IBC Resolution Plan Approval Extinguishes Employee Reinstatement Claims: Bombay High Court Ruling Explained

Overview of the Dispute

The Bombay High Court, Aurangabad Bench, delivered a significant ruling in Ahmednagar Forgings Limited (Now Metalyst Forgings Limited) Vs Dongare Ganesh D., along with three connected writ petitions, addressing a critical question at the intersection of insolvency law and labour law: Can employees whose reinstatement claims remain pending before industrial adjudicatory bodies continue to pursue those claims after an approved corporate insolvency resolution plan has come into force under the Insolvency and Bankruptcy Code, 2016?

Justice Arun R. Pedneker examined whether the successful resolution applicant (SRA) could be held liable for employment-related obligations — including reinstatement, continuity of service, and back wages — that were neither incorporated into the approved resolution plan nor submitted as claims before the resolution professional during the Corporate Insolvency Resolution Process (CIRP).

The Court's answer was unequivocal: once a resolution plan is approved by the adjudicating authority, all claims falling outside its scope stand permanently extinguished, and no forum — including a Labour Court or Industrial Tribunal — retains jurisdiction to adjudicate or continue proceedings in respect of such claims.

Background: The Company and the Industrial Disputes

Metalyst Forgings Limited, formerly known as Ahmednagar Forgings Limited, is a company engaged in the manufacture of forged industrial automobile components. The respondent-employees were permanent workmen of the company and active members of the Ahmednagar Forging Kamgar Sanghtana (the Trade Union).

A wage settlement between the Trade Union and the management, concluded in 2013, expired in 2016. The management's delay in negotiating a fresh wage agreement led the Trade Union to raise an industrial dispute, which was referred for adjudication to the Industrial Tribunal as Reference (I.T.) No. 8 of 2017.

During the pendency of this industrial dispute, the employees alleged that the management initiated disciplinary proceedings against them in a malicious and retaliatory manner, targeting active union members. Specifically, in the matter arising from Writ Petition No. 12730 of 2025, the complainant — a permanent workman since 02.11.2018 drawing wages of Rs. 22,500/- per month — alleged that:

  • A show cause notice was issued on 18.09.2018.
  • A charge-sheet was issued on 10.10.2018 alleging fabricated charges of sleeping on duty.
  • The enquiry was conducted without adherence to principles of natural justice.
  • The dismissal order dated 15.04.2019 was passed without seeking prior approval under Section 33(2)(b) of the Industrial Disputes Act, 1947, which is mandatory when an employer seeks to dismiss a workman during the pendency of an industrial dispute.

The employees filed complaints under Section 33A of the Industrial Disputes Act, 1947, seeking:

  • A declaration that the company had contravened Section 33(2)(b) of the Act.
  • Punishment of the employer with imprisonment for six months along with a penalty or compensation of Rs. 10,00,000/-.
  • Reinstatement with continuity of service and full back wages.

The Insolvency Proceedings: A Parallel Timeline

While the industrial disputes were unfolding, the company was simultaneously undergoing insolvency proceedings. The key milestones in the CIRP are as follows:

  1. 16.02.2017 — A petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was filed before the NCLT, Mumbai Bench, in C.P (IB)/1555/MB/2017 titled State Bank of India vs. Metalyst Forgings Ltd., by the company's lenders on account of loan defaults.

  2. 15.12.2017 — The NCLT admitted the petition, formally commencing the CIRP of Metalyst Forgings Limited. Mr. Dinkar T. Venkatasubramnian was appointed as the Resolution Professional, and the entire management of the company vested in him. A moratorium was declared under Section 14 of the Code, prohibiting the institution or continuation of all pending proceedings against the corporate debtor.

  3. 23.12.2017 — The Resolution Professional issued a public announcement in multiple newspapers calling upon creditors to submit their claims with proof on or before 03.01.2018.

  4. 27.06.2018 — The consortium of Deccan Value Investors LP and DVI PE (Mauritius) Limited submitted its resolution plan.

  5. 28.08.2018 — The Committee of Creditors (CoC) approved the resolution plan submitted by DVI.

  6. 14.05.2024 — The NCLT sanctioned the resolution plan. Pursuant to this approval, management of Metalyst Forgings Limited was transferred to the Implementation and Monitoring Committee (IMC) and subsequently to the new board constituted by the SRA.

  7. 26.06.2024 — The new board of Metalyst Forgings Limited was formally constituted, and management control passed to the SRA.