Lease Rentals Not IRPC Without CoC Nod: NCLT Chennai Rejects DBS Bank's ₹46 Crore Claim In Orchid Pharma Insolvency

The National Company Law Tribunal (NCLT) at Chennai has dismissed an application by DBS Bank India Ltd seeking over Rs. 46 crore in lease rentals and CIRP-related expenses in the insolvency of Orchid Pharma Ltd, holding that in the present case such claims cannot be treated as Insolvency Resolution Process Costs in the absence of approval by the Committee of Creditors and cannot be raised after approval of the resolution plan.

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy held that the application was “misconceived” and amounted to an impermissible attempt to reopen settled claims under an approved resolution plan.

The application was filed by DBS Bank India Ltd, formerly Lakshmi Vilas Bank, seeking directions for payment of amounts claimed as IRPC, including lease rentals for premises occupied by the corporate debtor during the CIRP period and expenses allegedly incurred in initiating the insolvency process.

The bank, which was the lessor of certain premises occupied by Orchid Pharma, contended that the corporate debtor continued to occupy and use the premises during the CIRP period but failed to pay lease rentals amounting to over ₹46.36 crore. It also sought reimbursement of Rs 34.12 lakh towards CIRP-related expenses incurred in initiating the process.

The bank maintained that since Orchid Pharma continued to occupy and use the premises during the CIRP period, the lease rentals for that duration should be treated as CIRP costs, carrying priority under the Insolvency and Bankruptcy Code.

That position was resisted by the respondents, including the corporate debtor, the monitoring agent, and the successful resolution applicant, who pointed out that the bank had already lodged its claim as an operational creditor during the CIRP and was therefore bound by the terms of the approved resolution plan.

According to them, once the plan received approval, any claim not accounted for in it stood extinguished and could not be brought back through proceedings under Section 60(5) of the Code.

They also emphasised the nature of the claim itself. Lease rentals flowing from a contractual arrangement, they argued, would ordinarily fall within operational debt. For such dues to qualify as CIRP costs, the expense must relate to keeping the corporate debtor running as a going concern and must have been placed before and approved or ratified by the Committee of Creditors.

In the present case, they pointed out, the alleged lease rentals were never approved by the CoC.

Referring to the Supreme Court's ruling in Essar Steel India Ltd v. Satish Kumar Gupta, the Tribunal emphasised that its jurisdiction under Section 60(5) cannot be exercised to reopen claims settled under an approved resolution plan.

“..while this Tribunal has jurisdiction to adjudicate disputes arising out of the CIRP, such jurisdiction cannot be exercised to reopen or revive claims that stand settled in terms of an approved Resolution Plan,” the tribunal observed.

Examining whether lease rentals could qualify as IRPC, the tribunal held that for any expense to fall within that category, it must ordinarily be incurred by the Resolution Professional for conducting the CIRP or running the corporate debtor as a going concern, and must be placed before and approved or ratified by the Committee of Creditors.

“From a conjoint reading of the provisions of the Code and the CIRP Regulations, it is evident that for any expense to qualify as IRPC, the following conditions must ordinarily be satisfied:

(i) the expense must have been incurred by the Resolution Professional for the conduct of the CIRP or for running the Corporate Debtor as a going concern; and

(ii) such expense must have been placed before and ratified or approved by the Committee of Creditors.”

Applying this test, the Tribunal held that the bank's claim for lease rentals, based on continued occupation of the premises during the CIRP period, would ordinarily fall within the category of operational debt and had to be dealt with within the CIRP framework.

The tribunal found no material to show that the Resolution Professional had treated the lease as necessary for running the corporate debtor as a going concern or that the Committee of Creditors had approved such payments as CIRP costs.

In the absence of such approval, the Tribunal held that the claim could not be treated as IRPC.

“Therefore, permitting the Applicant to recover the alleged lease rentals as IRPC at this stage would effectively amount to reopening claims after approval of the Resolution Plan, which is impermissible under the scheme of the Code,” it said.

On the claim for reimbursement of CIRP-related expenses, the tribunal noted that under Regulation 33 of the CIRP Regulations, the applicant who initiates the process must initially bear such expenses, which are reimbursable only to the extent ratified by the Committee of Creditors.

"It is to be noted that Regulation 33 of the CIRP Regulations provides that the applicant who initiates the CIRP shall bear the expenses incurred by the Interim Resolution Professional, which shall thereafter be reimbursed by the Committee of Creditors to the extent ratified by it.”

Holding that the applicant had failed to establish that the amounts claimed qualified as Insolvency Resolution Process Costs, the tribunal concluded that the application was misconceived and dismissed it.

For Applicant: Advocates J.S Prithvi Raj and Sarah

For Respondents: Advocates Kaustubh Prakash and Pradheep Joy