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The legal framework governing the submission and verification of claims during the Corporate Insolvency Resolution Process (CIRP) is primarily derived from the Insolvency and Bankruptcy Code, 2016 ("Code") and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations"). Regulation 12 of the CIRP Regulations mandates that every creditor must submit proof of claim with relevant supporting documents to the Interim Resolution Professional (IRP) or Resolution Professional (RP), enabling proper scrutiny and verification.
The Appellant relied on a Joint Development Agreement (JDA) dated 06.03.2018 and a full and final settlement agreement dated 09.05.2018 to substantiate its claim as an operational creditor. The JDA granted the Appellant exclusive rights for sale, construction, and development of studio apartments in Tower T-9 of a real estate project owned by the Corporate Debtor. Clause 5 of the JDA stipulated that payments previously made by the Appellant to the Corporate Debtor's sister concern would be treated as payments to the Corporate Debtor itself. Clause 11 required the establishment of an escrow account for collection and distribution of sale proceeds, which was never opened.
The Resolution Professional rejected the Appellant's claim on the grounds that the documents submitted were insufficient and that the payments were made to a sister concern, a distinct legal entity, rather than the Corporate Debtor itself. The RP also pointed out that the Appellant failed to provide proof of disbursement or bank transaction records evidencing payment to the Corporate Debtor. Despite requests for further documentation and clarifications, the Appellant did not furnish adequate evidence to verify the claim.
The Court examined the nature of the payments and the contractual relationships. It noted that the sister concern of the Corporate Debtor is a separate legal entity, and debts owed to one entity cannot be presumed to be debts owed to another. The absence of an escrow account and lack of documentary proof of payments to the Corporate Debtor undermined the Appellant's claim. The Court also emphasized the importance of compliance with Regulation 12, which requires proper documentation for claim verification.
The Appellant's failure to submit the required documents within the stipulated time and its inaction despite repeated requests justified the Resolution Professional's rejection of the claim. The Court found no error in the Adjudicating Authority's conclusion that the claim was unsubstantiated and legally untenable.
Issue No. (II): Whether the disqualification of Mr. Piyush Tiwari, the former director of the Corporate Debtor, was merely technical and whether the agreements signed by him on behalf of the Corporate Debtor remained valid.
The Appellant's JDA and settlement agreement were signed by Mr. Piyush Tiwari, who was a Director of the Corporate Debtor. The Resolution Professional and Respondent contended that Mr. Tiwari had been disqualified as a director under Section 164(2)(a) of the Companies Act, 2013, effective from 1st November 2015, due to the Corporate Debtor's failure to file financial statements and annual returns for three consecutive years. Section 167(1)(a) mandates vacation of office upon such disqualification.
The doctrine of constructive notice was invoked, which holds that documents filed with the Registrar of Companies (RoC) are public documents, and parties dealing with the company are presumed to have knowledge of their contents, including the disqualification of directors. The list of disqualified directors was publicly available on the Ministry of Corporate Affairs (MCA) website well before the execution of the JDA and settlement agreement.
Given this, the Court held that the agreements executed by Mr. Tiwari lacked legal validity and enforceability, as he was not authorized to act as a director at the time of execution. The Appellant's failure to exercise due diligence in verifying the director's status rendered the agreements non-est and unenforceable against the Corporate Debtor.
The Court rejected the Appellant's argument that the disqualification was merely technical and did not affect the validity of the agreements. It emphasized the statutory provisions and public notice requirements under the Companies Act, which impose an obligation on contracting parties to verify the authority of signatories.
Application of Law to Facts and Treatment of Competing Arguments:
The Appellant argued that the agreements and claims should be recognized despite the disqualification of Mr. Tiwari, asserting that the disqualification was a hyper-technical ground and that the agreements had been acted upon, including ongoing construction activities. The Appellant also contended that the Resolution Professional failed to recognize their status and did not adequately investigate or verify their claims.
The Respondent and Resolution Professional countered that the Appellant's claims were unsubstantiated, based on agreements executed by a disqualified director, and that payments were made to a sister concern rather than the Corporate Debtor. They pointed out that the Appellant failed to provide necessary documentation despite repeated requests and that the Appellant unlawfully occupied part of the project site, further complicating the CIRP.
The Court found the Respondent's arguments more compelling, emphasizing the statutory framework, the necessity of proper claim verification, and the invalidity of agreements signed by disqualified directors. The Court also noted the absence of the escrow account and lack of documentary evidence of payments to the Corporate Debtor, which undermined the Appellant's case.
Significant Holdings:
"Considering the documents on record and submissions made by the counsels, we find force in the contention of the Respondent that the resolution professional has sought for the clarifications/documents with regard to the claim. The Applicant sat on their claim for months, without furnishing the proof substantiating the claim, owing to which their claim could not be verified. In the absence of documents supporting the claim of the Applicant, the RP cannot process and accept the claim of the Applicant."
"As per Section 164(2)(a) read with Section 167(1) of the Companies Act, 2013, Mr. Piyush Tiwari was disqualified from acting as a director with effect from November 1, 2016, due to the non-filing of Financial Statements and Annual Returns for three consecutive years. This formal declaration by the MCA further reinforces the Respondent No.1's contention that agreements executed by Mr. Tiwari during his period of disqualification are invalid."
"The absence of an escrow account, non-submission of proof of payments to the Corporate Debtor, and the fact that payments were made to a sister concern, a separate legal entity, render the Appellant's claim non-est in law."
The Court concluded that the Appellant failed to substantiate its claims with proper documentation, and the agreements upon which the claims were based were executed by a disqualified director, rendering them invalid and unenforceable. The claims were thus rightly rejected by the Resolution Professional and the Adjudicating Authority. The Court upheld the principle that claims not properly substantiated and verified within the prescribed timelines cannot be entertained, especially after approval of the Resolution Plan, as such claims would jeopardize the CIRP and defeat the purpose of the Code.
The appeal was dismissed with no order as to costs, affirming the rejection of the Appellant's claims and the validity of the Impugned Order dated 17.03.2021.
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