SC bars operational creditors’ suits, arbitration after Tata Steel resolution plan for Bhushan Steel
The Supreme Court has ruled that operational creditors of Bhushan Steel Limited cannot pursue civil suits or arbitration for past dues after approval of the company’s resolution plan, allowing appeals filed by Tata Steel Ltd. as the successful resolution applicant and dismissing a recovery suit and six arbitration references brought by two operational creditors.
The bench held that only claims crystallised and quantified by the date the resolution plan took effect — May 18, 2018 — are payable on a pro-rata basis under the plan, and that claims not crystallised by then stand abated, extinguished, waived or withdrawn. As a result, the Supreme Court held that no amount beyond the notional value of Rupee One each was payable to Respondent No. 1, Varsha, and to intervenor Masyc Projects Private Limited, and ordered Varsha’s Civil Suit No. 153 of 2011, pending before the 13th Joint Civil Judge, Senior Division, Nagpur, along with Masyc’s pending arbitration proceedings, dismissed.
The ruling, authored by Justice Manmohan and reported as 2026 INSC 717, was delivered in Civil Appeal Nos. 9052-9053 of 2026, arising out of SLP(C) Nos. 24000-24001 of 2026. The appeals set aside two Bombay High Court, Nagpur Bench orders — dated March 28, 2019 and July 9, 2019 — that had allowed Varsha’s recovery suit to proceed despite the resolution plan’s approval, as well as the underlying trial court order of October 25, 2018 that had rejected Tata Steel’s application to dismiss the suit.
Background
According to the judgment, Varsha had filed a summary civil suit against Bhushan Steel Limited (BSL) prior to the initiation of the Corporate Insolvency Resolution Process (CIRP), seeking recovery of ₹38,89,674.14 with 18 percent annual interest; the suit was later converted to Civil Suit No. 153 of 2011. Masyc Projects Private Limited had separately initiated six arbitral references before two tribunals over goods supplied to BSL. CIRP was initiated against BSL at the instance of State Bank of India, and both creditors submitted claims to the insolvency process — Varsha for ₹34,27,895 and Masyc for ₹31,30,67,354.
The resolution professional’s Interim List of Creditors, dated January 17, 2018, admitted both claims at a notional value of Rupee One each, with an accompanying note stating the claims were subject to pending disputes and that liability depended on the outcome of those proceedings. Tata Steel’s resolution plan, submitted February 3, 2018, stated that operational creditors were entitled to nil payment under the liquidation value calculation, but separately earmarked an Operational Creditors Settlement Amount of ₹1,200 crore — ₹1,000 crore for essential and critical operational creditors and ₹200 crore for pro-rata distribution among other admitted claims. The Final List of Creditors, dated March 20, 2018, again admitted both claims at Rupee One each, though the judgment notes the note accompanying the interim list referencing “ongoing proceedings” was replaced in the final list with different wording. The Committee of Creditors approved the plan the same day; the National Company Law Tribunal (NCLT) sanctioned it on May 15, 2018, and the National Company Law Appellate Tribunal dismissed appeals against it on August 10, 2018.
Tata Steel’s applications to halt the civil suit and arbitration proceedings were rejected by the trial court and the sole arbitrator in October 2018 and January 2019 respectively, leading to the Bombay High Court writ petitions that were ultimately dismissed and are now set aside by the Supreme Court. Masyc was permitted to intervene in the Supreme Court proceedings by an order dated August 27, 2021, on the limited question of whether operational creditors may enforce past-dues claims by suit or arbitration after a resolution plan’s approval.
The Court rejected Varsha’s counsel’s argument that the resolution plan was procured by fraud, noting that no application under Rule 11 of the NCLT Rules, 2016 had been filed to challenge the plan’s approval. It also rejected Masyc’s argument that specific carve-out clauses in the plan preserved sub-judice claims from extinguishment, holding that the plan read as a whole extinguished all claims not crystallised by the effective date. The Court cited its earlier rulings in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) 8 SCC 531, Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657, and JSW Steel Ltd. v. Pratishtha Thakur Haritwal & Ors. (2025) 9 SCC 673, among others, on the “clean slate” principle underlying the Insolvency and Bankruptcy Code.
The judgment includes a separate section the Court titled “An Afterword,” in which it stated that the Code, in its present form, does not adequately account for the position of small operational creditors, including MSMEs, who are placed at the bottom of the repayment waterfall, and suggested that the Law Commission and the legislature examine the issue.
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