Lease Instalments and Water Charges as CIRP Costs; Time Extensions Limited to Three Years; Fresh RFRP Allowed

The NCLAT held that the two lease instalments falling due post-CIRP commencement are not CIRP costs per its precedent but may become so if the SC rules otherwise; unpaid water and sewer charges are confirmed as CIRP costs. Time extension charges levied by NOIDA for up to three years beyond the original project completion period are CIRP costs, but penalties beyond three years are not. The Adjudicating Authority erred in remitting the resolution plan back to the CoC without restarting CIRP from the Information Memorandum stage; given the elapsed time and multiple applicants, CoC may issue a fresh RFRP limited to previously shortlisted applicants with a 30-day submission period. The RP shall include undertakings regarding potential CIRP costs. The period of pendency before the Adjudicating Authority and appeals is excluded from the CIRP timeline, and a 90-day extension for CIRP completion is granted. Appeals are disposed.

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ISSUES:

Whether two instalments (19th and 20th) of lease premium that fell due after commencement of CIRP can be treated as CIRP cost and whether the direction for their payment as CIRP cost can be sustained.Whether amounts payable towards water and sewer charges during CIRP constitute CIRP cost.Whether time extension charges claimed by the lessor under lease deeds are CIRP cost payable in the resolution plan.Whether the Adjudicating Authority could leave to the discretion of the Committee of Creditors (CoC) the stage from which the CIRP should resume after remitting the resolution plan for reconsideration, including whether it should resume from the stage of preparation of Information Memorandum or any other stage.Whether the Authorized Representative had authority to file the appeal on behalf of the Financial Creditors in a class.

RULINGS / HOLDINGS:

Two instalments of lease premium falling due after commencement of CIRP are not automatically CIRP cost under Regulation 31(b) of the CIRP Regulations, 2016, as the lessor's rights were not prejudicially affected by the moratorium due to prior default in payment; the direction to treat these instalments as CIRP cost is modified to be conditional upon the Supreme Court's decision in Civil Appeal No.901 of 2023. The Tribunal is bound by the coordinate bench judgment in Sunil Kumar Agrawal which held that lease premium is not CIRP cost, but protection is granted to the lessor pending Supreme Court's decision.Amounts payable towards water and sewer charges during the CIRP period are held to be CIRP cost and are payable accordingly.Time extension charges under the lease deeds for a maximum period of three years after expiry of the stipulated construction period are held to be CIRP cost, as they relate to keeping the project as a going concern; extension charges beyond three years are not payable as CIRP cost.The Adjudicating Authority's direction to remit the resolution plan back to the CoC is modified to require the CoC to direct the Resolution Professional to issue a Request for Resolution Plan (RFRP) to the existing Resolution Applicants within 30 days, with the CoC to decide within 90 days; the discretion to decide the stage from which CIRP should resume is replaced by a fixed timeline to avoid uncertainty and delay.The Authorized Representative duly appointed by the Adjudicating Authority has authority to file the appeal on behalf of the Financial Creditors in a class; objections to the authority are rejected.

RATIONALE:

The legal framework includes Section 5(13) of the Insolvency and Bankruptcy Code (IBC) defining insolvency resolution process costs and Regulation 31 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, particularly Regulation 31(b) relating to amounts due to persons prejudicially affected by the moratorium under Section 14(1)(d) of the IBC. The Tribunal applied the coordinate bench judgment in Sunil Kumar Agrawal which held that lease premium is not covered by the explanation to Section 14(1)(d) and thus not CIRP cost. The Supreme Court's pending decision in Civil Appeal No.901 of 2023 is recognized as potentially altering this position, and protection is granted accordingly.Water and sewer charges are undisputedly costs incurred in running the corporate debtor as a going concern and hence fall within CIRP cost as per Section 5(13)(c) and Regulation 31.The lease deeds' specific clauses limiting time extension to a maximum of three years with prescribed penalties were interpreted as allowing time extension charges only up to this maximum period as CIRP cost; beyond this period, no extension or charges are permitted. This interpretation aligns with the principle that CIRP cost includes costs necessary for maintaining the corporate debtor as a going concern.Regulation 35 of the CIRP Regulations, 2016 (as amended) governs valuation and confidentiality. The Tribunal distinguished the Supreme Court's judgment in Karad Urban Cooperative Bank Ltd. v. Swwapnil Bhingardevay & Ors., noting that the Supreme Court upheld the resolution plan despite breach of confidentiality and did not mandate restarting the CIRP from the Information Memorandum stage. Considering the elapsed time and the need for timely resolution, the Tribunal directed a fresh RFRP to existing Resolution Applicants with fixed timelines, rejecting the Adjudicating Authority's discretion-based approach to resumption stage.The Tribunal relied on the Adjudicating Authority's prior approval of the Authorized Representative and absence of objections from other parties to affirm the Representative's authority to file the appeal, reinforcing the procedural propriety under the IBC framework for representation of Financial Creditors in a class.

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