NCLAT Upholds Liquidator's Discretion To Reject Claims Based On Post-Liquidation Arbitral Awards
The National Company Law Appellate Tribunal (NCLAT) bench, comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member), has held that a Liquidator has the authority under Section 33(5) of the Insolvency and Bankruptcy Code, to decide to reject a claim that is made after the Liquidation Commencement Date. The Tribunal noted that the scheme of Regulations 12 and 16 ...
The National Company Law Appellate Tribunal (NCLAT) bench, comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member), has held that a Liquidator has the authority under Section 33(5) of the Insolvency and Bankruptcy Code, to decide to reject a claim that is made after the Liquidation Commencement Date. The Tribunal noted that the scheme of Regulations 12 and 16 of the IBBI (Liquidation Process) Regulations 2016 clearly contemplate that a claim cannot be admitted after the liquidation commencement date.
Brief Facts:
The Appellant and its group companies entered into a Memorandum of Understanding (MoU) with SBS Transpole Logistics Private Limited (“the Corporate Debtor”) dated 20.01.2014. A Shareholders' Agreement was signed on 31.07.2014.
On 25.02.2019, the Corporate Debtor and its Promoters initiated arbitration proceedings against Global Enterprise Logistics Pte. Ltd. for breach of the MoU, Share Purchase Agreement, and Shareholders' Agreement.
The Corporate Debtor was admitted into insolvency on 04.09.2019 on an application under Section 9 of the Insolvency and Bankruptcy Code. Mohan Lal Jain was appointed as the Interim Resolution Professional (IRP). On 16.12.2020, the Adjudicating Authority ordered Liquidation of the Corporate Debtor. Mohan Lal Jain was appointed as the Liquidator.
A public announcement was issued on 20.12.2020, inviting claims for liquidation with a deadline set for 15.01.2021.
The Arbitral Tribunal under the aegis of the Singapore International Arbitration Centre, dismissed the claim and awarded costs amounting to Rs. 9,52,19,337.82, payable by both the promoters and the Corporate Debtor.
On 03.04.2023, the Liquidator rejected the claim of the Appellant (filed in Form-G), stating that it did not exist on the date of commencement of liquidation and was submitted after the deadline.
The Appellant had filed the present appeal, challenging the impugned order dated 09.02.2024 passed by the NCLT, New Delhi, which upheld the order of the Liquidator.
Observations by the NCLAT:
The NCLAT noted that Regulation 12(2) of the IBBI (Liquidation Process) Regulations 2016 “call upon stakeholders to submit their claims or update their claims submitted during the CIRP, as on the liquidation commencement date.” Further, Regulation 13 provides that the Preliminary Report should contain the estimates of the assets and liabilities as of the liquidation commencement date of the Corporate Debtor. Regulation 16(2) again contemplates that a person shall prove its claim for debt or dues to him, including interest, as on the liquidation commencement date. Therefore, it was observed that the scheme clearly contemplates that a claim has to be filed on the liquidation commencement date. When a claim has not arisen on the liquidation commencement date, such a claim cannot be admitted.
The Tribunal reiterated its decision in DBS Bank vs. Kuldeep Verma, which considering the above scheme, also held that:
“When a statute provides for liquidation commencement date as a date up to which claims can be filed and proved, no claim thereafter can be entertained by the Liquidator.”
The Tribunal observed that the liquidator was fully entitled to take a decision to continue pending suits or proceedings since the words “continuation of pending suits or proceedings” are absent in Section 33(5) of the IBC.
The Tribuna also referred to the Judgment in Reliance India Power Fund, Reliance Capital Trustee Company Ltd. vs. Raj Kumar Ralhan Liquidator of Su Kam Power Systems Ltd., where it was held that the Liquidator has the responsibility to institute or defend any legal proceedings, including taking a conscious decision regarding the same. The Tribunal emphasized that the Appellant cannot force the Liquidator to defend actions if they decide not to.
The Tribunal further observed that even if the arbitration proceedings were continued with the authorization of the Liquidator, the claim on the basis of award of cost (dated 22.12.2020) could not have been entertained in the liquidation proceedings of the Corporate Debtor.
The Tribunal held that the claim couldn't have been entertained by the Liquidator, which arose after the liquidation commencement date, and that the liquidator correctly rejected the claim on the ground that it was filed beyond the last date for admission of the claim.
Thus, the appeal was dismissed.
Case Title: SBS Holdings, Inc. vs. Mohan Lal Jain
Case Number: Company Appeal (AT) (Insolvency) No. 624 of 2024
Counsel for Appellant: Mr. Gautam Narayan, Ms. Asmita Singh, Mr. Tushar Nair, Advocates.
Counsel for Respondent: Mr. I.P.S. Oberoi, Mr. R.K. Srivastava, Mr. Himrit Singh Wadhwa, Advocates.
Date of Judgment: 18.09.2024