Rejection  of Contingent Claims by Resolution Professional Cannot be Faulted: NCLAT [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) held tha the RP's decision to reject the claim by sending the appellant a reasoned reply cannot be faulted because the claims were made beyond the deadline of 548 days and they were based on damages and a breach of contract, which the appellant admittedly depends on.

CSA Corporation Pvt. Ltd, the appellant entered into an agreement with the corporate debtor under which the CD undertook to erect four street lights. However, the projects could not be completed on time and the appellant issued a notice for non performance. A legal notice was also sent demanding refund of advances paid along with interest. Meanwhile, the corporate debtor was admitted into insolvency on an application moved by an operational creditor under section 9 of the code.

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When the appellant failed to respond to the RP's demand notice under section 8 requesting payment for invoices raised by the CD, an application under section 9 was filed. The appellant then submitted claims in the CD's CIRP, which the RP ultimately dismissed.

The appellant argued that the RP had not fulfilled its obligation to fairly evaluate the appellant's arguments. Within three days, the claims were denied, indicating a lack of mental application. Furthermore, it was argued that the RP overreached himself in dismissing the claims because the code does not grant the RP adjudicatory authority. According to the Supreme Court's explanation in Swiss Ribbons, it only performs administrative functions. The respondent argued that the decision taken by the RP not to admit the claim was neither unusual nor hasty since the IBC provides a tight time-limit of 7 days within which the RP is required to verify the claim from the date of its receipt.

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Additionally, it was argued that the Appellant's claims were a counter-procedure to the Section 9 proceeding that the RP had started against the Appellant and that the claims were related to damages resulting from non-performance of the contract, which could not be verified within the RP's limited jurisdiction as granted by the IBC. It was argued that permitting claims at this point, when the plan is ready for CoC approval, would compromise the plan and cause a hiccup in the CIRP procedure.

As a facilitator of the insolvency resolution process, the RP has a well-established duty to support the CIRP process in a fair and impartial manner, the tribunal viewed. Additionally, it stated that the Interim Resolution Professional had unquestionably made a public announcement that violated both Regulation 6 of the CIRP Regulations and Sections 13 and 15 of the IBC. The deadline for submitting claims was specified in the Public Announcement. The appellant never submitted their claim within the 90-day window allowed by Regulation 12 of the CIRP Regulations or within the time frame specified in the Public Announcement.

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The tribunal stated that these claims pertain to damages resulting from non-performance of a contract, which the RP could not have decided at his level because to the limited jurisdiction granted by the IBC. "It goes without saying that the RP is not expected to process and verify the claims of a creditor without supporting proof," it added. The crystallization of damages claims necessitates their consideration by a court of competent jurisdiction. Since unresolved claims for damages cannot be considered crystallized claims, the RP's refusal to admit them is not deemed unreasonable. The tribunal also dismissed the appellant's argument that the RP must verify all claims received up to seven days prior to the date of the creditors' meeting to vote on the resolution plan in accordance with CIRP Regulation13(1)(B).

A two member bench of Justice Ashok Bhushan (Judicial Member), and Mr. Barun Mitra (Technical Member) has observed that  the Supreme Court in the case of State Tax Officer Vs Rainbow Papers Ltd. is  not applicable in the facts of the present case since in that case it was held that delay in filing a claim cannot be a sole ground for rejecting a claim while in this case besides delay there are other grounds raised for rejection of the claims.

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While dismissing the appeal, the tribunal came to the conclusion that the RP's decision to reject the claim by sending the appellant a reasoned reply was not at fault because the claims were filed after the deadline of 548 days and they were based on damages and breach of contract, which the appellant admittedly depended on.

To Read the full text of the Order CLICK HERE

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