Introduction
The Supreme Court of India in a recent judgment of M/s. RPS Infrastructure Ltd. Vs. Mukul Kumar & Anr.1, while upholding the Order of the National Company Law Appellate Tribunal, New Delhi ('NCLAT')2, held that, a delayed claim filed after the resolution plan has been approved by Committee of Creditors ('COC'), cannot be admitted at a belated stage, even if the claimant wasn't aware that corporate debtor was undergoing Corporate Insolvency Resolution Process ('CIRP').
Facts of the case
An appeal was filed before the Supreme Court by RPS Infrastructure Ltd. ('RPS/Appellant') against the Resolution Professional of KST Infrastructure Private Limited ('RP/Respondent No. 1') and the Successful Resolution Applicant ('Resolution Applicant'); The Corporate Debtor was not a party to the Appeal.
In a dispute involving the Corporate Debtor, an award was passed in favor of RPS. Dissatisfied with the award, the Corporate Debtor initiated proceedings under Section 34 of the Arbitration and Conciliation Act, 1996 ('Arbitration Act'). Simultaneously, the Appellant commenced execution proceedings. The award was upheld in the Section 34 proceedings, and an appeal under Section 37 was subsequently filed, which is currently pending.
In the meantime, CIRP was initiated against the Corporate Debtor. The application under Section 7 of the Insolvency and Bankruptcy Code ('IBC') was admitted and an Interim Resolution Professional ('IRP') was appointed. The public announcement, inviting creditors to submit their claims was issued, and after receipt of the claims, the COC was constituted. Thereafter, the IRP was replaced, and Respondent No. 1 was appointed. The COC approved the Resolution Plan of the Resolution Applicant, and it was subsequently submitted to the Adjudicating Authority for approval on 8 September 2020. Shortly prior thereto, the Appellant sent an email to the RP, bringing to his attention an outstanding claim against the Corporate Debtor, originating from the arbitral award.
The claim was rejected by the RP on the ground that the Resolution Plan had already been passed by the COC and that the Applicant was 287 days late in submitting its claim, as the time period for submitting the claim was 90 days from initiation of CIRP.
The Appellant filed an application under Section 60(5) of the IBC, seeking directions to the RP to assess the Appellant's claim based on its merits. The Adjudicating Authority granted relief to the Appellant, observing that the RP could not have summarily rejected Appellant's claim, as this claim would have appeared in the Corporate Debtor's books of accounts. If the records were unavailable, the RP had a responsibility to obtain them. It was noted that it was possible that the Appellant had missed the newspaper publication of the public announcement.
The RP preferred an appeal before the NCLAT. The NCLAT setting aside the order of the Adjudicating Authority, inter alia held that the RP had effectuated proper service for inviting claims. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) only mandate a pronouncement through newspapers and not through personal service, and that the Resolution Plan, as approved by the COC, would be jeopardized if new claims were entertained at a belated stage.
The Appellant challenged the NCLAT's order before the Supreme Court and contended that since the Adjudicating Authority had not yet approved the Resolution Plan, the RP should have included the Appellant's claim as a contingent liability. It was contended that the Corporate Debtor had not disclosed the initiation of CIRP either during the ongoing proceedings under Section 34 or under Section 37. The RP contented that it had made sincere efforts to collate all claims, and that there was no need to create an arrangement for contingent claims as the Resolution Plan had been prepared on the basis of the information memorandum.
Decision of the Supreme Court
The Supreme Court had to decide whether the Appellant's claim pertaining to an arbitral award be included at a belated stage, specifically after the Resolution Plan had been approved by the COC. It was observed that the process followed by the RP was not flawed, the RP did what could be done to procure the Corporate Debtor's records, including filing an application under Section 19 of the IBC.
The Court further emphasized that the IBC is a time bound process, and there are certain circumstances in which time may be extended. It was noted that the Appellant being a commercial entity ought to have been vigilant enough in ascertaining whether the Corporate Debtor was undergoing CIRP.
Section 15 of the IBC and Regulation 6 of CIRP Regulations mandate a public announcement of the CIRP through newspapers. This announcement should be considered as deemed knowledge at large. The plea of not being aware of newspaper publications should not be available to a commercial party. The Supreme Court clarified that, mere fact that the Adjudicating Authority had not yet approved the plan did not imply that the plan could go back and forth, thereby making the CIRP an endless process. This would result in reopening of the whole issue, particularly as there may be other similar persons who may jump onto the bandwagon. Therefore, the Court cautioned against allowing claims after the resolution plan had been approved by the COC.
Amendment to the CIRP Regulations, 2016
The present Supreme Court judgment in the matter of RPS, is important in light of the recent amendments to the CIRP Regulations3. This amendment provides some relaxation under Regulation 12, to the creditors by extending the timeline for submitting their claims.
Prior to the 2018 amendment4 to the CIRP Regulations, creditors could submit their claims up to the stage of approval of resolution plan by the COC. Pursuant to the 2018 amendment, this timeline was curtailed to a maximum of 90 days from the CIRP commencement date. The 2018 amendment sought to plug the delay in CIRPs caused due to revisions in resolution plans by the applicants.
The 2023 amendment to Regulation 12 of the CIRP Regulations, states that the creditors are required to submit their claims with supporting evidence by the deadline specified in the public announcement. However, if a creditor misses this deadline, they can still submit their claim with proof to the interim resolution professional or resolution professional, either up to the date of issue of request for resolution plans under Regulation 36B, or 90 days from the insolvency commencement date, whichever is later. However, the creditor must provide reasons for the delay if they submit their claim beyond the initial 90-day period from the start of CIRP.
The IBBI discussion paper of 7 June 20235, suggests that the reason for introducing this amendment is that the current timeline of 90 days, may pose constraints for certain creditors, particularly in complex insolvency cases with numerous stakeholders. The paper observes that in many cases, the creditors file their claims after the 90th day after obtaining permission from the NCLT, and that this increases the burden of the NCLT, leaving them less time to deal with more important matters.
Though timely resolution of debtors is a key objective of the IBC, for all practical purposes, the amendment is a beneficial one, since it is necessary to ensure that the prospective resolution applicants know the liabilities of the debtor in advance. This will assist in streamlining the CIRP process and provide more visibility on the actual condition of the debtor, to the resolution applicants. The relaxations provided are a welcome step and strike a reasonable balance.
Footnotes
1. M/s. RPS Infrastructure Ltd. vs. Mukul Kumar & Anr. (Civil Appeal No. 5590 / 2021)
2. Mukul Kumar, RP KST Infrastructure Ltd Vs RPS Infrastructure Ltd (Company Appeal (AT) (Ins)-1050/2020)
3. Insolvency and Bankruptcy Board of India notification dated 18.09.2023 https://ibbi.gov.in/uploads/legalframwork/82a0d8c13a4ad67aac73623ca3b22c2f.pdf
4. Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 04-07-2018)
5. https://ibbi.gov.in/uploads/whatsnew/c4301ca9b10c5c83724a260f4e0fc250.pdf
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