The application submitted by the appellant under Section 60(5) of the IBC (hence referred to as "the application") was refused by the Adjudicating Authority (AA), which is where the appeal stems from the Code and deemed M/s BVN Traders "Respondent No. 3," in the capacity Creditor financier. The appellant contested the contested order based on the grounds that the adjudicating authority made mistakes with the facts and the law, the finding was mostly based on the Committee of Creditors' judgement.
In the instant case titled Rajnish Jain v. Anupam Tiwari & Anr, the issue raised for clarification before the Supreme Court was:
Whether the AA's decision is valid or not?
With regard to this issue, the Honourable NCLAT ruled that the Committee of Creditors has no authority to determine whether a creditor is a financial or operational creditor and that such a judgement can never be viewed as an application of the Committee of Creditors' commercial wisdom. The NCLAT believes that there would be a significant conflict of interest if CoC were to decide a factor in a case where an IBC application is required. Applying the law to the facts of the case will determine whether a person or business is a Financial Creditor as defined in Section 5(7) or an Operational Creditor as defined in Section 5(20). Voting is not an option, and discretion is a decision. The NCLAT also stated that the IRP compiles the Claim during the CIRP and that the Committee of Creditors is then established in accordance with Section 18 of the Code. Only the aggrieved party may raise the issue after the Committee of Creditors is formed, and only before the Adjudicating Authority.
The NCLAT concluded that there is no need to interfere with the Adjudicating Authority's decision to treat BVN Traders as a financial creditor. According to the NCLT, the Committee of Creditors does not have the authority to determine whether a creditor who lodges a claim is a Financial Creditor or an Operational Creditor. As a result, the appeal was dismissed.
The Court categorically stated that,
"We hold that the Resolution Professional may add to existing claims of claimants already received, or admit or reject further Claims and update the list of Creditors. But after categorisation of a claim by the IRP/Resolution Professional we hold that they cannot change the status of a Creditor".