The Supreme Court held that a new creditor claim cannot be considered once the Committee of Creditors (CoC) has approved a resolution plan but is awaiting approval from the Adjudicating Authority (AA).

The Court emphasised that allowing such claims would put the time-bound Corporate Insolvency Resolution Process (CIRP) at risk. The Court dismissed a Civil Appeal filed by a creditor who had submitted a late claim of Rs. 35,67,05,337 against the Corporate Debtor. This claim was rejected by the National Company Law Appellate Tribunal (NCLAT), even though the AA had approved his late submission of the claim.

The Bench comprising Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia 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, the Court cautioned against allowing claims after the resolution plan has been accepted by the COC”.

Advocate Gagan Gupta appeared for the Appellant, and Advocate Abhinav Agrawal appeared for the Respondent.

The Appellant and M/s KST Infrastructure Private Limited (Corporate Debtor) agreed to develop 8 acres of land into a residential group housing complex in Faridabad, Haryana. However, the Appellant was unhappy with the Corporate Debtor, advertising the project under its name without mentioning the Appellant's name. An arbitrary award was granted in favour of the Appellant, which the Corporate Debtor challenged in a Petition before the Special Court under Section 34 of the Arbitration and Conciliation Act, 1996 (Act). The Petition was dismissed with minor modifications, but meanwhile, the CIRP was initiated against the Corporate Debtor. This led to an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) being admitted by the Adjudicating Authority, and an Interim Resolution Professional (IRP) was appointed on the same date.

The IRP asked creditors to submit claims and formed the COC. The COC shared a draft information memorandum and asked for expressions of interest from potential resolution applicants. The RP acted as respondent no.1, while respondent no.2 was the successful resolution applicant. The COC approved the resolution plan presented by KST Whispering Heights Residential Welfare Association with a majority vote of 80.74%. A plan was submitted by respondent no. 1 to the Adjudicating Authority for approval under Section 31 of the IBC. The Corporate Debtor was not a party to this case. The Court ordered respondent no.2 to be included in the civil appeal.

The Appellant submitted a claim of Rs. 35,67,05,337 against the Corporate Debtor, but Respondent no.1 rejected it because it was filed 287 days late. The Appellant then requested to have the claim considered, which was granted by the Adjudicating Authority. Respondent no.1 appealed the decision, contending that allowing late claims would make CIRP ineffective. The NCLAT disagreed with the Adjudicating Authority's decision and issued an order. Aggrieved by the order, the Appellant approached the Supreme Court by way of a Civil Appeal.

The Court noted that the issues to ascertain were “whether the appellant’s claim pertaining to an arbitral award, which is in appeal under Section 37 of the said Act, is liable to be included at a belated stage – i.e. after the resolution plan has been approved by the COC” and “whether the delay in the filing of claim by the appellant ought to have been condoned by respondent no. 1”.

The Court noted that Respondent no. 1 undertook all necessary actions to obtain records of the Corporate Debtor, including submitting an application under Section 19 of the IBC. The Court observed that the Corporate Debtor did not provide the material, and it remains unknown if there is any information regarding this matter in the records. The Court asserted that the IBC process has a specific timeline, but there are exceptions where the time limit can be extended. In this case, the Appellant's delay was 287 days, and they are a commercial entity involved in litigation against the Corporate Debtor.

The Court emphasised that the Appellant should have been more diligent in determining if the Corporate Debtor was undergoing CIRP. The Court noted that Section 15 of the IBC and Regulation 6 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (IBBI Regulations) require a public announcement of the CIRP in newspapers, which would constitute deemed knowledge on the Appellant. Their plea of not being aware of the newspaper announcements is not acceptable for a commercial party. The Adjudicating Authority not approving the plan does not imply that the CIRP process is endless.

Section 15 of the IBC and Regulation 6 of the IBBI Regulations mandate a public announcement of the CIRP through newspapers. This would constitute deemed knowledge on the appellant. 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 noted.

The Court noted that the Appellant failed to adequately investigate whether the Corporate Debtor was undergoing the CIRP process. The Appellant cannot claim ignorance of the newspaper announcements as they are a commercial party. The rejection of the plan by the Adjudicating Authority does not mean that the CIRP process has no end. The Court cited the case of the Committee of Creditors of Essar Steel India Limited through Authorised Signatory v Satish Kumar Gupta and Ors [(2020) 8 SCC 534].

Accordingly, the Court dismissed the Appeal and affirmed the impugned order of the NCLAT.

Cause Title: M/S. RPS Infrastructure Ltd. v Mukul Kumar & Anr. (2023 INSC 816)​​

Click here to read/download Judgment