--- title: "Putting an End to the Hydra Head: Supreme Court Reaffirms the Clean Slate Doctrine in Tata Steel v. Varsha" date: 2026-08-07 author: "Pragalbh Bhardwaj" url: https://ksandk.com/insolvency/tata-steel-vs-varsha-subjudice-claims-ibc/ --- # Putting an End to the Hydra Head: Supreme Court Reaffirms the Clean Slate Doctrine in Tata Steel v. Varsha Posted On - 7 August, 2026 • By - Pragalbh Bhardwaj ![Illustration of the Supreme Court of India with legal symbols and a hydra representing multiple liabilities, symbolizing the Clean Slate Doctrine under the Insolvency and Bankruptcy Code.](https://ksandk.com/wp-content/uploads/ChatGPT-Image-Aug-7-2026-03_27_29-PM-1-1.png) ## Introduction The Supreme Court, in the case of *Tata Steel Ltd. v. Varsha & Anr.* *(2026 INSC 717)* (‘***Tata Steel v. Varsha***’), has held that an Operational Creditor cannot revive its full, uncrystallized sub-judice claim through a pending court or arbitration proceeding, once that claim has been admitted at a quantified value of Re. 1 in an approved Resolution Plan. Participating in the insolvency process by lodging a claim before the Resolution Professional does not preserve the creditor’s right to separately pursue the full claim through the pending suit or arbitration after the Plan is approved. The Court held that once a Resolution Plan is approved by the NCLT, all sub-judice claims of an Operational Creditor that remain uncrystallized as on the date of such approval stand extinguished. Consequently, the underlying suit or arbitration proceedings relating to such claims stand abated. The judgment of the Hon’ble Supreme Court reaffirms the ‘clean slate’ doctrine and helps strengthen the overall efficiency of the insolvency resolution mechanism under the Insolvency and Bankruptcy Code, 2016 (‘***Code***‘).   ## Factual Background of the Dispute A [Corporate Insolvency Resolution Process](https://ksandk.com/newsletter/insolvency-and-bankruptcy-board-of-india-amendments/) (‘*CIRP’*) was initiated against Bhushan Steel Limited (‘*BSL’*) at the instance of State Bank of India, wherein Respondent No. 1: Varsha and Intervenor-Masyc submitted to the jurisdiction of the Code, lodging their claims as Operational Creditors before the Interim Resolution Professional (‘*IRP’*) of Rs. 34.28 lakh and Rs. 31.31Cr respectively.  However, prior to the initiation of the CIRP, Varsha had instituted a summary Civil Suit (Civil Suit No. 153 of 2011) against BSL seeking recovery of Rs. 38,89,674.14/- @ 18% interest from the date of institution of suit till realization. Similarly, Masyc initiated six separate arbitral references before two independent arbitral tribunals in respect of goods engineered and supplied to BSL. Both the Civil Suit and the Arbitration proceedings were pending when the CIRP was initiated.  In the interim list of creditors, both the claims of Varsha and Masyc were admitted only at a notional value of Re. 1 each, with Note 3 specifically recording that “*Claims are subject to disputes pending before various authorities, and have been admitted/marked as verified with a notional amount of INR 1(Indian Rupee One only) and the liability is subject to the outcome of the ongoing proceedings*.”  On 3rd February 2018, Tata Steel Ltd. (***‘Appellant-SRA’***) submitted its [Resolution Plan](https://ksandk.com/newsletter/withdrawal-from-coc-approved-resolution-plan/), wherein, since the Debt of Financial Creditors exceeded the liquidation value, the Operational Creditors were held entitled to NIL payment. Nonetheless, the Plan also earmarked an Operational Creditors Settlement Amount of approximately Rs. 1,200 Cr (*Rs. 1,000 Cr. were earmarked for essential and critical Operational Creditors and Rs. 200 Cr. to be distributed on a pro-rata basis among OCs whose claims have been admitted.*)  In the final list of creditors prepared by the Resolution Professional, the claims of Varsha and Masyc were again admitted at the notional value of Re. 1 each. However, Note 3 of the Interim List was replaced by a differently worded Note 2 stating “*Claims which are subject to disputes pending before the authorities have been verified with a notional amount of INR 1*.” The Resolution Plan received approval from the Committee of Creditors (‘***COC’***) and was also sanctioned by the NCLT on 15th May 2018 under Section 30 read with Section 31 of the Code.   The aggrieved parties, thereafter, filed an appeal against the sanctioned Plan, which NCLAT dismissed, and Masyc’s own challenge before the NCLT to the treatment of its claim was dismissed as withdrawn on 25.10.2018.   The Appellant-SRA moved an application seeking dismissal of the ongoing Civil Suit initiated by Varsha, which the Trial Court rejected. The High Court of Bombay, Nagpur Bench, dismissed the Writ Petition challenging the said rejection, along with a Review Petition filed by Appellant-SRA. The Appellant-SRA’s writ challenge to the Trial Court’s refusal to dismiss Varsha’s suit was rejected by the Bombay High Court, giving rise to the present appeals. Masyc, whose parallel challenge to the Arbitrator’s rejection of its termination application was pending before the Punjab & Haryana High Court, was later permitted to intervene in these appeals by Supreme Court order dated 27.08.2021, confined to the common question of law.   ## Issues Before the Supreme Court The fundamental question before the Supreme Court was whether the Operational Creditors can enforce claims for past dues by way of ongoing civil/arbitration proceedings, after the approval of the Resolution Plan, where their claims had been admitted to notional value of Re.1, and the Plan itself earmarked a composite Operational Creditors Settlement Amount and carved out Annexures listing sub-judice claims.  A second, related question before the Court concerned the interim list of creditors, which had a note (Note 3) stating that sub-judice claims were admitted only subject to the outcome of pending adjudication. This note was missing from the final list of creditors. The Respondent argued that this omission harmed her legitimate claim, and that it showed the Resolution Plan had been procured through manipulation and fraud. On this basis, the Respondent sought recall of the NCLT’s order approving the Plan.**  **  ## Analysis by the Court ### ***(a) The question of law in the present dispute is not ‘res integra’*** In ***JSW Steel Ltd. vs. Pratishtha Thakur Haritwal & Ors. (2025) 9 SCC 673, ***the Supreme Court categorically held that “*all claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.*” It is a settled proposition that the commercial wisdom of the COC is non-justiciable, and that the Code has an overriding effect over any other law for the time being in force. Claims not incorporated in the Resolution Plan stand extinguished, withdrawn, or abated, enabling the Resolution Applicant to commence on a ‘*clean slate*’ free from unforeseen liabilities.   Since Respondent No. 1 – Varsha never challenged the Final List of Operational Creditors prepared by the Resolution Professional, and Masyc’s challenge was dismissed as withdrawn by the NCLT, the Resolution Plan herein is final and binding on all parties.   ### ***(b) The final list, and not the Interim List, governs*** The Court held that by virtue of the deletion of Note 3 and the incorporation of Note 2 into the Final List of Operational Creditors, the claims were altered from a ‘*notional’* Re. 1, subject to adjudication, into a ‘*quantified’* Re. 1 claim with apparent finality. Further, Varsha’s submission that the Resolution Plan was vitiated by manipulation and fraud was held to be baseless. The Court further observed that no application under Rule 11 of the NCLT Rules, 2016, has been filed to date, and in such absence, such allegations could not be entertained.   ### ***(c) Rs. 200 Crore was available for Quantified claims*** The treatment of claims must conform to the Approved Resolution Plan prepared by the SRA, who, in the present case, was informed that the total verified and admitted claims of Operational Creditors as on 20th March 2018 aggregated approximately Rs. 1422Cr with the claims of Varsha and Masyc quantified at Re. 1 each. The corpus provided by SRA (i.e. Rs. 1200Cr.) was to be distributed in accordance with *Clause 8.2.2* of the Plan. Since there was no surplus and the liquidation value was categorized as ‘NIL’ as clarified by *Clause 8.2.4*; no amount was payable in respect of *sub-judice *claims, save for the Operational Creditors amount as set out herein.   Further, as per *Clause 8.2.2*, the settlement amount was to be paid to ‘*certain*’ Operational Creditors on a pro-rata basis within 12 months from the date of closing, i.e. 18th May 2018; for which the corpus finalized was only of Rs. 200 cr., which too was to be paid for claims crystallized and approved by the COC as on 20th March 2018.  ### ***(d) Resolution Plan provided for the extinguishment of all sub-judice claims*** *Clauses 8.7.3* and *8.6.10* of the Resolution Plan unequivocally stipulate that all legal proceedings initiated by or on behalf of Operational Creditors (*which include Varsha and Masyc*) ‘*shall immediately, irrevocably, and unconditionally stand withdrawn, abated, settled and/or extinguished*’. Regulation 12(2) of the CIRP Regulations, as it then stood, permitted Operational Creditors to file claims only until the CoC approves the Resolution Plan. Thus, this regulation required the Corporate Debtor’s liability to be crystallized and quantified by that date. Further, *Clause 8.2.2 (vi)* of the Resolution plan fortifies this position by providing that claims verified and admitted before the NCLT approves the Plan would not alter the Operational Creditors Settlement Amount. Any subsequent increase in verified claims would disrupt the pro rata distribution already effected as of that date.    ### ***(e) The ‘Face Value Reservation Mechanism’ or ‘Principle of Contra Proferentem’ is not applicable in the present dispute*** There is no ambiguity in the Resolution Plan prepared by the Appellant-SRA, nor is the Resolution Plan under challenge. Thus, the claims of the ‘*Face Value Reservation Mechanism’ *or the *‘Principle of Contra Proferentem’ have* no relevance herein. It would thus be illogical and commercially unsound for an approved Resolution Plan to prescribe a 12-month payment timeline while simultaneously permitting indeterminate claims to remain pending until crystallization.   ## Observations of the Supreme Court and the Judgment Applying the above framework, the Court concluded that all existing legal proceedings, including arbitration and civil suits, that did not culminate in determinable and quantifiable claims by the date of approval of the Resolution plan stand abated, extinguished, waived, or withdrawn. Only crystallized claims as of the effective date are payable on a pro-rata basis. Accordingly, no amount beyond Re.1 each was payable to Respondent No. 1- Varsha and Intervenor – Masyc.  The Court, however, in its *obiter*, opined that although the Code marks a substantial improvement over previous regimes, disputes like the present cases underscore the Code’s impact on small Operational Creditors such as MSMEs. While the distinction between Financial Creditors and Operational Creditors rests on ‘*intelligible differentia*’ as stipulated in *Swiss Ribbons Private limited & Anr. v. Union of India & Ors. 2019 (4) SCC 17, *nevertheless, the Court viewed that the Code does not adequately account for the position of small operational creditors, including MSMEs and statutory local bodies, which are placed at the bottom of the repayment waterfall mechanism.  Most such entities are ill-equipped to absorb even a minor financial setback and are therefore compelled to adopt an aggressive and disruptive stance, as in the present case. The Court advised the Law Commission and the Legislature to examine the issue, thereby ensuring a fair and balanced repayment mechanism alongside an efficient insolvency regime.  ## Conclusion Accordingly, the Supreme Court allowed the Civil Appeals and set aside the Bombay High Court’s orders. Respondent No.1-Varsha’s Civil Suit (No. 153/2011) and the arbitration proceedings initiated by Intervenor-Masyc were dismissed, reaffirming that uncrystallized sub-judice claims, once extinguished under an approved Resolution Plan, cannot be revived through parallel court or arbitral proceedings.  The judgment in *Tata Steel vs. Varsha *further reinforces the foundational principles of the Code, including the ‘*[clean slate doctrine](https://ksandk.com/insolvency/tata-steel-vs-varsha-subjudice-claims-ibc/)*’ first articulated in *Essar Steel *and further consolidated in *Ghanshayam Mishra. *The principle emerges as a saviour for the Successful Resolution Applicant, thereby putting an end to the ‘*hydra head*’ of undecided and unquantified claims resurfacing after years of the Resolution Plan being approved and implemented. The decision also reaffirms the principle of minimal judicial interference with the commercial wisdom of the COC. Once the COC has approved a Resolution Plan and the NCLT has sanctioned it, that decision is final and binding, and courts will be resistant to reopen it absent clear grounds under the Code itself.   At the same time, the Court was careful not to let its holding pass without comment on its real-world consequences. The Court in the present case by way of an *obiter* also opined that such mechanism, although efficient, does not account for small Operational Creditors standing at the bottom of the waterfall mechanism and therefore, called out the Legislature and Law Commission to examine the issue, thereby ensuring a fair and balanced repayment mechanism alongside an efficient insolvency regime.  What the judgment ultimately protects is the certainty that resolution applicants need to take over and revive a corporate debtor. Operational Creditors who submit to the insolvency process must treat the Final List of Creditors, and the terms of the approved Resolution Plan, as the definitive word on their claims. Parallel proceedings pursued in the hope of recovering more than what the Plan provides are unlikely to survive judicial scrutiny once the Plan attains finality.  Co authored by: [Vibhor Kathuria](https://ksandk.com/people/vibhor-kathuria/) ## Frequently Asked Questions ### 1. What did the Supreme Court decide in Tata Steel v. Varsha? The Court held that once a Resolution Plan is approved by the NCLT, all sub-judice claims of an Operational Creditor that remain uncrystallized as on the date of approval stand extinguished — and the underlying suit or arbitration relating to that claim automatically abates. ### 2. Can an Operational Creditor pursue a pending civil suit or arbitration after the Resolution Plan is approved, if their claim was admitted at Re. 1? No. Admission of a claim at a notional value of Re. 1, once the Plan is approved, forecloses any attempt to separately recover the full, uncrystallized amount through parallel court or arbitral proceedings. ### 3. Why were the claims of Varsha and Masyc admitted at only Re. 1? Because their claims were sub-judice (pending in a civil suit and arbitration, respectively) at the time the CIRP was initiated, the Resolution Professional admitted them at a notional value of Re. 1 pending the outcome of those proceedings. ### 4. Does it matter that the Interim List of Creditors had a note preserving the claims subject to adjudication, while the Final List didn’t? The Court held that the Final List governs, not the Interim List. The change in wording between Note 3 (Interim List) and Note 2 (Final List) converted the claims from a conditional, “subject to adjudication” Re. 1 figure into a quantified, final Re. 1 claim. ### 5. Did the Court find that the Resolution Plan was procured by fraud or manipulation, as alleged by the Respondent? No. The Court rejected this argument, noting among other things that no application under Rule 11 of the NCLT Rules, 2016 had ever been filed to raise such allegations. *Last Updated on 7 August, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)