Clerical Mistake In CIRP Form Causing No Impact on Approved Resolution Plan Not Gross Dereliction: NCLAT

The National Company Law Appellate Tribunal at Delhi has ruled that an inadvertent clerical error in a mandatory form filed during the insolvency resolution process cannot be characterised as “gross dereliction” of duty when it caused no prejudice to any stakeholder and had no impact on the approved resolution plan or the insolvency resolution process.

A bench comprising Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Naresh Salecha, while expunging the adverse remarks against a former Resolution Professional observed. 

“We also observe that an advertent clerical error which admittedly caused no prejudice to any stakeholder and had no impact on the approved Resolution Plan or the CIRP and therefore cannot legally be characterised as gross dereliction on the part of the Appellant.”

The appellate tribunal was dealing with an appeal filed by Ashish Arjunkumar Rathi, the former Resolution Professional of Goyal Energy and Steel Private Limited.

The company entered the Corporate Insolvency Resolution Process, or CIRP, under the Insolvency and Bankruptcy Code. This is the process through which a financially distressed company is considered for resolution. Rathi was initially appointed as the Interim Resolution Professional and was later confirmed as the Resolution Professional.

Nakshatra Asset Ventures Limited subsequently submitted a resolution plan for the company. The plan was approved by the Committee of Creditors, with 100 percent of the voting share in its favour, and was then placed before the National Company Law Tribunal, Cuttack bench, for approval.

While seeking approval of the plan, Rathi filed Form-H, the statutory compliance certificate accompanying a resolution plan. The Cuttack bench noticed a discrepancy in this form concerning the claim of Chhattisgarh State Power Distribution Company Limited.

The company had originally claimed about ₹34.51 crore. The amount admitted was about ₹34.50 crore, with a difference of ₹59,464 between the two figures.

In Form-H, however, the admitted amount was reflected as the amount originally claimed. Rathi maintained that this was a purely clerical and inadvertent error.

He submitted that the mistake had not altered the amount admitted to the creditor. It had also not affected the composition of the Committee of Creditors, the voting shares of creditors, the treatment or distribution of claims under the resolution plan, or the commercial decision taken by the Committee of Creditors.

Rathi further maintained that the resolution plan remained unaffected and that the amount payable to operational creditors under the plan remained unchanged.

The Cuttack bench nevertheless described the error as a “gross dereliction” on the part of the Resolution Professional. It observed that the amount claimed by a creditor had been reflected incorrectly in Form-H despite the records showing that the original claim was higher.

At the same time, the Cuttack bench recorded that the discrepancy was not causing any prejudice to Chhattisgarh State Power Distribution Company. It noted that the amount proposed under the plan for operational creditors was very small compared with the claims received or admitted.

The former Resolution Professional challenged the adverse remarks before the appellate tribunal. He contended that he had not been issued a notice or given an opportunity to explain the circumstances surrounding the discrepancy before the observations were made.

According to him, this violated the principles of natural justice. He also submitted that the direction requiring a copy of the order to be forwarded to the Insolvency and Bankruptcy Board of India could have serious professional and reputational consequences.

Before the appellate tribunal, Rathi conceded that there had been an error. He maintained, however, that it was a bona fide clerical mistake that had neither benefited any stakeholder nor caused any loss or prejudice to a creditor.

He also submitted that the discrepancy had not influenced the outcome of the insolvency resolution process and would have been immediately rectified had it been noticed earlier.

The appellate tribunal agreed with him. It found that the discrepancy in Form-H was a bona fide clerical or typographical mistake, with the admitted claim amount having inadvertently been reflected in place of the amount originally claimed.

The bench also asked Rathi whether the Insolvency and Bankruptcy Board of India had ever imposed a penalty on him or issued him a notice for any earlier irregularity or misconduct. He submitted that he had an unblemished professional record and had never received a penalty or notice from the Board.

Accepting his contention, the appellate tribunal observed that an isolated inadvertent clerical mistake, without any mala fide intention or statutory violation, could not be equated with “gross dereliction” warranting adverse judicial remarks.

It further observed that the error had caused no prejudice to any stakeholder and had no impact on the approved resolution plan or the insolvency resolution process.

The bench held that such adverse remarks could not be sustained in the absence of a finding of fraud, deliberate misconduct, negligence, wrongful gain, or prejudice to any stakeholder.

Accordingly, the appellate tribunal expunged the adverse observations in the Cuttack bench's order regarding dereliction of duty by Rathi. It also expunged the direction requiring a copy of the order to be forwarded to the Insolvency and Bankruptcy Board of India.

The appeal was allowed to that extent, while the remaining part of the Cuttack bench's order was left unaffected.