Contingent Rights Under Property-Linked Agreements Do Not Create Enforceable Claims in CIRP: NCLAT
- REEDLAW
- 47 minutes ago
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REEDLAW Legal News Network reports: In a significant ruling clarifying the scope of admissible claims in insolvency proceedings, the NCLAT held that contingent rights arising from property-linked collaboration and assignment agreements cannot be treated as enforceable debts in the corporate insolvency resolution process unless such rights have crystallised into a definite monetary obligation.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising, Justice Ashok Bhushan (Chairperson) and Mr, Barun Mitra (Technical Member), while examining the rejection of a claim by the Resolution Professional, affirmed that unresolved encumbrances, absence of valid corporate authorisation, and failure to satisfy conditions precedent rendered the asserted rights inchoate and legally unenforceable, thereby justifying exclusion of such claims from the insolvency framework.
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 challenging the order of the Adjudicating Authority affirming the decision of the Resolution Professional rejecting the claim lodged in the CIRP of the Corporate Debtor. The claim was asserted on the basis of agreements and instruments allegedly creating a financial or contractual liability.
The Appellate Tribunal examined the underlying agreement(s) and found that the rights asserted were expressly contingent upon fulfilment of specified conditions precedent, including removal of encumbrances or occurrence of future events, which admittedly had not taken place. In the absence of fulfilment of such conditions, no enforceable or vested right had crystallised.
It was further held that an assignment cannot confer a superior right upon the assignee than what the assignor itself possessed. Any alleged guarantee was found to be legally deficient for want of statutory compliance, mutual consent, and formal execution, and therefore did not constitute a valid contract of guarantee under Section 126 of the Indian Contract Act, 1872.
The Tribunal reiterated that insolvency proceedings are not meant to adjudicate or enforce nebulous, speculative, or contingent claims. The Resolution Professional was under no obligation to admit such claims or reflect them in the Information Memorandum. Consequently, the rejection of the claim was upheld and the appeal was dismissed.
Mr. Paras Mithal, Advocate, represented the Appellant.
Mr. Rachit Mittal, Mr. Abhishek Devgan, Mr. Kanishk Raj, Mr. Shubham Sonthalia, Ms. Srishti Agrawal and Dr. R.C. Lodha, Advocates, appeared for the Resolution Professional.
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