NCLT Ahmedabad Admits Cotton Corporation Claim At Notional Value ₹1, Holds Contingent Claim Not Crystallised

The Ahmedabad Bench of the National Company Law Tribunal (NCLT) on 27 April held that a claim linked to pending proceedings and subject to a subsisting stay cannot be treated as a crystallised debt under the Insolvency and Bankruptcy Code, 2016, and may only be recognised at a notional value in the Corporate Insolvency Resolution Process (CIRP).

Judicial Member Shammi Khan and Technical Member Sanjeev Sharma dismissed an interlocutory application filed under Section 60(5) of the Code, while directing that the claim be admitted at a notional value of Rs. 1 instead of being reduced to nil. They observed:

“The claim of the Applicant, being contingent upon the outcome of pending arbitration appeal proceedings and subject to a subsisting stay, is a disputed claim which can be admitted at a notional value of Rs. 1, in order to reflect its contingent nature without affecting the CIRP process or voting rights.”

The dispute arose from cotton bale supplies made by Cotton Corporation of India Ltd to K-Lifestyle & Industries Ltd in 2004, for which payments remained unpaid. Arbitration proceedings culminated in an award dated 23 October 2007 in favour of the applicant.

The corporate debtor challenged the award before the Bombay High Court, which dismissed the challenge in 2010. On appeal, the High Court granted a conditional stay in 2011 subject to furnishing security, and a bank guarantee of Rs. 5 crore was deposited by the corporate debtor.

In 2015, the High Court permitted withdrawal of Rs. 5 crore by the applicant, but only on the condition that the amount would be redeposited with interest if the appeal succeeded. The applicant gave an undertaking accordingly.

When CIRP commenced in 2020, the Resolution Professional invited claims and the applicant submitted a claim of Rs. 6.82 crore as operational debt. The Resolution Professional reduced the claim to nil, adjusting the Rs. 5 crore withdrawal against it, citing the pending challenge to the arbitral award.

The applicant contended that the withdrawal of Rs. 5 crore was conditional and could not amount to satisfaction of the claim. It argued that the Resolution Professional had no authority to treat the claim as extinguished and sought full admission in CIRP.

The Resolution Professional opposed the application, stating that the claim remained disputed and contingent since the arbitral award had not attained finality. It submitted that its role was limited to collation of claims and not adjudication, and that admitting the claim in full would defeat the scheme of the Code.

The Tribunal held that the withdrawal of Rs. 5 crore was conditional in nature and could not be treated as final appropriation of the claim. It further noted that the arbitral award itself remained under challenge and subject to a continuing stay, reinforcing the disputed character of the claim. The Bench observed:

“Where the claim is subject to serious dispute or pending adjudication before a competent forum, the same cannot be treated as a crystallised claim in terms of Regulations 13 and 14 of the CIRP Regulations.”

The Bench reiterated that the Resolution Professional cannot adjudicate disputed claims and must only perform a limited verification role under the CIRP framework. It held that admitting the claim in full would be premature, while treating it as nil was also not appropriate given its contingent nature.

Accordingly, the NCLT dismissed the application, upheld the Resolution Professional's treatment of the claim as contingent, and directed that it be admitted only at a notional value of Rs. 1. Interim reliefs seeking to halt approval of resolution plans were also rejected.

For Appellants: Advocate Arjun Seth

For Respondents: Advocate Atul Sharma