The appellant, being aggrieved by the Corporate Debtor’s alleged misconduct in advertising the project under its own name and without mentioning the name of the appellant, sought reference to arbitration on 02.05.2011. The arbitral proceedings culminated in an award dated 01.08.2016 in favour of the appellant. Aggrieved by the award, the Corporate Debtor filed a petition under Section 34 of A&C act. These proceedings under Section 34 of the Arbitration Act culminated in the award being upheld by the A.D.J. An appeal filed against the same under Section 37 of the Arbitration Act is stated to be pending.
Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’) was initiated against the Corporate Debtor. This application under Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred to as ‘the IBC’) was admitted on 27.03.2019. The resolution plan submitted by KST Whispering Heights Residential Welfare Association was approved by the COC by a majority vote of 80.74% on 11.07.2020. This plan was then submitted by respondent no. 1 to the Adjudicating Authority for approval under Section 31 of the IBC on 08.09.2020.
The appellant sent an email on 19.08.2020 to respondent no.1 highlighting their pending claim of Rs.35,67,05,337 against the Corporate Debtor arising from the arbitral award dated 01.08.2016, confirmed with certain modifications in the proceedings under Section 34 of the said Act. However, respondent no.1 rejected this claim on 25.08.2020 on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late. A Resolution plan had already been passed by the COC.
ISSUE
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?
HELD
NCLT
The appellant filed an application under Section 60(5) of the IBC. During the pendency of respondent’s no. 1 application for approval of the plan before the Adjudicating Authority, seeking directions to respondent no.1 that the appellant’s claim may be considered on merits. This relief was granted to the appellant by the Adjudicating Authority vide an order dated 03.11.2020 predicated on the following grounds:
Respondent no.1 could not have summarily rejected appellant’s claim, as this claim would have appeared in the Corporate Debtor’s books of accounts;
In case such books of accounts were not available, respondent No. 1 had a duty to obtain them and verify the financial position; and
As such announcement was made through public newspapers, it was likely that the appellant missed out on the same.
NCLAT
Respondent No. 1 thereafter preferred an appeal under Section 61 of the IBC before NCLAT. The NCLAT, vide the impugned order dated 30.07.2021, did not favour the view adopted by the Adjudicating Authority. Their reasoning was as follows:
Respondent no.1 had effectuated proper service for inviting claims in accordance with Regulation 6 of the IBBI Regulations which only mandates a pronouncement through newspapers and not through personal service - an aspect that was not disputed by the appellant;
The appellant failed to show that it filed its claim as soon as it came to know of the initiation of the CIRP. The appellant even issued a Special Power of Attorney on 26.07.2019 in favour of the Corporate Debtor after confirmation of the arbitral award on 25.04.2019;
Respondent no.1 even filed an application under Section 19 of the IBC before the Adjudicating Authority seeking that a direction be issued to the ex-management to provide all records. Although nothing came of this attempt, it reflected his sincere efforts;
Regulations 12 and 13 of the IBBI Regulations obliged the RP to accept claims filed within the extended period of 90 days of the commencement of CIRP. Brilliant Alloys3 dealt with the timelines under Section 12A of the IBC and Regulation 30A of the IBBI Regulations. These provisions pertained to the withdrawal of an application. In this context it was held that that IBBI Regulations can be directory depending on the facts of each case; and
The resolution plan, as approved by the COC, would be jeopardised if new claims were entertained.
SUPREME COURT
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 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 aforesaid circumstances to find out whether the Corporate Debtor was undergoing CIRP.
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.