Pending Civil Suits and Arbitrations for Uncrystallised Pre-CIRP Dues Cannot Survive an Approved Resolution Plan; ₹1 Notional Admission Does Not Keep Claims Alive: Supreme Court

Case Name: M/s Tata Steel Ltd. v. Varsha & Another

Date of Judgment: 17 July 2026

Citation: 2026 INSC 717

Bench: Justice Manoj Misra and Justice Manmohan

Held: The Supreme Court held that once a resolution plan is approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, it becomes binding on all creditors and stakeholders, and the successful resolution applicant must be permitted to take over the corporate debtor on a “clean slate”. Civil suits, arbitrations and other proceedings relating to pre-CIRP claims cannot continue where those claims had not crystallised into determinable and quantified liabilities by the effective date of the approved plan. Admission of a disputed claim at a notional value of ₹1 does not preserve the underlying claim or keep the pending proceedings alive when the resolution plan provides for their extinguishment.

Summary: Before the initiation of the Corporate Insolvency Resolution Process against Bhushan Steel Limited, Varsha had instituted a civil recovery suit, while Masyc Projects Private Limited had commenced six arbitral proceedings concerning goods supplied to the company. Both operational creditors submitted their claims during the CIRP, but the Resolution Professional verified them at a notional value of ₹1 each because the underlying disputes remained pending before other forums.

Tata Steel’s resolution plan was approved by the Committee of Creditors and sanctioned by the NCLT. The plan provided a settlement corpus for certain operational creditors but stipulated that pre-effective-date liabilities and proceedings, except to the extent specifically payable under the plan, would stand fully discharged, abated or extinguished. Despite this, the Bombay High Court permitted Varsha’s recovery suit to continue, while the arbitral proceedings initiated by Masyc also remained pending.

The Supreme Court ruled that the final list of operational creditors and the treatment prescribed under the approved resolution plan had attained finality. The Court rejected the contention that assigning a notional value of ₹1 meant that the creditors could continue their suits or arbitrations and recover the amount ultimately determined. It held that the final list had converted these into quantified ₹1 claims and did not preserve them subject to the outcome of litigation.

The Court further held that only claims crystallised and approved by the relevant cut-off date were eligible for pro-rata payment from the ₹200 crore corpus available to the concerned class of operational creditors. Allowing uncertain claims to remain pending and resurface years after approval would undermine the commercial basis of the resolution plan and defeat the IBC’s “clean slate” and “fresh start” principles.

Although the Court acknowledged that small operational creditors and MSMEs may be disproportionately affected under the existing insolvency framework, it observed that any fairer repayment mechanism must be examined by the Legislature and the Law Commission rather than created through judicial interpretation.

Decision: The Supreme Court allowed Tata Steel’s appeals and set aside the Bombay High Court’s orders. Varsha’s pending civil recovery suit and Masyc’s arbitral proceedings were dismissed. The Court held that no amount beyond the quantified claim of ₹1 each was payable under the approved resolution plan.