2025 (7) TMI 1460 - AT - IBC

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 ... Approval of the Resolution Plan - two instalments which fell due after commencement of CIRP can be treated to be CIRP cost and the direction issued by the Adjudicating Authorityfor payment of the instalments can be sustained or not - amount which is payable towards water and sewer charges is CIRP cost or not - liability to pay time extension charges as claimed by NOIDA are CIRP cost - CIRP should resume from the stage of preparation of Information Memorandum or from any other stage or the present SRA should be given opportunity to submit revised Resolution Plan after forensic audit and fresh valuation of the assets of the CD. Whether two instalments i.e. 19th and 20th instalment, which fell due after commencement of CIRP can be treated to be CIRP cost and the direction issued by the Adjudicating Authority in Para 79(h) for payment of above two instalments can be sustained? - HELD THAT:- The judgment of this Tribunal in Sunil Kumar Agrawal [2023 (1) TMI 552 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] is a judgment of Coordinate Bench which reject the claim of treating lease premium as CIRP cost. We, sitting in the Coordinate Bench of two-member bench, feel ourselves bound by the said judgment. It is hastened to add that in view of the protection which has been given in Civil Appeal No.901 of 2023, NOIDA is also entitled to similar protection. In case, it is held by the Hon’ble Supreme Court that the lease premium is a CIRP cost, as contemplated in order dated 17.02.2023, the amount of 19th and 20th instalment, as is claimed by the NOIDA, shall be payable by SRA. The resolution plan which shall henceforth be submitted for consideration as per the order of the Adjudicating Authority remitting the resolution plan for consideration, there need to be undertaking to the above effect by the Resolution Applicant who has to pay the aforesaid 19th and 20th instalment, if it is held as CIRP cost in Civil Appeal No.901 of 2023. Whether the amount which is payable towards water and sewer charges is CIRP cost? - HELD THAT:- It is not even disputed that amount towards water and sewer charges which is payable in CIRP is CIRP cost. Learned counsel for the Resolution Professional very fairly submitted that the unpaid amount towards water and sewer charges shall be paid. Thus, water and sewer charges are CIRP cost and unpaid water and sewer charged are liable to be paid as CIRP cost. Whether time extension charges as claimed by NOIDA are CIRP cost, which is liable to the paid in the resolution plan? - HELD THAT:- The period for completion of construction with respect to lease deed dated 30.12.2008 is eight years from the date of execution of lease deed and for lease deed dated 29.12.2009 it shall be seven years from the date of execution of lease deed. After the expiry of eight and seven years, respectively, extension of time for completion of project can be extended for maximum another three years only with penalty. For first year penalty shall be 4% of the total premium; for second year penalty shall be 5% of the total premium and for third year penalty shall be 6% of the total premium. The clause further stipulates that extension for more than three years normally will not be permitted. Thus, clauses of both the lease deeds, clearly stipulate that the maximum period of completion of project can be extended for a maximum period of another three years only with penalty - NOIDA is entitled to levy penalty charges for extension as per above stipulation for a maximum period of three years. The said time extension clause does not clothe the NOIDA to keep on levying penalty for time extension beyond three years. Time extension being related to the completion of project and the Resolution Professional having decided to carry on project as on going concern, the time extension charges are charges for keeping the project as going concern and the time extension charges upto maximum period of three years after expiry of maximum period of construction can be levied by NOIDA. Thus, time extension charges upto three years after expiry of maximum period of completion can be treated as CIRP cost. Whether the Adjudicating Authority while remitting back the resolution plan to CoC could have left it to the discretion of CoC as to whether the CIRP should resume from the stage of preparation of Information Memorandum or from any other stage or the present SRA should be given opportunity to submit revised Resolution Plan after forensic audit and fresh valuation of the assets of the CD? - HELD THAT:- In the present case, the CIRP period has already came to an end before approval of resolution plan and the Adjudicating Authority has granted 60 days’ period from 19.06.2020 which came to an end on 18.08.2020. The resolution plan being approved by the CoC on 22.07.2020, before expiry of said period, application for approval of resolution plan was filed by the Resolution Professional, which remained pending before the Adjudicating Authority till 24.07.2024, when impugned order was passed. There were several applications before the Adjudicating Authority including objection by NOIDA. Four years’ period elapsed during pendency of the proceeding before NCLT for approval of plan. When the CIRP period has already came to an end and the Adjudicating Authority has remitted the matter to CoC for fresh consideration of the resolution plan, we do not see any justification in starting the entire process from the stage of Information Memorandum. The timeline for completing the CIRP process does not permit directing for commencement of process from the stage of Information Memorandum. In the CIRP of the Corporate Debtor, five Resolution Applicants were included in the final list of Resolution Applicants, who all have submitted resolution plan before the CoC. The fact that period of about five years has elapsed from approval of resolution plan and a fresh valuation has been directed by the impugned order, which now has been submitted, the timelines has to be kept in mind - in the facts of the present case interest of all shall be met in permitting the CoC to issue Request for Resolution Plan (RFRP) to the Resolution Applicants whose name was included in the final list of Resolution Applicants to submit their resolution plan for resolution of the Corporate Debtor and Resolution Applicants be asked to submit plan within maximum period of 30 days. In the RFRP, the Resolution Professional shall also include the undertaking with respect to CIRP cost of two installments as indicated above, which shall be liable to be paid as CIRP cost in event. The Resolution Professional may issue an Addendum to Information Memorandum to facilitate the Resolution Applicants to submit the Resolution Plan. The Addendum be issued simultaneously with issuing Request for Resolution Plan - The period during which the applications remained pending before the Adjudicating Authority and decided on 24.07.2024 and the period during which the Appeals against the said order remained pending before this Tribunal need to be excluded from the CIRP period, which is hereby excluded. Further extension of 90 days is granted for completion of entire process of the CIRP. Appeals disposed off. 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.