Case Analysis on RFS Infrastructure Vs. Mukul Kumar, 2023 – By Somya Gadpayle

Many efforts are put time and again to uplift the spirit of Insolvency Resolution Process through judicial pronouncements or by dealing with the gaps in law. RPS Infrastructure Judgement dealt with an issue surrounding the resolution professional’s fettered position in dealing with the delayed claims and maintaining the balance to ensure that timely resolution takes place. The Amendment in Regulations beautifully portrays how the judicial precedents can be set as a guiding way for bridging the gap in the laws and regulations. Henceforth, the condonation of delay, only to a certain time period is treated with the provision with the objective that the issue of belated claims can be treated as well as the fate of corporate debtor and the stakeholders are not jeopardized.

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Case Analysis on RFS Infrastructure Vs. Mukul Kumar, 2023

Somya Gadpayle
Fourth Year, B.A. LL.B. (Hons), Hidayatullah National Law University

Introduction

RPS Infrastructure is a matter dealing with a creditor coming after 287 days for filing a claim with the hopes that his claim would be entertained by the resolution professional on the ground that a contingent claim was in place and he was not aware of the commencement of an insolvency resolution process. The creditors have more time to file the claims with the advent of amendment to the Regulations. This paper deals with the aspects of this judgement and gaps in the laws that was later, very recently, came to be resolved by the Regulations, thereby dealing with the issues. It also seeks to observe the precedents that attempted to resolve the issue which varied from facts to facts of different cases.

Brief Facts

Respondent (Mukul Kumar) and the Corporate Debtor- M/s KST Infrastructure Pvt. Ltd. entered into an agreement for the development of a land into a residential group housing complex in 2006. Due to an alleged misconduct in advertising the project, appellant referred to the arbitration in 2011. The award of this arbitration proceedings encompassed not only a monetary claim but also directed the appellant for transferring the licenses to the other party. Thereafter, in 2016, a petition was filed by the appellant under “Section 34 of the Arbitration Act.”[1] The Corporate Insolvency Resolution Process initiated and Mukul Kumar was appointed as the Resolution Professional. The resolution plan got the approval of committee of creditors and it was submitted further to the NCLT. The appellant sent an e-mail to Respondent No. 1 mentioning that there is a claim of over Rs. 3 Crores arising out of the arbitral award. The Resolution professional rejected this claim as the 90 days from the Insolvency Commencement Date was passed and a delay of 287 days is made. By this time, the resolution plan has already been passed by the Committee of Creditors.

Contentions of the Parties

Appellant-

(i) Contingent Claim: Relying on the matter of STO v. Rainbow Papers Ltd.[2], the appellant pleaded that the resolution plan must provide for a provision regarding contingent claims, which is the case with the claim in terms of arbitral award in this matter. If this appeal is dismissed then it will leave the contingent claim will become nugatory. Since the pending approval of resolution plan by the NCLT, the Resolution Professional should have taken into consideration the contingent claim and therefor the Respondent ought to consider the claim as a contingent liability.

(ii) Timeline: directory in nature: The appellant also highlighted that the timeline under Section 12 of the Code[3] is only directory in nature.

(iii) Lack of awareness: The appellant pleaded that they were not aware of initiation of the resolution process as the Corporate Debtor did not disclose the same neither during pendency of proceedings nor the appeal under the Arbitration Act.[4]

Respondent/ Resolution Professional:

(i) Deemed Knowledge: The Appellant had deemed knowledge due to the abidance of procedure for inviting claims as per the Act and Regulations.

(ii) Requisite efforts were made for collating all the claims, even an application under Section 19 was filed by the resolution professional to obtain the records of corporate debtor.[5] It was contended that if the claim was entertained, such a delay by the appellant had the potential to open floodgates for litigation.

(iii) Rainbow papers’ dicta has been confined in the recent matter of “Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P) Ltd.[6] to the extent of facts of the concerned matter alone. It also pointed out that the question of law, although, differs in these two judgements.

Issues before the Supreme Court

  • Whether the claim by appellant pertaining to the arbitral award in appeal ought to be considered after the approval of the Resolution Plan by the Committee of Creditors?
  • Whether Respondent took all necessary endeavors to locate the liability regarding the award?
  • Whether the Resolution Professional should have condoned the delay with respect of belated claim of 287 days by the appellant?

Judgement & the Rationale

The appeal was dismissed by the Apex Court. It took notice of the issues and contentions thereupon and upheld the position taken by NCLAT. Regarding the first issue- the Court opined its views in favor of the respondent as the delay in filing the claims is of 287 days. The appellant being a commercial entity ought to be vigilant enough to find that the corporate debtor is undergoing the corporate insolvency resolution process. Regarding the second issue- the procedure as per the provisions of the Code- Section 15[7] and Regulation 6[8] were duly followed on part of the resolution professional which constitutes deemed knowledge. Hence, the necessary endeavors were made. It is clear regarding the third issue that the provisions do not provide any power to the resolution professional in terms of exercising its discretion regarding condonation of delay in filing the claims.

Analyzing the Position of Law in Condonation of Delay in Filing Claims

Precedents dealing with the issue of condonation of delay

In the case of Twenty- First Cenhiry Wire Roads Ltd.[9], the Insolvency commencement date was September 2018 and the claim by one of AMA Agencies came up in March 15, 2019. The resolution plan was pending for the approval of committee of creditors. When an application was made by the applicant for the condonation of delay, NCLT did not think twice in granting the same to the applicant on the ground that the regulations pertaining to the timeline are directory in nature. Hence, in this matter, the resolution professional was directed to consider the claim.

A further development can be observed after going through the matter of Edelweiss Asset Reconstruction v. Adel Landmarks Ltd.[10] In this case, the NCLT went on to suggest the Resolution Professionals to take note of such judgements where the NCLT has time and again condoned the delay of filing of claims and that the resolution professionals should keep in mind that the provisions on timeline are directory in nature.

Another instance where the delay of 217 days was in question of issue was the matter of condonation of delay in M/s. Leo Primecomp Pvt. Ltd. v. Mathur Sabhapathy Viswanathan.[11] Applicant or the Operational Creditor had information regarding the commencement of the resolution process. The application was not considered to be on merits as the applicant was not able to justify such delay in filing the claims. Even though disapproval of resolution plan took place by the committee of creditors, the NCLT did not entertain such delay and thereby this application was dismissed.

Amendment to the Regulations: A headway for treating delayed claims

Just a week after this judgement, i.e. on September 18, 2023- Second amendment to “the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016”[12] has been brought. Regulation 13(1B) deals with the delay in filing claims by creditors. If a delay occurs that is after the period prescribed under Regulation 12[13] and the period till 7 days before the meeting for voting of the resolution plan, the insolvency resolution professional is required to categorize the claims for the purpose of collation. Regulation 13(1C) prescribes for presenting the same before the committee of creditors for their consideration in the upcoming meeting to decide upon their inclusion in the creditor’s list as well as putting it before the National Company Law Tribunal for condonation of delay.[14]

The Resolution Professional has been provided with this obligation to consider the claims and putting it before the NCLT for condonation of delay. The amendment is in line with the judicial precedents stating that new claims should not come to insolvency professional. If a claim is filed after 90 days from the commencement date of insolvency then the creditor has to provide reasons for such delay. Although, it should not be undermined that there is intervention of NCLT in condonation of delay and it has not been left completely in the hands of resolution professional or the Committee of Creditors.

Conclusion

Many efforts are put time and again to uplift the spirit of Insolvency Resolution Process through judicial pronouncements or by dealing with the gaps in law. RPS Infrastructure Judgement dealt with an issue surrounding the resolution professional’s fettered position in dealing with the delayed claims and maintaining the balance to ensure that timely resolution takes place. The Amendment in Regulations beautifully portrays how the judicial precedents can be set as a guiding way for bridging the gap in the laws and regulations. Henceforth, the condonation of delay, only to a certain time period is treated with the provision with the objective that the issue of belated claims can be treated as well as the fate of corporate debtor and the stakeholders are not jeopardized.


References:

[1] The Arbitration & Conciliation Act, 1996, § 34, No. 26 of 1996 (India).

[2] State Tax Officer v. Rainbow Papers Limited, (2022) ibclaw.in 107 SC.

[3] The Insolvency and Bankruptcy Code, 2016, § 12, No. 31 of 2016 (India).

[4] supra note 2, § 34.

[5] supra note 4, § 19.

[6] Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd., (2023) ibclaw.in 81 SC.

[7] supra note 4, § 15.

[8] The IBBI (Insolvency Resolution Process for Corporate Persons), 2016, Reg. 6 [Amended upto 15.02.2024].

[9] (2019) ibclaw.in 71 NCLT.

[10] Edelweiss Asset Reconstruction Co. Pvt. Ltd. v. Adel Landmarks Ltd., C.P. No. IB-1083(PB)/2018.

[11] Leo Primecomp v. Mathur Sabhapathy Viswanathan, 2021 SCC OnLine NCLT 12289.

[12] supra note 9, Reg. 13.

[13] supra note 13.

[14] Ibid.

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