2019 (4) TMI 941 - Tri - Insolvency and Bankruptcy

Operational Creditor or not - Section 60(5) of the Insolvency and Bankruptcy Code, 2016 - as per the applicant, in the instant case, the respondent Resolution Professional is having no authority to decide the of claim of the applicant and it is incorrect to say that the respondent has travelled beyond his jurisdiction while rejecting the claim of the applicant by holding such that the applicant is not an 'Operational Creditor' - Principles of Natural Justice - HELD THAT - It is now settled position in law that under the provisions of the I B Code, the RP has not been vested with adjudicatory power. He is legally expected to collate and verify the claim submitted before him and to place the same before the CoC for its proper consideration under the provision of Section 21 of the Code. In case there arise some need for clarification/direction to be sought for, then he can approach this Adjudicating Authority, under the relevant provision of the Code. Nowhere the RP has been conferred with such adjudicatory power to accept or reject a claim coming under a particular class/category. The RP is assigned a duty to constitute the CoC and to convene and to attend meetings thereof, as per the Section 25 of the I B Code. That apart, to prepare the memorandum of information in conformity with the other provisions and scheme of the Code. In addition to the above, the CoC is equally expected to go through the same and to form its opinion on such agenda placed before it, so that the RP can take appropriate action on the subject or can approach this Adjudicating Authority for issuance of some directions, if necessary. Principles of Natural Justice are applicable in all administrative action as a rule and deviation therefrom is only exception and, therefore, such principles are equally applicable to a CIRP, because the Resolution Professional as well as Committee of Creditors are creature of the I B Code and their duties are like public servant/public institution. Application allowed.

Issues Involved:
1. Rejection of the applicant's claim as an Operational Creditor.
2. Validity of the "Take or Pay" obligations under the Gas Sale Agreement as operational debt.
3. Adjudicatory powers of the Resolution Professional (RP).
4. Principles of natural justice in the insolvency process.
5. Consistency in treatment of similar claims across different Corporate Insolvency Resolution Processes (CIRPs).

Issue-wise Detailed Analysis:

1. Rejection of the applicant's claim as an Operational Creditor:
The applicant, M/s. GAIL India Ltd., filed an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, challenging the rejection of its claim as an Operational Creditor by the Resolution Professional (RP) of M/s. Alok Industries Ltd. The RP rejected the claim on the grounds that the "Take or Pay" obligations under the Gas Sale Agreement (GSA) did not qualify as operational debt under Section 5(21) of the Code. The applicant contended that its claim for unpaid dues from 2014 to 2016, amounting to ?506.42 crores, was acknowledged by the Corporate Debtor but not paid.

2. Validity of the "Take or Pay" obligations under the Gas Sale Agreement as operational debt:
The RP argued that the "Take or Pay" obligations did not relate to goods or services used for production or output by the Corporate Debtor and thus did not qualify as operational debt. The applicant countered that the gas supplied under the GSA was a direct input for the Corporate Debtor's manufacturing process and should be considered operational debt. The applicant also highlighted that similar claims were accepted as operational debt in the CIRP of M/s. Essar Steel India Ltd.

3. Adjudicatory powers of the Resolution Professional (RP):
The Tribunal noted that the RP is not vested with adjudicatory powers and is expected to collate and verify claims, presenting them to the Committee of Creditors (CoC) for consideration. The RP's unilateral decision to reject the claim without CoC consultation was deemed unreasonable. The Tribunal emphasized that the RP should have sought clarification from the Adjudicating Authority if needed.

4. Principles of natural justice in the insolvency process:
The Tribunal underscored the importance of natural justice, stating that the RP should have provided the applicant an opportunity to be heard before rejecting the claim. The RP's failure to do so was a violation of natural justice principles. The Tribunal referenced Supreme Court judgments emphasizing the necessity of fair treatment and non-arbitrariness in administrative actions.

5. Consistency in treatment of similar claims across different CIRPs:
The Tribunal highlighted the need for consistency in the treatment of similar claims across different CIRPs. It noted that the applicant's claim was accepted as operational debt in the CIRP of M/s. Essar Steel India Ltd., where many of the same banks were members of the CoC. The Tribunal directed the RP to reconsider the applicant's claim as operational debt to maintain consistency and avoid discriminatory practices.

Conclusion:
The Tribunal allowed the application, directing the RP to reconsider the applicant's claim as an Operational Creditor and treat the "Take or Pay" obligations under the GSA as operational debt. The decision aimed to ensure consistency in the treatment of similar claims across different CIRPs and uphold the principles of natural justice. The Tribunal emphasized that the RP should consult the CoC and seek clarification from the Adjudicating Authority if needed.

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