Sub-Judice Claims Admitted at Re. 1 Extinguished by Approved Resolution Plan, Suit and Arbitration Dismissed: Supreme Court in Tata Steel Ltd. v. Varsha [2026 INSC 717]

In M/s Tata Steel Ltd. v. Varsha & Anr. (2026 INSC 717), the Supreme Court held that, on a harmonious reading of the approved Resolution Plan of Bhushan Steel Limited, all legal proceedings, including arbitrations and civil suits, that had not culminated in determinable, quantifiable claims by the date of NCLT approval stood abated, extinguished, waived or withdrawn, and only crystallised claims were payable pro rata (paras 57, 61). The notional Re. 1 value in the Final List of Creditors did not keep the claims alive, the plan contained no carve-out for sub-judice claims, and allowing unquantified claims to resurface would defeat the "clean slate" principle (paras 54–55, 57). A Bench of Justice Manoj Misra and Justice Manmohan allowed the Successful Resolution Applicant's appeals (para 64).

Status: Bombay High Court (Nagpur Bench) orders dated 28.03.2019 in W.P.(C) No. 8620 of 2018 and 09.07.2019 in Miscellaneous Civil Application No. 649 of 2019, and the Trial Court's order dated 25.10.2018, set aside; Civil Suit No. 153 of 2011 and the intervenor's arbitration proceedings dismissed; appeals allowed (paras 3, 12–13, 64).

Headnote: Sub-Judice Claims After Approval of Resolution Plan

Insolvency and Bankruptcy Code, 2016 – Sections 3(6), 30, 31(1) – CIRP Regulations – Regulation 12(2) – NCLT Rules, 2016 – Rule 11 – Resolution Plan – Operational creditors – Sub-judice claims admitted at notional value of Re. 1 – Clean slate principle – Extinguishment of claims – Pending civil suit and arbitration – Commercial wisdom of Committee of Creditors – Contra proferentem – MSMEs.

Held: (i) Once a Resolution Plan is approved under Section 31(1), the claims in it stand frozen and bind all stakeholders; claims not incorporated stand extinguished, so that the Resolution Applicant starts on a clean slate (para 51).

(ii) The Final List of Operational Creditors was never challenged by the first respondent, and the intervenor's challenge was withdrawn; the approved plan is final and binding (para 52).

(iii) Allegations of fraud and manipulation cannot be entertained in the absence of an application under Rule 11 of the NCLT Rules, particularly in an appeal by the Successful Resolution Applicant (para 53).

(iv) With Note 3 deleted and Note 2 added in the Final List, the creditors' claims became a quantified Re. 1, and the notional value did not keep them alive pending litigation (para 54).

(v) Clauses 8.7.3 and 8.6.10 of the plan extinguished all proceedings by operational creditors, including those listed in Annexures 8 and 10; there was no express carve-out for sub-judice claims, and only Rs. 200 crore was available pro rata for crystallised claims (paras 56–57).

(vi) The plan has no ambiguity, so neither contra proferentem nor a "face value reservation mechanism" applies; uncrystallised claims could not remain pending beyond the 12-month payment timeline (paras 59–61).

(paras 51–64)

Case Details: Tata Steel Ltd. v. Varsha (2026 INSC 717)

Final Outcome: Civil Appeals allowed; High Court orders and the Trial Court's order set aside; recovery suit (Civil Suit No. 153 of 2011) and the intervenor's arbitration proceedings dismissed.

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

Neutral Citation: 2026 INSC 717

Case No.: Civil Appeal Nos. 9052–9053 of 2026 (arising out of SLP (Civil) Nos. 24000–24001 of 2026, Diary No. 36520 of 2019)

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Reportable

Date of Decision: 17 July 2026

Bench: Justice Manoj Misra and Justice Manmohan (author)

Relevant Acts & Sections: Insolvency and Bankruptcy Code, 2016 – Sections 3(6), 18, 25, 30, 31(1); CIRP Regulations – Regulations 12(2), 13; NCLT Rules, 2016 – Rule 11; Code of Civil Procedure, 1908 – Section 151; Arbitration and Conciliation Act, 1996 – Section 16

Impugned Orders: Orders of the High Court of Bombay, Nagpur Bench dated 28.03.2019 in W.P.(C) No. 8620 of 2018 and 09.07.2019 in Miscellaneous Civil Application No. 649 of 2019 (para 3)

Counsel: Mr. Ramji Srinivasan, Senior Advocate, for the appellant (Successful Resolution Applicant); Mr. Garvesh Kabra for Respondent No. 1; Mr. Neeraj Kishan Kaul, Senior Advocate, for the intervenor, Masyc Projects Private Limited (paras 16, 27, 33)

Source: Supreme Court of India

Key Holdings of the Supreme Court

• Once the Resolution Plan is approved under Section 31(1), claims not provided for in it stand extinguished, and the plan binds all stakeholders (para 51).
• The fraud allegation was baseless, and no Rule 11 application had been filed (para 53).
• Admitting disputed claims at Re. 1 in the Final List did not preserve them for later adjudication (para 54).
• Unquantified claims cannot linger and resurface years after approval; that would be a "hydra-headed recurrence" (para 55).
• The plan did not carve out sub-judice claims; on the contrary, all such claims stood extinguished (para 57).
• Under Regulation 12(2), as it then stood, operational creditors' claims had to be crystallised and quantified by the date of CoC approval (para 58).
• Only crystallised claims were payable pro rata; no more than Re. 1 each was payable to the first respondent and the intervenor (para 61).

Brief Facts of the Case

Before the CIRP of Bhushan Steel Limited (BSL), Respondent No. 1 had filed a summary suit for recovery of Rs. 38,89,674.14 with 18% interest, later converted into Civil Suit No. 153 of 2011. The intervenor, Masyc Projects Private Limited, had initiated six arbitral references for goods engineered and supplied to BSL (paras 5–6).

CIRP was initiated against BSL at the instance of State Bank of India. Both creditors lodged claims as operational creditors, for Rs. 34,27,895 and Rs. 31,30,67,354 respectively (para 7). In the Interim List of Creditors dated 17.01.2018, both claims were admitted at a notional Re. 1, with Note 3 stating that liability was subject to the outcome of pending proceedings (para 8).

Tata Steel submitted its Resolution Plan on 03.02.2018. As the liquidation value available to operational creditors was NIL, it provided an Operational Creditors Settlement Amount of Rs. 1,200 crore, with Rs. 1,000 crore for essential and critical operational creditors and Rs. 200 crore pro rata for others with admitted claims (para 9).

In the Final List of Creditors dated 20.03.2018, both claims were again admitted at Re. 1, but Note 3 was omitted and Note 2 stated that disputed claims had been verified at a notional Re. 1. Aggregate operational creditor claims were about Rs. 1,422 crore. The CoC approved the plan the same day, the NCLT sanctioned it on 15.05.2018, the NCLAT dismissed appeals on 10.08.2018, and the intervenor's challenge was dismissed as withdrawn on 25.10.2018 (paras 10–11).

The Trial Court rejected Tata Steel's application under Section 151 CPC to dismiss the suit on 25.10.2018, and the Sole Arbitrator rejected its plea to terminate the arbitration on 12.01.2019. The High Court dismissed Tata Steel's writ petition on 28.03.2019 and its review on 09.07.2019 (paras 12–13). The Supreme Court allowed the intervenor to address the limited issue on 27.08.2021 (paras 4, 15).

Issues Before the Supreme Court

1. Whether operational creditors can enforce claims for past dues through a civil suit or arbitration after approval of the Resolution Plan (para 4).
2. Whether admitting the sub-judice claims at a notional Re. 1 kept them alive pending adjudication (para 54).
3. Whether the approved plan carved out sub-judice claims from extinguishment (paras 57, 61).

Court's Findings and Reasoning

Appellant's case (paras 16–26): Tata Steel argued that the Re. 1 admission of sub-judice claims was approved in Essar Steel, that Clauses 8.2.2, 8.2.4 and 8.6.10 of the plan, read together, imposed no obligation to pay sub-judice claims beyond the settlement amount, which had been disbursed, and that the clean slate principle in Ghanashyam Mishra barred continuing proceedings.

Respondent No. 1's case (paras 27–32): Counsel alleged that the deletion of Note 3 was a manipulation that vitiated the plan, that the surplus of about Rs. 149.11 crore should have been placed in escrow for sub-judice claims, and that the NCLT order should be recalled.

Intervenor's case (paras 33–50): Masyc argued that Clause 8.7.3(i) excluded claims in Annexures 8 to 12 from extinguishment, that its claims were listed there, that ambiguity must be construed against the drafter, and that a face value reservation mechanism should have ring-fenced its pro rata share.

Settled propositions (para 51): Relying on JSW Steel v. Pratishtha Thakur Haritwal and Ghanashyam Mishra, the Court noted that it was undisputed that all claims must be decided by the Resolution Professional, that CoC commercial wisdom is non-justiciable, and that claims not in the approved plan stand extinguished.

Plan final; fraud plea rejected (paras 52–53): The Final List was never challenged by Respondent No. 1, and the intervenor's withdrawn challenge attained finality. Greater Noida Industrial Development Authority v. Prabhjit Singh Soni was of no help, as no Rule 11 application had been filed.

Re. 1 did not keep claims alive (paras 54–56): Deleting Note 3 and adding Note 2 converted the claims into a quantified Re. 1 with apparent finality. Only Rs. 200 crore was available pro rata for claims crystallised and approved as on 20.03.2018.

No carve-out; claims extinguished (paras 57–58): Clauses 8.7.3 and 8.6.10 stipulated that proceedings by operational creditors under Annexures 8 or 10 stand withdrawn, abated, settled or extinguished. Regulation 12(2), as it then stood, required claims to be crystallised by the date of CoC approval.

No ambiguity (paras 59–60): The plan was unambiguous and not under challenge, so contra proferentem and the face value reservation mechanism did not apply. It would be commercially unsound for a plan with a 12-month payment timeline to allow indeterminate claims to remain pending.

Afterword on MSMEs (paras 62–63): The Court observed that the Code does not adequately account for small operational creditors, including MSMEs and statutory local bodies, placed at the bottom of the waterfall, and that the Law Commission and the Legislature may examine the matter.

Final Outcome and Directions

• Civil Appeals allowed; the Bombay High Court's orders and the Trial Court's order dated 25.10.2018 in Regular Civil Suit No. 153/2011 set aside (para 64).
• Civil Suit No. 153/2011 pending before the 13th Joint Civil Judge, Senior Division, Nagpur dismissed (para 64).
• Arbitration proceedings initiated by the intervenor dismissed (para 64).
• No amount beyond Re. 1 each was payable to Respondent No. 1 and the intervenor (para 61).

Legal Principle Laid Down

On approval of a Resolution Plan under Section 31(1) of the IBC, the claims of operational creditors are frozen as provided in the plan. Where disputed claims are admitted in the Final List at a notional Re. 1 without any reservation, and the plan provides for extinguishment of all pre-approval proceedings without an express carve-out, pending civil suits and arbitrations that have not produced quantified claims by the date of approval stand abated and extinguished; only crystallised claims share pro rata in the amount the plan provides (paras 54, 57–58, 61).

Precedents Relied Upon

• Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) 9 SCC 657 – Relied upon – claims not in the approved plan stand extinguished. Discussed at paras 24, 51.
• JSW Steel Ltd. v. Pratishtha Thakur Haritwal, (2025) 9 SCC 673 – Relied upon – all claims must be submitted to and decided by the Resolution Professional. Discussed at para 51.
• Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 – Cited by the appellant – admission of sub-judice claims at Re. 1; no "hydra head" of undecided claims. Discussed at paras 16, 22.
• Principal Commissioner of Income Tax v. Monnet Ispat and Energy Ltd., (2018) 18 SCC 786, and Kalyani Transco v. Bhushan Power and Steel Ltd., 2025 SCC OnLine SC 2093 – Relied upon – binding effect of an approved plan; CoC's commercial wisdom. Discussed at paras 22, 51.
• K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 – Relied upon – limits of NCLT and NCLAT jurisdiction. Discussed at para 51.
• Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, (2024) 6 SCC 767 – Held inapplicable – no Rule 11 application filed. Discussed at paras 31, 53.
• Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 (4) SCC 17 – Referred to – financial and operational creditor distinction. Discussed at para 62.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 54: "Consequently, the argument of the Intervenor-Masyc that the assignment of value of Rupee One (₹1) was intended, in the present Appeals, to keep its claim alive pending litigation is contrary to the Resolution Plan."

Para 55: "This Court is further of the view that no Resolution Plan can succeed if uncertain or unquantified claims are permitted to linger and resurface against the Successful Resolution Applicant years after approval."

Para 57: "Consequently, the Resolution Plan read in its entirety did not provide for an express carve-out protecting sub-judice claims from extinguishment. On the contrary, all such claims stood extinguished."

Para 60: "... it would be illogical and commercially unsound for an approved Resolution Plan to prescribe a twelve (12) months payment timeline for certain Operational Creditors, while simultaneously permitting indeterminate claims to remain pending until crystallisation."

Para 61: "... all legal proceedings, including arbitration and civil suits which had not culminated in determinable, quantifiable claims by the date of approval of the Resolution Plan by the NCLT stand abated, extinguished, waived or withdrawn."

Para 62: "... the Code does not adequately account for the position of small operational creditors, including MSMEs and statutory local bodies, who stand significantly disenfranchised under the present framework by being placed at the bottom of the repayment waterfall."

Practical Impact of the Ruling

• For Successful Resolution Applicants: Pending suits and arbitrations by operational creditors for pre-approval dues cannot be continued where the plan extinguishes them and the claims were not crystallised (paras 57, 61).
• For operational creditors with disputed claims: A notional Re. 1 admission without reservation is effectively final; any objection must be raised against the List of Creditors or the plan itself (paras 52, 54).
• For MSME suppliers: The Court acknowledged their weak position under the Code and left reform to the Law Commission and the Legislature (paras 62–63).
• For litigants alleging fraud in a plan: The remedy lies in an application under Rule 11 of the NCLT Rules, not in a collateral civil suit (para 53).
• For arbitral tribunals and civil courts: Proceedings on claims extinguished by an approved plan are liable to be terminated (paras 61, 64).

FAQs on Sub-Judice Claims After IBC Resolution Plan

1. What did the Supreme Court decide in Tata Steel Ltd. v. Varsha?

It held that the approved Resolution Plan of Bhushan Steel extinguished the sub-judice claims of two operational creditors, and dismissed the pending recovery suit and arbitrations (paras 61, 64).

2. Does admitting a disputed claim at Re. 1 keep it alive for later adjudication?

Not here. Once Note 3 was deleted and Note 2 added in the Final List, the claim became a quantified Re. 1 with apparent finality (para 54).

3. Did the plan carve out sub-judice claims from extinguishment?

No. Read as a whole, Clauses 8.7.3 and 8.6.10 extinguished all proceedings by operational creditors, including those in Annexures 8 and 10 (para 57).

4. Why was the fraud allegation not examined?

Because no application under Rule 11 of the NCLT Rules had been filed, and such allegations could not be raised in an appeal by the Successful Resolution Applicant (para 53).

5. What did the Court say about MSMEs?

It observed that the Code does not adequately account for small operational creditors such as MSMEs and suggested legislative examination (paras 62–63).

Keywords: 2026 INSC 717, Tata Steel v. Varsha, Bhushan Steel resolution plan, sub-judice claims IBC, notional value Re 1, clean slate principle, Section 31 IBC, operational creditors, extinguishment of claims, pending arbitration after resolution plan, civil suit abated, Regulation 12(2) CIRP Regulations, MSME operational creditors, Justice Manmohan, Justice Manoj Misra, Supreme Court judgment

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Download Judgment PDF – Tata Steel Ltd. v. Varsha

Judgment PDF: 2026 INSC 717 – M/s Tata Steel Ltd. v. Varsha & Anr. (Civil Appeal Nos. 9052–9053 of 2026) – Download Judgment PDF

Source: Supreme Court of India (official website).