Vikrant D Shetty
The main objective of the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (Code) was to protect the interest of creditors of a company, while also ensuring that the insolvency resolution process is completed in a time-bound manner.
In accordance with section 15(1)(c) of the Code read with regulation 6(2)(c) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), once the application for initiation of the CIRP is admitted by the National Company Law Tribunal (NCLT), a public announcement is required to be released by the IRP for inviting claims.
The public announcement is required to provide for the last date for submission of such claims from the date of the appointment of the IRP. Further, regulations 7, 8, 9 and 9A of the CIRP Regulations provide for the form and manner in which claims have to be submitted by various creditors.
Regulation 12(2) of the CIRP Regulations provides that a creditor, who fails to submit claim with proof within the time stipulated in the public announcement, may submit the claim with proof to the IRP or the RP, as the case may be, on or before the ninetieth day of the insolvency commencement date. This deadline of 90 days was introduced by way of an amendment, with effect from July 2018. Prior to the amendment, Regulation 12 (2) read as follows:
“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 a resolution plan by the committee.”
Restricting the time for submission of claims was necessary to ensure that the purpose of the CIRP under the Code was not defeated, i.e. to ensure a time-bound insolvency resolution process. The Code itself provides no time period for submission of claims. This led to creditor/s submitting their claims at the fag end of the resolution process which further led to the delay in the completion of the CIRP. In some cases, the last-minute filings also led to disputes being filed at the eleventh-hour before the concerned NCLT, over the inclusion/acceptance of such claims.
Although the introduction of a fixed timeline for submission of claims was more than welcome, the amended Regulation 12 (2) seems to have raised more issues than it purports to resolve. The amended Regulation 12 (2) is silent in regard to the status of creditors who have missed the deadline and are desirous of filing their claims.
Therefore, the question that arises is whether the 90 day period referred to in Regulation 12 (2) a mandatory timeline which had to be adhered to, or could any delay beyond 90 days be condoned by either the IRP/RP or the NCLT?
In the recent orders/judgements, the Hon’ble Tribunals have condoned the delay even after the time period of ninety days is elapsed, citing that the amended Regulation 12 (2) is directory.
In the matter of Twenty-First Century Wire Roads Ltd., an application was filed by one AMA Agencies Pvt. Ltd. before the Hon’ble Principal Bench of the NCLT, New Delhi for condonation of delay in filing their claim. The insolvency commencement date was 12th September 2018 and the claim was filed by AMA Agencies on 5th March 2019. When the application was being heard, the CoC was still in the process of considering the resolution plans submitted. Therefore, the Hon’ble NCLT was pleased to condone the delay and direct the RP to consider the claim. A similar order was passed in another application for condonation filed in the same matter.
The Principal Bench of the NCLT, New Delhi, went one step further in the matter of Edelweiss Asset Reconstruction Co. Pvt. Ltd. v. Adel Landmarks Ltd. and held as follows:
“The rejection of claim on the ground of delay is not sustainable because the provisions has been held to be directory….We wish to make it clear that all the Resolution 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 o delay as the provision has been held to be directory.”
Interestingly, in State Bank of India v. ARGL Ltd. the Principal Bench of the Hon’ble NCLT, New Delhi, while considering an application of similar nature filed by Central Board of Goods and Service Tax Department indicated that it was irrelevant whether the claim is considered or not, since the government dues would always be reflected in the books of accounts of the corporate debtor and the RP/IPR would be required to take cognizance of the dues as per the books of accounts. Therefore, the application was allowed. The relevant portion of the order is reproduced hereinbelow:
“It is true that the regulation 12(2) after amendment has granted liberty to a creditor who has failed to submit the claim with the proof within the time stipulated in the public announcement and such a claimant could submit the claim with proof to the IRP/RP on or before 90th day of Insolvency commencement date. The aforesaid time obviously has expired as the CIR Process and in the present matter was commenced on 16.03.2018 and the claim were initially invited by fixing the last date as 30.03.2018. It is strange situation which is adopted by the RP because in the books of accounts the governmental dues are always reflected. It is nowhere stated as to how the claims which are to be filed alone are to be collated in terms of Section 21. First of all, as a matter of fact as the first step the IRP/RP has to prepare the list in accordance with the books of accounts and then invite the claims otherwise the dues reflected in the books of accounts would be rendered completely meaningless. It is only in case there is any discrepancy in the books of accounts that the claim needs to be modified or additions are required to be made.
Therefore, we allow the application and direct the IRP/RP to collate the claim of the Central Board of Goods and Service Tax the needful shall be done within three days.”
While the orders of the Hon’ble Principal Bench of the NCLT come as a relief to those who have missed deadlines for filing the claim, it is respectfully submitted that if the RP is required to accept all claims, irrespective of amount of delay or reason of delay, and without intervention/condonation order of the concerned NCLT, the timeline provided under the amended Regulation 12 (2) would be rendered nugatory.
In order to meet the objectives of a speedy insolvency resolution process, it is humbly recommended by the author that the law be amended to introduce at least one of the following:
Till such an amendment is introduced, the Resolution Professionals have no option but to consider every claim put to them, till the stage of acceptance of resolution plan by the CoC.
The author is a Partner at Taurus Legal, Advocates and Solicitors.