The Clean Slate Doctrine under IBC
The Insolvency and Bankruptcy Code, 2016 (IBC) has reshaped the insolvency framework in India by prioritizing time-bound resolution and certainty for stakeholders.
At the heart of this framework lies the clean slate doctrine, which ensures that once a resolution plan is approved, the successful resolution applicant (SRA) takes over the corporate debtor free from historical liabilities.
Establishing the Doctrine
The Supreme Court has firmly established this doctrine in cases such as Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020 8 SCC 531) and Ghanashyam Mishra and Sons Pvt. v. Edelweiss Asset Reconstruction Co. (2021 9 SCC 657), stating that claims not filed or adjudicated during the Corporate Insolvency Resolution Process (CIRP) cannot survive beyond approval of the plan.
Claims not filed or adjudicated during the CIRP cannot survive beyond approval of the plan.
Implications and Certainty
This doctrine ensures certainty in insolvency resolution, allowing the SRA to take over the corporate debtor without the burden of historical liabilities.
Author's summary: IBC's clean slate doctrine ensures certainty in insolvency resolution.
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