[By Vinay Sachdev]

The author is a student at the Unitedworld School of Law, Karnavati University.

Background 

In the Corporate Insolvency Resolution Process (“CIRP”) initiated under the Insolvency & Bankruptcy Code 2016, the claim is the most important factor to be taken in the Resolution Plan for the Corporate Debtor. The provisions of the Code strive to protect the interest of creditors of a company that is under CIRP while completing the insolvency resolution process in a time-bound manner.

The duties of an Interim Resolution Professional (“IRP”) and a Resolution Professional (RP) have been laid down in Sections 18 and 25 of the Code. According to, Section 18,  the duties of an IRP include, inter alia, receiving and collating “all claims submitted by creditors to him, after the public announcement made by him”. In the same manner, an IRP under section 25(2)(e) has to maintain an updated list of all the claims of the creditors. Additionally, Regulation 13 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 (IRPCP Regulations) provides for verification of the claims and maintenance of a list of creditors by an IRP or RP, as the case may be.

It is to be noted that neither Section 18 nor Section 25 of the Code expressly imposes a duty upon the IRP/RP to verify, admit or reject claims. The duty to verify the claims by the IRP or RP has been provided under Regulation 13 of the CIRP Regulations.

Adjudicatory Power of RP/ IRP

Apart from these sections and rules related to the powers and duties of the IRP and RP help sum up the mandate of an RP or IRP including receiving, collating, and verifying the claims received by him during CIRP. Moreover, as often observed in practice, on verification, an IRP either accepts or rejects the claims of the creditors. Due to this, in a number of cases that have come before the Tribunal, an issue pertaining to the power of the IRP/RP has arisen.

In the case of Grasim Industries Limited and Edelweiss Asset Reconstruction Company Limited Vs. Tecpro Systems Limited, the  NCLT, Principal Bench, New Delhi has observed that “a perusal of Regulation 13 of the CIRP Regulation, which makes it clear that IRP is under a statutory duty to verify each and every claim and maintain the list of creditors containing their names and amount claimed by them and the amount of their claim admitted.” In the said case the IRP had rejected the claim given by the applicant as the claim amount was the subject matter of the arbitration before the Arbitral Tribunal and thus the Tribunal upheld the decision taken by the IRP.

Further, in the combined appeal filed before the Appellate Tribunal in the matter of M/s. Prasad Gempex vs. Star Agro Marine Exports Pvt. Ltd. & Ors. and SREI Infrastructure Finance Ltd. vs. Kannan Tiruvengandam, the issue arises for consideration is whether the ‘RP’ has the power to adjudicate the claim of creditors of the company.

In the landmark case of Swiss Ribbons Pvt. Ltd. v. Union of India, clarifies the above issue. The Supreme Court conclusively stated that the RP has no adjudicatory powers under the Code. To establish the judgment, the bench compared the powers and duties of an RP to a liquidator and stated that a liquidator has the power to determine the valuation of claims under section 40 of the Code and that such determination is “quasi-judicial in nature”.  After establishing this, the Court stated that an RP, unlike a liquidator, cannot act without the approval of the committee of creditors (COC), and can be replaced by, COC. IRP merely acts as “a facilitator in the CIRP whose administrative functions are overseen by the COC and by the NCLT”.

However, the court completely missed the point that COC approval is required only in certain matters that are mentioned under section 28 of the IBC. IRP doesn’t need approval when verifying a claim or making a “precise estimate of the amount of the claim” of imprecise claims under the CIRP Regulations. These functions, referred to as administrative because they are overseen by the Committee of Creditors and Tribunal, unavoidably require the use of discretion (during investigation, inquiries, and verification of claims) by the IRP.

The other important argument on which the Court relied was that an RP can be replaced by COC. The fact that an RP will be replaced by the COC is only if the COC would have an interest when an RP or IRP accepts and verifies the claims. It would go against the interest of the Committee when an RP accepts more claims or increases the existing claims. Therefore, the contention that the COC has oversight over RP does not help in maintaining a check on whether it accepts or rejects genuine claims of the creditors.

Power of NCLT to adjudicate claims

The Hon’ble NCLAT in the case of M/s. Prasad Gempex noted that with respect to the claims, an application or suit can be initiated against the Corporate Debtor, in terms of provisions of Section 60 of the Code. The relevant portion of Section 60 is cited below:

(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporate debtor or corporate person;

(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

From the above provision, it is evident that notwithstanding the order passed under Section 31 of the IBC, it is open to a person to initiate a suit or an application against the Corporate Debtor for admission of the claim even after the completion of the moratorium period. Therefore, the NCLT has jurisdiction to accept or to dispose of any claim made by or against the Corporate Debtor pertaining to section 60(5) of the Code.

Conclusion

The adjudication of a claim under the Insolvency & Bankruptcy Code is the process by which the right to claim against the corporate debtor has to be decided by the lawful authority whether it is IRP/RP or COC or Tribunal. However, after going through the various provisions of the Code and CIRP Regulations and relevant judgments it can be concluded that although the power to decide the admission or rejection of the claim is not vested with the IRP/RP, the role of the IRP/RP is administrative in nature and not adjudicatory.

Therefore, in case the IRP/RP refuses to entertain any claim of a creditor during the CIRP, then it is the Adjudicating authority that will decide the acceptance or rejection of the claim during the CIRP, upon the filing of an application in NCLT, by such creditor whose claim was rejected by the IRP/RP.

In the recent judgment passed by the Hon’ble Supreme Court in the case of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors., it was concluded that the role of  RP is administrative and not adjudicatory. Further, with respect to the claim, it has been settled that in the CIRP, all claims must be submitted to and decided by the IRP so that a genuine Resolution Applicant gets an idea about the amount that has to be settled in order to take over and run the business of the Corporate Debtor. In view of the above, it can be understood that there is no statutory power vested with an IRP/RP to adjudicate the claim during the CIRP like the power vested with a liquidator regarding verification, acceptance, or rejection of a claim made by a creditor. However, it is important to note that the IRP/RP has substantial power to take calls regarding which claim and how many claims have to be accepted and rejected by the Creditor during the CIRP Process.