2023 (9) TMI 516 - SC - IBC

SC upholds dismissal of belated arbitral award claim in insolvency proceedings after resolution plan approval

M/s. RPS INFRASTRUCTURE LTD. Versus MUKUL KUMAR & ANR.

SC dismissed appeal regarding belated arbitral award claim in CIRP. Appellant, a commercial entity litigating against corporate debtor, failed to file ... CIRP - Belated claim pertaining to arbitral Award - appellant’s claim pertaining to an arbitral award, which is in appeal under Section 37 of IBC - to be included at a belated stage i.e. after the resolution plan has been approved by the COC or not - HELD THAT:- It is undisputed that the process followed by respondent no. 1 was not flawed in any manner, except to the extent of whether an endeavour should have been made by respondent no. 1 to locate the liabilities pertaining to the said award from the records of the Corporate Debtor 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 appellant has been deficient on this aspect. The result, of course, is that the appellant to an extent has been left high and dry. Whether the delay in the filing of claim by the appellant ought to have been condoned by respondent no. 1? - HELD THAT:- 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 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. Thus, it is concluded that the NCLAT’s impugned judgment cannot be faulted to reopen the chapter at the behest of the appellant - appeal dismissed. Issues Involved:1. Whether the appellant's claim pertaining to an arbitral award, which is in appeal under Section 37 of the Arbitration and Conciliation Act, is liable to be included at a belated stage after the resolution plan has been approved by the Committee of Creditors (COC).Summary:Factual Background:An agreement was entered into on 02.08.2006 between the appellant and the Corporate Debtor for the development of land into a residential complex. The appellant sought arbitration on 02.05.2011 due to the Corporate Debtor's alleged misconduct. The arbitral award dated 01.08.2016 was in favor of the appellant, directing the Corporate Debtor to transfer requisite licenses and awarding a monetary claim. The Corporate Debtor challenged this under Section 34 of the Arbitration Act, and the award was upheld with modifications on 25.04.2019. Meanwhile, the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor on 27.03.2019, and a Resolution Professional (RP) was appointed.Appellant's Claim:The appellant sent an email on 19.08.2020 to the RP highlighting their pending claim of Rs.35,67,05,337 against the Corporate Debtor from the arbitral award. The RP rejected this claim on 25.08.2020 due to its late submission, 287 days after the initiation of CIRP. The appellant filed an application under Section 60(5) of the IBC, and the Adjudicating Authority directed the RP to consider the claim on merits.NCLAT's Decision:The NCLAT reversed the Adjudicating Authority's decision, stating:(i) Proper service for inviting claims was effectuated through newspapers as per Regulation 6 of the IBBI Regulations.(ii) The appellant failed to show timely filing of the claim after knowing about the CIRP.(iii) The RP made sincere efforts to obtain the Corporate Debtor's records.(iv) The RP was obliged to accept claims within the extended period of 90 days.(v) The resolution plan would be jeopardized if new claims were entertained.Appellant's Pleas Before the Supreme Court:The appellant argued that their claim was a contingent claim due to pending proceedings under Section 37 of the Arbitration Act. They cited the judgment in Rainbow Papers, asserting that contingent claims should be included in the resolution plan. They also contended that the timeline under Section 12 of the IBC is directory, not mandatory, and the RP should have included their claim as a contingent liability.Respondent No.1's Pleas Before the Supreme Court:Respondent No.1 argued that the appellant had deemed knowledge of the CIRP due to public announcements and that allowing the belated claim would open floodgates of litigation. They also contended that the resolution plan was comprehensive and accounted for all claims.Supreme Court's View:The Supreme Court examined whether the appellant's claim should be included after the resolution plan was approved by the COC.1. Process Followed by RP: The RP followed the correct process, including filing an application under Section 19 of the IBC to obtain the Corporate Debtor's records.2. Delay in Filing Claim: The appellant's delay of 287 days was not condoned. The IBC is a time-bound process, and the appellant, being a commercial entity, should have been vigilant.3. Public Announcement: The public announcement through newspapers constituted deemed knowledge for the appellant.4. Approval of Plan: The approval of the resolution plan by the COC should not be reopened, as it would make the CIRP an endless process and allow other similar claims.The Supreme Court concluded that the NCLAT's judgment was correct and dismissed the appeal, leaving the parties to bear their own costs.