The Insolvency and Bankruptcy Board of India (IBBI) recently amended two of its regulations to allow claims by persons who are not either financial or operational creditors..Amendments were made to the IBBI (Insolvency Resolution for Corporate Persons) Regulations, 2017 and IBBI (Fast Track Insolvency Resolution for Corporate Persons) Regulations, 2017 to include ‘Rule 9A’ and ‘Form F’ in the respective Regulations; permitting claims to be made by creditors other than financial and operational creditors..This amendment effectively creates a third class of creditors who- although not allowed to trigger insolvency- are allowed to claim debt owed to them if insolvency process is initiated..Soon after these amendments were made, Business Standard carried a story with the following (erroneous) headline,.“Insolvency regulator empowers homebuyers, puts them on a par with creditors”..While there was no communication from the IBBI which suggested anything such, it’s unclear why it was assumed that creditors other than financial and operation creditors would be “homebuyers”; especially in light of the ruling by the NCLAT in the matter of Nikhil Mehta & Sons vs. AMR Infrastructures Ltd..The IBBI was quick to dispel the incorrect assumption, and issued a press release the same day condemning inaccurate reporting and clarified that the IBBI has not made any such statements. IBBI said in it’s press release,.“It is clarified that the Board has not made any such statements. Further, such news reports create confusion amongst the stakeholders and vitiate the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. We advise you not to attribute statements to the Board which it has not made and avoid such news reports”.This unnecessary confusion created calls for a recap of the current status of homebuyers in case of a “committed return plan” in the insolvency regime. Upon clarification issued by the IBBI , one may fall back to the ruling of the NCLAT which put such homebuyers at par with “financial creditors”..In answering the question as to whether homebuyers in such a case would be financial creditors or not, NCLAT observed that the amount deposited by the homebuyers, was referred to as a “commitment charge” under the head “financial cost” in the annual returns of the Corporate Debtor – a cost which which technically includes interest on loans as well. Further, TDS certificates showed the payment of this instalment as an “interest other than interest on securities”..On this basis, the NCLAT concluded that the debt owed by builders to homebuyers under a “committed return plan” would be in the nature of a financial debt, and remitted the case back to NCLT..Subsequently, a similar question arose in the case of Rubina Chaddha & Anr. v AMR Infrastructure before the NCLAT. The appellants here argued that they ought to be considered as operational creditors. The NCLAT shied away from deciding this question and held,.“The appellants herein, whether they are ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Secured Creditor’ or ‘Unsecured Creditor’, as claim to be creditors are now entitled to file their respective claims before the ‘Interim Resolution Profession as may be appointed and the advertisement as may be published in the newspaper calling of such application(s) with regard to resolution of ‘Corporate Debtor’ – AMR Infrastructure Ltd. In such case, their claim should be considered by the Interim Professional (IRP) and the Committee of Creditors, in accordance with the provisions of the ‘I&B Code.’”.This, therefore, leaves the larger question still unanswered..Press release issued by IBBI given below..[Image courtesy: Taxscan].Click here to download the Bar & Bench Android App
The Insolvency and Bankruptcy Board of India (IBBI) recently amended two of its regulations to allow claims by persons who are not either financial or operational creditors..Amendments were made to the IBBI (Insolvency Resolution for Corporate Persons) Regulations, 2017 and IBBI (Fast Track Insolvency Resolution for Corporate Persons) Regulations, 2017 to include ‘Rule 9A’ and ‘Form F’ in the respective Regulations; permitting claims to be made by creditors other than financial and operational creditors..This amendment effectively creates a third class of creditors who- although not allowed to trigger insolvency- are allowed to claim debt owed to them if insolvency process is initiated..Soon after these amendments were made, Business Standard carried a story with the following (erroneous) headline,.“Insolvency regulator empowers homebuyers, puts them on a par with creditors”..While there was no communication from the IBBI which suggested anything such, it’s unclear why it was assumed that creditors other than financial and operation creditors would be “homebuyers”; especially in light of the ruling by the NCLAT in the matter of Nikhil Mehta & Sons vs. AMR Infrastructures Ltd..The IBBI was quick to dispel the incorrect assumption, and issued a press release the same day condemning inaccurate reporting and clarified that the IBBI has not made any such statements. IBBI said in it’s press release,.“It is clarified that the Board has not made any such statements. Further, such news reports create confusion amongst the stakeholders and vitiate the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. We advise you not to attribute statements to the Board which it has not made and avoid such news reports”.This unnecessary confusion created calls for a recap of the current status of homebuyers in case of a “committed return plan” in the insolvency regime. Upon clarification issued by the IBBI , one may fall back to the ruling of the NCLAT which put such homebuyers at par with “financial creditors”..In answering the question as to whether homebuyers in such a case would be financial creditors or not, NCLAT observed that the amount deposited by the homebuyers, was referred to as a “commitment charge” under the head “financial cost” in the annual returns of the Corporate Debtor – a cost which which technically includes interest on loans as well. Further, TDS certificates showed the payment of this instalment as an “interest other than interest on securities”..On this basis, the NCLAT concluded that the debt owed by builders to homebuyers under a “committed return plan” would be in the nature of a financial debt, and remitted the case back to NCLT..Subsequently, a similar question arose in the case of Rubina Chaddha & Anr. v AMR Infrastructure before the NCLAT. The appellants here argued that they ought to be considered as operational creditors. The NCLAT shied away from deciding this question and held,.“The appellants herein, whether they are ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Secured Creditor’ or ‘Unsecured Creditor’, as claim to be creditors are now entitled to file their respective claims before the ‘Interim Resolution Profession as may be appointed and the advertisement as may be published in the newspaper calling of such application(s) with regard to resolution of ‘Corporate Debtor’ – AMR Infrastructure Ltd. In such case, their claim should be considered by the Interim Professional (IRP) and the Committee of Creditors, in accordance with the provisions of the ‘I&B Code.’”.This, therefore, leaves the larger question still unanswered..Press release issued by IBBI given below..[Image courtesy: Taxscan].Click here to download the Bar & Bench Android App