Madras High Court: Clean State Theory Not Applicable To Undisclosed Creditors Left Out Due To Negligences Of IRP Or RP

The Madras High Court, under Justice N. Seshasayee, ruled against applying the Clean Slate Theory to undisclosed creditors, safeguarding them from deliberate non-disclosure or negligence by suspended directors or the Interim Resolution Professional (IRP) or Resolution Professional (RP). \r

In a case involving National Sewing Thread Co. Ltd., the court dismissed the petition to quash a Demand Notice from TANGEDCO for unpaid electricity charges. It distinguished disclosed and undisclosed creditors, stating the theory applies to the former until challenged. The court emphasized the responsibility of suspended directors to assist the IRP and RP. \r

Rejecting exploitation of the Clean Slate Theory, it upheld TANGEDCO's claim, affirming the importance of transparency and fairness in insolvency proceedings.