IBC Claim Requires Crystallised Right To "Payment," Not Mere Right To "Performance": NCLT Kolkata

The Kolkata Bench of the National Company Law Tribunal (NCLT) on 3 July held that a contractual right to performance cannot be treated as a “right to payment” under Section 3(6) of the Insolvency and Bankruptcy Code, 2016, unless the claim has crystallised into a payable amount.

Technical Member Rekha Kantilal Shah and Judicial Member Bidisha Banerjee dismissed the appeal filed by NPGC Ltd against the liquidator's rejection of its Rs. 71.33 crore claim against D.C. Industrial Plant Services Pvt Ltd, which was undergoing liquidation. The Bench held:

"The right to payment, if any, will arise only upon the conclusion of the contracts and the final reconciliation of accounts between the parties. Until that stage is reached, the Appellant's claim has not crystallised into a "right to payment" within the meaning of Section 3(6) of the Code, and the invocation of Regulation 25 for making a best estimate cannot be stretched to cover what is, at its core, a right to performance that has not yet transmuted into a right to payment."

The dispute arose from two contracts awarded by NPGC Ltd to D.C. Industrial Plant Services Pvt Ltd on 14 May 2013 for works related to the Nabinagar Super Thermal Power Project.

NPGC alleged delays and incomplete execution of the works and raised a claim of Rs. 71.33 crore towards advances, liquidated damages, cost of completing the balance work and other amounts.

The corporate insolvency resolution process against D.C. Industrial Plant Services Pvt Ltd commenced on 30 July 2018, following which the company was placed into liquidation on 19 June 2019. The liquidator rejected NPGC's claim on the ground that it had not crystallised, leading to the appeal before the Tribunal.

During the liquidation process, the corporate debtor was sold as a going concern to Karanveer Singh Yadav Enterprises Pvt Ltd, and the liquidation proceedings were closed on 19 April 2022.

The Tribunal observed that the contracts continued to be performed by the corporate debtor under the new management and that no final reconciliation of accounts or conclusive finding of breach had taken place. It held that NPGC's claim remained a contractual right to performance and had not become a present right to payment.

It further held that Karanveer Singh Yadav Enterprises Pvt Ltd's continued performance of the corporate debtor's contractual obligations addressed the concern raised by the National Company Law Appellate Tribunal that liabilities must pass along with assets in a going concern sale.

It also observed that admitting disputed and uncrystallised claims at this stage would undermine the objective of the Insolvency and Bankruptcy Code by burdening a revived enterprise with liabilities that had not crystallised before the completion of the going concern sale. The Bench held:

"Finally, this Tribunal observes that the principal objective of the Insolvency and Bankruptcy Code, 2016, is the resolution of distressed entities and their revival as viable enterprises, and any admission of uncrystallised and disputed past claims at this juncture would fundamentally undermine the going concern sale that has been successfully achieved in the present case, and would burden the reconstituted enterprise in a manner contrary to the spirit and intent of the Code."

Accordingly, the NCLT held that NPGC's claims were not maintainable at this stage and dismissed the appeal.

For the Petitioner: Pooja Chakraborti, Mohit Dey, Advocates 

For Respondent No. 2/Intervenor: Rohit Das, Kishwar Rahman, Vishesh Pandey, Advocates 

For Erstwhile Liquidator: Sanjana Nandi, Advocate