The Supreme Court has ruled that civil suits and arbitration proceedings relating to operational creditors cannot continue after a resolution plan under the Insolvency and Bankruptcy Code (IBC) has been approved if those claims had not become final and quantifiable by the relevant date. Delivering a significant judgment on Friday (17 July), the Court allowed Tata Steel Ltd.'s appeals and held that the approved resolution plan gave the successful resolution applicant a "clean slate" from past unresolved claims.
Background of the Case
The dispute arose after Tata Steel acquired Bhushan Steel Limited through the corporate insolvency resolution process. Before insolvency proceedings began, operational creditor Varsha had filed a recovery suit against Bhushan Steel, while Masyc Projects Pvt. Ltd. had initiated multiple arbitration proceedings over unpaid dues.
During the insolvency process, both creditors submitted their claims before the Resolution Professional. Their disputed claims, however, were admitted at a notional value of ₹1 in the final list of operational creditors. After Tata Steel's resolution plan received approval from the National Company Law Tribunal (NCLT) in May 2018, it sought dismissal of the pending civil suit and arbitration proceedings. The matter eventually reached the Supreme Court after conflicting orders from the Bombay High Court.
Court's Observations
A Bench of Justice Manmohan and Justice Manoj Misra reiterated that once a resolution plan is approved under Section 31 of the IBC, all claims are governed by that plan and any claim not preserved in accordance with it stands extinguished.
The Bench observed,
"No resolution plan can succeed if uncertain or unquantified claims are permitted to linger and resurface against the successful resolution applicant years after approval."
Rejecting the argument that assigning a notional value of ₹1 kept the pending claims alive, the Court held that the final list of operational creditors treated those claims as quantified at ₹1 and not as claims awaiting future adjudication. It also found no merit in allegations that the resolution plan had been obtained through manipulation or fraud, noting that no proceedings challenging the plan on that ground had been pursued before the NCLT.
The Court further clarified that the ₹200 crore pool earmarked for operational creditors under the resolution plan was available only for claims that had crystallised and stood approved by the Committee of Creditors before the relevant cut-off date. It held that permitting unresolved claims to continue would defeat the IBC's objective of giving the successful resolution applicant certainty and a fresh start.
Decision
Allowing Tata Steel's appeals, the Supreme Court set aside the Bombay High Court's orders and also quashed the trial court's order that had permitted the recovery suit to continue.
The Bench held that all pending civil and arbitral proceedings relating to claims that had not become determinable and quantifiable before approval of the resolution plan stood extinguished upon its approval.
Consequently, the recovery suit filed by Varsha and the arbitration proceedings initiated by Masyc Projects Pvt. Ltd. were dismissed.
Case Details
Case Title: M/s Tata Steel Ltd. v. Varsha & Anr.
Case Number: Civil Appeal Nos. 9052–9053 of 2026 (arising out of SLP(C) Nos. 24000–24001 of 2026)
Judge: Justice Manmohan and Justice Manoj Misra
Decision Date: July 17, 2026
