2025 (10) TMI 818 - AT - IBC

Contingent claims treated as ordinary claims; 24-month crystallisation cap for creditors under resolution plan upheld; appeal dismissed

NCLAT dismissed the company appeal and confirmed the impugned order upholding the resolution plan. The Tribunal held that treating a contingent claim as ... Rejection of the claim and the parameters of determination as made with regard to the claim was submitted by the Appellant, as a contingent claim by treating it as to be an ordinary claim - Resolution Professional can create artificial classification on the basis of contingent claim or not - validity of terms of the resolution plan containing a cap of 24 months for the creditors to crystalize their claims. HELD THAT:- The Ld. Counsel for the Respondents, have drawn the attention of this Appellate Tribunal to the judgment rendered by the Principal Bench in the matters of M/S Balaji Associates versus Mr. V. Venkatachalam and 3 Others [2022 (3) TMI 1656 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], an appeal that too was preferred as against the impugned order passed on 17.10.2019 by the Ld. NCLT, in IA No. 703/2019, as preferred in CP (IB) No. 275/7HDB/2018. There were bunch of appeals, which were considered by the Principal Bench, which, vide its judgment, had dismissed the appeal and has confirmed the Resolution Plan. In view of the fact, that the impugned order, which is under challenge in the instant company appeal, has already been confirmed by the Principal Bench in the bunch of other company appeals with the leading company appeal being Company Appeal (AT) (Ins) No.1294/2019. Nothing much survives to be decided on merits in the instant company appeal. Hence, this ‘company appeal’ too would stand ‘dismissed’ under the same terms of the judgment as rendered by the Principal Bench. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Resolution Professional may treat and classify claims as 'contingent claims' and thereby create a separate classification for such claims within the resolution plan. 2. Whether a resolution plan provision imposing a 24-month cap for crystallisation of contingent or disputed operational claims (with residual balance distribution and ultimate discharge of non-crystallised claims) is valid, arbitrary, or contrary to law. 3. Whether statutory claims (e.g., statutory levies) that are quantified by statute can be treated as contingent claims requiring admission by the corporate debtor for payment under the resolution plan. 4. Whether the implementation of an approved resolution plan and subsequent confirmation by a higher bench renders an appeal against the approval order infructuous and bars further adjudication on merits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Permissibility of classification of 'contingent claims' by the Resolution Professional Legal framework: Insolvency and Bankruptcy Code, 2016 (IB Code) and the Insolvency Resolution Process Regulations govern submission, admission and treatment of claims; Section 30(1) permits the Committee of Creditors (CoC) to approve a resolution plan proposing distribution among creditors; Regulation 8 and Form B prescribe claim submission procedure. Precedent treatment: The Tribunal relied upon the approach adopted by a Principal Bench decision which considered the same resolution plan and upheld the CoC's approval; that decision is treated as binding for purposes of finality in these consolidated proceedings. Interpretation and reasoning: The Tribunal noted that the Resolution Professional had rejected the Form B claim without reasons and that the Adjudicating Authority directed the claim be treated as an ordinary claim to be re-determined on merits. The resolution plan however classified claims into categories including admitted, rejected and 'contingent' claims, and provided a mechanism for payment proportionate to overall claims and for an escrow arrangement to accommodate crystallised claims within 24 months. The Tribunal observed that the CoC, exercising commercial judgment, approved the plan after being informed of potential crystallisation of certain disputed claims; the plan's classification and treatment reflected this commercial decision rather than a substantive change in legal character of claims under the IB Code. Ratio vs. Obiter: Ratio - the Tribunal treated the CoC's commercial decision to classify and provide for disputed/contingent claims in the plan as permissible in the facts of the case, subject to statutory limits and judicial review; Obiter - detailed normative statements on when every disputed claim must be treated as non-contingent were not made. Conclusion: The Tribunal accepted that a resolution plan may categorise and provide for disputed/contingent claims through a commercial mechanism approved by the CoC, provided the process conforms to statutory procedure and judicial directions; mere creation of such a classification in a plan is not per se illegal where the CoC has considered the position and approved the plan. Issue 2 - Validity of a 24-month cap for crystallisation and ultimate discharge of non-crystallised claims Legal framework: Section 30(2) permits a resolution plan to provide for implementation timelines and distributions; the Adjudicating Authority's power to examine viability and fairness of a plan arises under Section 31; general principles of reasonableness and non-arbitrariness constrain plan terms. Precedent treatment: The Tribunal relied on the Principal Bench outcome in the related consolidated appeals which affirmed the impugned plan and its temporal mechanism; no contrary precedent was relied upon by the Appellant that struck down analogous time-bar mechanisms in approved plans. Interpretation and reasoning: The Tribunal considered the CoC's commercial rationale: to allocate an upfront quantum proportionate to overall claims, with an escrow for potential crystallised claims over 24 months, and a scheme for distribution of any remaining balance thereafter. The Tribunal observed that this mechanism served the purpose of balancing present distributable value with future contingencies and was justified where claims were subject to ongoing litigation and might crystallise over time. The Tribunal further noted that the Adjudicating Authority had directed the Resolution Professional to treat certain disputed claims as ordinary claims pending adjudication, but the CoC's plan expressly accommodated the risk of crystallisation through the escrow/time-cap construct. Ratio vs. Obiter: Ratio - the Tribunal upheld that a temporal cap and escrow arrangement for disputed claims approved by a properly constituted CoC is not inherently invalid or arbitrary where reasonably related to commercial considerations and where the plan provides a mechanism to address crystallisation; Obiter - the Tribunal did not lay down an exhaustive rule on permissible duration or caps in all contexts. Conclusion: The 24-month cap and related distribution mechanism were lawful in the circumstances, reflecting permissible commercial judgment of the CoC and not being arbitrary or illegal per se. Issue 3 - Treatment of statutory/quantified claims as contingent claims Legal framework: Rights of creditors under the IB Code and Regulations to submit claims in prescribed forms; distinction between contingent and provable claims under insolvency jurisprudence; statutory obligations that are quantified by statute. Precedent treatment: No authority was found to categorically prohibit inclusion of statutorily quantified liabilities within disputed/contingent classifications in a plan, provided statutory rights are preserved and the treatment is transparent to the CoC and the Adjudicating Authority. Interpretation and reasoning: The Appellant argued statutory levies already paid on account should have been admitted rather than treated as contingent. The Tribunal observed that the Resolution Professional initially rejected the Form B without reasons and the Adjudicating Authority directed re-consideration of such claims as ordinary claims pending adjudication. Nevertheless, the resolution plan included disputed/statutory claims within its overall classification and provided for potential payment through escrow on crystallisation. The Tribunal did not find that statutory quantification automatically precluded commercial accommodation within a plan; rather, the appropriate course is challenge and re-determination on merits where necessary. Ratio vs. Obiter: Ratio - statutory claims do not ipso facto prevent a CoC from providing for disputed treatment in a resolution plan, so long as statutory rights are not extinguished without due process and claims are subject to adjudication; Obiter - the Tribunal did not decide a general rule as to all statutory claims. Conclusion: The plan's approach to disputed/statutory claims, given the Adjudicating Authority's direction to re-determine claims on merits and the CoC's transparent accommodation through the plan, was not held impermissible in the instant facts; statutory quantification does not automatically nullify the CoC's commercial arrangement but claimants retain rights to adjudicate and seek admission. Issue 4 - Effect of implementation and higher-bench confirmation on maintainability and relief Legal framework: Principles of finality and mootness; Section 31 gives imprimatur to the approved plan; subsequent implementation and efficacious change of position may render challenges academic or infructuous. Precedent treatment: The Tribunal applied the Principal Bench's confirmation of the same approved plan in consolidated appeals as determinative for finality and to avoid re-litigation of identical issues in the present appeal. Interpretation and reasoning: Respondents asserted the plan had been implemented and consequential agreements executed, and a Principal Bench had already dismissed a leading consolidated challenge to the same order, confirming the plan. The Tribunal observed that in view of that confirmation and implementation, little survived for adjudication on merits in the present appeal. Consequently, the Tribunal dismissed the appeal on the same terms as the Principal Bench decision and closed pending interlocutory applications. Ratio vs. Obiter: Ratio - where an approved resolution plan has been implemented and a higher bench has already affirmed the approval in substantially identical proceedings, a subsequent appeal on the same grounds may be rendered infructuous and dismissed on that basis; Obiter - the Tribunal did not address novel circumstances where partial implementation might permit limited relief. Conclusion: The appeal was dismissed as infructuous in view of implementation of the resolution plan and the Principal Bench's confirmation in related consolidated appeals; no further interlocutory relief was granted.