In a recent decision, the Supreme Court of India reinforced the importance of timeliness in the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The court's ruling addresses the critical issue of admitting claims after the Resolution Plan has been accepted by the Committee of Creditors (COC) but has yet to receive approval from the Adjudicating Authority. This decision comes as a reminder that the CIRP must not devolve into an endless process and that parties involved must exercise due diligence to protect their interests.
The case before the Supreme Court involved M/s RPS Infrastructure Ltd, the appellant, and the Resolution Professional of the Corporate Debtor, M/s KST Infrastructure Private Limited. The dispute between the parties had led to arbitration proceedings, resulting in an arbitral award in favour of the appellant, including a substantial monetary claim. Dissatisfied with the award, the Corporate Debtor initiated legal action by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996. The award was upheld, and an appeal under Section 37 of the Act was filed, which was still pending when the appellant approached the Supreme Court.
Simultaneously, the CIRP had been initiated against the Corporate Debtor. The appellant informed the Resolution Professional of its pending claim of Rs. 35,67,05,337 from the arbitral award. However, this claim was rejected by the Resolution Professional, citing a delay of 287 days and the approval of a Resolution Plan by the COC.
The central issue before the Supreme Court was whether the claim, based on an arbitral award, could be admitted after the COC had approved the Resolution Plan but before it had received the Adjudicating Authority's approval. The court, in its wisdom, highlighted the potential consequences of allowing such claims at a later stage. It stated that permitting claims after the COC's approval would effectively turn the CIRP into an unending process, potentially leading to a proliferation of similar claims.
In the judgment, the bench, comprising Justice Sanjay Kishan Kaul and Justice Sudhanshu Dhulia, underscored the need for finality and the dangers of an open-ended CIRP. It cited a previous case, Essar Steel, to caution against admitting claims after the COC's acceptance of a Resolution Plan.
The appellant argued that if their Section 37 appeal was dismissed, and the arbitral award in their favour became final, their claim would become nugatory if not allowed as a contingent liability. Additionally, they claimed that the Corporate Debtor had not disclosed the CIRP during the arbitral proceedings.
The Supreme Court responded by referring to Section 15 of the IBC and Regulation 6 of the IBBI Regulations, which state that the public announcement of the CIRP through newspapers constitutes deemed knowledge. The court dismissed the argument that the appellant was unaware of the CIRP proceedings, stating that such a plea should not be available to a commercial entity.
On the issue of condoning the delay in filing the claim, the Supreme Court ruled against the appellant. It emphasized that the IBC is a time-bound process and that certain circumstances allow for extensions. However, the delay in this case amounted to 287 days, and given the appellant's status as a commercial entity, the court deemed them responsible for not being vigilant in determining whether the Corporate Debtor was undergoing CIRP. Consequently, the appellant was left with limited recourse.
The Supreme Court's decision in the RPS Infrastructure Ltd case serves as a crucial reminder of the need for timely and diligent action in the context of the Corporate Insolvency Resolution Process. The court's stance against admitting claims after COC approval but before Adjudicating Authority approval underscores the importance of bringing closure to the resolution process and preventing an endless cycle of claims. Parties involved in such proceedings must exercise due diligence and stay informed about the status of ongoing insolvency processes to protect their interests effectively. This decision reinforces the IBC's objective of expeditiously resolving corporate insolvency while maintaining fairness and transparency in the process.