NCLAT held that the CIRP costs cannot include costs associated with terminated projects that do not contribute to the ongoing viability of the corporate debtor.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) was hearing an appeal and observed that for a claim to be classified as CIRP costs, it must directly contribute to maintaining the corporate debtor as a going concern during the CIRP and receive approval from the Committee of Creditors; costs associated with terminated projects not contributing to this viability cannot be classified as CIRP costs.
The Appellant, who was serving as the Liquidator for Sunil Hitech Engineering Ltd. (SHEL), had filed an appeal under Section 61 of the Insolvency and Bankruptcy Code (IBC) challenging an order issued by the Adjudicating Authority on November 21, 2023. This order directed that certain claims made during the Corporate Insolvency Resolution Process (CIRP) be classified as CIRP costs. The dispute centred around a claim filed by Respondent No. 1, M/s RBM Enterprises, for INR 1,36,41,854, which included amounts for work performed both before and during the CIRP period.
The background of the case involved National Thermal Power Corporation Limited (NTPC) awarding SHEL a contract on November 18, 2014, for civil works at the Darlipali Super Thermal Power Project. SHEL had subcontracted part of this work to Respondent No. 1. The CIRP was initiated against SHEL in September 2018, resulting in the appointment of an Interim Resolution Professional, who was later replaced by a Resolution Professional and subsequently a Liquidator. During the liquidation process, Respondent No. 1 submitted a claim, which the Appellant reviewed and partially accepted as CIRP costs. The Appellant's determination was based on the nature of the work and its contribution to maintaining SHEL as a going concern during the CIRP.
Displeased with the Appellant's partial acceptance, Respondent No. 1 filed an Interlocutory Application seeking to classify the entire claim as CIRP costs. The Adjudicating Authority ruled in favor of Respondent No. 1, leading the Appellant to appeal the decision. The Appellant contended that the claim did not meet the criteria for CIRP costs, as the work performed by Respondent No. 1 did not contribute to the ongoing viability of SHEL during the CIRP. The Appellant argued that the Adjudicating Authority had misinterpreted the provisions of the IBC and the decisions made by the Committee of Creditors (CoC).
In its review, the NCLAT assessed the legal provisions related to CIRP costs and found that costs must support the corporate debtor’s status as a going concern and be approved by the CoC to qualify as CIRP costs. The work undertaken by Respondent No. 1 involved terminated projects, which did not contribute to maintaining SHEL’s viability during the CIRP. Therefore, the NCLAT concluded that the Adjudicating Authority's decision to classify Respondent No. 1's claim as CIRP costs was incorrect. The NCLAT's judgment overturned the earlier decision, ruling that Respondent No. 1's claim should be classified as non-CIRP costs under Section 53 of the IBC and distributed accordingly during liquidation. No orders regarding costs were made by the NCLAT.
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