“Clean‑Slate” Finality after IBC Resolution & the Narrow Door of S.47 CPC
A Detailed Commentary on Supreme Court Judgment in
Electrosteel Steel Ltd. (now ESL Steel) v. Ispat Carrier Pvt. Ltd. (2025 INSC 525)

1. Introduction

The Supreme Court’s decision in Electrosteel Steel Ltd. v. Ispat Carrier Pvt. Ltd. confronts the tension between two powerful statutory regimes—the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) read with the Arbitration and Conciliation Act, 1996 (“ACA”). The case arose when Ispat Carrier (a supplier registered as an MSME) obtained an arbitral award for ₹1.59 crore plus interest from the West Bengal MSME Facilitation Council after Electrosteel had already undergone a Corporate Insolvency Resolution Process (CIRP) culminating in an NCLT‑approved resolution plan that treated all operational‑creditor claims at nil. The questions were (i) whether a party that chose not to file a Section 34 ACA petition could later resist execution by labelling the award a “nullity”, and (ii) whether a Facilitation Council retains jurisdiction once the debtor’s resolution plan is approved.

By allowing Electrosteel’s appeal, the Supreme Court solidifies two propositions:

1. Once a resolution plan is approved under Section 31 IBC, all pre‑resolution claims not included in the plan—including un‑quantified, pending or arbitral claims—stand extinguished.
2. An arbitral award rendered on such an extinguished claim is a nullity, and its invalidity can be raised under Section 47 of the Code of Civil Procedure (“CPC”) at the execution stage even if no Section 34 ACA petition was filed.

2. Summary of the Judgment

• The Court reversed the Jharkhand High Court and the Bokaro Commercial Court orders that had directed Electrosteel to honour the Facilitation Council’s award.
• It held that:

• The MSME Facilitation Council lacked jurisdiction to continue arbitration once the CIRP culminated in an approved plan treating operational creditors at nil.
• The award was void ab initio; therefore, Electrosteel could legitimately object to its execution under Section 47 CPC.
• Lifting of the moratorium does not revive such claims—the “clean slate” principle forbids resurrection of liabilities not captured in the plan.

Consequently, execution proceedings were quashed and the High Court’s supervisory order set aside.

3. Analysis

3.1 Precedents Cited & Their Influence

• Essar Steel COC v. Satish Kumar Gupta (2020 8 SCC 531)
  Established the “hydra‑head” metaphor—successful resolution applicants cannot face undecided claims post‑approval. The Bench in Electrosteel echoes this rationale to hold that Ispat’s claim could not revive after the plan.
• Ghanshyam Mishra & Sons v. Edelweiss ARC (2021 9 SCC 657)
  Held that all claims not part of an approved plan “stand extinguished”. Electrosteel applies this dictum squarely, noting that even statutory/Government dues disappear if excluded from the plan.
• Ajay Kumar R. Goenka v. Tourism Finance Corp. (2023 10 SCC 545)
  Clarified that creditors “have no option but to join the IBC process”. The Court uses this to rebut Ispat’s argument that its separate arbitral route could survive the CIRP.
• Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman (1970 1 SCC 670) & Sarwan Kumar v. Madan Lal (2003 4 SCC 147)
  Provide the execution‑law principle that only jurisdictional nullities may be raised under Section 47 CPC. The Court leans on these to explain why Electrosteel’s objection was maintainable.
• Adani Power Ltd. v. Shapoorji Pallonji & Co. (CA 1741/2023) & JSW Steel Ltd. v. Pratishtha Thakur (2025 INSC 401)
  Recently reiterated that approved plans are binding “on everyone under the sun”. The Court references them to stress consistency.

3.2 Court’s Legal Reasoning

(a) Statutory Priority of IBC via Sections 31 & 238
The Bench underscores that Section 31(1) IBC renders the approved plan binding on “creditors, Governments, and all stakeholders.” Section 238 IBC grants overriding effect. Hence, any parallel adjudication—including MSME arbitration—cannot travel beyond what the plan permits.

(b) Extinguishment of Claims Not in the Plan
The resolution plan explicitly fixed operational‑creditor recovery at nil, with clauses 3.2, 3.4 & 3.8 settling all suits/arbitrations likewise. The Facilitation Council’s award, though issued after the moratorium, related to a pre‑resolution liability; by operation of law it was non‑existent once the plan took effect.

(c) The “Nullity” Doctrine and Section 47 CPC
Because jurisdiction was statutorily ousted, the award was a patent nullity. A judgment‑debtor need not file Section 34 ACA proceedings to resist a void decree/award; it may invoke Section 47 CPC at execution. The High Court’s view—that failure to file Section 34 bars an execution‑stage objection—was therefore erroneous.

3.3 Likely Impact of the Judgment

1. Operational Creditors’ Strategy: Suppliers (including MSMEs) must participate vigilantly in CIRP and, if excluded or dissatisfied, pursue IBC remedies (S.60, S.61 appeals) during the process. Post‑approval collateral proceedings will be futile.
2. Facilitation Councils & Special Tribunals: Will be circumspect about continuing disputes once the corporate debtor enters CIRP. They may seek clarity from IRP/RP or the NCLT to avoid wasting resources on extinguished claims.
3. Resolution Applicants’ Certainty: Reinforces “clean slate” assurance, improving bid quality and valuations. Investors gain confidence that unforeseen litigation will not surface later.
4. Execution‑Stage Jurisprudence: Affirms that Section 47 CPC remains a narrow but potent tool for pleas of inherent lack of jurisdiction—even in the arbitration context.
5. Inter‑statute Harmonisation: The decision demonstrates the judiciary’s preference for the IBC’s insolvency objectives over sector‑specific dispute‑resolution mechanisms when conflicts arise.

4. Complex Concepts Simplified

Resolution Plan (IBC §30‑31)

A commercial blueprint, approved by creditors (CoC) and the NCLT, that details how the debtor’s assets and liabilities will be restructured. Once approved, it binds all stakeholders.

Moratorium (IBC §14)

A statutory “pause button” on suits, enforcement, and foreclosures during CIRP to allow formulation of the resolution plan without litigation pressure.

“Clean Slate” Principle

The concept that, after resolution, the corporate debtor should emerge free from past liabilities not accounted for in the plan, enabling fresh operations under the new management.

Section 47 CPC

Allows the executing court to decide questions relating to execution, discharge, or satisfaction of a decree. It can refuse execution if the decree/award is a jurisdictional nullity.

Nullity vs. Illegality

A “nullity” is void from inception due to lack of jurisdiction; it can be challenged at any stage. A mere error (illegality) within jurisdiction must be attacked through statutory appeals (e.g., Section 34 ACA).

5. Conclusion

The Supreme Court in Electrosteel has reinforced the supremacy and finality of an IBC resolution plan, clarifying that even statutorily privileged MSME claims cannot outlive a plan that expressly provides them no recovery. The decision harmonises execution‑law doctrine with insolvency policy by confirming that nullities may be resisted under Section 47 CPC, yet reiterates that such resistance is confined to jurisdictional fatality, not mere discontent. For practitioners, the message is unmistakable: participation in the CIRP window is mandatory, and once that window shuts with an approved plan, the curtain is dropped on prior claims. The judgment thus tightens the bolts on India’s insolvency architecture, promoting certainty for resolution applicants while steering creditors towards timely, unified assertion of rights within the IBC framework.