NCLAT affirmed that pre-CIRP dues must be settled strictly according to the terms of the approved Resolution Plan, which prohibits the appropriation of post-CIRP payments towards pre-CIRP liabilities.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) reviewed a bunch of three appeals and observed that pre-CIRP dues must be settled strictly according to the terms of the approved Resolution Plan, which prohibits the appropriation of post-CIRP payments towards pre-CIRP liabilities, thereby reinforcing the binding nature of such plans under the Insolvency and Bankruptcy Code.
In the recent judgment concerning three appeals filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, the NCLAT addressed the challenges posed by Uttarakhand Power Corporation Ltd. (UPCL) against an order issued by the National Company Law Tribunal, Mumbai. The impugned order had allowed the Respondent's application while dismissing UPCL's multiple applications as infructuous. The case centred around the Corporate Debtor, M/s Shirdi Industries Ltd., which entered the Corporate Insolvency Resolution Process (CIRP) on May 18, 2017, with a moratorium declared against it. At the commencement of insolvency, UPCL was owed ₹1.76 crore for electricity bills from April and May 2017. Payments for these dues were made after the CIRP commenced, which raised significant issues regarding their allocation.
The Resolution Plan approved on December 12, 2017, specified that UPCL's pre-CIRP dues would be settled in eight quarterly instalments beginning in June 2022 and concluding in March 2024. However, subsequent to the plan's approval, the Corporate Debtor sought to adjust the amounts already paid towards pre-CIRP dues against current dues, a move that UPCL contested. The Adjudicating Authority ruled that pre-CIRP dues must be paid according to the terms outlined in the resolution plan and determined that any payments made post-CIRP commencement could only be applied to current dues.
Upon review, the NCLAT affirmed the Adjudicating Authority's conclusions, emphasizing that the resolution plan's provisions were binding and that the Appellant could not demand payment of pre-CIRP dues outside of the established terms. The court reiterated the importance of the moratorium under Section 14 of the IBC, which prevents the alienation of assets during the CIRP, further supporting its finding that payments made after the commencement of insolvency could not be allocated to pre-CIRP dues. Ultimately, the NCLAT dismissed the appeals, underscoring the need for both parties to reconcile their accounts while ensuring compliance with the timeline set forth in the resolution plan. The judgment reinforced the sanctity of approved resolution plans under the IBC, concluding that the Appellant's claims lacked merit and were thus dismissed without costs.
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