Supreme Court: Proof-Backed Claim under the CIRP Cannot Be Disregarded for Incorrect Form

Supreme Court: Proof-Backed Claim under the CIRP Cannot Be Disregarded for Incorrect Form

The Supreme Court has observed that the submission of a claim by the Resolution Applicant (RA) during the Corporate Insolvency Resolution Process (CIRP) cannot be dismissed or disregarded solely because the submitted claim appears to be in a format different from the required form.

In this case, the RA submitted a claim to the Resolution Professional ("RP") using Form C as outlined in Regulation 8 of the CIRP Regulations 2016, identifying as a financial creditor. However, the Committee of Creditors ("CoC"), the National Company Law Tribunal (NCLT), and the National Company Law Appellate Tribunal (NCLAT) rejected the RA's claim on the grounds that, as an operational creditor, the RA should have submitted their claim using Form B under Regulation 7 of the CIRP Regulations 2016.

Disregarding the aforementioned conclusions, the bench, led by Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra, remarked that the prescribed form for submitting a claim is merely procedural and not mandatory. They emphasized that a claim cannot be dismissed solely on the basis of its format. The court highlighted that the essential aspect is the substantiation of the claim with adequate evidence.

The court observed that the categorization of claims as operational or financial creditors is determined by the claimant's interpretation, as indicated by the language used in Regulations 7 and 8 of the CIRP Regulations, 2016. It acknowledges the potential for claimants to mistakenly classify themselves but emphasizes the importance of substantiating the claim with evidence, as outlined in sub-regulation (2) of the respective regulations.

The judgment by Justice Manoj Misra emphasizes that upon the submission of a claim with supporting evidence, it becomes the responsibility of the RP to verify the claim as of the insolvency commencement date. Subsequently, the RP is to maintain a comprehensive list of creditors, which includes their names, the amounts claimed by them, the amounts of their claims that have been admitted, and any security interest held by them. This obligation is outlined in Regulation 12 of the Corporate CIRP Regulations.

The core issue in the dispute revolves around the Greater Noida Industrial Development Authority's allocation of a plot to M/s. JNC Construction (P) Ltd., the corporate debtor, for a residential project through a 90-year lease agreement. This lease arrangement involved the payment of a premium, along with interest and penal interest, with the authority retaining the right to cancel the lease and reclaim the land under specific conditions. However, the corporate debtor defaulted on its instalment payments, prompting the authority to issue a demand pre-cancellation notice.

In the Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor, claims were solicited by the Interim Resolution Professional (IRP), who subsequently assumed the role of the Resolution Professional (RP). The appellant, Greater Noida Industrial Development Authority, submitted a claim amounting to Rs. 43,40,31,951/- as a Financial Creditor. However, the dues payable to the appellant were categorized as Rs. 13,47,40,819/- as an Operational Creditor, with a proposed payment of only Rs. 1,34,74,082/-.

The appellant contended that the resolution plan failed to recognize the claim it had submitted.

The appellant also argued that the resolution plan did not explicitly classify the appellant as a secured creditor, despite the existence of a charge on the assets of the corporate debtor.

Concurring with the appellant's arguments, the court, upon reviewing the records, acknowledged that once it was established that the appellants had submitted their claim with supporting evidence, it should not have been disregarded simply because it was presented in a different form.

The court emphasized that while the appellant was advised to submit the claim in a specific form meant for operational creditors, the submission in a different form, intended for financial creditors, should not be disregarded if it is supported by evidence. This statement underscores the importance of the substance of the claim over the technicality of the form in which it is presented.

The court held that the resolution plan failed to properly acknowledge the appellant's claim and inaccurately represented the amount due and payable. This discrepancy significantly impacted the resolution plan, as it failed to consider vital information that warranted careful consideration. The court has highlighted the importance of accurately reflecting the claims and amounts involved in the resolution process for fair and effective adjudication.

The court noted that according to Section 24(3)(c) of the IBC, even operational creditors with aggregate dues of not less than ten percent of the debt should have been notified of the COC meeting. However, in the present case, the appellant was not served notice of such a meeting.

The court observed that withholding information regarding the COC meeting adversely impacted the appellant's interests in two significant ways. Firstly, it deprived the appellant of its right to be notified of the COC meeting, which is available to operational creditors with aggregate dues of not less than ten percent of the debt, as mandated by Section 24(3)(c) of the IBC. Secondly, the proposed resolution plan resulted in a reduction in the appellant's outlay, which constitutes a percentage of the dues payable..

The court observed that despite the creation of a charge on the assets of the CD in accordance with Section 13-A of the U.P. Industrial Area Development Act, 1976, the resolution plan failed to categorize the appellant as a secured creditor. This omission adversely affected the appellant's interests, as the resolution plan did not adequately address the satisfaction or modification of any security interest, as mandated by Regulation 37 of the CIRP Regulations 2016.

Based on the observations made, the court concluded that the submitted resolution plan failed to fulfill all the requirements specified in sub-section (2) of Section 30 of the IBC, along with Regulations 37 and 38 of the CIRP Regulations, 2016. Consequently, the court directed the COC to re-submit the plan after ensuring compliance with the stipulated parameters outlined in the Insolvency and Bankruptcy Code (IBC).

Relying on the findings of the case, the court allowed the appeals, and the challenged order of the NCLAT was overturned.

Case Tile: Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr.