Debts incurred during CIRP are also a part of IRP costs, says NCLAT


Status as on: 08/08/2022 

In a 2018 judgment in the case of M V Projects v. Divya Jyoti Sponges Iron Pvt Ltd., the NCLAT has held that supply of services after the Corporate Insolvency Resolution Process (CIRP) is initiated to keep the entity as a going concern will be included in Insolvency Resolution Process (IRP) Costs.


M/s. MV Projects (Appellant) is a sole proprietorship that supplied coal to Divya Jyoti Sponges Iron Pvt Ltd (Corporate Debtor) after the initiation of CIRP proceedings against it. This supply was carried out to keep the company as a going concern even during CIRP. The Resolution Professional (RP) had placed such orders with the appellant during CIRP and an amount of more than 26 Lakhs remained due and payable to the supplier. The appellant demanded such payment and the RP made no mention of such transactions in the Resolution Plan. Hence, the appellant approached the Adjudicatory Authority (AA) to seek redressal. The AA rejected the claim on the ground the that Resolution Plan has already been approved. Challenging the same, the appellant filed this appeal before the NCLAT.


Whether such claims can be counted as IRP costs or not?

If such claims can be considered once Resolution Plan has been approved?


The NCLAT held that if the Appellant has supplied the goods during the period of the CIRP to keep the company as a going concern, it was the duty of the Resolution Professional to include such cost towards ‘Resolution Process Costs’ under section 5 (13) of the IBC and Regulation 31 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for payment in favour of Appellant for non-inclusion of the same. It also held that the Resolution Plan in question is in violation of section 30(2) (a) of the IBC. The NCLAT subsequently modified the Resolution Plan to include this claim in accordance with the law.


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