NCLAT: Resolution Professional Can Only Entertain Claims Due As Of CIRP Commencement Date

Background Facts:

The Appellant, Gujarat Urja Vikas Nigam Limited, a wholly owned Government of Gujarat Undertaking, engaged in bulk purchase and sale of power on behalf of state-owned distribution licensees in Gujarat, entered into a Power Purchase Agreement (PPA) dated 29.05.2007 with Adel Landmarks Private Limited (Corporate Debtor) for setting up a wind power project in Gujarat.

The Appellant alleged that the Corporate Debtor failed to supply power since March 2015, which constituted a 'default' under the PPA. A default notice dated 15.06.2019 and a termination notice dated 25.11.2019 were issued, seeking compensation of Rs. 3.36 Crores. No response was received from the Corporate Debtor.

In the interim, Edelweiss Asset Reconstruction Company Limited, a Financial Creditor, filed a petition under section 7 of the Insolvency and Bankruptcy Code (IBC) (C.P. No. IB-1083(PB)/2018) before the National Company Law Tribunal (NCLT), New Delhi, to trigger CIRP against the Corporate Debtor. On 05.12.2018, the NCLT commenced CIRP against the Corporate Debtor with a moratorium under Section 14 of IBC.

On 04.07.2020, the Appellant filed a petition before the Gujarat Electricity Regulatory Commission (GERC) for recovery of the amount owed under the terminated PPA. The Appellant was not informed of the CIRP initiation until 13.01.2022.

After becoming aware of the CIRP proceedings, the Appellant withdrew the GERC petition with liberty. Thereafter, the Appellant filed an application (IA-1241/2023 in CP No. (IB)-1083 (PB)/2018) before the NCLT, Delhi (Adjudicating Authority), seeking a direction for the RP to reconsider its claim of Rs. 3.36 Crores. The NCLT rejected the claim on 25.04.2024, stating it was filed after the initiation of CIRP.

The Appellant filed the appeal under Section 61 of IBC against the impugned order dated 2.04.2024.

Contentions of the Parties:

The Appellant made the following submissions:

• The termination of the PPA was valid due to the 'default' of the Corporate Debtor in terms of the PPA.
• Section 14 of IBC does not prevent termination of the PPA as termination of the PPA is not a 'proceeding' within the scope and meaning of the section.
• The Appellant was entitled to file his claims at any time before approval of the Resolution Plan by the Committee of Creditors (CoC), i.e., before 15.09.2022.
• The claims arising after the CIRP should not be deemed discharged.
• In GUVNI, v. Amit Gupta and Others [(2021) 7 SCC 2019], the Supreme Court had held that if the termination (of PPA) is for 'default' related to supply of power, i.e., not related to insolvency proceedings, NCLT would have no jurisdiction. This would not affect the termination rights of the terminating party based on other events of default in the contract. The same was followed in Tata Consultancy Services Limited v. Vishal Ghishulal Jain [(2022) 2 SCC 583], where the Supreme Court held that Section 14 does not apply where the termination of the agreement was due to deficiency of service by the Corporate Debtor.
• The delay in filing claims was due to the fact that initiation of CIRP was not brought to the notice of the Appellant.

The Respondent (RP) made the following submissions:

• In terms of explanation to Section 14(d) of IBC, the Appellant was barred from termination of any right of the Corporate Debtor under the PPA during CIRP.
• The claims were in the nature of recovery proceedings and not operational debts.
• In terms of the Regulation 13 of the Insolvency & Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulations), RP is entitled to verify only the claims as of the CIRP date and not thereafter.
• The Appellant was required to file its claims by 05.03.2019 in terms of Regulation 12 of the CIRP Regulations. The Appellant's claim was filed on 01.07.2021, with an inordinate delay of 849 days.
• The RP could entertain no new claims, as it would undermine the time-bound process under IBC.
• In Deputy Commissioner, UTGST, Daman v. Rajeev Dhingra [(2023) SCC Online NCLAT 621], it was held that if the claims of creditors are accepted after the approval of resolution plan by the CoC, it would result in failure of the resolution plan to materialize and defeat the objectives of IBC.

Observations:

The Tribunal noted that the public announcement of the CIRP against the Corporate Debtor was intended for all creditors, including the Appellant. Therefore, the appellant couldn't plead ignorance of CIRP proceedings.

The Tribunal held that the Appellant terminated PPA during the operation of the moratorium, which is barred under Section 14 of IBC. The Tribunal observed that section 14(1)(b) expressly prohibits the creation of any encumbrances or alienation of the legal rights or beneficial interests of the Corporate Debtor. The explanation to Section 14 also explicitly provides that licenses, permits, concessions, or rights granted to the Corporate Debtor cannot be suspended or terminated on the ground of insolvency, subject to the condition that the Corporate Debtor has not defaulted in payment of current dues related to the use or continuation of such licenses, permits, concessions, or rights.

The Tribunal stated that the Appellant is entitled to initiate suitable recovery proceedings for any recovery, as per the law, but cannot raise claims arising after the CIRP date.

The Tribunal observed that the Appellant's argument that the claim was filed before the approval of the Resolution Plan was unconvincing. The Tribunal referred to the Supreme Court's judgment in RPS Infrastructure Limited v. Mukul Kumar & Another [(2023) 10 SCC 718], which held that the mere fact that the Resolution Plan was not yet approved did not allow for the CIRP to be extended indefinitely.

The Tribunal held that:

“There is a clear law that Resolution Professional can only entertain claims due and filed w.r.t. CIRP commencement date and not due to subsequent event, for which claimant might have other legal remedy.”

Further, it held that:

“It is settled law that the Resolution Professional can collate and verify claims w.r.t. CIRP date and therefore any claims arising subsequent to CIRP date can't be entertained by Resolution Professional.”

Thus, the Tribunal concluded that the Adjudicating Authority had rightly rejected the Appellant's claim.

Case Title: Gujarat Urja Vikas Nigam Limited vs. Mr. Udayraj Patwardhan

Case Number: Comp. App. (AT) (Ins.) No. 1183 of 2024

Counsel for Appellant: Ms. Ranjitha Ramachandran & Mr. Aneesh Bajaj, Advocates.

Counsel for Respondent: Mr. Sanjay Bhatt & Ms. Apoorva Chowdhury, for RP.

Date of Judgement: 23.09.2024