In the Corporate Insolvency Resolution Process (CIRP) initiated under the I&B Code 2016 (Code), the claim is an important factor to be decided in the Resolution Plan for the Corporate Debtor (CD). The provisions of Code strive on the protection of interest of creditors of a company which is under CIRP while completing the insolvency resolution process in a time-bound manner.
As per provisions of Section 18 and Section 25 of the Code, it’s the duty of the Interim Resolution Professional (“IRP”)/ Resolution Professional (“RP”) to collate all claims submitted by the creditors in pursuant to the public announcement. It is, however, to be noted that neither Section 18 nor Section 25 expressly cast a duty upon the IRP/RP to verify and admit or reject claims. The duty to verify the claims by the IRP/RP has been provided under Regulation 13 of the CIRP Regulations.
Section 18. Duties of Interim Resolution Professional
The Interim Resolution Professional shall perform the following duties, namely:-
(a) Collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to –
(i) Business operations for the previous two years;
(ii) Financial and operational payments for the previous two years;
(iii) List of assets and liabilities as on the initiation date; and
(iv) Such other matters as may be specified;
(b) Receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under section 13 and 15;
(c) Constitute a committee of creditors;
(d) Monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors;
(e) File information collected with the information utility, if necessary; and
(f) Take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including-
(i) Assets over which the corporate debtor has ownership rights which may be located in a foreign country;
(ii) Assets that may or may not be in possession of the corporate debtor;
(iii) Tangible assets, whether movable or immovable;
(iv) Intangible assets including intellectual property;
(v) Securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies;
(vi) Assets subject to the determination of ownership by a court or authority;
(g) To perform such other duties as may be specified by the Board.
Explanation- For the purpose of this section, the term “assets” shall not include the following namely:-
(a) Assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangement including bailment;
(b) Assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) Such other assets as may be notified by the Central Government in consultation with any financial sector regulator.
Section 25. Duties of resolution professional
(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.
(2) For the purpose of sub-section (1), the resolution professional shall undertake the following actions, namely:-
(a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor;
(b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings.
(c) raise interim finance subject to the approval of the committee of creditors under section 28;
(d) appoint accountants, legal or other professionals in the manner as specified by Board;
(e) maintain an updated list of claims;
(f) convene and attend all meetings of the committee of creditor;
(g) prepare the information memorandum in accordance with section 29;
(h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.
(i) present all resolution plans at the meetings of the committee of creditors;
(j) file application for avoidance of transactions in accordance with Chapter III, if any; and
(k) Such other actions as may be specified by the Board.
13. Verification of claims:
(1) The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.
(2) The list of creditors shall be –
(a) available for inspection by the persons who submitted proofs of claim;
(b) available for inspection by members, partners, directors and guarantors of the corporate debtor;
(c) displayed on the website, if any, of the corporate debtor;
(d) filed with the Adjudicating Authority; and
(e) presented at the first meeting of the committee
14. Determination of amount of claim:
(1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him.
(2) The interim resolution professional or the resolution professional, as the case may be, shall revise the amounts of claims admitted, including the estimates of claims made under sub regulation (1), as soon as may be practicable, when he comes across additional information warranting such revision.
It is to be noted that the power of Resolution Professional was considered before the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018‘. In the said judgment dated 25th January 2019, the Hon’ble Supreme Court under the heading i.e. RESOLUTION PROFESSIONAL HAS NO ADJUDICATORY POWERS mentioned that it is clear from a reading of the Code as well as the Regulations that the resolution professional has no adjudicatory powers. The Resolution Professional has to vet and verify the claims made and ultimately determine the amount of each claim. It is clear from a reading of these Regulations (i.e. Regulation 10, 12, 13 and 14) that the resolution professional is given administrative as opposed to quasi-judicial powers. As opposed to this, the ‘Liquidator’ in the Liquidation proceedings under the IBC has to consolidate and verify the claims and either admit or reject such claims under Sections 38 to 40 of the Code.
Further, NCLT Mumbai Bench order dated 05.02.2019 in the matter of Dr. Ramakant Suryanath Pande v. CS Prakash K. Pandya and others held that the scope of a resolution professional is limited to verifying the claims received in light of Regulations 13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution process for Corporate Persons) Regulations 2016. The Resolution Professional is not an adjudicating authority and is not required to enquire into the factual scenario between parties and determine their rights and liabilities. The task of the RP is to limit itself to confirm that the claims received by him are true and correct. Verification is a process of establishing truth, accuracy or validity of the claim. It is not meant to be passing of a judgment or making a decision on the quantum of claim.
In the recent judgment dated 15th November, 2019 passed by the Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. [Civil Appeal No. 8766-67/2019 and other petitions], it has been held in para no. 27 that the role of resolution professional is not adjudicatory but administrative. Further in para no. 67, with respect to the claim, it has been stated that in the CIRP, all claims must be submitted to and decided by the Resolution Professional so that a prospective Resolution Applicant knows exactly what has to be paid in order that it may then take over and run the business of the Corporate Debtor.
In view of the above, it can be understood that there is no express power granted to an IRP/RP to adjudicate the claim during the CIRP like that power granted to a liquidator to verify and either admit or reject a claim made by a creditor. However, it is pertinent to note that the IRP/RP has substantial power to decide which claim and how many claims of a creditor is to be admitted or rejected during the CIRP.
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.