NCLAT Upholds Resolution Plan, Supersedes BIFR Scheme in Trinity Auto Components Case
Axis Bank's claims extinguished, binding resolution plan prevails over prior BIFR scheme as NCLAT rules in favor of clean slate principle.
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has upheld the resolution plan approved under the Insolvency and Bankruptcy Code (IBC), 2016, thereby superseding the erstwhile Board for Industrial and Financial Reconstruction (BIFR) scheme in the ongoing legal tussle between Trinity Auto Components Ltd. and Axis Bank Ltd. The judgment, delivered by the Principal Bench in New Delhi, reaffirms the binding nature of the resolution plan, effectively extinguishing claims not included therein from the previous BIFR framework.
The appeal stemmed from Trinity Auto Components Ltd.'s dissatisfaction with Axis Bank's continued charging of interest rates higher than those stipulated under the BIFR scheme, despite the initiation of a Corporate Insolvency Resolution Process (CIRP). The appellant sought directives against Axis Bank to adhere to the provisions of the BIFR scheme, which included a reduced interest rate of 12% per annum from March 31, 2011.
However, the NCLAT ruled that the resolution plan, approved by the Committee of Creditors (CoC) and sanctioned by the adjudicating authority, takes precedence over any previous arrangements under BIFR. The tribunal emphasized the clean slate principle, ensuring that the resolution applicant acquires the corporate debtor free from undisclosed or unaddressed liabilities, thus preventing surprise claims post-approval.
The judgment cited precedents from the Supreme Court, including the landmark decisions in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Assets Reconstruction Company Ltd., which confirmed that claims not part of the approved resolution plan are deemed extinguished. Furthermore, the tribunal noted that Axis Bank, holding a significant voting share in the CoC, had the opportunity to include its claims in the resolution plan but failed to do so.
The ruling underscores the IBC's objective to replace the ineffective SICA regime with a creditor-driven, time-bound resolution process. It clarifies that any obligations or claims arising from the failed BIFR scheme are subsumed under the IBC framework. Consequently, Axis Bank's attempt to reclaim Rs. 118.46 lakhs credited as differential interest was deemed unjustifiable, as the resolution plan's terms specifically bind both the appellant and the respondent.
The NCLAT's decision marks a pivotal affirmation of the IBC's supremacy in insolvency proceedings, reinforcing the legislative intent to ensure that resolution plans provide a fresh start for corporate debtors. The tribunal's judgment dismisses Trinity Auto Components Ltd.'s appeal, solidifying the resolution plan's role as the governing framework for all stakeholders involved.
Bottom Line:
Insolvency and Bankruptcy Code - Resolution plan approved under the IBC supersedes BIFR scheme, and claims not included in the resolution plan are extinguished.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 31(1), Section 10, Section 238; SICA Repeal Act, 2003
