Resolution Plan Approval and Belated Claims: Never Ending Process?

Resolution Plan Approval and Belated Claims: Never Ending Process?

It is imperative that the Hon’ble NCLT and the other judicial forums adhere to the established principles, precedents, and the procedures of the CIRP so as to ensure the effectiveness of the provisions of the Code and to ensure time-bound completion of CIRP

The Hon’ble National Company Law Tribunal (“NCLT”) Mumbai Bench recently, vide its order dated 02.01.2024, in Reliance Capital Limited v. The Imperial Condominium, IA No. 3913 of 2023 in CP (IB) No. 1231 of 2021, directed the Administrator of Reliance Capital Limited (“RCap”), to verify and admit the claim of The Imperial Condominium (“Condominium”), for its society maintenance etc. related dues owed by RCap with respect to a premises owned by RCap and forming part of the Condominium.

However, the said order comes much after the approval of the resolution plan by the committee of creditors (“CoC”) of RCap, and which now remains pending before Hon’ble NCLT for its approval. Therefore, the order raises fundamental questions with respect to the never-ending process of claim verification, the settled principles of law in relation thereof and the deviation from such principles. In this article, we examine the facts and reasoning of the order and offer a critique of its implications and shortcomings.

A BRIEF OVERVIEW OF THE ORDER

RCap owns a premises forming part of the Condominium since the period prior to initiation of its CIRP under the aegis of Hon’ble NCLT. On account of non-payment of maintenance related due by RCap, the Condominium refused to transfer the shares in favour of RCap and also prevented the Administrator from sharing and / or accessing the common areas of the building. Instead of filing a claim before the Administrator, seeking clearance of its dues in the CIRP process, the Condominium prevented the Administrator from accessing the common areas of the building. Therefore, the Administrator of RCap preferred an application before the Hon’ble NCLT seeking, inter alia, directions against the Condominium to transfer the shares in favour of RCap, restrain it from preventing / hindering the right of access to the premises.

The said application was taken up for hearing before the Hon’ble NCLT, and having heard both the side at length, the Hon’ble NCLT directed the Condominium to file its claim before the Administrator within 1 week from date of order and also directed the Administrator to verify and suitably admit the same in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”). It is worth noting that the Hon’ble NCLT, while giving such directions observed that “…it is trite law that no new claims should be allowed to be entertained after approval of Resolution Plan by COC, however, considering the peculiar circumstances of the case…we consider it in the interest of justice to allow the claim of the Respondent Debtor for consideration in the Resolution Plan…”.

The reasoning provided by the Condominium for not having filed its claim before the Administrator was that RCap did not recognise to be its debtor and being governed by the provisions of Maharashtra Apartment Ownership Act, 1970, the Condominium had a valid and subsisting charge over the premises till such time the outstanding dues were paid by the owner. In addition to directing the Administrator to verify the claim of the Condominium, the Hon’ble NCLT observed that “…since the Respondents have charge over the Flat in terms of Section 20 of the Act, they qualify to be secured creditors…”

CRITICAL ANALYSIS

The directions given and the observations made by the Hon’ble NCLT while passing the abovementioned order are in teeth of the settled position of law. Instead of nipping the issue in the bud and discouraging such laggard claimants from getting a right to file a claim almost at the fag end of a CIRP, the Hon’ble NCLT has rather given them a clean chit and allowed the process to become a never-ending and an uncertain one.

Firstly, the direction of the Hon’ble NCLT to the Condominium to file the claim and thereafter to the Administrator to verify and admit the same, despite being fully aware stage of CIRP, is directly in violation of the principle of finality of the resolution plan, which becomes binding on all the stakeholders once approved by the CoC. Allowing a new claim to be entertained after the approval of the resolution plan would amount to reopening and modifying the resolution plan, which is not permissible under the Code. While the Hon’ble NCLT justified this decision by invoking the peculiar circumstances of the case, whereby the resolution professional was fully aware of the dues of the Respondent ever since the admission of the Corporate Debtor into CIRP, the direction deviates from the position of law settled by the Hon’ble Supreme Court in numerous judgments.

The Hon’ble Supreme Court of India in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, (2020) 8 SCC 531, held that once a resolution plan is approved by the CoC, it is not open to any authority to tinker with it, except to the extent of ensuring that the plan is compliant with the provisions of Code or any other law. The present order is also contrary to the judgment in RPS Infrastructure v. Mukul Kumar, Civil Appeal No. 5590 of 2021, where the Hon’ble Supreme Court, relying upon the Essar Steel judgment, categorically held that no new claim can be entertained after the approval of the resolution plan by the CoC.

The Hon’ble NCLT’s direction also undermines the objective of the Code to ensure a time-bound and efficient resolution of the corporate debtors undergoing CIRP and actually creates a situation of perpetual uncertainty. The direction disregards the duty and responsibility of the creditors to file their claims within the specified time and in the prescribed manner. Allowing a new claim to be considered in the resolution plan after its approval by the CoC would only encourage the creditors to file the claims as and when they feel like and accordingly demand the share from the proceeds received from the resolution applicant, which would be unfair to the other creditors who have complied with the procedural requirements.

The Hon’ble NCLAT in Kotak Mahindra Bank Ltd. v. Sandeep Goel, RP for Sarvottam Realcon Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 140 of 2024, recently dismissed an appeal by a financial creditor which filed its claim after a delay of 738 days and post the approval of the resolution plan.

Further, the Hon’ble NCLT’s recognition of the Condominium’s claim as being secured by virtue of provisions of Section 20 of the Maharashtra Apartments Ownership Act, 1970 is directly in conflict with the provisions of Section 238 of the Code. Therefore, the provisions of the Code having an overriding effect on all laws in force the charge of the Condominium under the Act of 1970 could not have been recognised to be give it a secured creditor status. Rather the above direction in a way warrants the wrongful actions on the part of the Condominium during the CIRP of RCap, in furtherance of its alleged rights under the Act of 1970, despite being fully aware of the fact that RCap is presently undergoing CIRP and therefore is governed only by the provisions of IBC.

CONCLUSION

In light of the above, it can be concluded that the Hon’ble NCLT’s decision to allow the Respondent’s claim to be considered in the resolution plan even after the approval of the CoC is not in accordance with the provisions of the IBC and the settled position of law in several precedents. Such a decision may have far-reaching implications for the insolvency regime in India. It is imperative that the Hon’ble NCLT and the other judicial forums adhere to the established principles, precedents, and the procedures of the CIRP so as to ensure the effectiveness of the provisions of the Code and to ensure timebound completion of CIRP.