A) ABSTRACT / HEADNOTE

The judgment delivered by the Supreme Court of India in NTPC Ltd. (Simhadri Project) v. Rajiv Chakraborty addresses the limited yet significant issue concerning the classification of creditor claims in the Information Memorandum prepared during a Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. The appellant, NTPC Ltd., contended that its claim ought to have been reflected under the category of Operational Creditors rather than being placed in the List of Other Creditors. The claim was, however, pending adjudication before an Arbitrator at the relevant time.

The Court clarified the legal nature and purpose of the Information Memorandum, emphasizing that it is a disclosure document meant to present the financial position of the corporate debtor and does not operate as a determinative instrument adjudicating claims. The Resolution Professional, the Court held, lacks the statutory authority to accept, reject, or finally classify claims that remain sub judice before a competent forum. The judgment reinforces that a claim pending adjudication does not stand extinguished merely due to its categorization in the Information Memorandum and remains enforceable subject to final adjudication or operation of law.

The decision thus preserves the rights of creditors whose claims are under adjudication while also protecting the integrity of the insolvency resolution framework by preventing premature adjudication by insolvency professionals. The Court left open all remedies available to the appellant against the final resolution plan, if aggrieved, thereby balancing procedural discipline with substantive justice.

Keywords: Insolvency and Bankruptcy Code, Information Memorandum, Resolution Professional, Operational Creditor, Pending Arbitration

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The present judgment arises from proceedings under the Insolvency and Bankruptcy Code, 2016, a legislation enacted to ensure time-bound resolution of corporate insolvency while balancing the interests of stakeholders. The appeal before the Supreme Court originated from an order of the National Company Law Appellate Tribunal, which had affirmed the decision of the Adjudicating Authority regarding the treatment of the appellant’s claim in the Information Memorandum.

The appellant, NTPC Ltd., was involved in contractual dealings with the corporate debtor in relation to the Simhadri Project. A dispute arose between the parties, leading to arbitration proceedings which were pending at the time when the corporate debtor entered the Corporate Insolvency Resolution Process. During CIRP, the Resolution Professional prepared the Information Memorandum, in which the appellant’s claim was listed under Other Creditor Claims rather than Claims of Operational Creditors.

The appellant’s grievance was not with the quantum of the claim recorded but with the classification itself. According to the appellant, such classification diluted its legal position and could adversely impact consideration of its claim in the resolution process. The adjudicating fora below rejected this contention, holding that pending claims could not be conclusively classified.

The Supreme Court was therefore called upon to determine the scope of authority of a Resolution Professional and the legal effect of categorizing a pending claim in the Information Memorandum. The background of the judgment is rooted in the need to prevent insolvency proceedings from becoming a parallel adjudicatory mechanism for disputed claims, thereby respecting the jurisdiction of arbitral and judicial fora.

D) FACTS OF THE CASE

The appellant, NTPC Ltd. (Simhadri Project), had asserted a monetary claim against the corporate debtor arising out of contractual obligations. The dispute between the parties was referred to arbitration, and the arbitral proceedings were ongoing at the relevant time. Before the arbitral claim could be adjudicated, the corporate debtor entered into Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016.

Pursuant to the initiation of CIRP, a Resolution Professional was appointed who undertook the statutory duty of preparing the Information Memorandum. The memorandum contained details of the financial position of the corporate debtor, including various categories of creditor claims. The appellant’s claim was included in the memorandum under the heading List of Other Creditor Claims (excluding Related Party Claims and Employees and Workmen Claims) as on 17 July 2019.

The appellant did not dispute the amount recorded in the memorandum. The sole objection raised was that its claim ought to have been reflected under Claims of Operational Creditors. The appellant argued that failure to do so could potentially prejudice its interests during the resolution process.

The Adjudicating Authority rejected the appellant’s contention, holding that since the claim was under adjudication before an Arbitrator, it could not be conclusively categorized as an operational debt. The Appellate Tribunal affirmed this reasoning. Aggrieved thereby, the appellant approached the Supreme Court.

The Supreme Court noted that the claim was explicitly described as a claim under adjudication and was not ignored or excluded from the Information Memorandum. The Court also took note of the fact that the Resolution Professional had no authority to adjudicate upon the claim. These factual aspects formed the foundation for the Court’s final determination.

E) LEGAL ISSUES RAISED

i. Whether a claim pending adjudication before an Arbitrator must be reflected under Claims of Operational Creditors in the Information Memorandum?

ii. Whether the classification of a claim in the Information Memorandum amounts to adjudication or extinguishment of that claim?

iii. Whether the Resolution Professional has the authority to accept, reject, or conclusively classify disputed claims?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that the appellant was an operational creditor within the meaning of the Insolvency and Bankruptcy Code, 2016 and that its claim ought to have been reflected accordingly in the Information Memorandum. It was contended that placing the claim under Other Creditors undermined its legal status and could adversely affect its consideration by the Committee of Creditors.

The appellant argued that mere pendency of arbitration proceedings could not deprive it of the statutory recognition accorded to operational creditors. The counsels emphasized that the Information Memorandum plays a critical role in the resolution process and any misclassification could lead to injustice.

The appellant further submitted that the categorization adopted by the Resolution Professional was arbitrary and not supported by the scheme of the Code. It was urged that the Court should direct correction of the Information Memorandum to reflect the appellant’s claim under the appropriate head.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent submitted that the appellant’s claim was admittedly pending adjudication before an Arbitrator and had not crystallized into a legally enforceable debt. It was argued that until adjudication, the claim could not be conclusively treated as an operational debt.

The respondent contended that the Information Memorandum is only a disclosure document and does not determine rights or liabilities. The Resolution Professional, it was argued, has no adjudicatory powers and therefore rightly categorized the claim as one under adjudication.

The respondent also submitted that the appellant’s claim had not been ignored or extinguished and was expressly noted in the memorandum. Hence, no prejudice was caused to the appellant.

H) JUDGEMENT 

The Supreme Court dismissed the appeal and upheld the findings of the Adjudicating Authority and the Appellate Tribunal. The Court held that since the appellant’s claim was pending adjudication before an Arbitrator, it was correctly described in the Information Memorandum as an Other Creditor Claim. The Court emphasized that the purpose of the Information Memorandum is to provide relevant financial information and not to decide claims.

The Court categorically observed that the Resolution Professional has no authority or power to accept or disallow claims. Any such adjudication must be undertaken by a competent forum. The Court clarified that inclusion of the appellant’s claim in the Information Memorandum ensures that resolution applicants and the Committee of Creditors are aware of the claim while formulating and approving the resolution plan.

The Court further held that the appellant’s claim does not stand extinguished merely due to its classification in the memorandum. The claim would survive and remain subject to adjudication by the Arbitrator or by operation of law. The Court left open all remedies available to the appellant to challenge the final resolution plan if it was aggrieved by the manner in which its claim was dealt with.

The appeal was accordingly disposed of, and the interim order was vacated, with a direction to expedite the resolution process.

a) RATIO DECIDENDI

The ratio decidendi of the judgment is that a claim pending adjudication before a competent forum cannot be conclusively classified or adjudicated by the Resolution Professional in the Information Memorandum. The Information Memorandum serves a disclosure function and does not determine the rights of creditors. Classification of a pending claim as an Other Creditor Claim does not extinguish or dilute the claim, which survives subject to adjudication.

b) OBITER DICTA

The Court observed that resolution applicants are expected to take note of all claims reflected in the Information Memorandum, including those under adjudication, and make appropriate provisions in the resolution plan. This observation underscores the need for holistic consideration of liabilities without transforming insolvency proceedings into adjudicatory forums.

c) GUIDELINES

i. Information Memorandum is a disclosure document and not an adjudicatory instrument.
ii. Resolution Professionals have no authority to decide or extinguish disputed claims.
iii. Claims under adjudication must be reflected transparently without final classification.
iv. Creditors retain remedies against the final resolution plan if aggrieved.

I) CONCLUSION & COMMENTS

The judgment reinforces procedural discipline under the Insolvency and Bankruptcy Code by clearly demarcating the boundaries of authority of Resolution Professionals. It prevents misuse of insolvency proceedings as a substitute for adjudicatory forums and protects the substantive rights of creditors whose claims are pending adjudication. The decision balances transparency in insolvency resolution with respect for pending arbitral proceedings, thereby strengthening the integrity of the insolvency framework.

J) REFERENCES

a) Important Cases Referred

i. NTPC Ltd. (Simhadri Project) v. Rajiv Chakraborty, [2020] 13 SCR 1090

b) Important Statutes Referred

i. Insolvency and Bankruptcy Code, 2016