RP Can't Cherry-Pick Financial Records While Verifying Claims: NCLT New Delhi

RP Can't Cherry-Pick Financial Records While Verifying Claims: NCLT New Delhi

Introduction

The National Company Law Tribunal (NCLT), New Delhi Bench has held that the Resolution Professional (RP) is obligated to verify creditors’ claims by considering all entries in the financial records of the Corporate Debtor. The RP cannot cherry-pick entries and reject others that favor the creditors, as such conduct violates the principles of fairness and objectivity.

Factual Background

The applicant, Shapoorji Pallonji & Co. Private Limited, filed claims against Sinnar Thermal Power Limited (Corporate Debtor) during the Corporate Insolvency Resolution Process (CIRP). While some claims were admitted, the RP rejected others, despite the fact that they were supported by the books of account and an interim arbitral award dated 27.07.2017, which had not been stayed.

Procedural Background

The RP had admitted the claims at a notional value of Re. 1, treating them as contingent liabilities. The applicant challenged this before the NCLT under Section 60(5) of the IBC, seeking directions for full admission of claims, relying on the arbitral award and financial statements.

Contentions of the Parties

Applicant’s Contentions:

• The RP cannot ignore liabilities admitted in the balance sheet and books of account.
• The arbitral award and the corporate debtor’s acknowledgment validate the claims.
• As per Regulation 14 of CIRP Regulations, where claims are imprecise, the RP must estimate the amount based on available information.

Respondent’s Contentions:

• The claims were contingent and under adjudication, hence were correctly admitted at Re. 1.
• The applicant was not a secured creditor, and no conclusive evidence was provided.

Tribunal’s Observations

The Tribunal noted that the interim arbitral award, though under challenge, had not been stayed. The Tribunal further observed that the RP had previously acknowledged the claims via emails, but later denied them without justification.

It emphasized that under Regulation 7 of the CIRP Regulations, both arbitral awards and financial statements are valid proof of debt. Also, Regulation 14(2) provides that once a claim is admitted, it can be revised only if new information becomes available—which was not the case here.

The Tribunal relied on the Supreme Court’s judgment in Bishal Jaiswal, holding that entries in the balance sheet constitute acknowledgment under Section 18 of the Limitation Act, and this principle is relevant during claim verification under IBC.

Reasoning & Analysis

The bench comprising Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Shri Atul Chaturvedi (Technical Member) held that the RP’s approach of selective acceptance of entries was arbitrary and against the RP’s duty to act with fairness and objectivity.

“Cherry-picking selective book entries while rejecting others that favour the creditor is not only arbitrary but also contrary to the RP's obligation of fairness and objectivity in claim verification,” the bench remarked.

Implications

This decision reinforces that RPs must adhere strictly to principles of impartiality and cannot manipulate records to favor or disfavor claims. It sets a precedent for treating arbitral awards and financial statements as conclusive proof unless explicitly rebutted or stayed.

Outcome

The Tribunal allowed the application, directing the RP to reconsider the claims in light of its observations and relevant legal provisions.

In this case the applicant was represented by Mr. Amish Tandon, Ms. Anushree Kulkarni, Mr. Swankit Nanda, Advocates. Meanwhile the respondent was represented by Mr. Somesh Srivastava, Ms. Drishti Kaushik, Mr. Karan Gandhi and Mr. Ramakant Rai, Advocates.