IBC- Admitting Claims After Resolution Plan Has Been Accepted By COC Would Make CIRP An Endless Process: Supreme Court

The Supreme Court on Monday said that admitting claims after the Resolution Plan has been accepted by the Committee of Creditors (COC) under Insolvency and Bankruptcy Code, 2016 (IBC) even though the Adjudicating Authority has yet to approve the plan, would make the Corporate Insolvency Resolution Process (CIRP) an endless process.

The Apex Court was considering whether the claim pertaining to an arbitral award, in appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (Act), could be admitted after the resolution plan had been approved by the COC. “We find it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant” the Apex Court said while dismissing the plea of the claimant.

A division bench of Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia in this regard observed:

“The mere fact that the Adjudicating Authority has yet not approved the plan does not imply that the plan can go back and forth, thereby making the CIRP an endless process. This would result in the reopening of the whole issue, particularly as there may be other similar persons who may jump onto the bandwagon. As described above, in Essar Steel, [1 (2020) 8 SCC 534] the Court cautioned against allowing claims after the resolution plan has been accepted by the COC.”

The appeal was filed by M/s. RPS Infrastructure Ltd against the Resolution Professional of the Corporate Debtor, M/s KST Infrastructure Private Limited. A dispute arose between the Corporate Debtor and the Appellant, for which arbitration proceedings were initiated. An arbitral award was declared in favour of the appellant, including monetary claim. Aggrieved by the award, the Corporate Debtor, filed a petition under Section 34 of the Act. The award was upheld, against which an appeal was filed under Section 37 of the Act, which was still pending when the Appellant approached the Apex Court.

Meanwhile, CIRP had been initiated against the Corporate Debtor and the appellant informed the Resolution Professional of its pending claim of Rs.35,67,05,337 from the arbitral award. The Resolution Professional rejected this claim on the ground that there was a delay 287 days and that a Resolution Plan had already been passed by the COC.

Before the Apex Court, the Appellant argued that if the Section 37 appeal is dismissed and the arbitral award in favour of the appellant reaches finality, then the appellant’s claim will become nugatory, if it is not allowed as contingent liability. It was also argued that during the arbitral proceedings, the Corporate Debtor did not disclose that CIRP had been initiated against it. 

The Apex Court observed that under Section 15 of the IBC and Regulation 6 of the IBBI Regulations, when a public announcement of the CIRP is made through newspapers, it constitutes deemed knowledge. “In any case, their plea of not being aware of newspaper pronouncements is not one which should be available to a commercial party” the Court added.

On the issue of whether the delay in filing of the claim by the Appellant should be condoned by the Resolution Professional, the Apex Court answered in the negative:

“The IBC is a time bound process. There are, of course, certain circumstances in which the time can be increased. The question is whether the present case would fall within those parameters. The delay on the part of the appellant is of 287 days. The appellant is a commercial entity. That they were litigating against the Corporate Debtor is an undoubted fact. We believe that the appellant ought to have been vigilant enough in the aforesaid circumstances to find out whether the Corporate Debtor was undergoing CIRP. The appellant has been deficient on this aspect. The result, of course, is that the appellant to an extent has been left high and dry.”

Case Title: M/S. RPS Infrastructure Ltd V. Mukul Kumar, Civil Appeal No. 5590 of 2021

Citation : 2023 LiveLaw (SC) 773

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