2022 (3) TMI 1430 - AT - Insolvency and Bankruptcy

Tribunal overturns Adjudicating Authority's error in including belated claim, stresses IBC compliance.

The Tribunal allowed the appeal, finding the Adjudicating Authority's order to include a belated and unverified claim as erroneous. Emphasizing adherence ... Inclusion of belated claims in insolvency resolution process costs - 90 day limit for submission of proof of claims under Regulation 12(2) - Duty of resolution professional to verify and collate claims (administrative, not adjudicatory) - Scope of insolvency resolution process costs and requirement of CoC ratification - Prohibition on post plan surprise claims to protect resolution applicants' 'clean slate'Inclusion of belated claims in insolvency resolution process costs - 90 day limit for submission of proof of claims under Regulation 12(2) - Lawfulness of the Adjudicating Authority's direction to include a belated, unverified claim of the lessor as CIRP costs after the Resolution Plan was approved by the CoC - HELD THAT: - The Tribunal found that the Adjudicating Authority erred in directing inclusion of the additional claim of the lessor as insolvency resolution process costs without proper verification by the resolution professional and without CoC ratification. Regulation 12(2), as amended, fixes an outer limit of ninety days from the insolvency commencement date for filing claims with proof; permitting the late claim would nullify that statutory limitation and permit disruptive post plan claims. The master lease schedules showed the lease term had, in large measure, expired before the public announcement; fair market value had already been admitted within the earlier claim and could not be allowed again as a separate belated item. The Adjudicating Authority's allowance of the additional amount as CIRP costs was therefore unsustainable because it (a) failed to respect the timelines in Regulation 12(2); (b) allowed a claim without verification, invoices or CoC approval; and (c) risked upsetting the information memorandum and the commercial basis on which resolution applicants submitted plans. [Paras 6, 14]Impugned order directing inclusion of the belated/unverified claim as CIRP costs set aside; appeal allowed.Duty of resolution professional to verify and collate claims (administrative, not adjudicatory) - Scope of insolvency resolution process costs and requirement of CoC ratification - Whether the Resolution Professional was obliged or empowered to admit, verify or pay the additional claim as CIRP costs without CoC recommendation and proper documentation - HELD THAT: - The Tribunal reiterated that the resolution professional's role is to collate, vet and verify claims and to present them to the CoC; he does not possess adjudicatory powers to unilaterally allow a belated and unsubstantiated claim as CIRP cost. The CIRP Regulations and Section 5(13) show that while certain essential supplies are treated as CIRP costs, other costs must be approved by the CoC. The Adjudicating Authority cannot direct payment of unverified claims as CIRP costs in a manner that circumvents the RP's verification duties and the CoC's commercial decision making; doing so undermines the information memorandum and the process by which resolution plans are prepared and approved. [Paras 14]The Adjudicating Authority's direction was contrary to the statutory scheme; inclusion of the claim without RP verification and CoC approval was set aside.Final Conclusion: The Tribunal allowed the appeal, set aside the Adjudicating Authority's order that directed inclusion of the belated and unverified claim as CIRP costs, and held that claims must comply with the ninety day filing limit and be subject to verification by the RP and commercial approval by the CoC before being treated as insolvency resolution process costs. Issues Involved:1. Inclusion of additional, belated, and unverified claims in the Resolution Plan.2. Verification and adjudication of claims by the Resolution Professional (RP).3. Admissibility of claims filed after the stipulated period.4. Classification of claims as Corporate Insolvency Resolution Process (CIRP) costs.5. Jurisdiction and powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC).Detailed Analysis:1. Inclusion of Additional, Belated, and Unverified Claims in the Resolution Plan:The Appellant, the Resolution Professional (RP) of the Corporate Debtor (CD), contested the inclusion of an additional claim of Rs. 3,14,81,158/- by Respondent No. 1 (R1) in the Resolution Plan. The Adjudicating Authority directed the RP, Committee of Creditors (CoC), and the Resolution Applicant to include this claim, which was submitted belatedly and without verification. The RP argued that the claim was time-barred and not admissible within the framework of the IBC and related regulations.2. Verification and Adjudication of Claims by the Resolution Professional (RP):The RP emphasized the necessity of verifying claims on merits, as per the provisions of the IBC and CIRP Regulations. The RP found the additional claim of Rs. 3,14,81,158/- inadmissible based on various reasons, including discrepancies in the claim form and lack of supporting invoices. The RP argued that the claim was not verified or ratified by the CoC and was not adjudicated by the Adjudicating Authority, making it untenable.3. Admissibility of Claims Filed After the Stipulated Period:The RP highlighted that the claim by R1 was filed after the 90-day period stipulated in CIRP Regulations, which expired on 09.11.2020. The Adjudicating Authority's acceptance of this belated claim was challenged, citing that the outer limit for filing claims is 90 days from the insolvency commencement date, as per Regulation 12(2) of the CIRP Regulations. The RP argued that condoning such delays would nullify the amendment made to Regulation 12(2).4. Classification of Claims as Corporate Insolvency Resolution Process (CIRP) Costs:The Adjudicating Authority allowed Rs. 3,14,81,158/- as CIRP costs, claiming it was incurred for running the business of the CD during the CIRP period. However, the RP contested this classification, arguing that the claim was not verified or approved by the CoC and did not fall under the definition of CIRP costs as per Section 5(13) of the IBC. The RP also pointed out that the lease term had expired, and no revenue was earned from the leased equipment during the CIRP process.5. Jurisdiction and Powers of the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC):The RP argued that the Adjudicating Authority overstepped its jurisdiction by directing the inclusion of the unverified claim without adhering to the procedural requirements of the IBC. The RP cited various judgments to support the position that the Adjudicating Authority should not interfere with the commercial wisdom of the CoC and should operate within the framework of the IBC.Conclusion:The Tribunal found merit in the Appeal, noting that the Adjudicating Authority's order to include the belated and unverified claim was erroneous. The Tribunal emphasized the importance of adhering to the stipulated timelines and procedural requirements under the IBC. The Tribunal set aside the order of the Adjudicating Authority, allowing the Appeal and highlighting that the Resolution Professional had substantially complied with the requirements of the IBC in verifying and admitting claims.