Court Upholds Resolution Plan for Pre-CIRP Dues Payment

Category : Insolvency Law

Sub- Category : Corporate Insolvency Resolution Process

Subject: Payment of Pre-CIRP Dues

Background

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) addressed three appeals filed by Uttarakhand Power Corporation Ltd. ( UPCL ) against the order of the National Company Law Tribunal (NCLT) regarding the payment of pre-Corporate Insolvency Resolution Process (CIRP) dues by Shirdi Industries Ltd. The central legal question was whether UPCL was entitled to receive payments for pre-CIRP dues in a manner different from that outlined in the approved resolution plan.

Arguments

UPCL argued that it was entitled to full payment of its pre-CIRP dues amounting to Rs 7.29 crore, asserting that the Corporate Debtor had made payments after the commencement of the CIRP that should not have been appropriated towards current dues. They contended that the Corporate Debtor's actions constituted a willful default and sought permission to disconnect electricity supply.

Conversely, Shirdi Industries Ltd. maintained that the approved resolution plan stipulated that pre-CIRP dues were to be paid in eight quarterly installments from June 2022 to March 2024. They argued that any payments made after the commencement of the CIRP should be adjusted against current dues, in compliance with the resolution plan.

Court's Analysis and Reasoning

The NCLAT carefully examined the arguments from both parties and the provisions of the Insolvency and Bankruptcy Code (IBC). The court emphasized that once the CIRP commenced, any payments made by the Corporate Debtor could only be appropriated towards current dues arising during the CIRP period. The court noted that the resolution plan had been approved, and its terms were binding on all stakeholders, including UPCL .

The court found that UPCL had not filed its claims during the CIRP proceedings, and thus, the resolution plan's provisions regarding the payment of pre-CIRP dues were valid. The court also highlighted that the moratorium imposed under the IBC prohibited any payments towards pre-CIRP dues outside the agreed-upon schedule in the resolution plan.

Decision

Ultimately, the NCLAT dismissed UPCL 's appeals, affirming the NCLT's order that required the Corporate Debtor to pay pre-CIRP dues according to the resolution plan. The court directed both parties to reconcile their accounts and mandated that any outstanding dues be settled within a specified timeframe. This ruling reinforces the importance of adhering to approved resolution plans in insolvency proceedings and clarifies the treatment of pre-CIRP dues during the CIRP process.