Insolvency Claim Verification- India
Collation of claims is one of the basic tasks which a resolution professional/liquidator has to perform. The claims form the basis of payouts in resolution plan or distribution in liquidation. The law lays down detailed procedure for each class of stakeholders for submission of proof of claims. The claimants are required to submit their claims in accordance with the CIRP Regulations/Liquidation Regulations along with facts substantiating their claim.
What is an Insolvency claim?
Claim means a right to payment and right to remedy as defined under the code in Section 3(6) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as “Code”). Right to payment underlines the claim, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. Right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;
Who can submit a claim and to whom?
All creditors’ i.e. operational or financial creditors, workmen, employees or any other stakeholder to whom money is owed shall be eligible to file a claim. The claims during the insolvency resolution process shall be made to the resolution professional and, in case of liquidation all claims shall be submitted to the liquidator. The claims must be in the form as prescribed below.
|Type of creditor||Form as per Schedule I of the Insolvency Resolution Process for Corporate persons Regulations 2016||Form as per Schedule II of the Liquidation Process Regulations 2016|
|Operational Creditor||Form B||Form C|
|Financial Creditor||Form C||Form D|
|Workmen/Employees||Form D||Form E|
|Other stakeholders||Form F||Form G|
The claim can be submitted by the financial creditors via electronic means only. Whereas, for submission of claims the operational creditors, workmen, employees and other creditors have the option to choose from, via post, electronic means or in person.
When can a claim be filed by the claimant?
The insolvency resolution professional/ liquidator shall make a public announcement allowing the claimants to file their claims against the corporate debtor. The time frame allowed to file a claim to resolution professional is within 14 days from the date of his appointment and, to liquidator within 30 days from the date of commencement of the liquidation process. The claims must be filed with proof any time before distribution of funds against other claims has commenced.
The NCLT, New Delhi Bench in SBS Transpole Logistic Pvt. Ltd. v. M.M. Cargo Container Line Pvt. Ltd. & Ors. the court had clarified the position in respect to acceptance of claim of creditors after commencement of the liquidation process. Here the court held that all claims made before the distribution of assets has commenced by the liquidator shall be duly considered.
The liquidator resisted from accepting a claim by the petitioner on the ground that he could not include any claim after liquidation process has commenced unless permitted by the adjudication authority. The NCLT observed that claim was already reflected on the balance sheet. Under the Code, it is the duty of the resolution professional/ liquidator to entertain and ascertain all claims. Thus it is mandatory for the liquidator to collect all claims whether or not filed by the claimant. Until the assets/funds are distributed, a verified claim cannot be rejected. It is only after distribution of assets that no further claim can be entertained.
How can a creditor prove his claim?
The creditors shall provide all documents to the resolution professional / liquidator to prove their claims and they are namely:
- records available with the Information Utility
- a contract of supply of goods or service with the corporate debtor
- an invoice demanding payment for the goods and services supplied to the corporate debtor
- a proof of employment such as contract of employment or evidence of notice demanding payment of unpaid dues
- a financial contract supported by financial statements as evidence of the debt
- financial statements showing that the debt has not been paid
- an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.
The resolution professional/ liquidator shall have the power to call upon any creditor to furnace additional proof to back their claim.
Who shall verify the claims of the creditors?
In case of Insolvency Resolution Process, it is the duty of the resolution professional to verify all the claims of the creditors within 7 days from the date of last receipt of the claims. Whereas in a liquidation process, the duty to verify all claims of the creditors shall lie with the liquidator. The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims. Based on the proof of claims submitted to the liquidator/ resolution professional, may either reject or admit the claim, in whole or in part as the case may be.
What if value of claim amount is not definite?
It is clear that the liquidator/ resolution professional has to right to verify and determine the amount of claim. However, in situations where the amount claimed is not premise due to reasons whatsoever, the liquidator / resolution professional shall act diligently and make the best estimate of the claim amount based on the information available. In addition, the liquidator has the right to revise the amount of claim admitted earlier, if new additional information comes to light.
Whether interest forms the part of the claim amount?
Under the Code, debt has been classified as operational and financial debts. Section 5(8) of the Code defines ‘financial debt’ as the debt along with interest. In addition, Row 4 in Form C (submission of proof of claim by Financial Creditor) under CIRP Regulations read as: “Total amount of claim, including any interest, as at the Insolvency Commencement Date.” The word ‘any’ would include penal interest.
However section 5(21) of the Code defines ‘operational debt’ as a claim in respect of the provisions of goods and service including employment or a debt in respect of repayment of dues arising under any law. It does not include interests to be charged.
What if there is a disputed claim?
One might come across a situation where a claim may be disputed by the debtor or the value of claim amount as determined by the resolution professional / liquidator is disputed by the creditor. The Code, 2016 is silent on the appropriate authority which would exercise adjudicatory functions to adjudicate such disputes.
The jurisdiction of the adjudicating authority has been interpreted to exclude the determination of the value of a disputed claim, this role has been given to courts outside the CIRP framework. In SSMP Industries Ltd. v. Perkan Food Processors Pvt. Ltd. it was held that since the proceedings before the adjudicating authority are summary in nature, the adjudication of the disputed claim for the determination of the value of the claim must continue in arbitration. Where it was not possible for the adjudicating authority to decide a claim on the basis of disputed facts, it will have to be decided by “a court of competent jurisdiction.”
The Code safeguards interest of all kinds of creditors by providing this mechanism to make their claims. The Code along with the relevant Regulations establishes a well laid procedure to make their claims and even provide proof for such claims. The resolution professional/ liquidator is there to act in an unbiased manner and protect interests of both the creditors as well as the corporate debtor. However, it has become important that a mechanism of adjudication of disputed claims be evolved within the insolvency framework. Until that happens, the insolvency framework under the Code lacks preparedness to safeguard the interests of creditors submitting disputed claims.
 Case No. (IB) 204(ND)/2017
 Regulation 13 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
 Section 39 of the Insolvency and Bankruptcy Code, 2016.
 Regulation 30 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
 Regulation 25 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
 Regulation 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
 2019 (177) DRJ 473