The High Court of Madhya Pradesh at Jabalpur Bench has held that pre-CIRP land acquisition agreements and welfare-oriented rehabilitation benefits stand extinguished under Section 31(1) read with Section 238 of the IBC once the NCLT approves a resolution plan, and the State cannot fasten such liabilities on the new corporate debtor. The Court clarified that once the NCLT approves a resolution plan, all non-plan claims stand extinguished by operation of law and the successful resolution applicant steps into the shoes of the corporate debtor free of pre-existing liabilities.
The High Court went on to observe that overriding effect of the IBC extends to State enactments, executive instructions, and welfare-oriented policies such as the Madhya Pradesh Model Rehabilitation Policy, 2002, which cannot be invoked as an exception to fasten liabilities on the new corporate debtor. Hence, land acquisition and rehabilitation agreements executed between the State and the erstwhile corporate debtor prior to approval of the resolution plan cannot be enforced against the resolution applicant or the converted entity.
The Court also expressly rejected the argument that rehabilitation claims, being welfare-oriented in nature, constitute an exception to the binding nature of an approved resolution plan.
A Single Judge Bench of Justice Sanjeev S Kalgaonkar observed that under Section 31(1) of the IBC, the approved resolution plan is binding on the corporate debtor, creditors, government authorities and all stakeholders, and all non-plan claims stand extinguished by operation of law. Referring to Section 238 of the IBC, the Court noted that the Code overrides any State enactment, policy, executive instruction, or prior administrative/judicial order.
The Court placed strong reliance on the Coordinate Bench decision in Mahan Energen Limited vs. State of M.P. [W.P. No. 4131/2012], which held that pending liabilities under adjudication cannot be fastened on a resolution applicant without being placed before the Committee of Creditors after due publication under Section 15 of the IBC. The Court further observed that the agreements were executed prior to the approval of the resolution plan, and therefore the rehabilitation claims arising therefrom cannot survive against the new corporate debtor.
On the merits of the Collector’s order, the Court noted that the Collector had conducted a fact-finding inquiry, spot inspection by the Sub-Divisional Officer, recorded witness statements, and afforded an opportunity of hearing to the petitioner before concluding that the petitioner did not fall within the definition of ‘displaced person’ under clause 2.1(a) of the Policy, since he was not residing for one year before June 09, 2007, within the acquired area.
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Briefly, the petitioner, a resident of Village Khairahi in District Singrouli, filed this writ challenging the order passed by the Collector, Singrouli, which rejected his claim for rehabilitation benefits under the ‘Madhya Pradesh Ki Adarsh Punarvas Niti, 2002’ (Model Rehabilitation Policy, 2002). The petitioner’s agricultural land and residential house were acquired for respondent no. 2 i.e., Essar Power M.P. Limited, pursuant to agreements executed between the State and Essar Power for acquisition of land in Villages Karsualal, Khairahi, Nagma and Bandhoura.
A Coordinate Bench had earlier directed the Collector to decide the petitioner’s representation, but the Collector rejected it on the ground that the petitioner was not a resident of the acquired area within the meaning of Section 4 of the Land Acquisition Act, and that the house was constructed after issuance of the Section 4 notification. During the pendency of the petition, Essar Power M.P. Ltd. underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, and the resolution plan submitted by M/s Adani Power Limited was approved by the NCLT, converting the corporate debtor into M/s Mahan Energen Ltd. (respondent no. 4).
