Subcontractor's claim during CIRP cannot be classified as CIRP cost without CoC approval and going concern contribution

The NCLAT Principal Bench held that a subcontractor's claim arising during CIRP cannot be classified as CIRP cost. The tribunal established three criteria for CIRP cost qualification: maintaining the corporate debtor as going concern, payment for essential goods/services, and direct CIRP relation with CoC approval. Since the debtor's plant ceased operations during CIRP and the subcontractor's activities didn't contribute to viability as going concern, plus lacked CoC approval, the claim failed to meet CIRP cost definition. The respondent's claim was reclassified as non-CIRP cost under Section 53 for liquidation distribution. Appeal allowed, setting aside the AA's contrary decision.

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Issues Involved:
1. Classification of the claim as CIRP cost.
2. Compliance with the CoC decisions and regulatory provisions.
3. Interpretation of CIRP cost u/s 5(13) of the Code and Regulation 31 of the CIRP Regulations.
4. Adjudicating Authority's adherence to the doctrine of stare decisis and principles of res judicata.

Summary:

1. Classification of the claim as CIRP cost:
The Appellant, Liquidator of Sunil Hitech Engineering Ltd. (SHEL), contested the Adjudicating Authority's order to classify the claim of Respondent No. 1 as CIRP cost. The claim of INR 1,36,41,854/- by Respondent No. 1, related to work done during the CIRP period, was initially rejected by the Appellant and Respondent No. 2 (erstwhile Resolution Professional) as it did not meet the criteria for CIRP costs. The Adjudicating Authority, however, directed the Appellant to admit the dues as CIRP cost, leading to the present appeal.

2. Compliance with the CoC decisions and regulatory provisions:
The Appellant argued that the claim did not qualify as CIRP cost based on the decisions of the Committee of Creditors (CoC) and relevant provisions of the Insolvency and Bankruptcy Code (IBC) and regulations. The CoC had decided that only costs directly related to maintaining the Corporate Debtor as a "going concern" and approved by the CoC would be considered CIRP costs. The Darlipali Plant project, related to the claim, was terminated during the CIRP period and did not maintain the Corporate Debtor as a going concern.

3. Interpretation of CIRP cost u/s 5(13) of the Code and Regulation 31 of the CIRP Regulations:
The Appellant emphasized that u/s 5(13)(c) of the Code and Regulation 31 of the CIRP Regulations, costs incurred must be directly related to maintaining the Corporate Debtor as a going concern and approved by the CoC to be classified as CIRP costs. The CoC had not approved the claim of Respondent No. 1, and the project was not contributing to the Corporate Debtor's viability as a going concern.

4. Adjudicating Authority's adherence to the doctrine of stare decisis and principles of res judicata:
The Appellant highlighted that the Adjudicating Authority's decision was contrary to its earlier decisions and violated the doctrine of stare decisis and principles of res judicata. Previous similar applications were rejected by the Adjudicating Authority, which had held that dues could only be classified as CIRP costs if confirmed by the CoC during the CIRP period.

Conclusion:
The Tribunal concluded that the Respondent's claim did not meet the criteria for CIRP costs as it lacked CoC approval, did not support the "going concern" objective, and was contingent on unrealized payments from NTPC. The Adjudicating Authority's decision was set aside, and the Respondent's claim was classified as non-CIRP cost to be distributed under Section 53 of the Code during liquidation. No orders as to costs.

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