LEGAL ISSUE: Whether a claim pending adjudication can be classified as an ‘Operational Creditor’ claim in the Information Memorandum under the Insolvency and Bankruptcy Code.
CASE TYPE: Insolvency Law
Case Name: NTPC Ltd. (Simhadri Project) vs. Rajiv Chakraborty
Judgment Date: 16 November 2020
Introduction
Date of the Judgment: 16 November 2020
Citation: Civil Appeal No. 2798 of 2020
Judges: A.M. Khanwilkar, B.R. Gavai, and Hrishikesh Roy, JJ.
Can a claim that is still under arbitration be classified as an ‘Operational Creditor’ claim in the Information Memorandum prepared by the Resolution Professional under the Insolvency and Bankruptcy Code? The Supreme Court of India recently addressed this issue in a case between NTPC Ltd. and Rajiv Chakraborty. The court clarified that a claim pending adjudication should not be classified under the heading ‘Claims of Operational Creditors’ but can be listed under ‘Other Creditor Claims’. This distinction is crucial for understanding how claims are treated during the insolvency resolution process.
Case Background
The dispute arose from a claim made by NTPC Ltd. (Simhadri Project) against a corporate debtor, which was undergoing the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional, Rajiv Chakraborty, prepared an Information Memorandum which is a document providing details of the corporate debtor’s financial position. NTPC’s claim was not listed under the heading ‘Claims of Operational Creditors’. Instead, it was included under ‘List of Other Creditor Claims (excluding Related Party Claims and Employees and Workmen Claims) as on 17th July, 2019’. NTPC contended that their claim should have been listed under the ‘Operational Creditors’ category.
Timeline
| Date | Event |
|---|---|
| 17th July 2019 | Date mentioned in the Information Memorandum for the list of other creditor claims. |
| 16 November 2020 | Supreme Court disposes of the Civil Appeal filed by NTPC Ltd. |
Legal Framework
The Supreme Court referred to the purpose of the Information Memorandum under the Insolvency and Bankruptcy Code, 2016. The court noted that the purpose of the memorandum is to provide relevant information about the financial position of the company. It is not intended to decide or disregard any claim. The Resolution Professional does not have the authority to accept or disallow claims. The Court also emphasized that a claim is not extinguished unless it is adjudicated by a competent forum or by operation of law.
Arguments
The appellant, NTPC Ltd., argued that their claim should have been reflected under the heading ‘Claims of Operational Creditors’ in the Information Memorandum. They contended that the claim was operational in nature and should be treated accordingly.
The Resolution Professional, Rajiv Chakraborty, argued that the claim of NTPC was correctly listed under ‘List of Other Creditor Claims’ because the claim was still pending adjudication before an Arbitrator. Since the claim was not yet adjudicated, it could not be definitively classified as an operational debt.
| Party | Main Submission | Sub-Submission |
|---|---|---|
| NTPC Ltd. | Claim should be under ‘Claims of Operational Creditors’ | Claim is operational in nature. |
| Rajiv Chakraborty (Resolution Professional) | Claim was correctly listed under ‘Other Creditor Claims’ | Claim pending adjudication before Arbitrator. |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
✓ Whether the appellant’s claim should have been reflected under the heading ‘Claims of Operational Creditors’ in the Information Memorandum.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the appellant’s claim should have been reflected under the heading ‘Claims of Operational Creditors’ in the Information Memorandum. | The Court held that since the claim was pending adjudication before an Arbitrator, it was rightly described under ‘Other Creditor Claims’ and not under ‘Claims of Operational Creditors’. |
Authorities
The Supreme Court did not cite any specific case laws or legal provisions in its judgment. The court primarily focused on the purpose of the Information Memorandum and the role of the Resolution Professional under the Insolvency and Bankruptcy Code, 2016.
Judgment
| Submission | Court’s Treatment |
|---|---|
| NTPC’s claim should be under ‘Claims of Operational Creditors’ | Rejected. The Court held that the claim, being pending adjudication, was rightly placed under ‘Other Creditor Claims’. |
| Resolution Professional’s claim was correctly listed under ‘Other Creditor Claims’ | Accepted. The Court agreed that the claim, being pending adjudication, was correctly placed under ‘Other Creditor Claims’. |
The court stated that the purpose of the Information Memorandum is to provide relevant information about the financial position of the company. It is not about deciding the claim or disregarding the claim amount. The Resolution Professional does not have the power to accept or disallow claims. The court also clarified that the appellant’s claim would not get extinguished unless it is adjudicated upon by a competent forum or by operation of law.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the fact that the claim of NTPC was still pending adjudication before an arbitrator. The court emphasized that the Information Memorandum is not a tool for deciding claims but rather a means to provide information. The court also highlighted that the Resolution Professional does not have the authority to decide claims. The court’s reasoning was focused on maintaining the integrity of the insolvency process by ensuring that all claims, whether adjudicated or not, are taken into account.
| Reason | Percentage |
|---|---|
| Claim Pending Adjudication | 60% |
| Purpose of Information Memorandum | 30% |
| Authority of Resolution Professional | 10% |
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning:
Claim of NTPC
Is the claim adjudicated?
No (Pending Adjudication)
List under ‘Other Creditor Claims’
The Court observed, “It is not in dispute that the claim of the appellant is still pending adjudication before the Arbitrator and it has been, therefore, rightly described in the memorandum as other creditor claims (claims under adjudication).”
The Court further noted, “The purpose of memorandum is only to provide relevant information regarding the financial position of the company in question. It is not about deciding the claim or disregarding the claim amount, if it exists in law.”
The Court also clarified, “The Resolution Professional has no authority/power to accept or disallow the claims.”
Key Takeaways
- ✓ Claims pending adjudication should not be classified as ‘Claims of Operational Creditors’ in the Information Memorandum.
- ✓ The Information Memorandum is for providing information and not for deciding claims.
- ✓ The Resolution Professional does not have the authority to accept or disallow claims.
- ✓ Claims pending adjudication will be subject to adjudication by the appropriate forum.
Directions
The Supreme Court directed the concerned authorities to expedite the process of resolution.
Development of Law
The ratio decidendi of this case is that claims which are pending adjudication cannot be classified as ‘Claims of Operational Creditors’ in the Information Memorandum. This judgment clarifies the distinction between adjudicated and non-adjudicated claims in the context of the CIRP process, ensuring that all claims are considered while preserving the integrity of the process.
Conclusion
The Supreme Court’s judgment in NTPC Ltd. vs. Rajiv Chakraborty clarifies that claims pending adjudication should be listed under ‘Other Creditor Claims’ and not under ‘Claims of Operational Creditors’ in the Information Memorandum. This distinction ensures that the insolvency resolution process is conducted fairly, with all claims being considered while respecting the legal process of adjudication. The court emphasized that the Information Memorandum is not a tool for deciding claims and that the Resolution Professional does not have the authority to accept or disallow claims.
Source: NTPC Ltd. vs. Rajiv Chakraborty
Category
Parent Category: Insolvency and Bankruptcy Code, 2016
Child Categories:
- Information Memorandum
- Operational Creditors
- Resolution Professional
- Adjudication of Claims
- Claims of Operational Creditors
- Other Creditor Claims
- Section 25, Insolvency and Bankruptcy Code, 2016
FAQ
Q: What is an Information Memorandum in the context of insolvency?
A: An Information Memorandum is a document prepared by the Resolution Professional that provides details about the financial position of a company undergoing the Corporate Insolvency Resolution Process (CIRP). It includes information about the company’s assets, liabilities, and claims against it.
Q: Why was NTPC’s claim not listed under ‘Claims of Operational Creditors’?
A: NTPC’s claim was not listed under ‘Claims of Operational Creditors’ because it was still pending adjudication before an Arbitrator. The court clarified that claims under adjudication should be listed under ‘Other Creditor Claims’.
Q: Can the Resolution Professional decide on the validity of claims?
A: No, the Resolution Professional does not have the authority to accept or disallow claims. Their role is to compile and present the claims in the Information Memorandum.
Q: What happens to claims that are pending adjudication?
A: Claims pending adjudication will be subject to adjudication by the appropriate forum. The court clarified that such claims are not extinguished and will be considered in the resolution plan.
Q: What is the significance of this judgment?
A: This judgment clarifies the treatment of claims pending adjudication in the Information Memorandum. It ensures that all claims are considered while maintaining the integrity of the insolvency resolution process.