Delhi High Court Sets Aside Arbitration Against Bhushan Steel Following Tata Steel Takeover

The Delhi High Court has set aside an arbitral tribunal order that allowed arbitration to continue against Tata Steel, formerly Bhushan Steel, even after its resolution plan under the Insolvency and Bankruptcy Code was approved.

A single-judge bench of Justice Amit Sharma allowed Tata Steel's writ petition and quashed the tribunal's October 7, 2020 order. The court said that once a resolution plan is approved, it binds all creditors.

“The Resolution Plan had attained finality and would be binding in terms of Section 31(1) of the IBC,” the court said. Allowing arbitration on such claims, the court said, would undermine the IBC's objective of giving the successful resolution applicant a clean or “fresh slate.”

The dispute concerns boiler supply contracts awarded by the then Bhushan Steel to ISGEC Heavy Engineering Limited. ISGEC invoked arbitration and claimed about Rs 80.29 crore. While the arbitration was pending, Bhushan Steel was admitted into insolvency by the National Company Law Tribunal, Principal Bench, New Delhi.

ISGEC filed its claim in the insolvency process. The resolution professional treated it as “contingent” since the arbitration had not concluded. The insolvency record showed dues of Rs 2,878 crore against a liquidation value of only Rs 721 crore. Tata Steel's resolution plan therefore proposed no payment to operational creditors like ISGEC. The committee of creditors approved the plan, and the NCLT cleared it in May 2019.

The takeover was contested in court but ultimately cleared by the Supreme Court.

ISGEC opposed Tata Steel's attempt to terminate the arbitration. It argued that because its claim was marked “contingent” and not admitted, it was effectively kept outside the insolvency process. On that basis, it said the resolution plan could not extinguish its right to pursue arbitration after the moratorium ended.

The court rejected this. It noted that the resolution plan had specifically dealt with sub judice and contingent claims and assigned them a liquidation value of nil. Calling the arbitral tribunal's decision to continue the proceedings “patently illegal,” the court said the treatment of claims falls within the commercial wisdom of the committee of creditors and cannot be reopened.

Referring to Clause 8.10.12 of the plan, the court noted that all such liabilities “shall immediately, irrevocably and unconditionally stand fully and finally discharged.” The arbitration, the court said, had to end.