The National Company Law Appellate Tribunal, Principal Bench, in an order dated 30 January 2025, held that hire charges for cranes lying unused at the premises of a corporate debtor during the Corporate Insolvency Resolution Process cannot be treated as CIRP costs under Regulation 31 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. A Bench comprising Justice Ashok Bhushan, Barun Mitra, and Arun Baroka dismissed the appeal of the operational creditor.
Background
Starlog Enterprises Ltd. had provided cranes to Vadraj Cement Ltd. (the corporate debtor) on a hire basis. Invoices for the hire charges were issued periodically, with the last invoice raised in June 2018. After the initiation of CIRP against Vadraj Cement, the cranes remained at the corporate debtor's premises but were not utilised, as the plant had already been shut down.
Starlog Enterprises claimed that the hire charges accruing during the CIRP period should be classified as CIRP costs under Regulation 31(b), which covers amounts due to suppliers of essential goods and services that are critical to preserving the value of the corporate debtor as a going concern. The Resolution Professional rejected this classification, and the NCLT Mumbai upheld the rejection.
The appellant argued before the NCLAT that the moratorium under Section 14(1)(d) of the IBC — which protects the assets of the corporate debtor from recovery — meant that it could not retrieve its cranes, and therefore the hire charges should be treated as costs of the resolution process.
Key Holdings
The NCLAT ruled as follows:
No usage, no CIRP costs: Hire charges for assets that were not utilised by the corporate debtor during the CIRP period cannot be classified as CIRP costs. The mere physical presence of an asset at the corporate debtor's premises does not transform ongoing hire charges into costs incurred for the preservation or management of the corporate debtor's business.
Regulation 31(b) requires direct nexus: For a claim to qualify as a CIRP cost, there must be a direct nexus between the expenditure and the resolution process. Assets lying idle at the corporate debtor's premises do not contribute to preserving the going concern value and therefore do not satisfy this threshold.
Moratorium not a basis for cost classification: The Tribunal rejected the argument that Section 14(1)(d) of the IBC, by preventing the operational creditor from recovering its assets, creates an entitlement to have the accruing hire charges treated as CIRP costs. The moratorium protects the corporate debtor's assets; it does not convert third-party claims into resolution process expenses.
Implications for Practitioners
This decision has important consequences for operational creditors whose assets are in the possession of corporate debtors undergoing CIRP. Equipment lessors, vehicle fleet providers, and machinery hire firms must understand that the inability to retrieve assets during moratorium does not automatically convert accruing rental or hire charges into CIRP costs entitled to priority treatment.
Practitioners advising operational creditors in such situations should consider filing claims as operational debt rather than seeking CIRP cost classification. Additionally, pre-insolvency contract drafting should include provisions addressing the treatment of hire charges in the event of the lessee's insolvency, though the enforceability of such provisions during moratorium remains subject to the overriding effect of Section 14.
Resolution professionals benefit from this ruling, as it narrows the category of claims that can be classified as CIRP costs — thereby preserving the pool of funds available for distribution to creditors under the resolution plan or liquidation waterfall.