The Chennai Bench of the National Company Law Tribunal (NCLT) has held that, although Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 confers residuary jurisdiction upon the Adjudicating Authority to entertain or dispose of any question of law or fact arising out of or in relation to the insolvency resolution process of the corporate debtor, such jurisdiction cannot be exercised in a manner that defeats the finality attached to a resolution plan approved under Section 31 IBC; once a resolution plan is approved, it becomes binding on all stakeholders and claims not forming part of the resolution plan stand extinguished.
The Tribunal held that, for any expense to qualify as Insolvency Resolution Process Costs under Regulation 31 of the CIRP Regulations, the expense must ordinarily have been incurred by the Resolution Professional for the conduct of CIRP or for running the corporate debtor as a going concern, and it must also have been placed before and ratified or approved by the Committee of Creditors.
Where lease rental claims are based merely on continued occupation of premises during CIRP, but the material on record does not show that the Resolution Professional formally continued the lease arrangement as part of the CIRP process or that the Committee of Creditors approved or ratified such payments as CIRP costs, such claims cannot be treated as Insolvency Resolution Process Costs and cannot be recovered after approval of the resolution plan by invoking Section 60(5). Accordingly, the Tribunal held that the present application was misconceived, amounted to an attempt to reopen claims after approval of the resolution plan, and was liable to be dismissed.
The Division Bench comprising Jyoti Kumar Tripathi (Judicial Member) and Ravichandran Ramasamy (Technical Member) first observed that Section 60(5)(c) IBC confers residuary jurisdiction on the Tribunal to entertain or dispose of any question of law or fact arising out of or in relation to the insolvency resolution process of the corporate debtor. However, the Tribunal expressly held that such jurisdiction cannot be invoked in a manner that defeats the finality attached to a resolution plan approved under Section 31. It reiterated that once a resolution plan is approved by the Adjudicating Authority, it becomes binding on all stakeholders and all claims not forming part of the resolution plan stand extinguished.
On the central issue, namely whether the lease rentals claimed for the CIRP period could be treated as Insolvency Resolution Process Costs, the Tribunal referred to Regulation 31 of the CIRP Regulations and observed that IRP Costs includes expenses incurred by the Interim Resolution Professional or the Resolution Professional for running the business of the corporate debtor as a going concern and for conducting the CIRP. From a conjoint reading of the provisions of the Code and the CIRP Regulations, the Tribunal held that, for any expense to qualify as IRPC, two conditions must ordinarily be satisfied: first, the expense must have been incurred by the Resolution Professional for the conduct of the CIRP or for running the corporate debtor as a going concern; and second, such expense must have been placed before and ratified or approved by the Committee of Creditors.
Applying the test, the Tribunal held that the applicant’s claim for lease rentals, premised on continued occupation of the premises during CIRP, ordinarily fell within the category of operational debt and had to be dealt with in accordance with the provisions of the Code during CIRP. The Tribunal noted that it was not in dispute that the applicant had filed its claim before the Interim Resolution Professional in Form-B as an operational creditor claiming lease rentals due from the corporate debtor. However, the material on record did not demonstrate that the Resolution Professional had formally continued the lease arrangement as part of the CIRP process, or that payment of such lease rentals was treated as an expense necessary for running the corporate debtor as a going concern.
The Tribunal additionally found that no material had been placed on record to show that the Committee of Creditors had approved or ratified payment of such lease rentals as part of the Insolvency Resolution Process Costs. In the absence of such approval or ratification by the Committee of Creditors, the Tribunal held that the claim could not be treated as IRP Costs within the meaning of Regulation 31. It further observed that permitting the applicant to recover the alleged lease rentals as IRP Costs at that stage would effectively amount to reopening claims after approval of the resolution plan, which was impermissible under the scheme of the Code.
Briefly, the application was filed by DBS Bank India Limited, formerly known as Lakshmi Vilas Bank Limited, under Section 60(5)(a), (b) and (c) of the Insolvency and Bankruptcy Code, 2016 read with Sections 30(2) and 53 of the Code, Regulations 31(b), 31(e), 33(3) and 33(4) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Rule 11 of the NCLT Rules, 2016, seeking directions for payment of amounts allegedly due towards reimbursement of Insolvency Resolution Process Costs and lease rentals payable by Orchid Pharma Limited during the CIRP period. The applicant specifically sought Rs. 34.12 lakhs with interest towards reimbursement of CIRP costs allegedly incurred by it, and Rs. 46.36 crores with interest towards lease rentals for the CIRP period.
The applicant’s case was that it was the owner/lessor of certain premises occupied by the corporate debtor and had itself initiated CIRP against the corporate debtor as an operational creditor. According to the applicant, the corporate debtor remained in occupation of the applicant’s premises throughout the moratorium period under Section 14 of the Code and continued to remain in possession even after approval of the resolution plan. The applicant asserted that lease rentals payable for the CIRP period amounted to about Rs. 46.36 crores together with interest, and that such rentals fell within the scope of “Insolvency Resolution Process Costs” under Regulation 31(b), since the corporate debtor continued to occupy and utilize the premises during CIRP.
The applicant stated that it had filed its claim in Form-B on September 07, 2017 before the Interim Resolution Professional claiming about Rs. 20.62 crores towards lease rentals payable up to the insolvency commencement date, while also claiming future rentals along with interest from June 2017 onwards.
The Respondent Nos. 1 and 3 opposed the application on the ground that it was misconceived and not maintainable. Their case was that the applicant was attempting to recover alleged lease rentals by wrongly characterising them as Insolvency Resolution Process Costs, whereas the claim in fact arose from a pre-existing lease arrangement and constituted operational debt. They contended that the applicant had already filed its claim before the Interim Resolution Professional in Form-B during CIRP, and once the applicant had submitted its claim as an operational creditor, the same was governed by the framework of the Code and the treatment provided under the approved resolution plan. They argued that the applicant could not, after approval and implementation of the resolution plan, seek to recover additional amounts by invoking Section 60(5), as this would defeat the finality and binding nature of an approved resolution plan.
Respondent No. 2, the Monitoring Agent under the approved resolution plan, also opposed the application and stated that the same was not maintainable and was barred by limitation. It contended that the applicant was a beneficiary under the approved resolution plan and had no right to reopen or challenge the plan after its approval and implementation. It was also stated that during the CIRP period from August 17, 2017 till February 28, 2020, the applicant had not raised invoices seeking payment of lease rent, and had not demonstrated payment of GST or accounting treatment of such alleged lease rent in its financial statements or tax returns.
Appearances:
Advocates J. S. Prithvi Raj and Sarah Abraham, for the Applicant
Advocate Kastubh Prakash, for the Respondent no. 1 & 3
Advocate Pradheep Joy, for the Respondent no. 2
