Treatment of advance payment in CIRP as cost; Liquidator's duty to decide claims promptly

The Tribunal held that the advance payment made during the Corporate Insolvency Resolution Process (CIRP) for the purchase of goods to maintain the Corporate Debtor as a going concern should be treated as CIRP cost. The Liquidator was directed to decide on the claims within specific time frames and communicate reasons for rejection if any. Failure to comply would result in further actions by the Liquidator and referral to the appropriate authorities. The Appeals were disposed of with these directives.

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Issues Involved:
1. Whether advance paid to the RP for purchase of goods from Corporate Debtor during CIRP to keep the Corporate Debtor as a going concern, in case of breach of contract, on account of a breakdown in the corporate debtor manufacturing ability, can be treated as CIRP cost.
2. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP to keep the corporate debtor as a going concern ought to be treated as CIRP cost by the Liquidator for the purposes of disbursement under Section 52, read with Section 53 of I&B Code, 2016.
3. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP ought to be refunded by the RP on account of delivery failure.

Issue-Wise Detailed Analysis:

1. Whether advance paid to the RP for purchase of goods from Corporate Debtor during CIRP to keep the Corporate Debtor as a going concern, in case of breach of contract, on account of a breakdown in the corporate debtor manufacturing ability, can be treated as CIRP cost:

The Tribunal examined whether the advance paid by the Appellant to the Corporate Debtor during the Corporate Insolvency Resolution Process (CIRP) for the purchase of goods can be treated as CIRP cost. The Appellant argued that the advance should be considered CIRP cost as it was paid during the CIRP to keep the Corporate Debtor as a going concern. The Appellant further contended that the Liquidator failed to communicate its decision regarding the acceptance or rejection of their claim, violating Section 40(2) of the I&B Code, 2016. The Liquidator argued that the advance paid by the purchaser does not fall under any of the clauses of Section 5(13) of the Code and cannot be treated as CIRP cost. The Tribunal, however, found that the advance payment for goods during CIRP, if not supplied, should be treated as CIRP cost to maintain the Corporate Debtor as a going concern.

2. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP to keep the corporate debtor as a going concern ought to be treated as CIRP cost by the Liquidator for the purposes of disbursement under Section 52, read with Section 53 of I&B Code, 2016:

The Tribunal discussed the statutory provisions under Section 20 and Section 5(13) of the I&B Code, which impose a duty on the Resolution Professional to preserve and protect the Corporate Debtor's assets and manage its operations as a going concern. The Tribunal noted that the advance payment for goods during CIRP should be treated as an expense incurred by the Resolution Professional to keep the Corporate Debtor as a going concern. The Tribunal found that the Liquidator's failure to decide on the Appellant's claim violated the time-bound process mandated by the Code. The Tribunal directed the Liquidator to admit or reject the claims of the Appellants within 30 days from the date of the judgment and communicate the reasons for rejection, if any, within seven days.

3. Whether the advance amount paid by the Appellant to the RP for purchase of goods from Corporate Debtor during CIRP ought to be refunded by the RP on account of delivery failure:

The Tribunal found that the advance payment for the supply of goods during CIRP should be refunded if the goods are not supplied. The Tribunal emphasized that the purchaser cannot be made to run for their money if the goods are not supplied. The Tribunal held that such advance payments should be treated as CIRP costs, and the Liquidator must decide on the claims within the stipulated time frame. The Tribunal directed the RP to provide all necessary details and information relating to the transactions to the Liquidator within 15 days and the Liquidator to decide on the claims within 30 days from the date of the judgment.

Order:

The Tribunal directed the Respondent No. 3/RP to respond to the claims made in both the Appeals and supply all necessary details and information relating to the transactions to the Liquidator within 15 days. The Liquidator was directed to admit or reject the claims of the Appellants within 30 days from the date of the judgment, recording reasons in terms of Section 40 of the I&B Code. If the claims are rejected, the Liquidator must communicate the reasons to the Appellants and not act on the rejections for 14 days to enable the Appellants to move before the Adjudicating Authority. The Tribunal also directed that if the IRP/RP fails to provide the necessary information within 15 days, the Liquidator must file a report before the Adjudicating Authority and refer the matter to the IBBI for suitable actions. The Appeals were disposed of with these observations.

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