Upholding the Integrity of Insolvency Proceedings in RPS Infrastructure Ltd. V. Mukul Kumar & Anr.
Ayush Verma
3rd Year, B.A.LL.B,
National Law Institute University, Bhopal
Lakshya Haritwal
3rd Year, B.A.LL.B,
National Law Institute University, Odisha
Introduction
In the recent case of M/s RPS Infrastructure Ltd. v. Mukul Kumar & Anr., [1] the Supreme Court of India delivered a landmark judgment that significantly impacted the landscape of insolvency proceedings in the country. This case underscores the importance of adhering to the timelines and procedures outlined in the IBC,[2] while also emphasizing the need to prevent the potential abuse of the resolution process.
Case Background
At the heart of the matter lies the question of whether claims arising from an arbitration award can be permitted post-approval of a resolution plan by the Committee of Creditors (CoC) in the Corporate Insolvency Resolution Process (CIRP). The appellant, M/S RPS Infrastructure Ltd., entered into an agreement with M/s KST Infrastructure Private Limited (the Corporate Debtor) in 2006 to develop land into a residential group housing complex. The appellant initiated arbitration proceedings in 2011, alleging misconduct by the Corporate Debtor, resulting in an arbitral award in its favor in 2016. Under Section 34 of the Arbitration and Conciliation Act, 1996,[3] the Corporate Debtor challenged this award.
In 2019, CIRP was initiated against the Corporate Debtor due to petitions from homebuyers who had invested in its projects. Mukul Kumar became the Resolution Professional (RP), and the resolution plan was approved by the CoC on July 11, 2020. Based on this, INR 35,67,05,337 was claimed by the appellant, based on the arbitral award filed 287 days after the last date for filing claims. This claim was denied by the RP because it was untimely, and the CoC had already approved the resolution plan.
Arguments and Supreme Court’s Decision
The appellant argued that its claim arising from an arbitral award should be treated as contingent and therefore eligible for consideration even after the CoC’s approval of the resolution plan. Conversely, the respondent, Mukul Kumar, the RP, contended that allowing such belated claims would disrupt the resolution process and undermine the integrity of the insolvency framework.
One key aspect of the case is the interpretation of the timeline prescribed under the IBC for filing claims. The appellant invoked the judgment in State Tax Officer v. Rainbow Papers Limited[4] to argue that a provision for contingent claims should have been included in the resolution plan. However, the Supreme Court, in its wisdom, held that while the timeline for filing claims may be considered directory rather than mandatory, the delay in filing the claim in this instance could not be condoned. This decision underscores the need for parties to exercise diligence and adhere to the prescribed timelines to avoid disruptions in the resolution process.
The Supreme Court dismissed the appeal and upheld the decision of the National Company Law Appellate Tribunal (NCLAT). The Court used the metaphor of “unleashing a hydra-headed monster of undecided claims” on the resolution applicant, highlighting that admitting claims after the CoC has approved a resolution plan would disrupt CIRP[5] and transform it into an unending process. The Court noted that public announcements about the commencement of CIRP are deemed knowledge for all stakeholders, thus rejecting the appellant’s argument of ignorance about CIRP commencement.
Analysis
The apex court’s judgment in the instant case concreates the critical precondition of sticking to the time-bound guidelines and framework outlined in the CIRP under the code. By summarily dismissing a claim submitted after a delay of 287 days after the laps of the timeline, The apex court has once again reiterated the importance of maintaining predictability and integrity in the overall process. This decision also aligns with the legal reforms suggested by the IBBI board to optimize the stakeholder’s empowerment and enhance Coc’s decision-making power, thereby making the process tilt toward more efficient and creditor-centric.
Further, This judgment once again highlights the crucial role played by the CoC in the insolvency process. The CoC’s commercial wisdom is critical in the approval and the implementation of a resolution plan and is the determining factor for the fate of the assets of the corporate debtor and it is this commercial wisdom which is deployed by the CoC for maximizing the value of the assets. By underscoring the importance of the commercial wisdom of CoC, the apex court underscored the exercise of due diligence to be employed in the process and the principle of the best interest of the stakeholders. Moreover, going against the principle of Commercial wisdom of CoC can’t be questioned.
The developing jurisprudence of the code and the amendments together form a dynamic legislative step toward the practical challenges encountered by the professionals. These changes in the form of amendments are with the ultimate aim to streamline the overall process and boost the CIRP process. The above-mentioned judgement fits within the framework by ensuring strict compliance with the timeline provided under the code and the interest of all the stakeholders preventing unnecessary delay that could jeopardize the resolution process.
CONCLUSION
The judgment marks a pivotal moment in the development of India’s insolvency framework. By maintaining the integrity of the resolution process and underscoring the significance of adhering to established timelines, the Supreme Court has demonstrated its dedication to ensuring fairness, transparency, and efficiency in insolvency proceedings. This decision offers a beacon of hope for stakeholders nationwide, providing much-needed clarity and direction in navigating the complexities of the insolvency landscape.
Ultimately, this ruling strengthens the fundamental objectives of the Insolvency and Bankruptcy Code (IBC): maximizing asset value, minimizing losses, and enhancing the efficiency of the bankruptcy resolution process. It sets a precedent for a structured and timely approach to corporate insolvency in India, safeguarding creditors’ interests and mitigating delays in the resolution process.
References:
[1] M/s RPS Infrastructure Ltd. v Mukul Kumar & Anr. (2023) ibclaw.in 102 SC.
[2] Insolvency and Bankruptcy Code, 2016.
[3] Arbitration and Conciliation Act 1996, s 34.
[4] State Tax Officer v Rainbow Papers Limited (2022) ibclaw.in 107 SC.
[5] (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
