--- title: "SUPREME COURT HIGHLIGHTS CHALLENGES FACED BY SMALL OPERATIONAL CREDITORS AND MSMES, SUGGESTS LEGISLATIVE EXAMINATION OF REPAYMENT FRAMEWORK " date: 2026-09-25 author: "Ajay KSK" url: https://ksandk.com/newsletter/supreme-court-highlights-challenges-faced-by-small-operational-creditors-and-msmes-suggests-legislative-examination-of-repayment-framework/ --- # SUPREME COURT HIGHLIGHTS CHALLENGES FACED BY SMALL OPERATIONAL CREDITORS AND MSMES, SUGGESTS LEGISLATIVE EXAMINATION OF REPAYMENT FRAMEWORK  Posted On - 25 September, 2026 • By - Ajay KSK ## **SUMMARY:** 3The case concerned whether pending civil suits and arbitration proceedings relating to claims against Bhushan Steel Ltd. could continue after approval of its Resolution Plan under the IBC.  The Supreme Court held that once the Resolution Plan was approved, claims which had not crystallised and become determinable and quantifiable by that stage stood extinguished. The fact that such claims were pending before a civil court or arbitral tribunal did not allow them to continue after approval of the Resolution Plan.  The Court applied the clean slate/fresh start principle under the IBC and held that the successful resolution applicant cannot be exposed to uncertain claims after taking over the corporate debtor.  ## **FACTS:** Bhushan Steel Ltd. was undergoing CIRP. Before the CIRP:  - Varsha, an operational creditor, had filed a civil suit for recovery of ₹38,89,674.14, along with 18% interest. The suit later became Civil Suit No. 153 of 2011.   - Masyc Projects Pvt. Ltd. had initiated six arbitration proceedings relating to goods supplied to Bhushan Steel.   - During CIRP, both creditors submitted their claims to the Resolution Professional. Varsha claimed ₹34,27,895, while Masyc claimed ₹31,30,67,354.   Initially, their disputed claims were admitted at a notional value of ₹1. However, in the Final List of Creditors dated 20 March 2018, the earlier note stating that liability was subject to the outcome of pending proceedings was removed. The claims continued to be shown at ₹1.   Tata Steel’s Resolution Plan was approved by the CoC on 20 March 2018 and sanctioned by the NCLT on 15 May 2018 under Sections 30 and 31 of the IBC.   Despite this, Varsha’s civil suit and Masyc’s arbitration proceedings were allowed to continue, leading Tata Steel, as the successful resolution applicant, to approach the Supreme Court.  **JUDGMENT:**  The Supreme Court allowed Tata Steel’s appeals. The Court held that: - Once a Resolution Plan is approved under Section 31(1) of the IBC, the claims dealt with by the Plan become final and binding.   - The purpose of the clean slate principle is to ensure that the successful resolution applicant takes over the corporate debtor without being exposed to unforeseen or uncertain liabilities.   - The ₹1 value assigned to Varsha’s and Masyc’s claims in the Final List was not intended to keep their claims alive until the pending litigation was decided. The Court found that the Final List had changed the position from a claim being subject to adjudication to a quantified ₹1 claim.   - The Resolution Plan did not create a carve-out allowing the pending proceedings to continue. Instead, the Plan provided for the withdrawal, abatement, settlement or extinguishment of such proceedings.   - Therefore, only claims which had crystallised and were determinable and quantifiable by the relevant stage were capable of being dealt with under the Plan. Pending claims which had not reached that stage could not survive after approval of the Plan.   The Court ultimately held that the pending civil suit and arbitration proceedings stood abated, waived, withdrawn or extinguished upon approval of the Resolution Plan.  ## **ANALYSIS:** A resolution plan cannot leave uncertain claims hanging indefinitely. Here, the claims of Varsha and Masyc were still pending before the civil court and arbitral tribunals when the Resolution Plan was approved. Since their liability had not been finally determined and quantified, allowing those proceedings to continue would expose Tata Steel to liabilities which could not have been properly calculated when it formulated its Resolution Plan.  The Court therefore treated the clean slate principle as an important part of the insolvency process. Once the Plan is approved, the successful resolution applicant must know the extent of liabilities it is taking over.  Importantly, the Court also noted the difficulty faced by small operational creditors and MSMEs under the present IBC framework, particularly because of their position in the repayment waterfall. However, the Court clarified that changing this framework is a matter for the Legislature, not the Court.  *Last Updated on 25 September, 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/)