[2023] 12 S.C.R. 150 : 2023 INSC 816
M/s. RPS INFRASTRUCTURE LTD.
v.
MUKUL KUMAR & ANR.
(Civil Appeal No. 5590 of 2021)
SEPTEMBER 11, 2023
[SANJAY KISHAN KAUL* AND SUDHANSHU DHULIA, JJ.]
Issue for consideration: Whether the commercial entity’s claim
pertaining to an arbitral award, in appeal u/s. 37 of the Arbitration
and Conciliation Act, 1996, is liable to be included at a belated
stage-after the resolution plan approved by the Committee of
Creditors and pending approval by the adjudicating authority.
Insolvency and Bankruptcy Code, 2016 – Initiation of Corporate
Insolvency Resolution Process against the Corporate Debtor –
Resolution plan approved by the Committee of Creditors-CoC
and pending approval by the adjudicating authority – Inclusion
of commercial entity’s claim pertaining to an arbitral award, in
an appeal u/s. 37 after the delay of 287 days, if permissible:
Held: It is difficult to release the undecided claims on the resolution
applicant – Court is cautioned against allowing claims after the
resolution plan has been accepted by the COC – Process followed
by the resolution applicant not flawed in any manner – Public
announcement of the CIRP through newspapers would constitute
deemed knowledge on the entity – Commercial entity ought to have
been vigilant enough to find out whether the Corporate Debtor
was undergoing CIRP – Plea of not being aware of newspaper
pronouncements could not be available to the entity – Mere fact
that the Adjudicating Authority has yet not approved the plan does
not imply that the plan can go back and forth, thereby making the
CIRP an endless process – This would result in the reopening of
the whole issue – Thus, NCLAT’s judgment rejecting the claim of
the entity, upheld – Arbitration and Conciliation Act, 1996 – s. 37 –
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016. [Paras 17-22]
* Author
[2023] 12 S.C.R. 151
M/s. RPS INFRASTRUCTURE LTD. v. MUKUL KUMAR & ANR.
Committee of Creditors of Essar Steel India Limited
through Authorised Signatory v. Satish Kumar Gupta
and Ors. (2020) 8 SCC 534 – relied on.
Brilliant Alloys Private Limited v. Mr. S. Rajagopal & Ors.
(2022) 2 SCC 544; State Tax Officer v. Rainbow Papers
Limited 2022 SCCOnline SC 1162; Paschimanchal
Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. &
Ors. 2023 SCC OnLine SC 842 – referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5590 of 2021
From the Judgment and Order dated 30.07.2021 of the National
Company Law Appellate Tribunal, Principal Bench, New Delhi in
Company Appeal (AT) (Insolvency) No.1050 of 2020.
Dr. Menaka Guruswamy, Sr. Adv., Tejas Patel, Ms. Meera Kaura Patel,
Utkarsh Pratap, Saket, Ms. Muskaan Gandhi, Lavkesh Bhambhani,
Harshwardhan Thakur, Pawan Aneja, Thejus Purushothaman, Gagan
Gupta, Manu Manchanda, Nitin Singh, Ankur Yadav, Ms. Ritu Yadav,
Kuldeep Yadav, Shashank Shekhar, Apoorva Singh, Advs. for the
Appellant.
Rajiv K Virmani, Arjun Agarwal, Anuj Malhotra, Abhinav Agrawal,
Apoorv Agarwal, Vaibhav Manu Srivastava, Ms. Riya Thomas, Abhijeet
Sinha, Adhish Sharma, Nitin Pandey, Deepak Chawla, Aruj Dhingra,
Aakash Khattar, Navpreet S Ahluwalia, Aakash Chatterjee, Umesh
Kumar Khaitan, Saurabh Kalia, Ms. Aastha Agarwal, Ms. Supriya
Juneja, Advs. for the Respondents.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
Factual Background
1. An agreement was entered into on 02.08.2006 between the appellant
and M/s KST Infrastructure Private Limited (hereinafter referred to
as ‘the Corporate Debtor’), for development of land licensed with
the appellant admeasuring 8 acres into a residential group housing
complex at Faridabad, Haryana. However, the appellant, being
aggrieved by the Corporate Debtor’s alleged misconduct in advertising
the project under its own name and without mentioning the name of
the appellant, sought reference to arbitration on 02.05.2011.
152 [2023] 12 S.C.R.
SUPREME COURT REPORT: DIGITAL
2. The arbitral proceedings culminated in an award dated 01.08.2016
in favour of the appellant. In addition to awarding a monetary claim,
the award inter alia directed the Corporate Debtor to apply to the
authorities for transfer of the requisite licenses to the appellant.
Aggrieved by the award, the Corporate Debtor filed a petition under
Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as the ‘Arbitration Act’) on 26.09.2016. It appears that on
the same date, the appellant filed execution proceedings in respect
of the said award. Those execution proceedings were ultimately
adjourned sine die on 22.12.2017 on account of the pendency of
the proceedings under Section 34 of the Arbitration Act. These
proceedings under Section 34 of the Arbitration Act culminated in
the award being upheld by the A.D.J. (Special Commercial Court,
Gurugram), albeit with some modifications, on 25.04.2019. An appeal
filed against the same under Section 37 of the Arbitration Act is
stated to be pending.
3. Meanwhile, the Corporate Insolvency Resolution Process (‘CIRP’)
was initiated against the Corporate Debtor in respect of three real
estate projects viz. (i) Sector 114, Gurugram, (ii) Sector 89, Faridabad,
and (iii) KST Whispering Heights in Sector 88, Faridabad by certain
homebuyers who had invested in these projects. This application under
Section 7 of the Insolvency and Bankruptcy Code (hereinafter referred
to as ‘the IBC’) was admitted on 27.03.2019 by the Adjudicating
Authority. On the same date, an Interim Resolution Professional
(‘IRP’) was appointed. The IRP issued a public announcement inviting
claims from creditors, in accordance with Section 15 of the IBC read
with Regulation 6 of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) Regulations,
2016 (hereinafter referred to as the ‘IBBI Regulations’) on 30.03.2019.
After receipt of the claims, the IRP constituted the Committee of
Creditors (‘COC’) on 06.11.2019 and circulated the draft information
memorandum and invited expressions of interest from prospective
resolution applicants. Five such applications were received.
4. Thereafter, the IRP was replaced and respondent no. 1 was appointed
as Resolution Professional (RP) of the Corporate Debtor by the COC
on 18.06.2020. The resolution plan submitted by KST Whispering
Heights Residential Welfare Association was approved by the COC
by a majority vote of 80.74% on 11.07.2020. This plan was then
[2023] 12 S.C.R. 153
M/s. RPS INFRASTRUCTURE LTD. v. MUKUL KUMAR & ANR.
submitted by respondent no. 1 to the Adjudicating Authority for
approval under Section 31 of the IBC on 08.09.2020. We may note
that the Corporate Debtor is not a party before us. However, the
Resolution Professional has been arrayed as respondent no.1, while
respondent no.2 is the successful resolution applicant. Respondent
no.2 was impleaded in the present civil appeal by this Court’s order
dated 29.10.2021.
5. The appellant sent an email on 19.08.2020 to respondent no.1
highlighting their pending claim of Rs.35,67,05,337 against the
Corporate Debtor arising from the arbitral award dated 01.08.2016,
confirmed with certain modifications in the proceedings under Section
34 of the said Act. However, respondent no.1 rejected this claim on
25.08.2020 on the ground that the time period for submitting the claim
was within 90 days of initiation of CIRP and the applicant was 287
days late. A Resolution plan had already been passed by the COC.
6. The appellant filed an application under Section 60(5) of the IBC.
During the pendency of respondent’s no. 1 application for approval
of the plan before the Adjudicating Authority, seeking directions to
respondent no.1 that the appellant’s claim may be considered on
merits. This relief was granted to the appellant by the Adjudicating
Authority vide an order dated 03.11.2020 predicated on the following
grounds: (a) respondent no.1 could not have summarily rejected
appellant’s claim, as this claim would have appeared in the Corporate
Debtor’s books of accounts; (b) in case such books of accounts were
not available, respondent No. 1 had a duty to obtain them and verify
the financial position; and (c) as such announcement was made
through public newspapers, it was likely that the appellant missed
out on the same.
7. Respondent No. 1 thereafter preferred an appeal under Section 61 of
the IBC before the National Company Law Appellate Tribunal, New
Delhi (‘NCLAT’) against the Adjudicating Authority’s order.
8. The challenge by the respondent no.1 before the NCLAT was
primarily based on the potential consequences of allowing such a
belated claim when the COC had already approved the Resolution
Plan. The appellant having made the claim more than a year after
the invitation of claims by the public notice dated 30.03.2019; it
was urged that allowing such claims would set the clock back on
154 [2023] 12 S.C.R.
SUPREME COURT REPORT: DIGITAL
the CIRP and set a precedent, thereby making CIRP prolonged and
inefficacious. In support of this plea, reliance was placed on the
judgment in Committee of Creditors of Essar Steel India Limited
through Authorised Signatory v. Satish Kumar Gupta and Ors1
. ,
where this Court opined that a successful resolution applicant cannot
be faced with undecided claims after the resolution plan has been
accepted. This Court observed:
“...A successful resolution applicant cannot suddenly be faced with
“undecided” claims after the resolution plan submitted by him has
been accepted as this would amount to a hydra head popping up
which would throw into uncertainty amounts payable by a prospective
resolution applicant who would successfully take over the business of
the corporate debtor. All claims must be submitted to and decided by
the resolution professional so that a prospective resolution applicant
knows exactly what has to be paid in order that it may then take over
and run the business of the corporate debtor. This the successful
resolution applicant does on a fresh slate, as has been pointed out
by us hereinabove. For these reasons, NCLAT judgment must also
be set aside on this count.”
On the other hand, the appellant explained that it could not file the claim
in time as it was unaware of the public announcement. A belated claim
should not be shut out as the time-periods in the IBC are merely directory
and not mandatory as per Brilliant Alloys Private Limited v. Mr. S.
Rajagopal & Ors.2
, and in any case the resolution plan was yet to be
approved by the Adjudicating Authority. The appellant contended that
respondent no.1 had failed to discharge his duty to include the appellant’s
claim in the information memorandum as a contingent liability.
9. The NCLAT, vide the impugned order dated 30.07.2021, did not
favour the view adopted by the Adjudicating Authority. Their reasoning
was as follows:
(i) Respondent no.1 had effectuated proper service for inviting
claims in accordance with Regulation 6 of the IBBI Regulations
which only mandates a pronouncement through newspapers
and not through personal service - an aspect that was not
disputed by the appellant;
1 (2020) 8 SCC 534 (hereinafter referred to as ‘Essar Steel’).
2 (2022) 2 SCC 544 (hereinafter referred to as ‘Brilliant Alloys’).
[2023] 12 S.C.R. 155
M/s. RPS INFRASTRUCTURE LTD. v. MUKUL KUMAR & ANR.
(ii) the appellant failed to show that it filed its claim as soon as it
came to know of the initiation of the CIRP. The appellant even
issued a Special Power of Attorney on 26.07.2019 in favour of
the Corporate Debtor after confirmation of the arbitral award
on 25.04.2019;
(iii) respondent no.1 even filed an application under Section 19 of
the IBC before the Adjudicating Authority seeking that a direction
be issued to the ex-management to provide all records. Although
nothing came of this attempt, it reflected his sincere efforts;
(iv) Regulations 12 and 13 of the IBBI Regulations obliged the RP
to accept claims filed within the extended period of 90 days of
the commencement of CIRP. Brilliant Alloys3
dealt with the
timelines under Section 12A of the IBC and Regulation 30A
of the IBBI Regulations. These provisions pertained to the
withdrawal of an application. In this context it was held that
that IBBI Regulations can be directory depending on the facts
of each case; and
(v) the resolution plan, as approved by the COC, would be
jeopardised if new claims were entertained.
10. The aforesaid view of the NCLAT resulted in the appellant approaching
this Court.
Appellant’s pleas before the Supreme Court:
11. The appellant contended that the claim in terms of the award was a
contingent claim as proceedings under Section 37 of the Arbitration
Act remain pending before the High Court of Punjab and Haryana
against the dismissal of the Corporate Debtor’s challenge. There
ought to be a provision for contingent claims in the resolution plan,
as provided in State Tax Officer v. Rainbow Papers Limited4
. Thus,
if the appeal is dismissed and the award becomes crystallized, the
appellant’s claim, if not provided for in the contingent claim, will be
rendered nugatory. It was further submitted that the timeline provided
under Section 12 of the IBC for completion of CIRP was only directory
3 (supra).
4 2022 SCCOnline SC 1162 (hereinafter referred to as ‘Rainbow Papers’).
156 [2023] 12 S.C.R.
SUPREME COURT REPORT: DIGITAL
as per the judgment in Essar Steel5
. Since the Adjudicating Authority
was yet to approve the resolution plan, respondent No.1 should have
included the same as a contingent liability. This was also the view
taken by the adjudicating agency. It was thus submitted that there
was no cause for NCLAT to interfere with the same. The appellant
also sought to contend their lack of awareness about the CIRP. It
was urged that the Corporate Debtor did not disclose that the CIRP
had been initiated, either during the pendency of the proceedings
under Section 34 of the Arbitration Act or in appeal under Section
37 of the Arbitration Act. Had the appellant known of the CIRP, it
may not have filed an application for restoration of the execution
petition on 16.11.2019.
12. It was urged that the appellant urged that respondent No.1 could
have easily found this information from the Corporate Debtor’s books
of accounts.
Respondent No.1’s pleas before the Supreme Court:
13. Respondent no.1, on the other hand, contended that the appellant
had deemed knowledge of the CIRP as the applicable procedure for
inviting claims under the IBC and the IBBI Regulations was followed.
Respondent No.1 made sincere efforts to collate all claims, including
filing an application under Section 19 of the IBC for procuring the
Corporate Debtor’s records, although the same were not made
available. The appellant’s belated claim had the potential to open
floodgates of litigation if the same was allowed.
14. It was urged that there was no need to create an arrangement for
contingent claims as the resolution plan had been prepared on the
basis of the information memorandum. The plan was comprehensive
and took care of the claims of the homebuyers.
15. Finally, it was contended that a recent judgment of this Court in
Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt.
Ltd. & Ors.6 had confined the dicta in Rainbow Papers7
to the facts
of that case alone. At this stage, we may notice that the question of
law in the two judgments was different.
5 (supra).
6 2023 SCC OnLine SC 842 (hereinafter referred to as ‘Paschimanchal’).
7 (supra).
[2023] 12 S.C.R. 157
M/s. RPS INFRASTRUCTURE LTD. v. MUKUL KUMAR & ANR.
Our view:
16. We have examined the aforesaid submissions. The only issue before
us is whether the appellant’s claim pertaining to an arbitral award,
which is in appeal under Section 37 of the said Act, is liable to be
included at a belated stage – i.e. after the resolution plan has been
approved by the COC.
17. It is undisputed that the process followed by respondent no. 1
was not flawed in any manner, except to the extent of whether an
endeavour should have been made by respondent no. 1 to locate
the liabilities pertaining to the said award from the records of the
Corporate Debtor.
18. If we analyse the aforesaid plea, it is quite obvious that respondent
no. 1 did what could be done to procure the Corporate Debtor’s
records by even moving an application under Section 19 of the IBC.
That it was not fruitful is a consequence of the Corporate Debtor
not making available the material. It is thus not even known whether
there was a reflection in the records on this aspect or not.
19. The second question is whether the delay in the filing of claim by
the appellant ought to have been condoned by respondent no. 1.
The IBC is a time bound process. There are, of course, certain
circumstances in which the time can be increased. The question is
whether the present case would fall within those parameters. The
delay on the part of the appellant is of 287 days. The appellant is
a commercial entity. That they were litigating against the Corporate
Debtor is an undoubted fact. We believe that the appellant ought to
have been vigilant enough in the aforesaid circumstances to find out
whether the Corporate Debtor was undergoing CIRP. The appellant
has been deficient on this aspect. The result, of course, is that the
appellant to an extent has been left high and dry.
20. Section 15 of the IBC and Regulation 6 of the IBBI Regulations
mandate a public announcement of the CIRP through newspapers.
This would constitute deemed knowledge on the appellant. In any
case, their plea of not being aware of newspaper pronouncements
is not one which should be available to a commercial party.
21. The mere fact that the Adjudicating Authority has yet not approved
the plan does not imply that the plan can go back and forth, thereby
158 [2023] 12 S.C.R.
SUPREME COURT REPORT: DIGITAL
making the CIRP an endless process. This would result in the
reopening of the whole issue, particularly as there may be other
similar persons who may jump onto the bandwagon. As described
above, in Essar Steel8
, the Court cautioned against allowing claims
after the resolution plan has been accepted by the COC.
22. We have thus come to the conclusion that the NCLAT’s impugned
judgment cannot be faulted to reopen the chapter at the behest of
the appellant. We find it difficult to unleash the hydra-headed monster
of undecided claims on the resolution applicant.
23. The result of the aforesaid is that the appeal is dismissed leaving
the parties to bear their own costs.
Headnotes prepared by: Nidhi Jain Result of the case : Appeal dismissed.
8 (supra)
