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Submission Of Claims In CIRP-IBC, 2016

(Understanding the nuances of the claims is essential for all stakeholders involved in the insolvency resolution process. This note is an attempt at understanding the scheme of the submission of `claims' as envisaged in the provisions of the Insolvency and Bankruptcy Code, 2016 and through contemporary judicial view including recent developments and amendments to the CIRP Regulations.)

The Insolvency and Bankruptcy Code ("IBC") of 2016 has revolutionized the insolvency landscape in India, furnishing a comprehensive framework for resolving financial distress and facilitating the revival of distressed companies or their orderly liquidation. In the Insolvency and Bankruptcy Code 2016, the concept of claim comes into picture when the Corporate Insolvency Resolution Process commences from the date of appointment of Interim Insolvency Professional.

As per the provisions of the IBC, on admission of a petition and declaration of a moratorium under Section 13^[1*], a public announcement is made inviting claims against the Corporate Debtor by a specified date. The Insolvency and Bankruptcy code, 2016 defines the word `claim' as follows-

3(6) "claim" means -

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

[1* Section 13: Declaration of moratorium and public announcement.]

According to the provisions of sections 18^[2*] and 25^[3*] of the Code, the Interim Resolution Professional ("IRP") or the Resolution Professional ("RP") is responsible for compiling all claims made by creditors in response to the public announcement. It is as per Regulation 13^[4*] of the Insolvency And Bankruptcy Board Of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016 ("IBBI CIRP Regulations"/"CIRP Regulations") which gives the IRP or the RP the responsibility to verify the claims within seven days from the last date of the receipt of the claims and thereupon maintain a list of creditors containing names of creditors, the amount claimed by them, the amount of their claims admitted along with the security interest, if any, in respect of such claims, and update it accordingly.

[2* Section 18. Duties of interim resolution professional.]

[3* Section 25. Duties of resolution professional.]

[4* Regulation 13. Verification of claims.]

In view of the judgment of the Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Others, WP (Civil) No.99 of 2018, wherein it was held that the Resolution Professional had no adjudicatory power and that the RP is responsible for vetting the claims and determining the value of each claim, the role of RP as an administrative officer is now well established. Similarly, in the judgment passed by the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Others, Civil Appeal No. 8766-67 of 2019, it has been clarified that the role of the Resolution professional is not adjudicatory but administrative.

SUBMISSION OF CLAIM THROUGH CLAIM FORMS Central to the IBC process is the claim form, which serves as a crucial instrument for creditors to assert their claims against the insolvent entity. The manner in which a public announcement is to be made and claims are to be submitted is described in the CIRP Regulations 2016.

Regulation 7^[5*] of CIRP Regulations, 2016 deals with submission of a claim by a person who claims himself to be an operational creditor. Such claim is to be submitted in Form B specified in the Schedule. Whereas Regulation 8^[6*] deals with submission of a claim by a person who claims himself to be a financial creditor. Such a claim is to be submitted in Form C. Regulation 8-A^[7*] deals with submission of a claim by a person claiming to be a creditor in class. Such a claim is to be submitted in Form CA. Regulation 9^[8*] deals with a submission of a claim by a person claiming to be a workman or an employee of the corporate debtor, shall submit in Form D.

Regulation 9-A^[9*] deals with submission of a claim by other creditors. Such a claim is to be submitted in Form F. Regulation 12^[10*] mandates submission of proof of the claim by the date specified. Whereas, Regulation 13^[11*] speaks of verification of claims by the interim resolution professional (IRP) or the RP, as the case may be. The same is depicted in the table below-

Type of Creditor/Claimant - CIRP	Types of forms
Operational Creditor	Form -B
Financial Creditor	Form -C
Creditor in Class	Form -CA
Workmen and Employee	Form -D
Other Creditor	Form -F

[5* Regulation 7. Claims by operational creditors.]

[6* Regulation 8. Claims by financial creditors.]

[7* Regulation 8A. Claims by creditors in a class.]

[8* Regulation 9. Claims by workmen and employees.]

[9* Regulation 9A. Claims by other creditors.]

[10* Regulation 12. Submission of proof of claims.]

[11* Regulation 13. Verification of claims.]

CIRP CLAIM FORM IS DIRECTORY NOT MANDATORY

The Hon'ble Supreme Court of India ("Apex Court") in its recent judgment in the matter of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr., Civil Appeal Nos.7590-7591 of 2023, held that claim filing form is directory and not mandatory. The Apex Court stated as follows-

20. The use of the words "a person claiming to be an operational creditor" in the opening part of Regulation 7, and the words "a person claiming to be a financial creditor" in Regulation 8, indicate that the category in which the claim is submitted is based on the own understanding of the claimant.

...

22. As it could be noticed from the CIRP Regulations, 2016, on submission of a claim with proof, the IRP or the RP, as the case may be, has to verify the claim and prepare a list of creditors containing names of creditors along with the amount claimed by them and security interest, if any, the logical conclusion derivable from the provisions analyzed above would be that the Form in which a claim is to be submitted under the CIRP Regulations 2016 is directory and not mandatory. What is important is, the claim must be supported by proof.

CLAIM MUST BE SUPPORTED BY PROOF

Further the Apex Court vide its judgment in the matter of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr.,(supra) reiterated the importance of proof of debt and emphasized that the claim must be supported by proof. It was observed that-

30. What is clear from the provisions of the IBC and the Regulations noticed above is that the RP is under a statutory obligation to collate the data obtained from

(a) the claim(s) made before it and

(b) information gathered from the records including those maintained by the CD.

The data so collated forms part of the information memorandum. Based on that information, the resolution applicant(s) submit(s) plan. In consequence, even if a claim submitted by a creditor against the CD is in a Form not as specified in the CIRP Regulations, 2016, the same has to be given due consideration by the IRP or the RP, as the case may be, if it is otherwise verifiable, either from the proof submitted by the creditor or from the records maintained by the CD.

Meaning, there could be a situation where the claimant, in good faith, may place itself in a category to which it does not belong. For e.g., if a claim is submitted by an operational creditor claiming itself as a financial creditor, the claim, if it is verifiable, would have to be given due consideration in the category to which it belongs.

WHETHER THE CLAIM CAN BE ADMITTED BY THE RP, SUO-MOTU, IRRESPECTIVE OF NON-FILING OF CLAIM?

The Hon'ble NCLAT Chennai Bench in the matter of CoC of Associated Decor Ltd. through Union Bank of India v. State of Karnataka, Company Appeal (AT)(CH) (Insolvency) No. 160 of 2021, dealt with the issue of whether the claim can be admitted by the RP, suo-motu, irrespective of non-filing of claim. It was observed that a Resolution Professional, suo-moto, cannot admit a claim without there being a claim by the claimant. It held that-

"There is no such provision that the Interim Resolution Professional shall admit the Claim without filing a Claim Form either in Form-B or in Form-C. Therefore, this Tribunal, is of the considered view, that the Interim Resolution Professional, suo-motu cannot admit the Claims without their being a Claim by the Claimants viz. Operational Creditors, Financial Creditors and Claims by other Creditors. Every Claim shall be submitted by the Claimant with proof and the issue is answered accordingly."

ADDRESSING THE ISSUE OF BELATED CLAIMS - CIRP REGULATIONS (2023 AMENDMENT)

The long-standing issues plaguing the Indian insolvency landscape is the submission of belated claims i.e., submission of claims much beyond the prescribed period in the public announcement and in certain cases much beyond the period of 90 days as stipulated in Regulation 12(2) and "model timeline" provided in Regulation 40-A of the CIRP Regulations (2018 Amendment) by the stakeholders.

Prior to the amendment of the CIRP Regulations in 2018, the creditors of a corporate debtor were allowed to submit their claims till the approval of a resolution plan by the Committee. Be that as it may, through the 2018 Amendment, the timeline for filing claims was limited to on or before the ninetieth day of the insolvency commencement date. During the subsistence of the 2018 amendment the RP could not accept and verify belated claims by stake holders submitted beyond the period of 90 days which led to the stakeholders knocking the doors of the Hon'ble NCLT seeking condonation of delay, thereby further burdening the NCLT with additional litigation whilst extending the CIRP timelines, much contrary to the objective of code aiming to provide timely resolution for the insolvents. Owing to the several judicial precedents, wherein the Apex Court has time and again declared the timelines prescribed under the CIRP Regulations as "directory" and not mandatory, the belated claims have been repeatedly allowed to be verified at a belated stage of the CIRP.

Addressing the shortcoming of the previous regulation in place, IBBI through its recent amendments in the Insolvency And Bankruptcy Board Of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016 ("IBBI CIRP Regulations") has adopted an inclusive approach which addresses the issues arising out of belated claims filed by the stakeholders beyond the stipulated period of 90 days, wherein such claims could only be considered if the same was condoned by the Hon'ble Adjudicating Authority.

IBBI, in the recent amendment to the IBBI CIRP Regulations (i.e. the 2023 Amendment) omitted Regulation 12(2) of the CIRP Regulations which provided time until ninetieth day from the insolvency commencement for filing a claim and inserted a proviso to Regulation 12(1) of the CIRP Regulations (w.e.f. 18-9-2023) stating that the last date for submission of a claim to a resolution professional is the date of issue of request for resolution plans ("RFRP").

According to the new amendment, a creditor shall submit a claim with proof on or before the last date mentioned in the public announcement. Provided that a creditor, who fails to submit a claim with proof within the time stipulated in the public announcement, may submit his claim with proof to the interim resolution professional or the resolution professional, as the case may be, up to the date of RFRP under regulation 36B or ninety days from the insolvency commencement date, whichever is later. Provided further that if the claim is submitted beyond the period of ninety days from the date of commencement of insolvency, the creditor shall provide reasons for such delay. The recent amendment clarifies that a resolution professional will continue to entertain and verify claims up to the date of issuance of the RFRP without having to seek condonation for such delay before the Hon'ble Adjudicating Authority.

The Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors. (supra) laid down the law that all the claims of creditors prior to the initiation of CIRP would stand concluded with the approval of the Resolution Plan. The Hon'ble Supreme Court held that-

A successful resolution applicant cannot suddenly be faced with "undecided" claims after the resolution plan submitted by him has been accepted.

Addressing the persisting issue of submission of belated claim by the claimants as discussed above, the Hon'ble Supreme Court in the matter of RPS Infrastructure Limited v. Mukul Kumar and Another, Civil Appeal No. 5590 of 2021, held that the admission of claims after the resolution plan has been accepted by CoC would result in making CIRP, an endless process. The Hon'ble Supreme Court categorically held that:-

20. Section 15 of the IBC and Regulation 6 of the IBBI Regulations mandate a public announcement of the CIRP through newspapers. This would constitute deemed knowledge on the appellant. In any case, their plea of not being aware of newspaper pronouncements is not one which should be available to a commercial party.

21. The mere fact that the Adjudicating Authority has yet not approved the plan does not imply that the plan can go back and forth, thereby making the CIRP an endless process. This would result in the reopening of the whole issue, particularly as there may be other similar persons who may jump onto the bandwagon. As described above, in Essar Steel, the Court cautioned against allowing claims after the resolution plan has been accepted by the COC.

22. We have thus come to the conclusion that the NCLAT is impugned judgment cannot be faulted to reopen the chapter at the behest of the appellant. We find it difficult to unleash the hydra-headed monster of undecided claims on the resolution applicant.

However in the judgment passed by the National Company Law Appellate Tribunal in Puneet Kaur v. KV Developers Pvt. Ltd. and Ors., Company Appeal (AT) (Insolvency) No. 390 of 2022, it was, inter-alia, observed that the rights and claims of homebuyers, whose names are reflected in the books of the Corporate Debtor do not extinguish till the resolution plan is approved by the Adjudicating Authority, even if filed at a belated stage. Further, the Hon'ble Appellate Tribunal also held that all details of homebuyers, along with their claims, as reflected from the record of the Corporate Debtor ought to be included in Information Memorandum by Resolution Professional, irrespective of them having filed any claim or not and be appropriately dealt with in the Resolution Plan.

CONCLUSION

The Insolvency and Bankruptcy Code is the flagship economic legislation, which despite all the challenges and issues cropping up in its implementation, has time and again stood up to cure the ambiguities present in the Code through amendments and judicial precedents contributing to the overarching objectives of the IBC in promoting financial stability and revitalizing distressed businesses. The recent judicial views and the amendments to the CIRP regulations is reflective of the intent of IBBI in establishing a strict timeline and a structured mechanism for creditors to assert their claims against corporate debtors, thereby promoting transparency, efficiency and creditor protection in the resolution process.

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