NCLAT Delhi: RP Can Always Ask For Additional Information From Creditors To Substantiate The Claim And Exercise Due Diligence

Background Facts:

On 01.06.2016, Indirapuram Habitat Centre Pvt. Ltd. (Corporate Debtor) entered into a Consultancy Agreement ('Agreement') with Mr. Umesh Kumar (Appellant) for media management consultancy on a monthly retainership of Rs.10 lakhs per month.

Post admission of the Corporate Debtor into the Corporate Insolvency Resolution Process ('CIRP'), the Appellant filed claims before the RP which were acknowledged on the same date. However, neither any confirmation nor any query was raised by the RP concerning the Appellant's claim and it was only on the Appellant's letter, the claim was rejected.

The Appellant filed an appeal against NCLT Delhi's Order dated 21.11.2023 wherein the Tribunal rejected his application seeking acceptance of his claims which had been rejected by the RP.

Contentions of the Appellant:

The Appellant contended that the RP failed to take into account crucial documents like bank statements and GST statements, demonstrating the existence of the Agreement between the Appellant and the Corporate Debtor. He emphasized that he had consistently provided satisfactory services to the Corporate Debtor without any objections.

He argued that the RP's insistence on proof of services was unjustified since Section 18 of the IBC outlines the duties of the RP to adjudicate claims without granting any such authority to call for proof of services. The Appellant further contended that the RP's rejection of their claim, despite the absence of any dispute regarding the Agreement, was inconsistent with the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ('CIRP Regulations').

NCLAT Verdict:

The NCLAT Delhi affirmed NCLT's Delhi Order and held that RP can always ask for additional information from creditors to substantiate the claim and exercise due diligence.

The Appellate Tribunal noted that as per the Supreme Court's decision in Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. (2019), the RP is not vested with adjudicatory powers.

NCLAT observed that RP plays an important part in the efficient and transparent conduct of CIRP. Although RP does not have any adjudicatory powers, the CIRP Regulations do provide express provisions enabling him to ask for information to establish the correctness of the claim.

It placed reliance on Regulation 10 and Regulation 13 of the CIRP Regulations which are read 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 noted that under Regulation 10 of the CIRP Regulations, the RP is entitled to request substantiation of claims, and Regulation 13 imposes a duty on the RP to verify claims. This verification process necessitates a thorough examination of supporting documents to ascertain the accuracy of the information provided in the claim. If the evidence presented is deemed insufficient, the RP can request additional proof to bolster the claim. It is expected that creditors furnish credible and satisfactory evidence to support their claims, and if they fail to do so despite ample opportunity, the RP can defer a decision on accepting or rejecting the claim.

NCLAT observed:

“The RP is not expected to rubber stamp the claims filed by the creditors without exercising due diligence while examining the invoices.”

The tribunal emphasized that creditors cannot simply file their claims and then refuse to provide additional evidence if requested by the RP, under the pretext that the RP lacks adjudicating powers. Failure to conduct such fundamental verification could result in flaws in the Information Memorandum, ultimately having a detrimental impact on the CIRP process.

NCLAT noted that the RP repeatedly requested the Appellant to provide supporting documents for their claims, emphasizing that without such documentation, verification was not possible. However, the Appellant failed to comply with these requests from the RP.

In the present case, the RP upon examination of the invoices, found a lack of underlying records and decided to verify the authenticity of the claims. The Appellate Tribunal noted that allowing such superficial submission of invoices without thorough examination could undermine the objectives of the IBC.

NCLAT in conclusion observed that the NCLT Delhi's Order thoroughly reviewing all the facts, circumstances, and evidence, correctly concluded that the Appellant's claims were not admissible in the Corporate Debtor's CIRP.

Case Title: Mr. Umesh Kumar vs. Mr. Narendra Kumar Sharma, IRP of Indirapuram Habitat Centre Pvt. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 100 of 2024

Counsel for Appellant: Ms. Nattasha Garg, Mr. Thakur Ankit Singh, Mr. SrikantSingh, Ms. Shristy Singh, Advocates.

Counsel for Respondent: Mr. Sumesh Dhawan, Mr. Praful Jindal, Mr. ShauryaShyam, Advocates along with Mr. N.K. Sharma, RP.

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