In a recent ruling, the National Company Law Tribunal (NCLT) addressed a complex case involving the Gujarat State Road Development Corporation (Applicant) and Valecha Kachchh Toll Roads Ltd. (Corporate Debtor). The case centered around the Corporate Debtor’s failure to complete a road project on the Bhuj-Bhachau section of State Highway No. 42 in Gujarat, despite a significant infusion of funds by the Applicant, leading to the issuance of notices and eventually the termination of the Agreement on February 23, 2023 after failed conciliation and arbitration attempts. The Corporate Debtor disputed the termination and the matter escalated to the Hon’ble High Court of Gujarat. Meanwhile, the NCLT, Mumbai admitted the Corporate Debtor into the Corporate Insolvency Resolution Process (CIRP) and appointed an Interim Resolution Professional (IRP).
The Applicant filed claims as both a financial and operational creditor, totaling over Rs. 607 crore. The IRP admitted part of the financial claim but rejected the operational claim, citing ongoing High Court proceedings. The Applicant then filed the application under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016, challenging IRP’s decision to reject its operational creditor claim.
The Appellant contended that the rejection of their claim was arbitrary and ultra-vires to the provisions of the Insolvency and Bankruptcy Code (IBC). They asserted that the IRP lacks adjudicatory power and is solely responsible for verifying and collating claims. The Appellant emphasized that under Section 3(6) of the IBC, a claim encompasses a right to payment, irrespective of whether it is reduced to judgment, fixed, disputed, or undisputed. To this, the Respondent contended that the Appellant’s claim for damages requires adjudication by a competent court or forum and does not satisfy the definition of ‘operational debt’ under the IBC.
While assessing whether a disputed claim is included in the definition of ‘claim’ under Section 3(6) of the IBC. The Ld. NCLT held as follows:
- Inclusion of Disputed Claims: The NCLT affirmed that the definition of “claim” under Section 3(6) of the Insolvency and Bankruptcy Code (IBC), 2016, includes a right to payment, whether or not such right is reduced to judgment, fixed, disputed, or undisputed. This broad definition ensures that disputed claims are recognized within the insolvency process.
- Verification Duties of IRP/RP: The Tribunal emphasized that the duties of the Interim Resolution Professional (IRP) and Resolution Professional (RP) extend beyond the administrative collection of claims. They are required to verify the claims submitted by creditors, ensuring their accuracy and validity based on the documentation provided.
- Non-Admissibility of Unverifiable Debts: The NCLT clarified that debts not capable of verification by the IRP/RP based on the submitted documents cannot be admitted. Verification involves establishing the truth and accuracy of the debt, whereas adjudication is a formal judgment process, which the IRP/RP is not authorized to perform.
- Operational Debt Definition: The Tribunal determined that the concession granted by the Applicant to the Corporate Debtor falls within the definition of operational debt. This is because the concession constitutes a service provided to the Corporate Debtor, essential for the project’s execution.
- Treatment of Claims in Resolution Plan: The NCLT held that the treatment of claims and counterclaims under the Resolution Plan falls within the commercial wisdom of the Committee of Creditors (CoC). The Tribunal refrained from making observations on the treatment of claims, emphasizing that subsequent claims or modifications should not restart the Corporate Insolvency Resolution Process (CIRP) de novo. Verified claims should be presented to the CoC for consideration.
Basis this judgment, it is advisable that all the Resolution Professionals are reminded of their duty to verify claims thoroughly and not merely collect them. They must differentiate between verification and adjudication, ensuring that only verifiable claims are admitted. Furthermore, it is imperative that both financial creditors and operational creditors provide proper documentation of their claims, regardless of whether these claims are disputed. This ensures that the Resolution Professional can effectively verify the claims.
Authors & Contributors
Partner:
Associates:
Bhawana Sharma
Shreya Chandhok
Kirti Talreja
Rounak Doshi
Bharath Krishna