CASE ANALYSIS: RPS INFRASTRUCTURE LTD. VS. MUKUL KUMAR AND ORS

Aditya Sharma,

Institute of law, Nirma University

NAME OF THE PARTIES

RPS INFRASTRUCTURE LTD. VS. MUKUL KUMAR AND ORS

NAME OF THE COURT

SUPREME COURT OF INDIA 

CORAM

JUSTICE SANJAY KISHAN KAUL AND JUSTICE SUDHANSHU DHULIA.

DATE OF THE JUDGEMENT

11.09.2023

FACTS OF THE CASE:

An agreement was incorporated between appellant and KST Infrastructure Private Limited [the Corporate Debtor] on 02.08.2006 for the development of land in Haryana licensed with the Appellant. The appellant got aggrieved by the Corporate Debtor’s misconduct in advertising the project under its own name and omitting the appellant’s name, on 02.05.2011 the appellant filed for arbitration against the corporate debtor. The arbitration proceedings made an arbitral award in favour of the appellant, The award directed the Corporate Debtor to pay a monetary amount and also transfer the requisite license of the land to the appellant. The Corporate Debtor aggrieved by the arbitral award filed a petition under section 34 of the Arbitration and Conciliation Act, 1996[ii] [herein after referred as Arbitration Act] simultaneously on the same day the Appellant filed execution proceedings in respect of the said award. The execution proceedings filed by the appellant were adjourned on the account of pendency of proceedings under section 34 of the Arbitration Act[iii] , The ADJ upheld the arbitral award although with some modifications, an appeal was filed for the same under section 37 of the Arbitration Act and is pending.[iv]

Corporate Insolvency Resolution Process (CIRP) proceedings were then initiated against the Corporate Debtor with regards to three real estate projects by certain homebuyers who had invested in these projects. An application under section 7 of the Insolvency and Bankruptcy Code[v] [herein after referred as IBC] was filed by them and was admitted by the adjudicating authority, on the same day an Interim Resolution Professional [IRP] was appointed and IRP made a public announcement in accordance with section 15 of the IBC[vi], after receiving the claim the IRP formed a committee of creditors [COC] a draft information memorandum was formed and was circulated subsequently. Thereafter, IRP was replaced by respondent no. 1 and the respondent no.1 was made Resolution Professional [RP], The resolution nplan was submitted by KST Whispering Heights Residential Welfare Association which was approved by the COC with a majority vote of 80.74%. The plan was further submitted by the resolution profession to the adjudicating authority for approval under Section31 of the IBC[vii]. 

The appellant sent an email to the respondent no. 1 about their pending claim against the Corporate Debtor arising out of arbitral award, however Respondent no.1 rejected this claim on the ground that the time period for submitting the claim was within 90 days of initiation of CIRP and the applicant was 287 days late and a Resolution plan had already been passed by the COC.

Since, the approval for resolution plan was still pending with the adjudicating authority, the appellant filed a petition with the adjudicating authority seeking directions to Respondent No.1 that the Appellant's claim may be considered on merits, The adjudicating authority granted relief to the appellant on the grounds that (i) Respondent no. 1 could not summarily dismissed the claim of the appellant because the claim was accepted by the Corporate Debtor in his books of accounts. (ii) If books of accounts were not available, Respondent no. 1 had a duty to obtain them and verify the financial position (iii) It is likely that appellant could have missed the announcement made by respondent no.1.

Respondent no.1 appealed against the said order with National Company Law Appellate Tribunal [NCLAT], New Delhi and placed the reliance of his argument on the case of Essar Steel India Limited v. Satish Kumar Gupta and Ors.[viii]where the Supreme Court opined that a successful resolution applicant should not be opposed by undecided claims after there solution plan has been accepted.

The appellant countered the respondent no.1 argument by citing Brilliant Alloys Private Limited v. Mr. S. Rajagopal and Ors.[ix]Where the Supreme Court held that a belated claim should not be shut out as the time-periods in the IBC are merely directory and not mandatory .Also, the appellant said that it was not able to file the claim as it was not aware of the claim further stating that respondent no.1 was failed to discharge his duty by not showing the appellant’s claim in information memorandum as contingent liability. 

The NCLAT reversed the adjudicating authority’s order on the following grounds: 

i.Respondent no.1 had properly announced the invitation for claims.

ii.The appellant failed to show that it filed the claim as soon as it gets to know about the CIRP proceedings. 

iii.Respondent no. 1 had made sincere efforts to get all the records.

iv.The case of Brilliant Alloys Private Limited v. Mr. S. Rajagopal and Ors[x] does not apply to this case as facts of this case are different. 

v.The resolution plan would be imperilled if the new claims are incorporated. 

The appellant aggrieved by the NCLAT’s order approached Supreme court.

ISSUE IN FRONT OF HON’BLE SUPREME COURT:

➢ Whether the appellant’s belated claim of arbitral award can be included after the resolution plan has been passed by the COC? 

CONTENTIONS OF THE APPELLANT 

•The appellant contended that his arbitral award ought to be treated as contingent liability in the resolution plan by the respondents as provided in the case of State Tax

Officer v. Rainbow Papers Limited[xi]. If the appellant’s appeal is denied by the court then his arbitral award will have no value. 

•The appellant further submitted that the timeline frame which provided under section 12 of the IBC[xii]  for completion of CIRP is merely directory in nature and not mandatory citing the Essar steel case[xiii].

•The respondent further submitted that the adjudication authority had not accepted the proposed resolution, The respondent no. 1 should have included the appellant’s claim as contingent liability and NCLAT had no reason to interfere. 

•The corporate debtor did not disclose that CIRP was initiated.

•The respondent could have easily found the appellant’s claim from corporate debtor’s books of accounts.

CONTENTIONS OF THE RESPONDENT

•The respondent no.1 contended that appellant deem to have knowledge of the CIRP since the procedure for inviting claims was done duly and sincere efforts were made to collate all the claims and if the appellant’s claims are accepted then it could open a floodgate of such cases in the court. 

•There was no need to create any contingent liability because the resolution plan was made on the basis of information memorandum. 

•It was further contended that the hon’ble Supreme court judgement of Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd. and Ors.[xiv] Had confined the dicta in Rainbow Papers[xv] to the facts of that case alone and the question of law in two judgements are different. 

JUDGEMENT

•Respondent no.1 made sincere efforts to collate all the claims and even moved and application under section 19 IBC[xvi].

•The process of IBC is a time bound process and the appellant should have knowledge and be vigilant of the fact that corporate debtor was going under CIRP since, the appellant was litigating against the corporate debtor.

•Respondent no.1 made public announcement of the claims via newspaper and the modes mention section 15 IBC and regulation 6 of IBBI regulations were duly followed, so the appellant deems to have the knowledge of the CIRP. 

•The fact that adjudicating authority had yet not approved the resolution plan will not mean that appellant’s claim can be included, If the appellant’s claim is included then any other similar person will also jump the bandwagon.

•The Hon’ble Supreme court dismissed the appeal and upheld NCLAT judgement.

REFERENCES

[i] Rps Infrastructure Ltd. v. Mukul Kumar, MANU/SC/1001/2023

[ii] The Arbitration and Conciliation Act, 1996 (ACT No. 26 of 1996)

[iii] The Arbitration and Conciliation Act, 1996 (ACT No. 26 of 1996)

[iv] The Arbitration and Conciliation Act, 1996 (ACT No. 26 of 1996)

[v] The Insolvency and Bankruptcy Code, 2016 (N O . 31 of 2016)

[vi] The Insolvency and Bankruptcy Code, 2016 (N O . 31 of 2016)

[vii] The Insolvency and Bankruptcy Code, 2016 (N O . 31 of 2016)

[viii] Essar Steel India Limited v. Satish Kumar Gupta, MANU/SC/1577/2019

[ix] Brilliant Alloys Private Limited v. Mr. S. Rajagopal, MANU/SC/1547/2018

[x] Brilliant Alloys Private Limited v. Mr. S. Rajagopal, MANU/SC/1547/2018 

[xi] State tax officer v. Rainbow Papers Limited, MANU/SC/1109/2022  

[xii] The Insolvency and Bankruptcy Code, 2016 (N O . 31 of 2016)

[xiii] Essar Steel India Limited v. Satish Kumar Gupta, MANU/SC/1577/2019 

[xiv] Paschimanchal Vidyut Vitran Nigam Ltd. . v. Raman Ispat Pvt. Ltd., MANU/SC/0771/2023

[xv] State tax officer v. Rainbow Papers Limited, MANU/SC/1109/2022

[xvi] The Insolvency and Bankruptcy Code, 2016 (N O . 31 of 2016)