When the maximum period for CIRP (“Corporate Insolvency Resolution Process”) ends without receipt of any resolution plan, or the Adjudicating Authority rejects a resolution plan, or the Committee of Creditors (“CoC”) decides to liquidate the corporate debtor, or the resolution applicant contravenes the provisions of the Resolution Plan, the Adjudicating Authority passes an order for liquidation.[1] Upon such order, the existing Resolution Professional shall act as the liquidator for the purpose of liquidation, unless replaced by the Adjudicating Authority.
The liquidator shall issue a public announcement within five days from his appointment inviting the stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process (“CIRP”), as on the liquidation commencement date (LCD). The last date for submission or updation of claims shall be 30 days from the LCD.[2]
2019 Amendment
There was no mention of “Updation of claims” until 25.07.2019 when the IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) were amended[3] to explicitly specify in Regulations 12 and 16 that the stakeholders shall submit their claims or “update their claims” submitted during the CIRP. Hence, the amended Regulations provided for both submission and updation of claims.
Let us try to understand the rationale behind this amendment. Before this amendment, the stakeholders shall submit their claims during liquidation process irrespective of whether they filed their claim during CIRP. However, with the amendment being introduced the stakeholders who have already submitted their claims during CIRP may simply update their claims during the liquidation process to reflect the amount of debt as on the LCD. Addressing the following situations will give more understanding of the amendment:
Situation – I: Where a claim was not admitted during CIRP, can such creditor file its updated claim to the liquidator? Upon submission of such claim, can the liquidator reject such claim on the ground that it was not admitted during CIRP?
When it comes to verification of claims during CIRP, the resolution professional is given administrative powers as opposed to quasi-judicial powers. On the other hand, the liquidator’s decision is quasi-judicial in nature which can be appealed against to the Adjudicating Authority under Section 42 of the Code.[4]
Hence, irrespective of whether the creditor’s claim was admitted or not during CIRP, such creditor shall have the right to file its claim during liquidation process and the liquidator shall adjudicate such claim based on the documents submitted during liquidation process. Non-admission of claims during CIRP cannot be a valid ground for rejection by the liquidator who has quasi-judicial authority for determination of claims.
Situation – II: What will be the status of a claim which was submitted during the CIRP but the same was neither submitted nor updated during liquidation process? Can one assume that failure of updating claim submitted during CIRP shall imply that the claim submitted during the CIRP to be final without any need for a fresh claim to be submitted during CIRP?
Section 35 of the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”)[5] states that liquidator has to verify claims of all the creditors. As on the LCD, the liquidator has access to the latest list of creditors prepared by the resolution professional.
From this, one may interpret that the liquidator shall verify claims of all the creditors from the latest list of creditors, whether or not such claims are filed during the liquidation process. Such an interpretation would mean that the liquidator is under an obligation to consider the claims determined by the resolution professional, without any adjudication, which is erroneous. Hence, creditors shall submit fresh claim during the liquidation process whether or not a claim was submitted during the CIRP.
Submission of Claim v/s Updation of Claim
One has to understand that the amendment to Liquidation Regulations did not bring any difference to the way the claims are being adjudicated by the Liquidator. In order to update a claim, such creditor shall file the relevant form with the liquidator. However, there is no specific form for updation of claims. Therefore, where a creditor is updating its claim, the claim amount should be of the total amount and not for any additional amount than what was filed during CIRP. In that case, the amendment providing for the stakeholders to update their claims does not serve any purpose when it requires the stakeholders to submit the entire claim again. However, one may understand the rationale of this amendment by referring to Para 5.2.5 of the IBBI’s Discussion Paper on Corporate Liquidation Process dated 27.04.2019:
5.2.5 “In order to expedite the liquidation process, some stakeholders suggest that it may not be necessary to invite claims afresh during the liquidation process, as this exercise has been undertaken during CIRP. However, many stakeholders feel that the claims are adjudicated by the Liquidator unlike the RP. New claims also arise after the commencement of CIRP. It is proposed to continue the extant provisions requiring submission of fresh claims and updating of claims already submitted. A few, however, feel that the Code could be amended to empower the RP to adjudicate claims during the 90 days of CIRP so that disputes or other contentious issues can be resolved at CIRP stage itself and legacy issues are minimised in liquidation.”[6]
Conclusion
Thus, the amendment was aimed to clarify that fresh claims can be submitted during liquidation process, irrespective of whether the same were submitted during CIRP and that there is no bar on the creditors to update their claims submitted during CIRP. To sum up, there lies no difference in using the phrases “submission of claims” or “updation of claims” as the process remains same in either of the cases.
[1] Sub-sections (1), (2) & (3) of Section 33 of IBC 2016 – Initiation of Liquidation.
[2] Regulation 12 of the IBBI (Liquidation Process) Regulations, 2016.
[3] IBBI (Liquidation Process) (Amendment) Regulations, 2019.
[4] Para Nos. 59 & 60 in Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors. Writ Petition (Civil) No. 99 of 2018).
[5] Section 35 of IBC – Powers and duties of liquidator.
[6] Para 5.2.5 of the IBBI’s Discussion Paper on Corporate Liquidation Process, 2019.
