When Entire Debt Amount Has Been Re-Paid, CIRP Process Can't Be Continued: NCLAT Delhi

Background Facts:

M/s Rajasthan Land Holdings Ltd. (RLHL), the Corporate Debtor, was originally a wholly owned subsidiary of M/s Road Infrastructure Development Company of Rajasthan, a joint venture between IL&FS Transportation Networks Ltd. (ITNL) and the Government of Rajasthan.

In September 2019, RLHL was admitted into Corporate Insolvency Resolution Process based on a Section 9 application filed by the Operational Creditor, M/s Rajputana Constructions Pvt. Ltd. claiming unpaid operational dues of ₹23.97 lakhs.

Thereafter, the Resolution Professional (RP) formed the Committee of Creditors (CoC) in October 2019, which comprised only three operational creditors:

• Rajputana Constructions Pvt. Ltd. – ₹23.97 lakhs (89.54% vote share)
• Hi-Line Buildcon – ₹2.20 lakhs
• S. Bhandari & Co. – ₹0.59 lakhs

The total admitted debt of all three was ₹26.76 lakhs. Initially, the RP's fee was fixed at ₹1 lakh per month, but this was increased to ₹2 lakhs by the CoC in March 2020. However in November 2021, the NCLT capped the fee at ₹1 lakh per month.

Meanwhile, ITNL submitted a massive claim of ₹181 crore as a Financial Creditor. However, the RP classified ITNL as a “related party,” thereby disqualifying it from CoC membership. ITNL challenged this by filing an interlocutory Application. As a result NCLT, Jaipur stayed Insolvency proceedings of RLHL.

In July 2021, the RP also filed an application Interlocutory Application alleging fraudulent transactions by ITNL. Later in 2022, the NCLT encouraged the parties to settle the matter amicably. Subsequent to which, ITNL offered to pay 100% of the dues to all operational creditors in exchange for withdrawal of CIRP.

Despite this full repayment offer, Rajputana Constructions Pvt. Ltd who held over 89% CoC share objected to the settlement. Consequently, RP rejected the offer of ITNL.

In 2023, the NCLT passed an order terminating the CIRP after noting the malafide conduct of the CoC. The order also reduced the fees of the RP to Rs 50,000/- per month after noting that RP had continued with CIRP when there was no need.

Rajputana Constructions Pvt. Ltd and the RP challenged this order in two separate appeals before the NCLAT, Delhi. Rajputana Constructions Pvt. Ltd challenged the order on the grounds that CIRP of the Corporate Debtor had been inappropriately terminated. On the other hand, RP seeking removal of alleged unwarranted remarks contained in the order on the conduct and performance of RP as well as for reduction of their fees.

Contentions of the Appellants (Rajputana Constructions Pvt. Ltd and the RP):

Rajputana Constructions Pvt. Ltd contended that its Section 9 application was valid and based on an undisputed operational debt of ₹23.97 lakhs. Despite issuing prior notice, the Corporate Debtor never offered for repayment and never even contested the claim.

They stated the main delay in the CIRP process was caused by ITNL. After CIRP admission, ITNL filed a claim of ₹181.34 crores, which the RP admitted as financial debt but excluded from CoC as ITNL was a related party. ITNL's application challenging this classification stalled CIRP for over three years.

The RP stated that he acted diligently and filed a separate application to report suspected fraudulent transactions involving ITNL. She ensured the Corporate Debtor continued as a going concern even during the stay.

Further, The raise in RP's fee from ₹1 lakh to ₹2 lakhs was approved by the CoC and the NCLT's reduction to ₹50,000/month was punitive and tarnished her reputation.

Contentions of the Respondents (Corporate Debtor and ITNL)

They stated that the CoC and RP allegedly colluded to continue the CIRP for 4.5 years, even though the Corporate Debtor had enough funds from the beginning to repay the ₹26.76 lakhs owed to all three operational creditors.

Also when, ITNL offered to fully settle all dues of the operational creditors, Rajputana Constructions Pvt. Ltd unjustifiably rejected the offer and misused its majority in the CoC to block resolution and potentially retain control over the Corporate Debtor's assets.

They further contended that the CIRP costs reached ₹73 lakhs which was nearly three times the admitted CoC debt. The RP's fees also far exceeded the value of the claims. ITNL argued that instead of facilitating resolution by repaying creditors, the RP and CoC chose to continue CIRP unnecessarily to extract higher fees and delay closure.

Findings:

The tribunal stated the conduct of the CoC was dominant as RCPL which held a voting share of 89.54% had persistently opposed the settlement proposal without giving any credible or transparent reasons. The tribunal observed that the CoC appeared to be pursuing an extraneous agenda, possibly with the aim of retaining control over the Corporate Debtor. This was particularly suspicious as the Corporate Debtor had sufficient liquidity to settle the admitted claims of Rs. 26.76 lakh, yet the CoC did not explain why they refused a full repayment.

The tribunal also found irregularities in the conduct of the RP. It was noted that the RP had continued to charge professional fees during the period when CIRP was stayed (from 5 August 2020 to 16 March 2021), despite having moved an application to exclude this period from the computation of the CIRP timeline. In IndusInd Bank Ltd. v. Rajendra K. Bhuta, the NCLAT held that “the fee of RP cannot be charged for the duration of a stay on CIRP”.

The tribunal held that the RP was not entitled to claim fees for a period when CIRP was legally suspended. Additionally, the RP's remuneration was increased from Rs. 1 lakh to Rs. 2 lakhs in the fourth CoC meeting, even though only seven CoC meetings were held and no significant progress was made. The total CIRP costs had escalated to nearly Rs. 73 lakhs which was almost three times the admitted debt.

The tribunal also observed that CIRP expenses were being covered from the Corporate Debtor's funds. This was found to be contrary to Regulations 33 and 34 of the IBBI (CIRP) Regulations, 2016, which states that in the absence of a resolution, the CIRP costs are to be borne by the CoC. The tribunal termed it paradoxical that the CoC had refused to accept repayment of their admitted dues from the Corporate Debtor, while simultaneously permitting CIRP costs, including RP's fees, to be paid from the same source.

Thus, the tribunal upheld the NCLT's decision to reduce the RP's remuneration to Rs. 50,000 per month. Since the CoC's entire admitted debt had been repaid by the Corporate Debtor, and the only unresolved issue was the inflated CIRP cost, the tribunal upheld the termination of CIRP. It found that there was no longer any reason to continue the insolvency process, and doing so would contravene the objective of the code, which is to ensure time-bound resolution and revival, not destruction, of viable companies.

Case Title: M/s Rajputana Constructions Pvt. Ltd. V/s M/s Rajasthan Land Holdings Limited & Ors.

Case Number: Company Appeal (AT) (Insolvency) No. 853 of 2023

Judgment Date: 16/05/2025

For Appellant : Mr. Kshitij Mittal, Mr. Abhyuday Singh, Advocates.

For Respondent : Mr. Rishabh Parikh, Ms. Niyati Kohli, Advocates for R-1.

Mr. Raunak Dhillon, Ms. Isha Malik, Mr. Nihaad Dewan,

Mr. Anchit Jasuja, Mr. Vikash Kumar Jha, Advocates for R-3 (ITNL).