The Insolvency and Bankruptcy Code, 2016 (IBC) is silent on determining a mechanism for adjudication of disputed claims. There is no provision regarding the appropriate authority which would exercise adjudicatory functions to adjudicate the disputed claims. Whether Adjudicating Authority would be an Adjudicator of disputed claim is not clear under IBC. Section 60(5) of the IBC grants the Adjudicating Authority with the power to entertain claims made by or against the corporate debtor.
“60(5). Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of-
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.”
The Supreme Court in Essar Steel allowed a resolution plan to admit disputed claims at the notional value of Rs. 1, which would have to be paid contingent to the outcome of proceedings after the value of the claim has been determined by the appropriate forum. However, for resolution applicants who do not wish to take the risk of admitting claims whose value is yet to be decided, the silence of the IBC in providing for an adjudicatory mechanism to settle disputed claims becomes tricky. Such an approach forces a resolution applicant to bear the risk of a disputed claim being decided against him and also undermines the goal of the IBC to provide a clean slate for the corporate debtor after the approval of the resolution plan.
Before IBC, the insolvency resolution framework in India was scattered. For this reason, the Supreme Court in M/S. Innoventive Industries Ltd v. ICICI Bank noted that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. In view of this, it can be understood that Adjudicating Authority should consider and decide the disputed claim. But NCLTs have denied jurisdiction for adjudicating matters like contractual disputes. For instance, the NCLT in Encote Energy (India) Pvt. Ltd. v. V. Venkatachalam had denied jurisdiction to adjudicate matters which involved disputed facts and it further held that such disputes have to be decided by “a court of competent jurisdiction”.
On similar lines, the NCLT in Roma Enterprises v. Mr. Martin S.K. Golla, Resolution Professional and in Sri Krishna Constructions v. Vasudevan, R.P. of Tiffins Barytes Asbestos & Paints Ltd have also denied jurisdiction. The NCLAT on 12.06.2019 in *Sri Krishna Constructions v. Vasudevan, R.P. of Tiffins Barytes Asbestos & Paints Ltd. has held that “CIRP Process cannot be converted into adjudication Forum to settle claims already in disputes in Court.”
Thus, the jurisdiction of the adjudicating authority has been interpreted to exclude the jurisdiction to decide a disputed claim especially when the determination of the adjudicating authority would require it to decide a question of evidence or fact.
In recent times, the Supreme Court has had the occasion to opine on the scope and extent of NCLT’s jurisdiction under Section 60(5) of the Code in the judgments of M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka and Ors. and Gujarat Urja Vikas Nigam Limited v. Amit Kumar Gupta and Ors. wherein it would appear that the Supreme Court has recognized the limitations inherent to the NCLT’s powers thereunder. Clarifying the law with respect to the jurisdiction of the NCLT under Section 60(5) of the IBC, the Supreme Court in Embassy observed that the jurisdiction under Section 60(5) of the IBC is wide but does not include the jurisdiction to adjudicate questions in the realm of public law. Based on this reasoning, the court held that the NCLT would not have jurisdiction to examine the cancellation of a mining license under the Mines and Minerals (Development and Regulation) Act, 1957.
Till date, there is no clear-cut ruling of Supreme Court to determine the extent of NCLT’s powers under Section 60(5) of the Code. The Supreme Court would probably require another occasion to deal with the other relevant provisions of law to determine the extent of NCLT’s powers under Section 60(5) of the Code.
Remark: Whether Resolution Professional can adjudicate claims in CIRP process? Please see our article dated 22nd April, 2021 @taxguru.in.
* In this matter, Section 7 Application was filed by Financial Creditor – M/s. Udhyaman Investments Private Limited against M/s. Tiffins Barytes Asbestos and Paints Limited which is admitted on 12th March, 2018. The Appellant claims to be an Operational Creditor who moved the IRP with a claim of more than Rs.17 Crores claiming to have provided services sometime between 2005 – 06 – 2008 – 09. The IRP while collating did not accept the claim of the Appellant as not being supported by documents. The Appellant took up the matter with the Adjudicating Authority (National Company Law Tribunal, Chennai) asking to admit its claim of Rs.17,07,99,270/-; forensic audit and injunct CIRP in the meanwhile. The Adjudicating Authority has after hearing the Appellant and going through the record placed by the Appellant, noticed that the Appellant had earlier moved the Hon’ble High Court of Madras for winding up without success. Annexure – A12 shows, Appellant had filed Petition against the Corporate Debtor for winding up on ground of inability to pay debt and the Hon’ble High Court had found that the claim of the Appellant was not substantiated, the claim of the Appellant relying on an execution of Agreement dated 31.01.2005 was also doubtful considering the partnership firm and its formation. The High Court had found that mere statement of account was not sufficient to prove business transaction. The High Court had after duly considering the claim, which was put up by the Appellant, found the defence raised by the Corporate Debtor to be bona fide and found it was likely to succeed in Civil Court and thus, it was observed that there was sufficient reason for the High Court to reject the Petition which was filed by the Appellant. Thus, the High Court had relegated the Appellant to Civil Court and it appears that the Appellant moved Civil Court by filing Suit with Additional Senior Civil Judge and CJM at Ballari in 2014 which is still pending. The learned Counsel for the Appellant submits that in the Suit, there was also an Order of attachment and so it should be accepted that the Appellant has a good case, and that the Application of the Corporate Debtor for setting aside the attachment was not accepted.
We have gone through the material placed on record. The Judgement of the Hon’ble High Court which was passed is perused. The High Court had expressed surprise even regarding the manner in which claim was being made where the Appellant in statutory Notice claimed Rs.20 Crores and odd, and in the petition claimed Rs.10 Crores and odd. Now in NCLT, claim of Rs.17 Crores and odd has been made. The NCLT has looked into the matter and found that the claim being made is not substantiated by document.
Under Section 18, the IRP is required to receive and collate all the claims submitted by the Creditors. This is not a process of sitting and deciding disputed claims. For collating, the IRP has to receive the claim and examine the same. While examining, the IRP did not find that the claim was made out with support of appropriate documents. As such, the IRP may not have considered the claim and the Adjudicating Authority has looked into it and did not find anything wrong with the act of collating done by IRP. CIRP process cannot be converted into adjudication Forum to settle claims already in disputes in Court. In the circumstances, we do not find any reason to interfere with the Order which has been passed. The Suit of the Appellant is already pending. Once the Moratorium period is over, the Appellant would be free to pursue its suit.
We dismiss the Appeal without admitting the same.
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