Belated claims cannot be allowed once the resolution plan is approved by the CoC and pending approval before the Adjudicating Authority- Supreme Court
The Supreme Court in the matter of RPS Infrastructure Ltd vs Mukul Kumar & Anr. reiterated the position of the admission of belated claims after the CoC has approved the resolution plan. This particular position of law has been discussed for a long now and the recurring amendments on the late filing of claims have further added to the dilemma. However, with this judgment, the status of belated claims is now settled.
In this case, the CIRP was initiated against the Corporate Debtor (“CD”), and the IRP was appointed who invited claims from the creditors through a public announcement and followed the due procedure mentioned under IBC. Further, the resolution plan of KST Whispering Heights RWA (“SRA”) was approved by the CoC and the RP filed an application before the NCLT for the approval of the resolution plan.
Meanwhile, the appellant filed its claim before the RP after a delay of 287 days, which was rejected by the RP citing that the resolution plan is pending approval before NCLT and such belated claims cannot be admitted at this stage.
The appellant aggrieved by the decision of the RP filed an application before the NCLT and the NCLT allowed the application directing the RP to admit the claims of the appellant. The RP then challenged such a decision before the appellate court which is NCLAT, reversed the decision of the NCLT, and disallowed the claims of the appellant. Then, the appellant finally approached the Supreme Court on an appeal against the NCLAT order and prayed for the inclusion of its claims. The appellant stated that they were not aware of the public announcement published by the RP and the RP was also duty-bound to approach the appellant with the information related to filing of such claims.
The Supreme Court correctly held that allowing the claims to be admitted at this stage will lead to uncertainty and the CIRP process which is intended to be time-bound will be delayed inevitably. The Supreme Court also held that “NCLAT’s impugned judgment cannot be faulted to reopen the chapter at the behest of the appellant. We find it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant.” Thereby indicating that such belated claims would cause injustice to the resolution applicant and would make the IBC process endless.
CoC cannot consider other resolution plans when the resolution plan approved by the CoC is pending approval before the Adjudicating Authority- NCLAT
In the matter of Indian Overseas Bank v M/s. Rathi TMT Saria Pvt. Ltd. & Ors, the resolution plan of the Successful Resolution Applicants (“SRA”) was approved by the CoC members, and the application was filed before NCLT for its approval on the resolution plan, which was pending (“Plan Approval Application”). During the pendency of such an application, one of the CoC members filed an application before the NCLT (“Reconsideration Application”) praying for the settlement of issues with SRA or in the alternative cancel the resolution plan and invite for fresh bids. The NCLT rejected the Reconsideration Application of the CoC Member. On an appeal before the NCLAT, the NCLAT stated that the prayer for rejection of the resolution plan cannot be sustained and was rightly rejected by the NCLT.
The NCLAT further stated that when the resolution plan is approved by the CoC and is pending NCLT, the CoC cannot be allowed to hold the meeting for the purpose of considering other plans and no error has been committed by the Adjudicating Authority in rejecting such prayer. Hence, the appeal was dismissed.
The judgment of NCLAT has once again emphasized on the powers of CoC when a resolution plan is pending approval and also indicates the need for timely completion of the CIRP process.
Resolution Professional is not obligated to provide all the information related to CIRP to the shareholders- NCLAT
In an important matter of M/s Dauphin Cables Pvt. Ltd. v Mr. Praveen Bansal, Hon’ble NCLAT gave its observation on the powers of NCLT under Rule 43 of NCLT Rules, 2016 and also highlighted on the obligation of Resolution Professional (“RP”) to share information with the shareholders of the insolvent company.
In this matter, an application was filed by the shareholders of the company seeking the details related to the claim filed by the financial creditor and the basis of the calculation of such admission of a claim. NCLT observed that there is no provision under IBC that allows the shareholders to seek information from RP related to claim filing. However, in the interest of justice, the NCLT directed RP to provide such information to the NCLT through an affidavit to the NCLT. Consequently, RP filed another application before the NCLT praying for the information to be provided in the sealed envelope to the NCLT to which NCLT allowed the prayer of the RP.
Aggrieved, by such order of the NCLT, the shareholders filed an appeal before the NCLAT stating that the NCLT committed an error in granting relief to the RP to file the claim-related information in a sealed envelope.
NCLAT, after the perusal of the application, stated that the IBC does not contemplate any provision which provides an obligation over RP to share all the information with the shareholders of the company. Further, the NCLT’s power of direction of providing claim-related information in a sealed cover is derived from Rule 43 of the NCLT Rules, 2016.
Therefore, this judgment provides further clarity on the limited rights of the shareholders of the company and the absence of enabling provisions to seek clarifications/ information from the RP.
MSME Certificate obtained after the initiation of CIRP will not entitle the suspended director to get the benefit of exemption under Section 29A- NCLT, New Delhi
In the matter of M/s Hi-Tech Resource Management Limited vs. M/s Overnite Express Limited, an interesting question was answered by NCLT with respect to availing of benefits under Section 240A of IBC and the exemption provided to MSME Corporate under Section 29A.
An insolvency resolution process was initiated against the Corporate Debtor (“CD”) under Section 7 of IBC and a resolution plan was submitted by one of the suspended of the erstwhile management claiming that the CD is an MSME and hence eligible to present a resolution applicant. Subsequently, an application was filed by the Deutsche Bank (“Applicant”) objecting to the submission of such a resolution plan.
The Applicant contended that the suspended member is fraudulently trying to take advantage available to an MSME under Section 240A of the IBC 2016 to gain back door entry into the insolvent company. The main argument put forth by the Applicant was that the MSME Certificate was obtained by the RP for the benefit of CD was after the initiation of insolvency process against the CD.
Whereas, the RP who is a respondent stated that IBC allows RP to obtain an MSME Certificate for the benefit of the CD and since, the MSME Certificate was obtained before the publication of FORM-G of the CIRP Regulations, the suspended member of the board was well within their rights to submit a resolution plan and take the benefit of Section 240A read with Section 29A of IBC.
The NCLT after the careful examination of the arguments and the relevant provisions of IBC stated that the obtaining of MSME Certificate by the suspended member of the CD is in violation of the provisions of Section 17(1) of IBC which suspends the power of the management at the initiation of insolvency process of CD. The NCLT further stated since on commencement of the CIRP of a Corporate Debtor, the powers of its Board of Directors or in case of an LLP, the powers of Partners of the corporate debtor shall stand suspended and can be exercised by IRP/RP only. Hence, it was affirmed that the suspended members cannot obtain MSME Certificate post commencement of CIRP against CD.
On the other facet of the argument with respect to the power of the RP to obtain MSME Certificate for the benefit of the CD, it was opined by the NCLT that the IBC allows RP to obtain MSME Certificate for availing the business related benefits available under MSME Act, 2006. Whereas, in the instant case the RP has obtained the MSME Certificate to allow the back-door entry to the suspended members. This was held to be against the intent of IBC and same was disallowed by the NCLT.
IBBI makes significant changes in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
With effect from 18th September, 2023, IBBI has introduced several important changes in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Some of the key changes effected through this amendment are:
- Insertion of Regulation 2D in CIRP Regulations: The Financial Creditor or the Operational Creditor are now required to provide detail related to chronology of the debt and default including the date when the debt became due, date of default, dates of part payments, if any, date of last acknowledgment of debt and the limitation applicable when filing an application under Section 7 or 9 of IBC for initiation of CIRP against company.
- Insertion of Regulation 3A in CIRP Regulations: With this change now the IRP/RP has the power of seek custody and control from the management of the Corporate Debtor, its promoters or any person associated with the CD records of information related to assets, finances and operation of the CD. Further, an onus has been put on the erstwhile management to provide IRP /RP with the list of assets and records while handing over the control and management of the CD to the IRP/RP. Such list and records as provided by the management is required to be signed by at least two witnesses during the handover process. Lastly, the IRP/RP has been enabled with the right to file an application under Section 19(2) of IBC in case of failure of co-operation by the management.
- Substitution in Regulation 12 of CIRP Regulations: A major change has been brought in with respect to filing of claims by the creditors. Now the creditors can file their claims with the Resolution Professional up to the date of issue of request for resolution plans under regulation 36B (which is 105 days from the date of commencement of insolvency process against the company) or ninety days from the insolvency commencement date, whichever is later. Further, the creditors are required to provide reasons for delay in filing their claims beyond 90 ninety days from the insolvency commencement date. It is to be noted that before this amendment, maximum time period allowed to file a claim was up to 90 ninety days of the insolvency commencement date.
- Insertion of Sub-Regulation 3A, 3B and 3C under Regulation 16A of CIRP Regulation: Now the creditors in a class can seek a replacement of the AR by placing a request before the IRP or RP and the RP is now duty bound to provide a list of 3 insolvency professionals to be selected as an AR by voting from the class of creditors. Further the Sub-Regulation (8) of Regulation 16A is amended which has now increased the fee of the AR for each meeting undertaken. The revised fees for AR is as follows:
- Insertion of Regulation 30B in CIRP Regulations: With the intent to make the insolvency process more transparent, the creditors are required to conduct an audit of the company under insolvency and the slaccost of such audit to be treated as insolvency resolution process cost.
These are the few major changes that have been brought in by the IBBI through this amendment which aims to minimize the scope of litigation which often derails the insolvency resolution process.
Thoughts of this article was composed and compiled by –