Claims Must Be Supported by Valid Documents; Agreements by Disqualified Directors Are Unenforceable: NCLAT Upholds Resolution Plan Sanctity
- REEDLAW
- Oct 13
- 3 min read
REEDLAW Legal News Network reports: In a crucial ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, reaffirmed that claims filed during the Corporate Insolvency Resolution Process (CIRP) must be supported by valid and verifiable documentation in compliance with the Insolvency and Bankruptcy Code (IBC) and its regulations. The Tribunal further clarified that any agreement executed by disqualified directors is unenforceable against the Corporate Debtor and that claims arising from dealings with sister concerns lacking direct contractual privity cannot be entertained, thereby upholding the sanctity and finality of the approved resolution plan.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha and Mr. Indevar Pandey (Technical Members), while adjudicating a Company Appeal and connected Interlocutory Applications, held that claims submitted during the CIRP must be substantiated with valid, verifiable documents and filed within the stipulated timelines prescribed under the IBC and related regulations. The Tribunal emphasised that agreements executed by disqualified directors are legally unenforceable against the Corporate Debtor, and claims based on transactions involving sister concerns without direct privity of contract cannot be admitted. Consequently, the NCLAT upheld the rejection of such unsubstantiated claims, reinforcing the sanctity and binding nature of the approved resolution plan.
The appeal was filed by the Appellant against the order passed by the National Company Law Tribunal (NCLT) concerning the insolvency resolution proceedings of the Corporate Debtor. The Appellant, engaged in real estate development, claimed financial dues based on a Joint Development Agreement (JDA) dated March 6, 2016, and a full and final settlement agreement. The Appellant asserted possession and involvement in constructing a tower of studio apartments under the project of the Corporate Debtor, which faced halts due to disputes and litigation by flat buyers.
The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process (CIRP) based on a petition by an Operational Creditor, and the Resolution Professional (RP) was appointed. The Appellant filed claims during CIRP as an Operational Creditor but faced rejection on the grounds that the key agreements were executed by a director who was disqualified under the Companies Act at the relevant time, rendering the agreements unenforceable. Furthermore, payments made by the Appellant were to a sister concern of the Corporate Debtor, not directly to the Corporate Debtor, weakening the claim's basis.
The RP and the Committee of Creditors (CoC) noted inadequate documentation and non-compliance with procedural requirements, including failure to open escrow accounts or provide evidence of payments. The Resolution Plan was approved by the CoC, excluding the Appellant’s claims, which were found unsubstantiated. The Appellate Tribunal upheld the rejection of the Appellant’s claims, affirming that claims not admitted in the resolution plan stand extinguished. It was observed that admitting belated claims would jeopardise the resolution process by creating uncertainty.
The Tribunal underscored that the Appellant failed to act diligently in submitting substantiating documents in time, and the agreements cited were legally non-est and unenforceable due to the director’s disqualification. The claims based on transactions with the sister concern lacked privity with the Corporate Debtor, further undermining the case. Consequently, the appeal was dismissed with no order as to costs, affirming the soundness of the insolvency resolution proceedings and the adherence to legal and procedural requirements under the Insolvency and Bankruptcy Code, 2016.
Mr. Ajit Singh, Advocate, represented the Appellant.
Mr. Abhishek Anand and Mr. Nipun Gautam, Advocates, appeared for the RP.
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