2020 (1) TMI 1743 - AT - IBC

Section 60(5) IBC does not allow revisiting voting shares or claims after CoC approves resolution plan

NCLAT upheld the order of NCLT rejecting the challenge to the voting shares of certain financial creditors in the CIRP of the corporate debtor. It held ... Correctness of voting shares of some of the Financial Creditors - HELD THAT:- As per Section 60(5), though the NCLT is empowered to entertain or dispose of any application or proceeding by or against the ‘Corporate Debtor’ or ‘Corporate Person’, it does not invest the NCLT with the jurisdiction to re-determine and collate the claim. The decision for collating the claim, if any, taken by the ‘Resolution Professional’, the same being judicial or quasi-judicial, the NCLT cannot sit in Appeal. In the present case, though the Adjudicating Authority has no jurisdiction, but for the purpose of transparency, considered the documents relied upon by the Respondents in support of their claim and observed that the basic principle is that “Documents speak for themselves”, a simple verification of the above documents in fact are sufficient enough to conclude that the Corporate Debtor has a liability to pay the amounts as claimed in the documents - It is not in dispute that the ‘Committee of Creditors’ had approved the ‘Plan’ and only thereafter at that stage, the Appellant and another moved applications under Section 60(5) against collation of claim by the ‘Resolution Professional’, by the time, the period of ‘Corporate Insolvency Resolution Process’ was to conclude and had completed during the pendency. The Adjudicating Authority has rightly dismissed the application. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority (NCLT) has jurisdiction under Section 60(5) of the I&B Code to re-determine or collate claims admitted by the Resolution Professional during CIRP prior to a quasi-judicial determination by the NCLT and after approval of a resolution plan by the Committee of Creditors. 2. Whether applications under Section 60(5) can be entertained to challenge the classification of a creditor's claim as a 'financial debt' (including issues of whether amounts alleged to be disbursed or guarantees exist) when such challenge is raised after the Committee of Creditors has approved a resolution plan and the CIRP timelines have largely elapsed. 3. Whether the Resolution Professional's alleged failure to initiate action under Regulation 40A (preferential transaction remedy) affects the jurisdiction or correctness of the admitted claims and vitiates the Committee of Creditors' approval such that the Adjudicating Authority must intervene under Section 60(5). 4. The evidentiary standard applied by the Adjudicating Authority when, for purposes of transparency only, it examined documents relied upon by creditors after holding that it lacked jurisdiction to re-collate claims. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of NCLT under Section 60(5) to re-determine or collate claims admitted by the Resolution Professional Legal framework: Section 60(5) vests the Adjudicating Authority with power to entertain or dispose of applications or proceedings by or against a corporate debtor or corporate person under the Code; Section 61 provides for appeals against NCLT decisions to the Appellate Authority; statutory timelines in Section 64 require reasons if timelines are not adhered to. Precedent treatment: The Court followed the principle in the cited Supreme Court decision that Section 60(5) does not empower the NCLT to re-determine collated claims at an applicant's behest prior to a quasi-judicial determination by the Adjudicating Authority; challenges to a resolution plan approval are to be made under Section 61 (and Section 62 on question of law) within specified time limits. Interpretation and reasoning: The Court reasoned that collating and admitting claims is a judicial or quasi-judicial function exercised by the Resolution Professional under the Code and regulations; the non-obstante clause in Section 60(5) ensures exclusive forumal jurisdiction but does not convert NCLT into an appellate forum to re-weigh RP's claim collation before the plan is finally sanctioned. Allowing piecemeal re-collation at parties' instance before the Adjudicating Authority's own quasi-judicial determination would subvert the Code's processes and timelines. Ratio vs. Obiter: Ratio - NCLT lacks jurisdiction under Section 60(5) to re-determine or collate claims admitted by the RP in a manner that effectively appeals the RP's claim admission prior to a proper adjudication; challenges to plan approval are governed by Section 61/62. Obiter - none additional on this point beyond the application of precedent. Conclusions: Applications seeking re-collation of claims under Section 60(5) filed after Committee approval of the plan and near the conclusion of CIRP are not maintainable; the Adjudicating Authority correctly declined to sit in appeal over the RP's collation decisions. Issue 2: Challenge to classification of creditors' claims as 'financial debt' after CoC approval and CIRP lapse Legal framework: Definition of 'financial debt' under Section 5 of the I&B Code; provisions governing claim admission and challenges; Section 60(5) jurisdictional limits as above; remedies against plan approval under Section 61/62. Precedent treatment: The Court applied the guiding principle from the Supreme Court that post-CoC approval challenges should be brought by appeal under Section 61 and timely, rather than by collateral applications that attempt to re-collate claims at the NCLT stage. Interpretation and reasoning: The Court observed that the applicants sought to challenge whether certain claimants were true financial creditors (including alleged absence of disbursement/time value of money or guarantees). However, because the CoC had approved the plan and the CIRP period had largely run, the proper recourse was the appellate route; the NCLT could not be used to re-open claim collation at that stage. The Court also noted that the Adjudicating Authority, despite lacking jurisdiction to re-collate, examined documents for transparency and found documentary indications of liability (invoking the maxim that 'documents speak for themselves'). Ratio vs. Obiter: Ratio - challenges to the nature or correctness of admitted financial debts, brought after CoC approval and late in CIRP, are not maintainable under Section 60(5) as a vehicle to re-determine RP's collation; proper remedy is appeal under Sections 61/62. Obiter - the Court's observation that simple documentary verification may suffice to establish liability where documents are clear. Conclusions: The Adjudicating Authority's dismissal of late challenges to creditor classification was appropriate; appellants must pursue the appellate remedies prescribed by the Code if timely. Issue 3: Effect of alleged failure of Resolution Professional to invoke Regulation 40A (preferential transactions) on maintainability and merits of Section 60(5) applications Legal framework: Regulation 40A permits the Resolution Professional to apply to the Adjudicating Authority for relief in relation to preferential transactions within 135 days of commencement of CIRP; RP's duties to investigate antecedent transactions and take steps where appropriate. Precedent treatment: The Court acknowledged the appellant's reliance on Regulation 40A but treated it consistently with the general insistence on adherence to statutory timelines and forumal routes for challenge. Interpretation and reasoning: The applicants argued that because the RP did not act under Regulation 40A despite repeated communication, they filed under Section 60(5) within 126 days. The Court noted this factual contention but emphasized that when the CoC had already approved a plan and the CIRP period had largely elapsed (over 330 days), the belated applications could not be permitted to derail the process. The RP's inaction, even if proven, did not confer jurisdiction on the NCLT to re-collate claims at that late stage in place of the appellate mechanism. Ratio vs. Obiter: Ratio - an alleged omission by the RP to initiate Regulation 40A remedies does not transform Section 60(5) into a proper vehicle to re-open collated claims after CoC approval and near CIRP conclusion. Obiter - the Court's acceptance that RP's failure to act could be a matter for separate consideration does not supplant the requirement of proper forum and timing. Conclusions: The timing and procedural posture (CoC approval; expiry or near-expiry of CIRP timelines) precluded the Section 60(5) applications from succeeding despite assertions regarding Regulation 40A inaction. Issue 4: Evidentiary approach when the Adjudicating Authority, lacking jurisdiction to re-collate claims, examines documents 'for transparency' Legal framework: General evidentiary principle that documents may establish liability; limits on NCLT's role when jurisdictionally constrained. Precedent treatment: The Court relied on the proposition that 'documents speak for themselves' in evaluating documentary proof where examined for transparency, consistent with limited scrutiny when the authority lacks jurisdiction to re-determine claims. Interpretation and reasoning: Although the Adjudicating Authority held it lacked jurisdiction to re-collate, it nonetheless inspected the documents the creditors relied upon and found them sufficient prima facie to indicate liability of the corporate debtor. The Court accepted that such limited examination for transparency did not amount to substantive re-collation or appellate review of the RP's decisions. Ratio vs. Obiter: Ratio - a limited, transparency-focused examination of documents by the Adjudicating Authority does not equate to exercising jurisdiction to re-determine claims; such scrutiny may suffice to satisfy the court that documents prima facie support claimed liabilities. Obiter - the broader evidentiary standards for claim admission remain those applicable to substantive adjudication or appeals. Conclusions: The Adjudicating Authority's cursory document verification, without assuming jurisdiction to re-collate claims, was permissible for transparency and did not justify overruling the RP's admissions or the CoC's approval. Final determination The appeals lacked merit and were dismissed; the Adjudicating Authority correctly refused to entertain re-collation of claims under Section 60(5) at the stage when the Committee of Creditors had approved the resolution plan and CIRP timelines had largely elapsed; appellants' remedy lay in the appellate provisions of the Code within prescribed timeframes. No costs were awarded.