Submission of  Claims under IBC

Claims are a very important concept in the IBC regime. The Word ‘Claim’ has been defined in the code under section 3(6) . As per this section, the claim means a right to payment and also right to remedy. So claim comes into picture only if there is a right to payment and if no right to payment, no claim at all. Hence right to payment will underlines the concept of claim. Whether such right is reduced to judgement, fixed, disputed, undisputed, legal, equitable, secured or unsecured. Similarly, the right to remedy also comes under the category of claim. The right to remedy will give to right to payment whether or not such right is reduced to judgement, fixed, disputed, undisputed, matured, unmatured, secured or unsecured .

In the Insolvency and Bankruptcy Code 2016, the concept of Claim comes into picture when The Corporate Insolvency Resolution Process will commence from the date of appointment of Interim Insolvency Professional. Immediately after appointment, the Interim insolvency Professional as per section 15 (1) and make a Public announcement immediately. Immediately means within 3 days. In the Public announcement, the details of CD, the Register with which the entity is registered and the last date of submission of claims and other details will be there. As per Section  15 (1) (C) and as per regulation 6(2) (C) the Creditors have to submit their claims within 14 days from the date of appointment of Interim Resolution Professional. But as per regulation 12(2) the Creditors who fails the submit the claims with proof within 14 days can submit their claims within 90 days from the Insolvency Commencement date. The regulation 12(2) was amended. Before amendment, the Creditors who fail to submit their claims within 14 days can submit their claims before approval of resolution plan. Now there is a limitation of time for submission of claims. This is because, the Corporate Insolvency Resolution Process is a time bound process to resolve the insolvency, protect the Creditors, increase the availability of credit and balance interest of all stake holders.

But the legislature in different cases, allowing the Creditors to submit their claims until approval of Resolution plan.

The Principal Bench of the NCLT of New Delhi in the case of M/s Edelweiss Asset Reconstruction company Private ltd Vs Adel Landmarks Ltd it was held that the rejection of claim on the ground of delay is not sustainable because the provisions has been held to be directory It was held that all insolvency Professionals shall make a note of these repeated Orders passed by NCLT clarifying that claim of an applicant like the present one could not be rejected on the ground of delay as the provisions has been held to be directory

Because once the resolution process is approved, it will bind on Creditors, Corporate debtor, employees, workers, Govt agencies, guarantor etc. The question is the Creditor who has not submitted any claim is not a stake holder and hence the resolution plan whether it is binding him or not is to be examined

Before amendment as per regulation 12(2) of CIRP “ A Creditor who failed to submit proof of claim within the time stipulated in the public announcement may submit such proof to the interim resolution Professional or the Resolution Professional as the case may be till the approval of the resolution plan by the committee “

As per the above, a Creditor may file its claim before the IRP/RP as the case may be, even after the prescribed period, but until the approval of resolution plan by the committee of Creditors. If the resolution plan is approved by NCLT which shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.But the wording of section 31 (1) seems to offer a hint that the resolution plan will be binding on those who are involved in the resolution plan and hence Creditors who have not submitted the claim means that Creditor not involved in the resolution plan. The only option for them is to appeal before the appellate authority as per the provisions of the code basing on the principle that no person shall be deprived of his property save by authority of law

The Claims will be submitted by Financial Creditors, Operational Creditors, Workmen, employees, homebuyers or any other Creditor defined under the code.

The stakeholders will submit their claims in the following formats

The cost of Proving debt will be borne by the Creditor submitting the claim. If the Claim submitted by the Creditor is not precise, as per regulation 14 of CIRP, the IRP/RP shall make the best estimate of the amount of the claim based on the information available. The IRP/RP can also revise the claim if any additional information received from the Creditor. The same is the position in case of liquidation .If the claim denominated in foreign currency then as per regulation 15 of CIRP, the claims denominated in foreign currency shall be valued in Indian currency at the Official exchange rate as on the date of Insolvency commencement date

If there is an element of Penal interest in the claim, in such case the penal interest can form part of claim admitted, but no interest is chargeable thereafter .This was pronounced by the Supreme Court in the case of Central Bank of India Vs Ravindra and Ors .

Generally it is advisable not to submit inflated or wrong claims to the Interim Resolution Professional. If wrong claim is submitted, its cost of verification and cost of determination will be recovered from the applicant. Hence it is advisable to obtain the claim form along with an affidavit that the particulars mentioned in the claim form is correct

A Creditor may withdraw or vary his claim as per section 38 (5) of the Code within fourteen days of its submission.

The question arises whether the claim can be submitted in respect of the debt which is not matured at all ?.

This question was answered in the matter of Export Import Bank of India and Ors Vs Resolution Professional JEKPL Private limited and Ors and in the matter of Andhra Bank Vs M/s FM Hammerle Textiles ltd by NCLAT and held that any person who has a right to payment as per section 3(6) can file its claim irrespective of the fact whether same is matured or not at the time of commencement of CIRP

Similarly the question arises whether the disputed claim can be submitted?

Most of the cases, the IRP will reject the disputed claims on the grounds that such claims could not have secured an admission under the code. But the Apex court in the matter of Swiss Ribbons held that the IRP/RP is not vested with any quasi –judicial power and cannot adjudicate the disputed claims. The decision of IRP/RP can be challenged in court of law. The claims of the stakeholders whose claims are rejected by the RP/IRP will not be included in the resolution plan. In such case the Resolution applicant will not get clear picture of affairs of the CD. The resolution plan approved by the Adjudicating Authority will bind on all stakeholders except the stakeholders who have not submitted claims. These claims are against the assets of the CD but not against the Resolution applicant. The Apex court decision is based on the premise that the Resolution Applicant cannot be suddenly faced with “undecided claims”. The RP in terms of section 29 has to disclose the pending litigations if any in the Information Memorandum. The RA while submitting the plan should aware of the pending disputes and such proceedings are against the assets of the CD but not from the assets of the Resolution applicant

It is better to make a provision in the resolution plan in respect of disputed claims so that it will meet the payment obligations that may arise from such litigation. This fact was recognised in the Essar Steel case, wherein the RA offered to establish an escrow account to provide certain amounts to meet payments for discharge of disputed claims

In respect of payments of a periodical nature such as rent ,interest etc , a claim can be submitted in respect of amounts due and unpaid up to the date of commencement of liquidation. Similarly if the charge is not registered as per section 77(3) of the Companies Act 2013, it will be treated as unsecured creditor and stand in lower in order of priority as per section 53 (1) (d) of the code for the distribution of assets

As per regulation 13(1) it is the duty of the interim Resolution Professional to verify the claims submitted in pursuance of public announcement within 7 days from the last date of submission of claims. The Interim Resolution Professional has to prepare the list of Creditors as per the books of the Corporate debtor and then verify the claims with the list and then prepare the list of Creditors who have submitted the claims in the form of Name of the Creditor, amount claimed ,amount admitted and security interest if any . This is very important duty of the interim Resolution Professional because the voting rights of the Creditors are depending upon the amount of claim admitted. If the IRP admits large amount of claim, then such creditor can have higher voting right in the Committee of Creditors the decisions of the COC will be taken basing on the voting percentage of the Creditors. The Creditor will have higher percentage of voting right if he has larger amount of debt. Hence submission of claim and its admissibility is a paramount task. If the claim is not ascertainable, the IRP will make best estimate of the assumption of the value

The Interim Resolution Professional as per regulation 13(1) has to verify the claims within 7 days and prepare the list of Creditors and submit it to a report certifying the constitution of Committee of Creditors to the Adjudicating Authority. The IRP has to conduct a first meeting of COC within 30 days from the date of commencement of CIRP.

As per section 18 the duty of the IRP is to collate the claims. The word collates means, collect, and compares carefully in order to verify and arrange in order. So the power of IRP is administrative but not adjudicatory. IRP may reject the claim ,if it is submitted after the stipulated time, or submitted without sufficient proof of claim, then in such case the creditor can apply to the Tribunal under section 60 (5) of the Code. There is no separate section or application for applying to the Tribunal. The Creditor can apply to the National Company Law Tribunal by submitting the information relating to the

a) Background facts leading to the application

b) Nature of transaction leading to the claim

c) Position of claim or rejection

d) Reasons for rejection of claim and how it will affect the interest of the Creditor

e) Specific case laws if any in this respect may also to be published

Once the application is filed under section 60, the Tribunal will pass orders to the Respondent or Resolution Professional and advise him to submit reply. After submission of the reply, the Tribunal will entertain the arguments and after considering the arguments, the Tribunal will pass an order. The Order of NCLT can be appealed under section 61 within 30 days and with additional 15 days allowed provided there are reasonable grounds for appeal

The claims will also be submitted to liquidator. As per section 35 the liquidator is under an obligation to verify the claims of all the creditors and to invite and settle the claims of creditors and claimants and distribute the proceeds as per the provisions of the code. The liquidator has to verify the claims within 30 days from the commencement of the liquidation process. The liquidator may accept or reject the claim in whole or part. This is in contrast to the Powers of the IRP/RP where he can collate and receive all claims and keep it updated. The decision of the liquidator can be appealed under section 42 of the code.

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