1. DETAILS OF THE CASE
Case Name: M/s. RPS Infrastructure Ltd. (Appellant) vs Mukul Kumar & Anr. (Respondent)
Case Number: Civil Appeal No. 5590 OF 2021
Citation : (2023) 10 S.C.C. 718 (India)
Court: Supreme Court of India
Jurisdiction: Civil Appellate
Judges: Sanjay Kishan Kaul, J.
The case centers on a dispute between M/s RPS Infrastructure Ltd. (the appellant) and M/s KST Infrastructure Private Limited (the Corporate Debtor), stemming from a 2006 contract for a residential project in Faridabad, Haryana. Disagreements arose over project advertising, leading the appellant to seek arbitration in 2011, which concluded in 2016 with an award favoring the appellant, including a monetary claim and a directive for license transfers. When the Corporate Debtor contested the award, the appellant’s execution efforts were stalled by legal proceedings, which only concluded in 2019, favoring the appellant but with modifications.
Parallel to this, in 2019, the Corporate Debtor faced a Corporate Insolvency Resolution Process (CIRP) initiated by homebuyers, leading to a resolution plan that excluded the appellant’s arbitration award claim due to its late submission. Despite an initial ruling allowing the appellant to contest this exclusion, the National Company Law Appellate Tribunal (NCLAT) later upheld the claim’s rejection. This led the appellant to escalate the matter to the Supreme Court, challenging the NCLAT’s decision and seeking acknowledgment of its arbitral award within the Corporate Debtor’s insolvency resolution process under IBC, 2016.
3. ISSUES RAISED
The main issues raised in this appeal are:
- Whether the belated claim of the appellant should be considered in the CIRP process after the approval of the resolution plan?
- Whether the Resolution Professional adequately discharged its duty regarding the appellant’s claim?
- Whether the appellant’s lack of awareness about CIRP justifies the belated claim?
4. CONTENTION
Appellant’s Argument:
- The appellant contends that its claim, arising from the arbitral award, constitutes a contingent liability that should be provided for in the resolution plan, especially considering the pending appeal under Section 37 of the Arbitration Act.
- It argues that the Resolution Professional failed to include its claim in the information memorandum and summarily rejected it, despite being obligated to accept claims filed within the extended period of 90 days of the commencement of CIRP. Additionally, the appellant asserts its lack of awareness about the initiation of CIRP and the Resolution Professional’s duty to obtain Corporate Debtor records to verify claims.
Respondent’s Argument:
- The respondent no.1 contends that the appellant had deemed knowledge of CIRP process as the procedure for inviting claims was duly followed. It argues that the appellant’s belated claim could open floodgates of litigation, disrupting the resolution process.
- The respondent no.1 emphasizes the need for finality in the resolution plan approved by the Committee of Creditors and opposes the inclusion of contingent liabilities, citing the comprehensive nature of the approved plan.
5. RATIONALE:
The Court carefully examined the submissions and considered the legal principles governing insolvency proceedings under the IBC.It noted that while the resolution Professional took necessary steps to invite claims and obtain Corporate Debtor records, the appellant significant delayed in filings its claim. The Court emphasized the appellant’s duty as a commercial entity to be vigilant in legal proceedings and the importance of timely participation in insolvency proceedings to protect its interest effectively.
6. JUDGMENT:
Referring to Essar Steel and other relevant precedents, the Court underscored the need to maintain finality in resolution plans and avoid reopening claims after approval. It observed that the appellant’s lack of awareness about the initiation of CIRP was not a valid defense, especially considering the public announcement mandated under the IBC. The Court held that the belated claim, if entertained, could prolong the resolution process and unsettle the resolution plan, potentially affecting other stakeholders.
The Court meticulously scrutinized the procedural intricacies and substantive contentions raised by both parties. While acknowledging the propriety of the process followed by respondent no. 1, the Court underscored the significance of adhering to prescribed timelines within the insolvency framework. Moreover, the Court highlighted the obligation incumbent upon the appellant, as a commercial entity, to exercise vigilance in ascertaining the status of ongoing proceedings, such as the CIRP, particularly given the mandated public announcement thereof.
7. DEFECTS OF LAW:
The appellant’s reliance on the pendency of proceedings under Section 37 of the Arbitration Act as a basis for deeming their claim contingent was deemed legally untenable by the Court. It was observed that the mere pendency of legal proceedings does not ipso facto imbue a claim with the character of contingency. Additionally, the Court found the appellant’s plea of ignorance regarding the initiation of the CIRP to be unconvincing in light of the statutory provisions mandating public disclosure through newspaper announcements.
8. INFERENCE:
In light of the above analysis, the Court dismissed the appeal, upholding the finality of the Committee of Creditors approved resolution plan and emphasizing the need to prevent the reopening of claims post-approvals. The parties were left to bear their own costs, and the judgment sets a precedent emphasizing the importance of timely and vigilant participation in insolvency proceedings to protect stakeholders’ interest effectively.
In conclusion, the Court’s decision underscores the significance of maintaining the efficiency and integrity of the insolvency resolution process under the IBC, balancing the interest of creditors, resolution applicants, and others stakeholders whole upholding the principles of fairness, finality, and legal certainty.