Claims in Liquidation: Requirement for Concrete Evidence and Limited Role of Liquidator
- REEDLAW
- Jan 30, 2025
- 3 min read
NCLT held that claims during liquidation had to be substantiated with specific and concrete evidence rather than being speculative, hypothetical, or uncertain and that the Liquidator's role was limited to administrative verification rather than adjudication.
The National Compay LAW Tribunal (NCLT), Hyderabad Bench comprising Judicial Member Mr. Rajeev Bhardwaj and Technical Member Mr. Sanjay Puri reviewed an application and dismissed the claims of the Applicant. The NCLT Bench observed that the claims during liquidation must be substantiated with specific and concrete evidence rather than being speculative, hypothetical, or uncertain, and the Liquidator's role is limited to administrative verification rather than adjudication.
The National Company Law Tribunal (NCLT), Hyderabad Bench, recently dismissed an application filed by Meja Urja Nigam Pvt. Ltd. (the “Appellant”) against the Liquidator of M/s IVRCL Ltd. (“Corporate Debtor” or “CD”). The matter centred around the Appellant’s claim for Rs. 1235.71 crores, which had been rejected by the Liquidator during the liquidation process.
The dispute originated from a works contract awarded in March 2012 to the CD by the Appellant, a subsidiary of NTPC Ltd., for a total consideration of Rs. 289.76 crores. Despite an extension until December 2016, the Appellant terminated the contract in September 2016 due to what it described as the CD's extremely poor performance. Subsequently, in September 2017, the CD raised a final bill of Rs. 126.93 crores, which was subjected to joint inspection by both parties. The CD was admitted into the Corporate Insolvency Resolution Process (CIRP) in February 2018, and its liquidation commenced in July 2019.
The Appellant initially filed a claim of Rs. 11.29 crores in July 2019 after an inspection, but later revised its claims to Rs. 1235.71 crores. Upon the rejection of its claim by the Liquidator, the Appellant filed IA No. 800 of 2020, which was allowed by the NCLT on 18.09.2020, directing the Liquidator to reconsider the claim on merits. However, the Liquidator once again rejected the claim on 02.02.2021, prompting the present application.
The Liquidator cited multiple reasons for rejecting the claims, asserting that many were speculative, hypothetical, or lacked adequate proof. The NCLT examined the Appellant’s various claims, including amounts related to unutilized materials, under-insurance, royalty payments, expenses for post-contract works, unrecovered advances, rental payments, litigation costs, loss of goodwill, and loss of profits. It was noted that the verification of claims by a Liquidator is administrative rather than adjudicatory in nature, and the Liquidator’s responsibility is to determine actual dues payable from the liquidation estate.
For claims related to Owner Issued Material (OIM), under-insurance, and royalty payments, the NCLT found that the Appellant either failed to establish the CD’s liability or had already recovered the amounts through other means. The Appellant’s claims for expenses incurred post-contract cancellation were rejected on the grounds that the CD was not involved in or notified of these activities. Hypothetical claims such as loss of profits and loss of goodwill were also dismissed for lacking concrete evidence.
The tribunal emphasized that claims during the liquidation process must pertain to specific, established dues rather than assumed or uncertain liabilities. Citing legal precedents, it reiterated that the Liquidator's task is to verify claims based on documentary evidence without delving into adjudicatory functions.
In conclusion, the NCLT upheld the Liquidator’s decision to reject the Appellant’s claims and dismissed the application. This order underscores the importance of substantiating claims with clear evidence and highlights the limited role of a Liquidator in the verification process.
Mr. Avinash Desai, Senior Advocate represented the Applicant.
Mr. Nirav Shah and Mr. Alay Razvi, Advocates appeared for the Respondent.
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