Tribunal Reinforces the Insolvency and Bankruptcy Code's Objective of Reviving Distressed Entities as Viable Enterprises
The National Company Law Tribunal (NCLT), Kolkata, Division Bench, presided by Members Rekha Kantilal Shah and Bidisha Banerjee, has dismissed the application filed by Indian Overseas Bank (IOB) challenging the rejection of its claims against D C Industrial Plant Services Private Limited (DCIPSPL), a corporate debtor undergoing liquidation.
In a detailed judgment dated July 3, 2026, the tribunal emphasized the primary objective of the Insolvency and Bankruptcy Code, 2016, which is to facilitate the resolution and revival of distressed entities as viable enterprises. It reiterated that claims arising from ongoing contractual obligations cannot be admitted during liquidation when the corporate debtor is sold as a going concern and continues to perform its pre-existing contracts.
The case arose when the liquidator rejected IOB's claims amounting to Rs. 71.33 crores, linked to two contracts awarded by IOB to DCIPSPL. The liquidator's decision was based on the premise that these claims had not crystallized into a definite right to payment, as the contracts were still being performed by DCIPSPL under new ownership. The tribunal upheld this decision, stating that admitting such claims would unjustly burden the reconstituted enterprise and contradict the Insolvency and Bankruptcy Code's objective.
The tribunal further elaborated that claims involving contingent or uncrystallized liabilities require the liquidator to make the best estimate of contingent claims, as per Regulation 25 of the IBBI (Liquidation Process) Regulations, 2016. However, such estimation cannot extend to claims that are fundamentally rights to performance, which have not yet transformed into rights to payment.
Indian Overseas Bank had filed the application seeking to set aside the liquidator's decision and direct the liquidator to consider and accept its claims as an "other creditor" of the corporate debtor. The tribunal dismissed the application, noting that the claims were directly linked to ongoing contracts and had not crystallized into a right to payment.
The judgment underscores the tribunal's commitment to ensuring that the insolvency process aids in the revival and sustainability of distressed businesses, rather than burdening them with unresolved past liabilities.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Claims arising from ongoing contractual obligations of the Corporate Debtor cannot be admitted during liquidation when the Corporate Debtor is sold as a going concern and continues to perform its pre-existing contracts.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 3(6), Regulation 25 of the IBBI (Liquidation Process) Regulations, 2016
