NCLAT Delhi Rules, When Entire Debt Amount Has Been Re-Paid, CIRP Process Can't Be Continued
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in a detailed judgment delivered by a Bench comprising Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka and Mr. Barun Mitra (Technical Members), held that where the admitted debts of operational creditors have been fully repaid, continuation of the Corporate Insolvency Resolution Process (CIRP) serves no purpose and violates the objectives of the Insolvency and Bankruptcy Code, 2016 (IBC).
The judgment arose from two appeals challenging a common order dated 20 April 2023 passed by the NCLT, Jaipur Bench, terminating the CIRP of M/s Rajasthan Land Holdings Ltd. (RLHL) and reducing the remuneration of the Resolution Professional (RP). The appeals were filed by the erstwhile RP and M/s Rajputana Constructions Pvt. Ltd. (RCPL), an operational creditor holding a dominant voting share in the Committee of Creditors (CoC).
Background
RLHL was a wholly-owned subsidiary of M/s Road Infrastructure Development Company of Rajasthan (RIDCOR), a joint venture between IL&FS Transportation Networks Ltd. (ITNL) and the Government of Rajasthan. ITNL later acquired the shareholding in RLHL, which was eventually transferred to another IL&FS entity, Pario Developers Pvt. Ltd.
On 24 September 2019, RLHL was admitted to CIRP based on a Section 9 application filed by RCPL, claiming unpaid operational dues of ₹23.97 lakhs. The CoC was constituted in October 2019 and comprised only three operational creditors—RCPL (₹23.97 lakhs), Hi-Line Buildcon (₹2.20 lakhs), and S. Bhandari & Co. (₹0.59 lakhs). RCPL alone held 89.54% of the voting share.
Meanwhile, ITNL filed a claim of ₹181.34 crores, which was admitted by the RP as a financial debt but treated as a related-party claim, thereby excluding ITNL from the CoC. ITNL contested this classification by filing IA No. 100 of 2020. An interim order passed on 5 August 2020 stayed the CIRP, which remained in force until 16 March 2021. This litigation significantly stalled the progress of CIRP.
Subsequently, ITNL offered to pay 100% of the admitted dues of the three operational creditors in return for withdrawal of the CIRP. However, RCPL, wielding a majority in the CoC, refused the offer, citing procedural and legal objections. The RP, acknowledging RCPL’s dominant position, rejected the offer.
In April 2023, the NCLT terminated the CIRP, citing misuse of the process by the CoC and RP. It also reduced the RP’s fee to ₹50,000 per month, directing refund of excess remuneration. This order was challenged before the NCLAT.
Contentions by RCPL and the Resolution Professional
RCPL defended its Section 9 application as valid and based on an undisputed operational debt. It argued that the Corporate Debtor never contested the debt, and that it issued a notice as early as January 2019. It further submitted that the delay in CIRP was not due to CoC but stemmed from ITNL’s attempts to enter the CoC despite its related-party status.
The RP submitted that she had acted in good faith and diligently performed her duties. She pointed out that she had filed an application under Sections 66 and 67 of the Code alleging fraudulent transactions involving ITNL, the Corporate Debtor, and another related entity. The RP also cited her efforts in keeping the Corporate Debtor as a going concern and in recovering tax refunds and pursuing asset protection.
Regarding her fees, the RP submitted that the initial fee of ₹1 lakh per month was approved by the CoC, and subsequently increased to ₹2 lakhs in March 2020. She argued that this was justified given the large financial claims involved and the effort required during the prolonged process. She also claimed entitlement under Regulation 34-B of the CIRP Regulations (Schedule II), although the Tribunal later clarified that Schedule II was applicable only to CIRPs initiated after October 2022.
Submissions by Corporate Debtor and ITNL
ITNL and the Corporate Debtor accused the RP and CoC of collusion to prolong CIRP for over four and a half years despite the availability of sufficient funds with the Corporate Debtor to discharge the ₹26.76 lakhs owed to all three operational creditors. They emphasized that RCPL, despite being offered full payment, declined the settlement without reasonable cause, suggesting an ulterior motive to retain control over the Corporate Debtor's assets.
They pointed out that the CIRP cost had escalated to ₹73 lakhs—almost three times the admitted debt. Moreover, these expenses were being paid from the Corporate Debtor’s own funds, despite no resolution having been achieved, which violated Regulations 33 and 34 of the IBBI (CIRP) Regulations, 2016.
ITNL also criticized the RP for charging fees during the CIRP stay (August 2020 to March 2021), for failing to file annual returns, and for not ensuring statutory compliance under the Companies Act and tax laws.
Findings of the Tribunal
The Tribunal found that RCPL had unjustifiably rejected the settlement proposal offered by ITNL, which included full repayment of all admitted dues. Despite repeated opportunities and sufficient liquidity in the Corporate Debtor’s account—₹7 crore as against ₹26.76 lakhs in dues—RCPL and the CoC failed to offer any plausible explanation for their refusal.
The Tribunal observed that the CoC, controlled overwhelmingly by RCPL, was pursuing objectives beyond resolution and potentially aimed at acquiring control over the Corporate Debtor. It also noted RCPL’s involvement in another CIRP proceeding against a sister concern—M/s Flamingo Landbase Pvt. Ltd.—where similar patterns of conduct had emerged.
The NCLAT emphasized that the Code is not intended to be used as a tool for private enrichment or control, but to ensure time-bound resolution. Citing E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd [(2022) 3 SCC 161] and Swiss Ribbons v. Union of India [(2019) 4 SCC 17], the Tribunal highlighted that if the entire debt stands repaid, continuation of CIRP would defeat the purpose of the Code.
On the issue of the RP’s conduct, the Tribunal held that continuing to charge professional fees during the period of stay was impermissible, especially when the RP herself had sought exclusion of that period from the CIRP timeline. It agreed with the NCLT’s reliance on IndusInd Bank Ltd. v. Rajendra K. Bhuta [CA(AT)(Ins.) No. 177 of 2022], which held that RP fees cannot be charged for a stayed period.
Accordingly, the Tribunal upheld the order reducing the RP’s fee to ₹50,000 per month and ordered refund of the excess amount paid. It further found it anomalous that while the CoC refused repayment from the Corporate Debtor, they permitted CIRP costs to be funded from the same source.
Verdict
The NCLAT upheld the NCLT’s well-reasoned order terminating the CIRP of Rajasthan Land Holdings Ltd., finding that the process had been misused by the CoC and RP for extraneous purposes. The Tribunal held that once the entire admitted operational debt was repaid and no other genuine insolvency issue remained, CIRP could not be sustained. It reiterated that IBC is not a mechanism for unjust enrichment or delay, but a tool for time-bound resolution and revival. The appeals were dismissed in entirety, affirming the Adjudicating Authority's direction to terminate the CIRP and scale down the RP’s remuneration.
Appearance
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)
Cause Title: M/s Rajputana Constructions Pvt. Ltd. V. M/s Rajasthan Land Holdings Limited & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 853 of 2023
Coram: Justice Ashok Bhushan [Judicial Member], Mr. Arun Baroka [Technical Member], Mr. Barun Mitra [Technical Member]
[Read/Download order]
