrix involved MBL Infrastructure Ltd (Claimant), which underwent CIRP following insolvency proceedings initiated by a financial creditor. Pradeep Colonisers (Respondent), an operational creditor, submitted claims during the CIRP, which were partially admitted and included in the List of Creditors by the Interim Resolution Professional (IRP). However, these claims were not incorporated in the Resolution Plan approved by the National Company Law Tribunal (NCLT) and upheld by the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court.
Subsequently, arbitration proceedings ensued between the parties, wherein the Respondent raised counterclaims for unpaid dues. The Arbitrator, in the impugned award dated July 22, 2025, held the counterclaims maintainable, rejected the Claimant’s objection based on the IBC, and partly allowed the counterclaims, awarding substantial sums to the Respondent.
On challenge under Section 34 of the Arbitration and Conciliation Act, 1996, the Delhi High Court examined the foundational issue of maintainability of counterclaims excluded from the Resolution Plan. The Court reiterated the settled legal position under the IBC that once a Resolution Plan is approved under Section 31, it becomes binding on the corporate debtor and all stakeholders, and all claims not forming part of the plan stand extinguished by operation of law. This extinguishment applies uniformly, regardless of whether the resolution applicant is a third party or the existing promoter, thereby reaffirming the “clean slate” doctrine.
The Court observed that the Respondent, having participated in the CIRP and submitted its claims, was bound by the Resolution Plan’s terms. Since the Respondent did not challenge the exclusion of its claims before the NCLT or NCLAT within the statutory framework, it cannot reopen or pursue those claims in collateral proceedings such as arbitration. The Court further held that the arbitral award permitting such counterclaims suffered from patent illegality and was in conflict with the fundamental policy of Indian law as embodied in the IBC, warranting interference under Section 34.
The judgment extensively referred to authoritative Supreme Court precedents, including Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd., and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, underscoring the binding effect and finality of an approved Resolution Plan and the extinguishment of claims not forming part thereof.
The Court also rejected the Respondent’s reliance on judgments like Rainbow Papers Ltd. and The National Sewing Thread Co Ltd. to distinguish the clean slate principle based on the identity of the resolution applicant. It clarified that the statutory finality under Section 31 applies uniformly and does not depend on whether the management post-resolution is the original promoter or a third party.
Consequently, the Court set aside the arbitral award to the extent it upheld the maintainability and allowed the counterclaims excluded from the Resolution Plan. The execution petition predicated on those counterclaims was also dismissed. However, the Court left open the merits of the Claimant’s claims for future adjudication.
This judgment is a significant affirmation of the statutory insolvency resolution framework, emphasizing that claims must be resolved exclusively within the CIRP and appellate mechanisms under the IBC. Collateral proceedings, including arbitration, cannot be used to undermine the finality and certainty of an approved Resolution Plan.
Bottom line:-
Approval of Resolution Plan - Effect of exclusion of creditor's claim from approved Resolution Plan - Once the Resolution Plan is approved by the Adjudicating Authority under Section 31, all claims not forming part of the plan stand extinguished and no person is entitled to initiate or continue any proceedings in respect of such claims - Counterclaims raised by operational creditor excluded from Resolution Plan held not maintainable - Clean slate doctrine applies irrespective of whether the resolution applicant is a third party or existing promoter - Claims must be resolved within CIRP framework and challenged before NCLT or NCLAT - Collateral proceedings including arbitration not permissible to reopen settled claims - Counterclaims allowed by Arbitrator set aside on this ground.
Statutory provision(s):
Section 31 of the Insolvency and Bankruptcy Code, 2016; Section 34 of the Arbitration and Conciliation Act, 1996; Sections 60, 61, and 62 of the Insolvency and Bankruptcy Code, 2016; Section 14 of the Insolvency and Bankruptcy Code, 2016; Section 238 of the Insolvency and Bankruptcy Code, 2016
