The Insolvency Appellate Tribunal NCLAT has affirmed the “clean slate principle” under the Insolvency and Bankruptcy Code (IBC), which bars any attempt to reestablish pre-resolution shareholders’ rights, and rejected the claims of a shareholder of Sintex Industries.
A two-member NCLAT bench dismissed the appeal by a Kerala-based investor seeking around ₹110 crore in compensation for 1,35,000 equity shares of Sintex Industries Ltd (SIL) that were extinguished under the company’s insolvency resolution plan.
The appellate tribunal ruled that shareholders, whose equity was extinguished under the company’s insolvency resolution plan, cannot revive their rights through proceedings under the Companies Act after the bids have been approved and the resolution plan has attained finality with a new ownership.
The National Company Law Appellate Tribunal (NCLAT) said Section 238 of the Insolvency & Bankruptcy Code (IBC) gives it primacy over all other laws, including the Companies Act, 2013, so that no company-law remedy can be deployed to unsettle a concluded insolvency resolution.
Moreover, section 32A of the IBC “reinforces the clean-slate principle” by providing that the “liabilities of SIL for the pre-resolution period cease upon approval” and implementation of the plan and the resultant change in management and control of the company.
“Any attempt to resurrect pre-resolution shareholders’ rights through company law remedies is impermissible,” said the NCLAT bench comprising Justice Mohammad Faiz Alam Khan and Naresh Salecha.
Sintex Industries was acquired by Reliance Industries Ltd (RIL), in a joint consortium with Assets Care & Reconstruction Enterprise (ACRE), for ₹3,567 crore in March 2023.
The consortium completed the acquisition after the National Company Law Tribunal (NCLT), Ahmedabad, approved the Resolution Plan on February 10, 2023. After this, Sintex Industries’ entire equity share capital was cancelled without consideration as part of a capital reduction under the resolution plan and was subsequently delisted from the stock exchanges.
Under the plan, the entire pre-existing equity share capital of SIL was cancelled without any payment to shareholders as the liquidation value available to them was assessed at nil.
Titus Babu, who had purchased 1.35 lakh shares of SIL between October 2017 and January 2023, approached the NCLT under Section 59 of the Companies Act, seeking rectification of the Register of Members, along with compensation of about ₹82.3 crore, 10 per cent annual interest, fresh equity shares in lieu of his cancelled holding, and damages for mental suffering, cumulatively over ₹110 crore.
Babu contended that he continued to hold rights as a “member” of SIL, distinct from those of an ordinary shareholder, and that only promoter-group shareholders had been assigned nil liquidation value under the resolution plan.
However, the NCLT, on March 6, 2026, dismissed his plea, following which he filed an appeal before the appellate insolvency tribunal, NCLAT.
Upholding the NCLT order, the appellate tribunal held that “member” and “shareholder” are legally synonymous under Section 2(55) of the Companies Act for a company limited by shares, and no independent membership right survives once the underlying shareholding is extinguished under an approved resolution plan.
It also held that Section 59 of the Companies Act is a narrow, rectificatory provision that cannot be used to claim compensation, interest, fresh share issuance or damages, and that such reliefs were in any case barred by the binding and overriding effect of the resolution plan under Sections 31 and 238 of the Code.
Relying on Supreme Court judgments in Essar Steel and Ghanashyam Mishra cases, the appellate tribunal said a resolution plan, once approved, cannot be reopened and claims not provided for in the plan stand extinguished to enable the successful resolution applicant to take over the corporate debtor on a “clean slate”.
The tribunal also rejected allegations of violation of natural justice, noting that the appellant was represented by counsel and had been given adequate opportunity to present his case before the NCLT.
“We hold that the Tribunal correctly held that the Appellant has no surviving membership or enforceable right in SIL independent of his extinguished pre-CIRP shareholding,” the NCLAT said in a 25-page-long order.
