IBC | Claim Submitted By Creditor Cannot Be Rejected Merely Because It Appears To Be In A Different Form: Supreme Court

The Supreme Court held that a claim submitted by the Resolution Applicant under the Corporate Insolvency Resolution Process cannot be rejected or overlooked simply based on the fact that the claim appears to be in a different form from the form in which the claim needed to be submitted.

In that context, Bench of Chief Justice DY Chandrachud, Justice JB Pardiwala and Justice Manoj Misra observed that, "even if a claim submitted by a creditor against the CD is in a Form not as specified in the CIRP Regulations, 2016, the same has to be given due consideration by the IRP or the RP, as the case may be, if it is otherwise verifiable, either from the proof submitted by the creditor or from the records maintained by the CD. A fortiori, if a claim is submitted by an operational creditor claiming itself as a financial creditor, the claim would have to be accorded due consideration in the category to which it belongs provided it is verifiable."

Senior Counsel Ravindra Kumar appeared for the appellant, while Senior Counsel Abhishek Manu Singhvi appeared for the respondent.

The dispute revolved around the appellant, Greater Noida Industrial Development Authority, allocating a plot to M/s. JNC Construction (P) Ltd (the Corporate Debtor) for a residential project through a 90-year lease. The Corporate Debtor defaulted on payment, leading to the initiation of Corporate Insolvency Resolution Process (CIRP).

The appellant, claiming to be a Financial Creditor, submitted a claim of Rs. 43,40,31,951/-. However, the resolution plan proposed to pay only Rs. 1,34,74,082/- as an Operational Creditor. The appellant argued that the resolution plan failed to acknowledge its claim adequately and didn't categorize it as a secured creditor despite a charge on the assets of the Corporate Debtor.

The Court observed that the resolution plan did not meet the requirements of Section 30(2) of the IBC read with Regulations 37 and 38 of the CIRP Regulations, 2016. The following reasons were given:

a. The resolution plan disclosed that the appellant did not submit its claim, when the unrebutted case of the appellant had been that it had submitted its claim with proof on 30.01.2020 for a sum of Rs.43,40,31,951/- No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form. As already discussed above, in our view the Form in which a claim is to be submitted is directory. What is necessary is that the claim must have support from proof. Here, the resolution plan fails not only in acknowledging the claim made but also in mentioning the correct figure of the amount due and payable. According to the resolution plan, the amount outstanding was Rs. 13,47,40,819/- whereas, according to the appellant, the amount due and for which claim was made was Rs. 43,40,31,951/- This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which there ought to have been application of mind. Withholding the information adversely affected the interest of the appellant because, firstly, it affected its right of being served notice of the meeting of the COC, available under Section 24 (3) (c) of the IBC to an operational creditor with aggregate dues of not less than ten percent of the debt and, secondly, in the proposed plan, outlay for the appellant got reduced, being a percentage of the dues payable. In our view, for the reasons above, the resolution plan stood vitiated. However, neither NCLT nor NCLAT addressed itself on the aforesaid aspects which render their orders vulnerable and amenable to judicial review.

b. The resolution plan did not specifically place the appellant in the category of a secured creditor even though, by virtue of Section 13-A of the 1976 Act, in respect of the amount payable to it, a charge was created on the assets of the CD. As per Regulation 37 of the CIRP Regulations 2016, a resolution plan must provide for the measures, as may be necessary, for insolvency resolution of the CD for maximization of value of its assets, including, but not limited to, satisfaction or modification of any security interest. Further, as per Explanation 1, distribution under clause (b) of sub-section (2) of Section 30 must be fair and equitable to each class of creditors. Nonplacement of the appellant in the class of secured creditors did affect its interest. However, neither NCLT nor NCLAT noticed this anomaly in the plan, which vitiates their order

c. Under Regulation 38 (3) of the CIRP Regulations, 2016, a resolution plan must, inter alia, demonstrate that (a) it is feasible and viable; and (b) it has provisions for approvals required and the time-line for the same. In the instant case, the plan conceived utilisation of land owned by the appellant. Ordinarily, feasibility and viability of a plan are economic decisions best left to the commercial wisdom of the COC. However, where the plan envisages use of land not owned by the CD but by a third party, such as the appellant, which is a statutory body, bound by its own rules and regulations having statutory flavour, there has to be a closer examination of the plan’s feasibility. Here, on the part of the CD there were defaults in payment of instalments which, allegedly, resulted in raising of demand and issuance of pre-cancellation notice. In these circumstances, whether the resolution plan envisages necessary approvals of the statutory authority is an important aspect on which feasibility of the plan depends. Unfortunately, the order of approval does not envisage such approvals. But neither NCLT nor NCLAT dealt with those aspects.

Subsequently, the appeals were allowed, and the impugned order was set aside.

Appearances:

Appellant: Senior Counsel Ravindra Kumar

Respondents: Senior Counsel Abhishek Manu, Counsel VM Kannan

Cause Title: Greater Noida Industrial Development Authority vs Prabhjit Singh Soni & Anr.

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