Financial Creditor Cannot Refuse To Share CIRP Cost After Taking Part In Its Approval: NCLT Delhi
The National Company Law Tribunal (NCLT) at New Delhi has ruled that a financial creditor cannot refuse to pay its share of insolvency costs after participating in Committee of Creditors (CoC) meetings where those costs were placed before members and approved. A bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi directed CFM Asset Reconstruction...
The National Company Law Tribunal (NCLT) at New Delhi has ruled that a financial creditor cannot refuse to pay its share of insolvency costs after participating in Committee of Creditors (CoC) meetings where those costs were placed before members and approved.
A bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi directed CFM Asset Reconstruction Pvt. Ltd. to immediately pay Rs 14.85 lakh towards Corporate Insolvency Resolution Process (CIRP) costs in the insolvency of Dr Jain Video on Wheels Ltd.
The tribunal said that once CIRP expenses are approved by the CoC, they attain finality and are binding on all creditors.
“This Adjudicating Authority is thus of the view that the Respondent cannot, after participating in and voting in the CoC meetings, refuse to bear its proportionate share of CIRP costs, particularly when the CoC has approved the CIRP expenses in the CoC meetings. The statutory framework under the Code does not permit a Financial Creditor to selectively accept beneficial aspects of the CIRP while refusing its mandatory financial obligations,” the tribunal observed.
The insolvency proceedings against Dr Jain Video on Wheels began in June 2021 on an application filed by operational creditor Ingram Micro India. Vikram Kumar was appointed Resolution Professional (RP) in August 2021 after the CoC unanimously decided to replace the interim professional.
CFM Asset Reconstruction filed its claim as a financial creditor in October 2021, which was verified and admitted by the RP. Following this, the CoC was reconstituted to include CFM ARC as a member.
From the third CoC meeting onwards, the RP regularly placed details of CIRP costs before the creditors for approval, informing them that the expenses would have to be borne by the CoC as the corporate debtor had no funds, cash inflows, or ongoing business.
The tribunal noted that CFM ARC participated in all subsequent CoC meetings from the fifth meeting onwards, during which CIRP costs were discussed and approved. In the 28th CoC meeting held in February 2025, the CoC unanimously approved total CIRP expenses of Rs 1.58 crore and assured timely payment.
Despite several reminder emails from the RP, CFM ARC did not pay its proportionate share. The RP submitted that the company neither disputed the quantum of costs nor challenged any resolution approving them.
Referring to Section 5(13) of the Insolvency and Bankruptcy Code read with Regulation 31 of the CIRP Regulations, the tribunal noted that insolvency resolution process costs are to be borne by the Committee of Creditors and have priority in payment.
It held that CFM ARC's conduct was inconsistent with the statutory mandate under the Code and directly impeded the RP's ability to carry out CIRP activities.
The tribunal concluded that a financial creditor cannot participate in CoC meetings, approve insolvency costs, and later refuse to pay its proportionate share, warning that such conduct “creates a direct and serious impediment to the completion of the CIRP, which cannot be countenanced.”
Case Title: Vikram Kumar v. CFM Asset Reconstruction Pvt. Ltd.
Case Number: I.A. No. 1871 of 2025 in C.P. No. 843 (ND) of 2018
For Applicant: Advocates Abhishek Anand, Karan Kohli, and Arjun Chhibbar