NCLAT Delhi: RP Empowered To Request Additional Information From Creditors To Substantiate Claims

NCLAT Delhi: RP Empowered To Request Additional Information From Creditors To Substantiate Claims

The Delhi bench of the National Company Law Appellate Tribunal (NCLAT), chaired by Justice Ashok Bhushan (Chairperson), along with Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has, affirmed that the Resolution Professional (RP) retains the authority to request further information from creditors to validate claims and exercise due diligence.

On June 1, 2016, Indirapuram Habitat Centre Pvt. Ltd. (Corporate Debtor) executed a Consultancy Agreement (Agreement) with Mr. Umesh Kumar (Appellant) for media management consultancy services, with a monthly retainer fee of Rs.10 lakhs.

Following the admission of the corporate debtor into the Corporate Insolvency Resolution Process (CIRP), the appellant submitted claims to the RP, which were duly acknowledged on the same date. However, despite the submission, the RP neither confirmed nor raised any queries regarding the appellant's claim. It was only upon receiving a letter from the appellant that the claim was rejected.

The appellant filled an appeal against the Order of the NCLT Delhi dated 21.11.2023, wherein the Tribunal dismissed his plea requesting the acceptance of his claims that had been turned down by the Resolution Professional.

The appellant argued that the RP overlooked crucial documents such as bank statements and GST statements, which clearly evidenced the existence of the agreement between the appellant and the corporate debtor. He stressed that he had consistently delivered satisfactory services to the corporate debtor without any objections.

The appellant further argued that the RP's demand for proof of services was unwarranted, as Section 18 of the IBC delineates the RP's responsibilities to adjudicate claims without granting authority to request proof of services. Additionally, the appellant contended that the RP's dismissal of their claim, despite the absence of any dispute concerning the agreement, contravened the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ('CIRP Regulations').

The NCLAT Delhi upheld the NCLT's Delhi Order, affirming that the RP has the authority to request additional information from creditors to validate claims and conduct thorough due diligence.

The Appellate Tribunal observed that, in accordance with the Supreme Court's ruling in Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019), the RP does not possess adjudicatory powers.

The NCLAT noted that while the RP lacks adjudicatory powers, they play a crucial role in ensuring the smooth and transparent progress of the Corporate Insolvency Resolution Process (CIRP). Despite not being vested with adjudicatory authority, the CIRP Regulations explicitly empower the RP to request information to verify the accuracy of claims.

It relied on Regulation 10 and Regulation 13 of the CIRP Regulations, which are stated as follows:

“Regulation 10. Substantiation of Claims.

The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.”

“13. Verification of claims.

The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted, and the security interest, if any, in respect of such claims, and update it.”

The Appellate Tribunal highlighted that Regulation 10 of the CIRP Regulations empowers the RP to seek substantiation of claims, while Regulation 13 mandates the RP to verify claims. This verification involves a meticulous review of supporting documents to ensure the accuracy of the information presented in the claim. In cases where the evidence provided is deemed inadequate, the RP has the authority to request additional proof to strengthen the claim. Creditors are expected to provide credible and satisfactory evidence to support their claims, and if they fail to do so despite being given ample opportunity, the RP can postpone a decision on accepting or rejecting the claim.

The tribunal stressed that creditors must not merely submit their claims and subsequently decline to furnish additional evidence when requested by the RP, citing the absence of adjudicating powers. Neglecting such fundamental verification may lead to deficiencies in the information memorandum, potentially adversely affecting the CIRP process.

The NCLAT observed that despite repeated requests from the RP, the appellant failed to furnish the requested supporting documents for their claims, thereby hindering the verification process.

In this instance, the RP scrutinized the invoices and identified a deficiency in the underlying records, prompting a verification of the claim's authenticity. The Appellate Tribunal underscored that accepting superficial invoice submissions without diligent scrutiny could undermine the IBC's objectives.

In conclusion, the NCLAT observed that NCLT Delhi's Order, after a comprehensive review of the facts, circumstances, and evidence, aptly determined that the appellant's claims were not eligible for admission in the corporate debtor's CIRP.