IBC mandates time bound process, delayed claim to make CIRP endless: SC

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"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," the bench said

The Supreme Court has said that the Insolvency and Bankruptcy code mandates a time bound process and a creditor cannot be allowed to make a delayed claim on the ground that it was unaware of resolution plan announced through newspapers.

A bench of Justices Sanjay Kishan Kaul and Sudhanshu Dhulia said a commercial entity cannot take a plea of being oblivious of the Corporate Insolvency Resolution Process, which cannot go back and forth because it has yet not been approved by the adjudicating authority.

With this view, court has dismissed an appeal filed by M/s RPS Infrastructure Ltd against an NCLAT's order which has rejected its plea to include its claim of over Rs 35.67 crore as contingent liability upon the corporate debtor during the Corporate Insolvency Resolution Process (CIRP). It noted 287 delays on the appellant, saying reopening the whole issue would allow other similar persons to jump on the bandwagon.

"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 bench said. 

The appellant submitted that there ought to be a provision for contingent claims in the resolution plan. It further contended that the claim in terms of the award was a contingent claim as proceedings under Section 37 of the Arbitration Act remain pending before the High Court of Punjab and Haryana against the dismissal of the corporate debtor’s challenge. 

It also stated since the adjudicating authority was yet to approve the resolution plan, its claim should have been included as a contingent liability. 

The resolution professional, on the other hand, contended that the appellant had deemed knowledge of the CIRP. The applicable procedure for inviting claims under the IBC and the IBBI (Insolvency and Bankruptcy Board of India) Regulations was followed with sincere efforts to collate all claims, including filing an application under Section 19 of the IBC for procuring the corporate debtor’s records, though not made available. 

It further submitted that, if allowed the appellant’s belated claim had the potential to open floodgates of litigation.

Dealing with the issue on 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 Committee of Creditors, the bench held that the NCLAT’s judgement cannot be faulted to reopen the chapter at the behest of the appellant. 

"We find it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant," the bench said.

Rejecting the submission on condonation of delay, the bench said the IBC is a time bound process and there are, of course, certain circumstances in which the time can be increased. 

With regard to the question whether the present case would fall within those parameters, the bench pointed out, "The delay on the part of the appellant is of 287 days. The appellant is a commercial entity. That they were litigating against the corporate debtor is an undoubted fact. We believe that the appellant ought to have been vigilant enough in the circumstances to find out whether the corporate debtor was undergoing CIRP. The appellant has been deficient on this aspect. The result, of course, is that the appellant to an extent has been left high and dry."

Corporate Insolvency Resolution Process was initiated against the corporate debtor, M/s KST Infrastructure Private Limited in respect of three real estate projects viz Sector 114, Gurugram, Sector 89, Faridabad, and KST Whispering Heights in Sector 88, Faridabad by certain homebuyers who had invested in these projects. 

The appellant had entered into agreement on August 02, 2006 between with M/s KST Infrastructure Private Limited, the corporate debtor, for development of land licensed with the appellant, measuring acres into a residential group housing complex at Faridabad, Haryana. 

However, after being aggrieved by the corporate debtor’s alleged misconduct in advertising the project under its own name, the appellant took the matter to arbitration, where an award was issued in his favour. Meanwhile CIRP was initiated and the resolution plan was submitted before the adjudicating authority as the appellant remained unaware of the process.