Claims cannot be Automatically Treated as CIRP Costs unless directly related to CIRP and approved by CoC: NCLAT [Read Order]
The NCLAT set aside the decision of NCLT Mumbai and held that NCLT erred in its decision by overstepping into the domain of the CoC's commercial decision-making
CIRP – NCLAT – Committee of Creditors – National Company Law Appellate Tribunal – Corporate Insolvency Resolution Process – taxscan
CIRP – NCLAT – Committee of Creditors – National Company Law Appellate Tribunal – Corporate Insolvency Resolution Process – taxscan
In a recent case, the National Company Law Appellate Tribunal ( NCLAT ) observed that claims cannot be automatically treated as the Corporate Insolvency Resolution Process ( CIRP ) costs unless directly related to CIRP and approved by Committee of Creditors ( CoC ).
A contract entered with National Thermal Power Corporation Limited ( NTPC ) awarded a contract to Sunil Hitech Engineering Ltd , Corporate Debtor for constructing CW and MUW Systems Civil Works at the Darlipali Super Thermal Power Project in Odisha. The Corporate Debtor subcontracted M/s RBM Enterprises, Respondent No. 1 to fabricate and erect CW ducts at the project site, under a work order tied to the main contract with NTPC.
Mr. Avil Menezes (Appellant) was appointed as the liquidator. Respondent No. 1 submitted a claim for Rs. 1.36 crores for work at the Darlipali site. The Appellant, after consulting with Respondent No. 1 and other secured creditors, decided the claimed amount did not qualify as CIRP cost. This was confirmed by the former RP noting that only running costs during the CIRP period were considered CIRP costs.
Respondent No. 1 then filed an interlocutory application, seeking to have its claim treated as CIRP cost. Following NCLT Mumbai's directive to process the claim on its merits, the Appellant reviewed but maintained it did not qualify as CIRP cost, citing the CoC decision and relevant IBC provisions. NCLT Mumbai via its decision directed the Appellant to admit Respondent No. 1's dues as CIRP cost.
The Liquidator has filed the appeal against NCLT Mumbai's Order dated 27.11.2023 classifying the claimed amount of Rs. 1.36 crores CIRP cost which does not align with CoC decisions, regulatory provisions, and contractual terms.
The NCLAT observed that, under CIRP Regulation 31, costs are considered CIRP costs only if they are directly related to the CIRP and approved by the CoC. Presently, the CoC has not approved the costs to be treated as CIRP costs. Following the guidance from IBBI Circular No. IBBI/IP013/2018 dated 12.06.2018, the NCLAT supported the actions of both the Resolution Professional and the liquidator in handling the subcontractor's claims in the present case.
The two member bench comprising Mr. Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) laid the criteria to determine whether a cost incurred by a Resolution Professional ( RP ) during the CIRP as CIRP cost under Section 5(13)(c) of Insolvency and Bankruptcy Code, 2016 ( IBC ) NCLAT.
Following criteria determine that to qualify as CIRP cost, the incurred cost must be:
(a). To maintain the Corporate Debtor as a going concern,
(b). To pay suppliers of essential goods and services,
(c). Directly related to the CIRP with due approval of the CoC.
The NCLAT set aside the decision of NCLT Mumbai and held that NCLT erred in its decision by overstepping into the domain of the CoC's commercial decision-making. Further classified Respondent No. 1's claim as a non-CIRP cost to be addressed under Section 53 of the IBC during liquidation observing that the claim lacked CoC approval, did not support the “going concern” objective, and was dependent on unrealized payments from NTPC.
To Read the full text of the Order CLICK HERE
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
