Cannot Interfere With Liquidator's Rejection Of Claims Which Are Tentative, Contingent Or Potential: NCLT Hyderabad

Brief Facts

A contract was executed between the appellant and M/s IVRCL Ltd (corporate debtor) in March, 2012 for a consideration of Rs. 289.76 crores. The work under the contract had to be completed till December, 2016. The appellant terminated the contract in September, 2016 itself due to bad performance of the corporate debtor. Thereafter, the corporate debtor raised bill to the tune of Rs. 126.93 crores for the work completed in September, 2017. The appellant accepted the claims of the corporate debtor to the tune of Rs. 11.29 crores only and claimed Rs. 1089.13 crores from the corporate debtor.

The corporate debtor was ordered to be liquidated and a liquidator was appointed in July, 2019. The appellant filed its claim before the liquidator on April 15, 2020 which was rejected by the liquidator on the ground that it was filed after the due date. The appellant approached the NCLT against this rejection which directed the liquidator to consider the claim on merits. However, the claim of the appellant was again rejected by the liquidator on the ground that it was speculative. The present application was filed against this decision of the liquidator.

NCLT's Analysis

The NCLT analysed the power of the liquidator under the provisions of the IBC. The tribunal referred to section 35 of the IBC and relevant regulations which empower the liquidator to verify the claims of all creditors. The tribunal further noted that operational creditor has to prove its debts with a contract or other documents. The tribunal held that right to payment or remedy for breach of contract gives rise to a debt that must be admitted by the liquidator if the debt is adequately proved. It was observed as under:

”Under Section 35(1)(a) of IBC, the Liquidator is to “verify claims of all the creditors”, and in this regard, the operational creditor under Regulation 16(1) of the Liquidation Regulations is expected to “submit its claim” to the Liquidator and “submit proof of claim” in Form-C of Schedule II under Regulation 17(1). Under Regulation 17(2), the “existence of debt due to an operational creditor” may be proved on the basis of the record available with an information utility, or “other relevant documents which adequately established the debt”.The Liquidator under Regulation 23 “may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim” and “shall verify the claims” under Regulation 30 and “may either admit or reject the claim”.A combined reading of these sections and regulations suggests that the right to payment or the right to remedy for breach of contract would give rise to a debt, existence of which once established, result in a claim that the liquidator has to admit the same.The operational creditor therefore must submit its claims with proof to establish its right to payment from the corporate debtor.”.

The NCLT further observed that the powers of the liquidator are broader than the resolution professional during CIRP who holds only administrative powers.The liquidator, on the other hand, is empowered to determine the actual dues to be paid from the proceeds of the liquidation estate. The Tribunal referred to multiple decisions delivered by the NCLT/NCLAT wherein the distinction between the powers of the RP and the liquidator were analysed. 

After analysing the powers of the liquidator, the tribunal held that the claim of the appellant was speculative and contingent therefore the liquidator was right in exercising its discretion not to accept the claim. It was held as under:

“We find that the claims made by the Appellant before the Liquidator of the Corporate Debtor were mostly tentative, contingent, or potential claims, some of which are purely hypothetical and based on belabored presumptions. Rejection of these in the Liquidation proceedings cannot be interfered with”.

Conclusion

The NCLT concluded that the liquidator has discretion either to reject or accept the claim after the verification. The liquidator exercised its discretionary power in a proper manner while rejecting the claim because the claim of the appellant was imaginative and contingent. Accordingly, the present application was dismissed.

Case Title: Meja Urja Nigam Pvt. Ltd. v. Mr. Sutanu Sinha (Liquidator)

Court: National Company Law Tribunal, Hyderabad

Case Reference: I.A. No.550 of 2021 in C.P. (IB) No. 294/7/HDB/2017

Judgment Date: 03/10/2024