Case Law Details
Avil Menezes Liquidator of Sunil Hitech and Engineers Limited Vs Abdul Qudduskhan (NCLAT Delhi)
In this case, the issue revolves around whether the costs incurred by a subcontractor during the Corporate Insolvency Resolution Process (CIRP) can be considered as CIRP costs. The Resolution Professional (RP) and Committee of Creditors (CoC) had decided that payments to vendors engaged in specific projects would be sourced from the cash flow generated by those projects’ customers. However, the subcontractor’s activities did not contribute to the viability of the Corporate Debtor as a “going concern.”
The subcontractor’s contract was a back-to-back contract, meaning payments were contingent upon funds received from NTPC. Until these funds were received, the obligation to compensate the subcontractor did not crystallize. Therefore, the costs incurred by the subcontractor cannot be deemed essential for maintaining the Corporate Debtor’s status as a going concern.
The Adjudicating Authority (AA) held that the entire Corporate Debtor should be considered a going concern, and therefore, all costs pertaining to all sites should be taken as CIRP costs. However, this decision goes against existing legal provisions and precedents, as well as the facts of the case.
Furthermore, the AA’s decision contradicts the guidance provided by the Insolvency and Bankruptcy Board of India (IBBI), which specifies that only costs directly related to the CIRP and approved by the CoC can be classified as CIRP costs.
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