Clean Slate or Blank Cheque: Contingent Claims and IBC

[Naman is a student at OP Jindal Global University.]

When a corporate debtor (CD) enters into the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code 2016 (IBC), all creditors must submit their claims. For a creditor whose right to payment is clear, unambiguous and established, this process is simple. However, for a creditor with a contingent claim, meaning it may still be under review by a court or arbitrator, or relies on a future uncertain event, the situation becomes much more complex. In practice, resolution professionals (RP’s) often accept these claims at zero or at a very low value. Once a resolution plan is approved, these claims are permanently extinguished. This article examines whether treating contingent claims as near worthless is a valid use of insolvency law or a violation of legitimate creditor rights.  

The Statutory Architecture: A Definitional Gap

The term “contingent claim” does not have a clear definition in the IBC. However, Section 3(6) of the IBC defines “claim” broadly. It includes rights to payment, whether they are fixed, disputed, or formalized by a judgment. It also covers remedies for breach of contract, whether they are matured or unmatured. The legislature clearly intends to bring all pre-CIRP obligations into the insolvency framework, no matter their crystallisation status.

Equally significant is Regulation 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (CIRP Regulations), which mandates that where a claim cannot be precisely determined due to contingencies, the RP shall make a “best estimate” of the amount of the claim based on “available information” and may revise such estimate as further information becomes available. Therefore, rather than a mechanical zero-notional valuation, the regulatory scheme considers an active, evidence-based estimation process. Therefore, both Section 3(6) and the explicit regulatory mandate of Regulation 14 itself are at odds with the current practice of defaulting to nil without real estimation. 

The Fresh Slate Doctrine: From Essar Steel to Ghanashyam Mishra

The judicial foundation for nil valuation lies in the “fresh slate” principle articulated by the Supreme Court of India (SC) in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others (Essar Steel). According to the judgement, the CD must be taken over by the successful resolution applicant (SRA) without any pre-CIRP claims that were not covered by the resolution plan. Such claims were deemed to be completely extinguished under Section 31(1) of the IBC, which makes an agreed resolution plan binding on all stakeholders. The National Company Law Appellate Tribunal (NCLAT) decision that had previously permitted contingent creditors to re-agitate claims before suitable venues under Section 60(6) of the IBC post-approval was expressly overturned by the SC in this judgement.

This position was consolidated by the SC in Ghanashyam Mishra and Sons (Private) Limited v. Edelweiss Asset Reconstruction Company Limited (Ghanashyam Mishra), where the court distilled the theory into three operative prongs: first, that a resolution plan that has been authorised is binding on all parties involved; second, that claims that are not included in the plan are extinguished; and third, that any attempts to recover a claim that has been extinguished cannot proceed. Together, Ghanashyam Mishra and Essar Steel established the conceptual framework that makes nil valuation final and irrevocable rather than just acceptable.

The operational consequence of this doctrine was illustrated in State of Haryana (Excise and Taxation Officer) v. Uttam Strips Limited, where the NCLAT held that “insofar any contingent liabilities or claims are concerned, or any creditors who failed to file any claim during CIRP, the same were duly accounted for in the Resolution Plan of the corporate debtor and were given a NIL value” and held that the SRA was not to be burdened with undecided claims post-implementation. 

Fourth Dimension: A Crack, and its Prompt Repair

The clean slate doctrine encountered a significant challenge in Fourth Dimension Solutions Limited v. Ricoh India Limited and Others. Before CIRP was triggered, Fourth Dimension (FDSL) had started arbitration proceedings against the CD, Ricoh India. FDSL’s claims were accepted by the RP at a notional value of zero. All pending litigation was supposed to be resolved and extinguished under the approved resolution plan. In resolving the appeal, the SC allowed the arbitration process to proceed “in accordance with law”. This observation was widely, though not irrationally interpreted as a divergence from Ghanashyam Mishra, allowing contingent claim adjudications to continue after CIRP. 

In Adani Power Limited v. Shapoorji Pallonji and Company Private Limited, however, the SC clarified and harmonised matters by ruling that in cases where the RP has classified a contingent claim as such, the creditor may pursue arbitration only for “quantification” but cannot enforce any award against the SRA’s assets or the revived CD. To put it another way, the remedy is merely a formality i.e. a creditor may find out how much they are owed, but they are unable to enforce it. This is a particularly hollow sort of relief, especially for operational creditors who were unable to negotiate how their claims would be handled under the resolution plan and had no vote in the committee of creditors. 

The 2026 IBC Amendment: Codifying the Slate but not the Estimate

The 2026 IBC Amendment Act inserts sub-sections (5) and (6) into Section 31 of the IBC, giving statutory form to the clean slate doctrine. New Section 31(6) provides that, unless the resolution plan states otherwise, all claims against the CD prior to plan approval stand extinguished, and no proceeding based on such claims may be instituted or continued against the CD or its assets on that basis, applied with retrospective effect to every plan approved since the IBC’s commencement in 2016, barring matters that have already attained finality. Interestingly, the same provision carves out an express exception in explanation 1: it does not touch claims against former promoters, past management, guarantors, or others under joint liability or joint and several liability. Parliament has thus drawn a deliberate line, insulating the CD itself while keeping the door open against those who stood behind it.

The legislature was evidently willing to codify the clean slate principle where current policy considerations demanded it, yet it created no comparable exception, and no estimation mandate for contingent claimants left holding a nil-valued claim. If Parliament could carve out guarantors and promoters to preserve creditor recourse, an equivalent carve-out requiring reasoned, probability-weighted estimation before extinguishment could also have been incorporated. The Amendment therefore does not resolve the tension between Section 3(6) of the IBC, Regulation 14 of the CIRP Regulations, and zero valuation practice. 

The core jurisprudential contention that underpins zero valuation is the combination of two independent propositions: a claim is difficult to quantify and it has no present worth. These are not interchangeable. Real legal rights include unliquidated damages claim resulting from a completed breach with recorded liabilities based on signed contracts. Their legal existence is definite, but their monetary worth at any one time is not.

The Way Forward: Estimation, Not Extinguishment

Dismantling the clean slate notion is not necessary to find a solution. It needs to be refined. A practical model that may be adopted is provided by the United States Bankruptcy Code, 11 USC §502(c), which gives courts the authority to estimate contingent or unliquidated claims for distribution purposes when fixing the claim would unnecessarily prolong administrative process. Both substantive creditor rights and procedural efficiency are preserved by estimation. It recognises that uncertainty does not equate to worthlessness.

There should be proper regulatory involvement to address this inadequacy in India’s current framework. Instead of defaulting to nil valuation without analysis, the Insolvency and Bankruptcy Board of India could issue a circular requiring the RP to perform probability-weighted calculations with reasoned, documented proofs for contingent claims beyond a threshold amount. For a long-term strategy, a reasonable and practical solution would be to amend Section 30(2) of the IBC to mandate that resolution plans create a contingency reserve or fund for identified contingent claims that are either released to the SRA if the contingency does not crystallise within a specified window or paid to the creditor if it does. 

Conclusion

The nil valuation of contingent claims under the IBC is operationally convenient, judicially endorsed, and now sits atop a firm statutory footing after the 2026 Amendment, but it remains unjustified in its current form. The IBC’s own text in Section 3(6) recognizes contingent claims and Regulation 14 of the CIRP Regulations demands estimation, not extinguishment. What the practice of nil valuation actually delivers is not a clean slate but a blank cheque drawn on the accounts of the creditors least able to protect themselves, now with parliamentary sanction. Reforming this framework is not an invitation to relitigate every insolvency. It is a minimum condition for the IBC to live up to its own statutory promise of equitable creditor treatment.