2025 (5) TMI 168 - AT - Companies Law

Dismissal of application seeking admission of the claim filed by the Appellant in the insolvency process of IL FS-Respondent No.2 - claim was filed belatedly - exercise of due diligence by debenture holder represented by a debenture trustee or not - sufficient reasons/grounds exist to admit the belated claim at this stage or not - HELD THAT - The public announcement of 22.05.2019 made by Respondent No.1-CMA inviting claims clearly stipulated that in case of those Debenture Holders having an appointed trustee the claims were to be filed only through such a trustee. It is also an undisputed fact that the Appellant did not file their claim qua Respondent No.2 within the extended time so allowed either directly by themselves or through the Respondent No.3-DT. Their claim was eventually filed on 05.06.2023 by the DT which was much beyond the sixth extension of time-line allowed until 18.08.2022. It is therefore abundantly clear that substantial time had elapsed since the date of issue of public announcement inviting claim and the actual date of filing of claim on behalf of the Appellant by the DT qua the obligations of Respondent No.2-ILFS. While claim had been filed in respect of group entities of ILFS no claim forms were submitted in so far as ILFS-Respondent No.2 was concerned. It has been admitted by the Appellant that there were several exchanges of communication as late as from March 2023 onwards between the Appellant and Respondent No.3 regarding filing of claims of the Appellant in relation to insolvency resolution process of Respondent No.2-ILFS following which on 05.06.2023 the Respondent No.3 filed Form-C with the CMA with request to admit the claim of the Appellant. It therefore becomes clear that no claim had been filed in respect of the Appellant qua the Respondent No.3 though the time-line had lapsed - The Appellant should have been more vigilant in taking timely steps to file their claim. The Appellant has been clearly found wanting in this regard as due diligence was not shown towards satisfying the prescriptive requirement of filing their claims even within the extended time period. It is not required of the Adjudicating Authority to determine as to whether the Appellant or the DT was responsible for the delay in filing the claims but has to be merely satisfied whether any inordinate and unjustified delay occurred in the filing of claims. The Adjudicating Authority has therefore not committed any mistake in concluding that claims qua the obligations to be discharged by Respondent No.2 not having been filed within the extended time period allowed for filing of claims for any genuine reason the conduct of the Appellant was clearly remiss. While it is agreed with the Appellant that merely because the claim of the Appellant was admitted in the insolvency process of ITNL by the CMA it could not be a fetter on the right of the Appellant to seek admission of their claims in the insolvency resolution process of ILFS since their guarantee obligation to pay the Appellant was co-extensive and co-terminus with ITNL however it cannot be countenanced that the lethargic and lackadaisical approach of the Appellant in pursuing their claims qua ILFS. The Appellant had clearly failed to discharge their obligation to lodge claims within prescribed time period. In these circumstances it is inclined to agree with the Respondents that allowing belated claim of the Appellant will open flood gates of the multiple such claims. If belated claims are allowed for any specific party there is all likelihood from other similarly placed claimants to seek reopening of the claim window leading to the need of remapping of the creditors and pro-rata revision revision/adjustment of the of the proceeds already distributed or proposed to be distributed thereby rendering the resolution process endless. The first round of interim distribution of funds to creditors had already been carried out in the interest of successful implementation of the Resolution Framework and revival of the ILFS and its group entities following approval of the interim distribution mechanism by this Tribunal on 31.05.2022 as is placed at page 189 of reply of Respondent No.2. Coming to the reliance placed by the Appellant on the judgement of this Tribunal in Puneet Kaur judgement 2022 (6) TMI 108 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI it is noticed that the facts of the present case are distinguishable. While in Puneet Kaur matter the resolution plan had not yet been approved by the Adjudicating Authority in the present case at the time of filing belated claims by the Appellant distribution of proceeds in terms of interim resolution framework had already commenced. In the instant case the Appellant has failed to provide any plausible justification for delay in filing their claims. The Appellant for no justifiable reasons had clearly dropped the guard of being vigilant in pursuing their claims within the time-lines and now seeks to stall the resolution process disregarding the larger interest of other stakeholders. The Appellant because of their inaction cannot prejudice the creditors who had filed their claims in a timely manner to their detriment. In the absence of credible and genuine grounds extending the delay it does not commend us to overturn the findings of Adjudicating Authority for any indulgence shown by way of belated admittance of claim at this stage is also likely to jeopardise the ongoing resolution process of ILFS and its group entities. The Adjudicating Authority has not committed any error in the given facts and circumstances in not acceding to the request of the Appellant for admission of their belated claims. Conclusion - The Appellant had clearly failed to discharge their obligation to lodge claims within the prescribed time period. Allowing belated claims will open flood gates of multiple such claims and render the resolution process endless. Appeal dismissed.

Summary

The core legal questions considered by the Tribunal in this appeal arising from the insolvency resolution process of a corporate debtor and its group companies are as follows:

1. Whether the appellant, a debenture holder represented by a debenture trustee, had exercised due diligence in filing their claim against the corporate debtor within the prescribed timelines set under the Resolution Framework and insolvency proceedings.

2. Whether the delay in filing the appellant's claim could be condoned and the belated claim admitted at this stage, given the circumstances and the nature of the claim arising from a guarantee obligation co-extensive with the subsidiary's obligations.

3. Whether the debenture trustee was obligated and empowered to file claims on behalf of the debenture holders without explicit written instructions, and if not, whether the trustee's failure to file timely claims could be attributed to the appellant.

4. Whether the timelines for filing claims under the insolvency resolution framework are mandatory or directory, and the implications of such classification on admission of delayed claims.

5. Whether admission of belated claims at this stage would prejudice the ongoing insolvency resolution process, including interim distributions already made to creditors, and the broader public interest.

6. Whether the appellant's claim, although admitted in the insolvency process of the subsidiary, could be separately admitted in the insolvency resolution process of the parent company given the guarantee obligations.

Issue-wise Detailed Analysis:

1. Due Diligence and Timeliness of Claim Filing

The legal framework governing the filing of claims in insolvency proceedings is primarily derived from the Insolvency and Bankruptcy Code, 2016 (IBC), the Resolution Framework approved by the Tribunal, and the Debenture Trustee Deed (DTD) executed between the parties. The Resolution Framework issued public announcements inviting creditors to file claims within stipulated timelines, which were extended multiple times until 18.08.2022.

Precedents emphasize the importance of creditors exercising due diligence in filing claims timely to ensure smooth and equitable resolution processes. The Tribunal noted that the appellant was duly informed of the claim process and timelines through public announcements and direct communication from the debenture trustee.

Evidence showed that the appellant filed claims against two group entities within the prescribed timelines, but failed to file any claim against the parent company until 05.06.2023, well beyond the extended deadline. Correspondence from the debenture trustee to the appellant dated 24.05.2019 requested timely submission of claims, reinforcing that the appellant was aware of the process.

The Court applied the law to the facts and found that the appellant failed to exercise requisite vigilance and due diligence in filing their claim against the parent company within the extended timelines. The delay was inordinate and unjustified, and the appellant's conduct was remiss.

Competing arguments by the appellant that the delay was due to reliance on the debenture trustee to file claims and that the trustee was negligent were considered but rejected because the trustee had repeatedly informed the appellant to submit claims timely and could not act unilaterally without instructions.

The conclusion was that the appellant's failure to file claims timely was attributable to their own inaction and lack of due diligence.

2. Condonation of Delay and Admission of Belated Claims

The appellant contended that the delay should be condoned, relying on the principle that timelines under insolvency proceedings are directory and not mandatory, citing a Supreme Court precedent. They argued that since the resolution plan had not yet been finalized or approved, there was scope to admit claims till that stage, and that no prejudice would be caused.

The respondents and the Tribunal emphasized that while timelines may be directory, condonation of delay requires cogent and plausible reasons, which were lacking here. The appellant failed to provide any credible justification for the delay despite multiple extensions of the claim window.

The Tribunal further held that admitting belated claims at this stage would disrupt the ongoing resolution process, which had already progressed to interim distributions to creditors based on verified claims. Allowing such claims would necessitate remapping creditors and revising distributions, leading to an endless and unceasing process contrary to the objectives of timely resolution under the IBC.

The Court applied the law and facts to conclude that the delay was unjustified and condonation was not warranted. The appellant's request for admission of belated claims was rightly refused.

3. Role and Obligations of the Debenture Trustee

The DTD and Parent Agreement governed the relationship between the debenture holders, the trustee, and the corporate debtor. The trustee's authority to act was limited by Clause 11(b) of the DTD, requiring written instructions from debenture holders before filing claims.

The appellant argued that the trustee was obligated to file claims on their behalf without needing explicit instructions and that the trustee's failure to do so caused the delay. The respondents contended that the trustee could not act unilaterally and had duly informed the appellant to provide instructions and submit claims.

The Tribunal found that the trustee's conduct was consistent with the contractual terms and that the appellant was aware of the need to provide instructions. The trustee's emails requesting claims submission and the appellant's delay in providing instructions were material facts.

The Court concluded that the trustee could not be held responsible for the delay and the appellant's failure to provide timely instructions was a key factor.

4. Nature of Timelines for Filing Claims

The appellant relied on the Supreme Court's ruling that timelines under the IBC are directory, not mandatory, to argue for admission of belated claims. The Tribunal acknowledged this principle but emphasized that condonation of delay is not automatic and requires sufficient cause.

The Court noted that the appellant failed to demonstrate any sufficient cause or bona fide reason for the delay. The principle of directory timelines does not override the need for diligence and fairness to other creditors.

Thus, the Tribunal held that the directory nature of timelines does not justify admission of claims filed without justification beyond the extended deadlines.

5. Prejudice to Ongoing Resolution Process and Public Interest

The respondents argued that admitting belated claims would prejudice other creditors and disrupt the ongoing resolution process, which had reached advanced stages including interim distributions. The resolution of the parent company depended on the resolution of its group entities, and reopening claims would cause delays and uncertainty.

The Tribunal agreed that reopening the claims process would undermine the objectives of the IBC to ensure timely resolution and would prejudice creditors who had complied with timelines.

The Court applied the law to the facts and held that the larger public interest and the integrity of the resolution process outweighed the appellant's belated claim.

6. Admission of Claims in Parent Company Insolvency Despite Admission in Subsidiary Insolvency

The appellant contended that since their claim arose from a guarantee by the parent company co-extensive with the subsidiary's obligations, admission of claims in the subsidiary's insolvency process should not preclude admission in the parent's insolvency process.

The Tribunal accepted the legal principle that guarantee obligations are co-extensive and that claims can arise separately against parent and subsidiary. However, the appellant's failure to file claims timely in the parent's insolvency process was fatal.

The Court concluded that while the legal basis for the claim was valid, procedural non-compliance and delay barred admission.

Significant Holdings:

"The Appellant had clearly failed to discharge their obligation to lodge claims within the prescribed time period. Allowing belated claims will open flood gates of multiple such claims and render the resolution process endless."

"While timelines under the Insolvency and Bankruptcy Code may be directory, condonation of delay requires cogent grounds which are absent in the present case."

"The Debenture Trustee could not act unilaterally without explicit instructions from the Debenture Holders and had duly informed the Appellant to submit claims timely."

"Admission of belated claims at this stage would prejudice other creditors and disrupt the ongoing resolution process, contrary to the objectives of timely resolution under the Code."

"The Appellant's failure to exercise due diligence and vigilance in filing claims within the extended timelines disentitles them from relief."

In conclusion, the Tribunal upheld the Adjudicating Authority's order dismissing the application for admission of belated claims, emphasizing the necessity of timely claim submission, the limited discretion to condone delay without sufficient cause, and the imperative to protect the integrity and finality of the insolvency resolution process in the larger public interest.