A case analysis of Toyota Financial Services India Ltd. Vs. Mr. Suresh Kumar Jain (Erstwhile RP) & Ors., decided by the National Company Law Tribunal (NCLT) on 10.09.2023.
Introduction
This case Toyota Financial Services India deals with the issue of whether a financial creditor can file its claim before the resolution professional (RP) after the approval of the resolution plan by the committee of creditors (CoC) and the NCLT on the ground that it was unaware of the initiation of the corporate insolvency resolution process (CIRP) against the corporate debtor. The NCLT held that such a claim cannot be entertained as it was filed at a belated stage and that the financial creditor failed to show due diligence in submitting its claim.
Facts
The appellant, Toyota Financial Services India Ltd., was a financial creditor of the corporate debtor, M/s. Shree Balaji Printopack Pvt. Ltd., which was engaged in the business of manufacturing and supplying corrugated boxes and cartons. The appellant had provided a loan facility to the corporate debtor for purchasing machinery and equipment. The corporate debtor had defaulted on its repayment obligations and the appellant had initiated recovery proceedings against it before the Debt Recovery Tribunal (DRT).
Meanwhile, another financial creditor of the corporate debtor, M/s. Edelweiss Asset Reconstruction Company Ltd., had filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the NCLT for initiating CIRP against the corporate debtor. The NCLT had admitted the application and appointed an interim resolution professional (IRP) on 27.01.2020. The IRP had made a public announcement inviting claims from all creditors of the corporate debtor on 31.01.2020.
The appellant did not submit its claim before the IRP within the stipulated time period. The IRP was later confirmed as the RP by the CoC, which was constituted on 14.02.2020. The RP had prepared an information memorandum containing all relevant information about the corporate debtor and invited resolution plans from prospective resolution applicants.
The CoC had approved a resolution plan submitted by M/s. Shree Balaji Packaging Industries on 27.11.2020 with 100% voting share. The NCLT had also approved the resolution plan on 18.12.2020 and passed an order for its implementation.
The appellant had filed its claim before the RP on 22.12.2020, claiming an amount of Rs. 1,77,64,524 along with interest as its financial debt. The appellant had also filed an application before the NCLT under Section 60(5) of the IBC, seeking directions to the RP to accept its claim and to modify the resolution plan accordingly.
The appellant had contended that it was unaware of the initiation of CIRP against the corporate debtor as it did not receive any notice or communication from the IRP or the RP despite being a secured creditor. The appellant had also contended that it came to know about the CIRP only after receiving a copy of the order passed by the NCLT on 18.12.2020 approving the resolution plan.
The appellant had further contended that it had a valid charge over the assets of the corporate debtor and that its claim was not barred by limitation as it had filed a suit for recovery before the DRT within three years from the date of default.
The RP had opposed the application and submitted that the appellant’s claim was filed at a belated stage after the approval of the resolution plan by both CoC and NCLT and that it could not be entertained as per Section 31(1) of IBC which provides that once a resolution plan is approved by NCLT, it shall be binding on all stakeholders involved in CIRP.
The RP had also submitted that the appellant’s claim was barred by limitation as per Section 18(1)(b) of Limitation Act, 1963 which provides that filing a suit for recovery does not extend limitation period for filing an application under IBC.
The RP had further submitted that the appellant was not diligent in submitting its claim as it did not respond to the public announcement made by IRP or check the website of IBBI or NCLT where all details of CIRP were available.
Issue with initiation of CIRP
The main issue before NCLT was whether the appellant’s claim could be accepted by RP at a belated stage after approval of resolution plan by CoC and NCLT on the ground that it was unaware of initiation of CIRP against corporate debtor.
Legal Provisions of CIRP
The relevant legal provisions for this issue are:
- Section 7 of IBC, which provides for initiation of CIRP by a financial creditor against a corporate debtor who has defaulted on its debt.
- Section 13 of IBC, which provides for public announcement of CIRP by IRP inviting claims from all creditors of corporate debtor.
- Section 15 of IBC, which provides for constitution of CoC comprising all financial creditors of corporate debtor.
- Section 29 of IBC, which provides for preparation of information memorandum by RP containing all relevant information about corporate debtor for formulating a resolution plan.
- Section 30 of IBC, which provides for submission and approval of resolution plan by RP and CoC respectively.
- Section 31 of IBC, which provides for approval and implementation of resolution plan by NCLT and its binding effect on all stakeholders involved in CIRP.
- Section 60(5) of IBC, which provides for jurisdiction of NCLT to entertain any application or proceeding by or against corporate debtor or corporate person or resolution professional or liquidator as the case may be.
- Section 18(1)(b) of Limitation Act, 1963, which provides that filing a suit for recovery does not extend limitation period for filing an application under IBC.
Analysis
The NCLT analysed the case law on this issue and observed that:
- The Supreme Court in Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. held that once a resolution plan is approved by NCLT, it shall be binding on all stakeholders involved in CIRP and that no claims can be entertained after such approval.
- The Supreme Court in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. held that the limitation period for filing an application under IBC is three years from the date of default and that filing a suit for recovery does not extend such period.
- The NCLAT in Binani Industries Limited Vs. Bank of Baroda & Anr. held that the purpose of making public announcement is to make all the interested parties/stakeholders aware of the initiation of CIRP of the corporate debtor so as to enable them to submit their claim and facilitate in preparing the information memorandum which is issued subsequently, after the collection and collation of claims of the operational and financial creditors so as to provide the resolution applicant all relevant information so that the resolution applicant can make a legally and financially sound resolution plan for the corporate debtor as is required under Section 29 of IBC.
Based on these precedents, the NCLT held that the appellant’s claim could not be accepted by RP at a belated stage after approval of resolution plan by CoC and NCLT on the ground that it was unaware of initiation of CIRP against corporate debtor. The NCLT further held that:
- The appellant’s claim was barred by limitation as per Section 18(1)(b) of Limitation Act, 1963 as it had filed its application under IBC more than three years after the date of default and that filing a suit for recovery before DRT did not extend such period.
- The appellant failed to show due diligence in submitting its claim before RP as it did not respond to the public announcement made by IRP or check the website of IBBI or NCLT where all details of CIRP were available.
- The appellant could not rely on the ground that it did not receive any notice or communication from IRP or RP despite being a secured creditor as it was not mandatory for IRP or RP to issue individual notice to each creditor and that public announcement was sufficient to inform all creditors about CIRP.
Conclusion of CIRP against corporate debtor.
The NCLT concluded that there was no merit in the application filed by appellant and that RP had rightly rejected its claim as it was filed at a belated stage. The NCLT also imposed a cost of Rs. 10,000 on the appellant for filing a frivolous application.
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