2025 (12) TMI 1009 - AT - IBC

CIRP invoices for services and loss of generation: claim treated as contingent while liability stayed under writ; appeal dismissed

The dominant issue was whether the resolution professional (RP) wrongly classified the appellant's claim, based on impugned invoices for alleged ... Irregularities in the classification of claim as contingent - denial of payments for alleged services during the CIRP - liability of Corporate Debtor to make payment for “loss of generation” on account of drawl to water - power of RP in relation to admission of claims - HELD THAT:- Based on information and documents available with the then RP as taken into consideration that the legality and validity of the invoices raised by the Appellant were sub-judice before the Allahabad High Court. - Thus, it become clear that the issue whether the Corporate Debtor was liable to make payments as claimed by the Appellant with relation to impugned invoices or not, was contingent on the outcome of the pending writ petition before the Allahabad High Court. Section 18 of the Code r/w Regulation 10, 13(1) and 14 of CIRP Regulations described the role of the RP to collate and verify based on documents available. It implies that RP is not to adjudicate on the legality or otherwise of the claims filed by any creditors. The Appellant has been aware that the Corporate Debtor had, at all relevant times, objected to the liability to make payments towards Impugned Invoices and that issue concerning legality of the said invoices were sub judice, and continues to be so even thereafter. There are no merit on any issue raised by the Appellant - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the resolution professional could, in law and on the facts, classify the appellant's pre-CIRP claim as a contingent claim and admit it at a notional value of Re. 1 under Regulation 14 of the CIRP Regulations. (2) Whether the Adjudicating Authority, and in appeal the Tribunal, had jurisdiction to adjudicate upon the legality and validity of water drawl and generation loss charges that are the subject-matter of a pending writ petition before the High Court. (3) Whether the appellant was entitled to payment for water supply and alleged generation loss charges during the CIRP period, including month-to-month payments as part of CIRP costs, notwithstanding the subsisting disputes and the High Court proceedings. (4) Whether the appellant suffered any prejudice or legal injury by classification of its claim as 'contingent' and by non-admission of the full amount in the context of a resolution plan which accords nil value/payment to all operational creditors and unsecured financial creditors. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Legality of classifying the appellant's claim as contingent and admitting it at Re. 1 Legal framework discussed (a) Section 18 of the Insolvency and Bankruptcy Code, 2016 - duties of the interim resolution professional to 'receive and collate' claims. (b) Regulations 10, 13(1) and 14 of the CIRP Regulations - substantiation, verification and determination/estimation of claims, including where claims are not precise due to contingency. (c) Judicial precedents discussed: Swiss Ribbons Pvt. Ltd. v. Union of India; Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta. Interpretation and reasoning (a) The Court held that, under Section 18 read with Regulations 10 and 13(1), the resolution professional's role is to collate and verify claims based on documents and information, and that he does not exercise adjudicatory or quasi-judicial powers as to the legality or enforceability of those claims. Adjudication is the exclusive domain of the Adjudicating Authority or other competent fora. (b) Regulation 14(1) specifically permits the resolution professional, where the amount claimed is not precise due to any contingency or other reason, to make the 'best estimate' of the claim based on information available and to revise it upon receipt of additional information. (c) The Court applied the ratio of Essar Steel, where the Supreme Court approved admission of disputed claims only at a notional value of Re. 1 when the underlying liability was subject to pending disputes before other authorities. The Supreme Court set aside NCLT/NCLAT directions to admit such claims in full and upheld the resolution professional's treatment of them as contingent/notional. (d) In the present case, the Court found that the appellant's pre-CIRP invoices (for water drawl and generation loss charges) are admittedly under challenge in a writ petition before the High Court of Allahabad, and earlier before the High Court of Madhya Pradesh. The right and locus of the appellant to levy such charges, and the validity of the impugned invoices, are thus sub judice and inherently contingent upon the High Court's decision. (e) The Court noted that the resolution professional recorded the appellant's full claimed amount in the creditors' list, but admitted only Re. 1 as a contingent claim with a specific note invoking Regulation 14. This was treated as a 'best estimate' pending adjudication of the underlying dispute. (f) The appellant's argument that the resolution professional had exceeded his powers by 'adjudicating' the claim and that the invoices were 'crystallised' was rejected. The Court held that treating a disputed and sub judice claim as contingent at a notional value is an administrative estimation expressly contemplated by Regulation 14, not adjudication on merits. Conclusions (a) The appellant's claim, being subject to pending writ proceedings challenging the very legality of the invoices, was a contingent claim under Regulation 14. (b) The resolution professional acted within his statutory powers in admitting the claim at a notional value of Re. 1 as contingent, in line with Essar Steel. (c) No legal error or excess of jurisdiction by the resolution professional was found in the classification and quantification of the appellant's claim. Issue (2): Jurisdiction of the Adjudicating Authority/Tribunal vis-à-vis the High Court writ proceedings Interpretation and reasoning (a) The Court noted that: (i) the Corporate Debtor had earlier challenged the appellant's levy of water and generation loss charges before the High Court of Madhya Pradesh, which granted interim protection against coercive action; (ii) that writ was disposed of only on territorial jurisdiction, with liberty to approach the appropriate High Court; and (iii) thereafter, Writ Petition No. 12331 of 2020 was filed before the High Court of Allahabad, prior to admission of CIRP, challenging the same invoices and the appellant's right to levy such charges. (b) The subject-matter of the writ petition includes the legality and validity of the impugned invoices, the locus of the appellant to levy charges on water allocated from Madhya Pradesh's share under the Bansagar Project, and the claim for generation loss. These core issues directly overlap with the appellant's claim in CIRP. (c) The Adjudicating Authority had held, and the Court affirmed, that where a transaction/claim is already the subject-matter of a writ petition before the High Court, the Adjudicating Authority has no jurisdiction to adjudicate that dispute or to pronounce on the validity of the invoices or the appellant's entitlement. Doing so would amount to usurping or encroaching upon the High Court's judicial domain. (d) The Court accepted the contention that granting the appellant's prayer to treat the claim as crystallised and directing full admission/payment would effectively pre-empt and undermine the High Court's adjudication on the same controversy. Conclusions (a) The Adjudicating Authority correctly declined jurisdiction to adjudicate the substantive dispute on the appellant's entitlement under the impugned invoices, as the matter is sub judice before the High Court of Allahabad. (b) The Tribunal likewise cannot grant relief that would treat the appellant's claim as finally crystallised or determine its legality, as that would usurp the High Court's jurisdiction. Issue (3): Entitlement to CIRP-period payments and month-to-month charges for water and generation loss Legal framework discussed (a) Section 14(2) of the Code and the scheme regarding essential services and CIRP costs. (b) The concept that continued supply of essential services (such as water) is required to keep the corporate debtor as a going concern during moratorium. (c) Reference to Dakshin Gujarat Vij Co. Ltd. and other precedents, though the Court's reasoning turned on the factual disputes and High Court proceedings. Interpretation and reasoning (a) It was undisputed that water is an essential service for operation of the Corporate Debtor's plant and that the resolution professional wrote to the appellant requesting non-interruption of supply during CIRP. (b) However, the Court found that the underlying liability to pay the appellant for such water use and for alleged generation loss during CIRP is inseparably linked to the very question whether the appellant is entitled to levy any charges at all, given that the water is drawn out of Madhya Pradesh's allocated share and that payments have been regularly made to the Madhya Pradesh Water Resources Department under a separate agreement. (c) The Court accepted the respondents' contention that, as long as the appellant's locus and entitlement to charge for this water and for generation loss remain under challenge before the High Court, there is no basis to direct payments to the appellant for the same quantum of water for which payment is being made to MPWRD. (d) The Court also noted that the Adjudicating Authority had recorded that payments for water during CIRP were being made to the Government of Madhya Pradesh, and that it could not adjudicate competing claims over the same subject-matter while the writ petition is pending. (e) As regards the appellant's plea that it could not be compelled to supply water without payment, the Court held that the Adjudicating Authority had correctly recognised the necessity of continued essential services for resolution, and that the question of the appellant's entitlement to consideration for such supply is bound up with the High Court dispute and cannot be decided in CIRP proceedings. Conclusions (a) The appellant is not entitled, in these proceedings, to any direction for month-to-month or CIRP-period payments, including for alleged generation loss, as its entitlement is sub judice and disputed. (b) The Adjudicating Authority rightly refused prayers seeking admission and immediate release of CIRP-period dues, holding that such claims require no consideration in view of the pending High Court proceedings and the payments already being made to MPWRD. Issue (4): Alleged prejudice to the appellant from contingent classification and nil payment under the resolution plan Interpretation and reasoning (a) The Court examined the overall claim matrix and resolution plan treatment: secured financial creditors received approximately 20.69% of their claims; unsecured financial creditors and operational creditors (including the appellant) were allotted nil value. (b) The appellant's total claim (approx. Rs. 12.09 crore) was found to constitute only about 0.0006% of the total claims. The Court emphasised that while all claims are important, they must be assessed in the context of the resolution plan approved by the CoC and the Adjudicating Authority. (c) It was noted that, even if the appellant's claim had been fully 'admitted' as a crystallised operational debt rather than as a contingent Re. 1, the treatment under the approved resolution plan would still have been nil, as the plan provides nil distribution for all operational creditors and unsecured financial creditors. (d) The Court put a specific query to the appellant as to how its rights were prejudiced, when all operational creditors receive nil and it would in any event receive nil under the resolution plan and even by reference to liquidation value. The appellant's suggestion that full admission might have influenced the CoC's decision was found speculative and unconvincing, especially given the magnitude of total claims wiped out. (e) The Court also reiterated that under the Code and Regulations, a creditor's entitlement is limited to what is available with reference to liquidation value, and in the present case, on that parameter too the appellant would receive nil. Conclusions (a) The appellant has not suffered any demonstrable prejudice by its claim being recorded as contingent at Re. 1, since all operational creditors, including the appellant, receive nil payment under the approved resolution plan and would in any event be entitled to nil on liquidation benchmarks. (b) The speculative argument that a different CoC decision might have emerged if the claim were shown in full was rejected. (c) The appeal disclosed no ground to interfere with the resolution plan or with the treatment of the appellant's claim, and the appeal was therefore dismissed as devoid of merit.