IBC | Claim Submitted With Proof Cannot Be Overlooked Merely Because It Was Submitted In Wrong Form: Supreme Court

The Supreme Court on Monday (February 12) observed that the claim submitted by the Resolution Applicant (“RA”) under the Corporate Insolvency Resolution Process (“CIRP”) cannot be rejected/overlooked merely on the fact that the claim submitted appears to be in a different form other than the form in which the claim needs to be submitted. In the instant case, the resolution application has submitted a claim to the Resolution Professional (“RP”) under Form C of Regulation 8 of CIRP Regulations 2016, as a financial creditor. The claim of the resolution applicant was rejected by the Committee of Creditors (“CoC”), National Company Law Tribunal (“NCLT”), and National Company Law Appellate Tribunal (“NCLAT”) on the note that the resolution applicant being Operational Creditor needs to submit their claim under Form B of Regulation 7 of CIRP Regulations 2016, as Operational Creditor. Setting aside the aforesaid findings, the Bench Comprising Chief Justice DY Chandrachud and Justices JB Pardiwala and Manoj Misra observed that the Form in which a claim is to be submitted is directory in nature, and the claim cannot be rejected just because it was submitted in different form. The court noted that what is necessary is that the claim must have support from proof. “The use of the words “a person claiming to be an operational creditor” in the opening part of Regulation 7, and the words “a person claiming to be a financial creditor” in Regulation 8, indicate that the category in which the claim is submitted is based on the own understanding of the claimant. Thus, there could be a situation where the claimant, in good faith, may place itself in a category to which it does not belong. However, what is important is, that the claim so submitted must be with proof. As to what could form proof of the debt/ claim is delineated in sub-regulation (2) of Regulations 7 and 8 of the CIRP Regulations, 2016.” The Judgment authored by Justice Manoj Misra observed that once a claim is submitted with proof, the RP has to verify the claim, as on the insolvency commencement date, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest in terms of Regulation 12 of CIRP Regulations. The gist of the dispute was that the appellant Greater Noida Industrial Development Authority has allotted a plot, by way of lease for 90 years, to M/s. JNC Construction (P) Ltd (the Corporate Debtor) for a residential project, by charging premium subject to payment of interest as well as penal interest, while reserving right to cancel the lease and resume the demised land, subject to certain conditions. The CD committed default in payment of instalments and was served with demand cum pre-cancellation notice. The CIRP proceedings were initiated against the Corporate Debtor, for which claims were invited by the Interim Resolution Professional (IRP) who was later on appointed as RP. The appellant(Greater Noida Industrial Development Authority) submitted a claim of Rs. 43,40,31,951/- as a Financial Creditor, however the dues shown payable to the appellant were Rs. 13,47,40,819/- as an Operational Creditor and they were proposed to be paid just Rs.1,34,74,082/-.According to the appellant, the resolution plan failed to acknowledge the claim made. The appellant further pleaded that the resolution plan didn't specifically place the appellant in the category of a secured creditor even though a charge was created on the assets of the CD. Claims Submitted With Proof Cannot Be OverlookedAgreeing with the contentions of the appellant, the court after perusing the records noted that once it is proved that the appellants have submitted its claim with proof then it could not have been overlooked merely because it was in a different Form. “No doubt, the record indicates that the appellant was advised to submit its claim in Form B (meant for operational creditor) in place of Form C (meant of financial creditor). But, assuming the appellant did not heed the advice, once the claim was submitted with proof, it could not have been overlooked merely because it was in a different Form.” “Here, the resolution plan fails not only in acknowledging the claim made but also in mentioning the correct figure of the amount due and payable. According to the resolution plan, the amount outstanding was Rs. 13,47,40,819/- whereas, according to the appellant, the amount due and for which claim was made was Rs. 43,40,31,951/- This omission or error, as the case may be, in our view, materially affected the resolution plan as it was a vital information on which there ought to have been application of mind.” the court added. Notice of COC Meeting Needs To Be Served on Operational Creditor Having More 10% DuesThe court observed that even the operational creditor with aggregate dues of not less than ten percent of the debt should have been served notice of the meeting of the COC,...

IBC | Claim Submitted With Proof Cannot Be Overlooked Merely Because It Was Submitted In Wrong Form: Supreme Court

Yash Mittal

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