Impact of recent amendments in CIRP and Information Utilities Regulations on filing of CIRP application under Section 7 or 9 of IBC and conducting CIRP – By Adv. Nipun Singhvi and Editorial Team

Impact of recent amendments in CIRP and Information Utilities Regulations on filing of CIRP application under Section 7 or 9 of IBC and conducting CIRP

Authored by: Editorial Team
Reviewed by: Adv. Nipun Singhvi

IBBI has recently amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations, 2016). The amendments are based on Consultation paper on issues related to reducing delays in the CIRP (Consultation paper) issued by IBBI on 13.04.2022 for public comments. 

This Research Paper decodes the amendments with respect to the existing provisions in the Code and Regulations, impact on initiation/filing of new CIRP application after these amendments came into force, impact of amendments in Information Utility Regulations on filing of CIRP application and covers other relevant issues:

  • Furnishing of Copy of Form GSTR-1, Form GSTR-3B and Copy of e-Way Bill is mandatory for filing CIRP under Section 9 of IBC
  • Submissions GSTRs and e-Way Bill with filing of claim
  • Cases where the generation of e-Way Bill is not a requirement
  • Submission of PAN and email address of Financial/Operational Creditor alongwith CIRP application
  • Fixing the responsibility of Promoters/Management to submit information within time and as per format sought by IRP/RP
  • Creditors’ Assistance: Assist in preparing the information memorandum, getting valuation determined and in conducting the CIRP and Assist in dealing with avoidance applications after closure of a CIRP
  • Difference in valuations during a CIRP and a threshold for appointment of a third valuer
  • Dealing with avoidance applications after closure of a CIRP
  • Amendments in Information Utilities Regulations regarding filing of CIRP
  • Brief about the process of Information of Default and Record of Default in an Information Utility

A. Furnishing of Copy of Form GSTR-1, Form GSTR-3B and Copy of e-Way Bill is mandatory for filing CIRP under Section 9 of IBC

A new Regulation 2B-Record or evidence of transaction, debt and default by operational creditor, has been inserted in CIRP Regulations, 2016 which provides that the operational creditor shall, alongwith application under section 9, furnish copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to Goods and Services Tax(GST) and the copy of e-way bill wherever applicable. The regulation also provides relaxation to those operational creditors who do not require registration and to those goods and services which are not covered under any law relating to GST.

Section 9(3)(e) gives sufficient power to the IBBI to impose such additional requirement. The Section 9(3) is reproduced here: 

“(3) The operational creditor shall, along with the application furnish—

(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;

(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;

(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available;

(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and

(e) any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.

(Emphasis provided)

The main points are as under:

  • Sub-section 3 of Section 9 contents ‘shall‘.
  • Clause (d) of the sub-section 3 is ending with ‘and’
  • Newly added Regualtion-2B also contents ‘shall’.

Considering the above points, it can be said that it is mandatory to submit copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to GST and the copy of e-way bill wherever applicable alongwith CIRP application u/s 9 of IBC.

However, Hon’ble Supreme Court in Macquarie Bank Limited Vs. Shilpi Cable Technologies Ltd. [2017] ibclaw.in 14 SC while dealing the matter under Section 9(3)(c) of the Code, held that the expression “initiation” contained in the marginal note to Section 9 does indicate the drift of the provision, but from such drift, to build an argument that the expression “initiation” would lead to the conclusion that Section 9(3) contains mandatory conditions precedent before which the Code can be triggered is a long shot. Equally, the expression “shall” in Section 9(3) does not take us much further when it is clear that Section 9(3)(c) becomes impossible of compliance in some cases. Even otherwise, the important condition precedent is an occurrence of a default, which can be proved by means of other documentary evidence. Take for example the case of an earlier letter written by the corporate debtor to the operational creditor confirming that a particular operational debt is due and payable. This piece of evidence would be sufficient to demonstrate that such debt is due and that default has taken place, as may have been admitted by the corporate debtor. If Dr. Singhvi’s submissions were to be accepted, despite the availability of such documentary evidence contained in the Section 9 application as other information as may be specified, such application filed under Section 9 would yet have to be rejected because there is no copy of the requisite certificate under Section 9(3)(c). Obviously, such an absurd result militates against such a provision being construed as mandatory. Further the Court held that a fair construction of Section 9(3)(c), in consonance with the object sought to be achieved by the Code, would lead to the conclusion that it cannot be construed as a threshold bar. (Refer para 19-20&24)

The Hon’ble Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. [2017] ibclaw.in 01 SC in para 25, held that the adjudicating authority, when examining an application under Section 9 of the Act will have to determine:

(i) Whether there is an “operational debt” as defined exceeding Rs. 1 lakh? (See Section 4 of the Act)

(ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and

(iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?

If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.

In Subhash Chandra Goyal sole v. KB Ispat Pvt. Ltd. (2022) ibclaw.in 399 NCLAT, the Corporate Debtor proved pre-existing dispute u/s on the basis of non-genuineness of the transactions by taking assistance of GSTR-1, wherein it was found that there existed a fictitious company, who passed huge amount of irregular Input Tax Credit to various recipients without physical supply of goods. Therefore, mandatory requirement of GSTR-1 and GSTR-3B would further compel Operational Creditor to maintain appropriate accounts because non compliance of GST law can further lead to hurdle in initiating CIRP against Corporate Debtor.

Submissions GSTRs and e-Way Bill with filing of claim: The provision has also been inserted in clause (b) of sub-regulation (2) of Regulation 7-Claims by operational creditors, to make the same information as part of the claim documents submitted to the IRP for easier verification and admission of claims. The Regulation 7 is reproduced here:

“7. Claims by operational creditors. (1) A person claiming to be an operational creditor, other than workman or employee of the corporate debtor, shall submit claim with proof to the interim resolution professional in person, by post or by electronic means in Form B of the Schedule:

Provided that such person may submit supplementary documents or clarifications in support of the claim before the constitution of the committee.

(2) The existence of debt due to the operational creditor under this Regulation may be proved on the basis of-

(a) the records available with an information utility, if any; or
(b) other relevant documents, including –

(i) a contract for the supply of goods and services with corporate debtor;
(ii) an invoice demanding payment for the goods and services supplied to the corporate debtor;
(iii) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or
(iv) financial accounts.
(v) copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to Goods and Services Tax and the copy of e-way bill wherever applicable:
Provided that provisions of this sub-clause shall not apply to those creditors who do not require registration and to those goods and services which are not covered under any law relating to Goods and Services Tax.

(Emphasis provided)

From the above provision, it can be said that submission of copy of Form GSTR-1 and Form GSTR-3B and the copy of e-way bill is not mandatory to prove existence of debt due at the stage of filing claim to IRP/RP.

Issues: The following issues may come before Adjudicating Authority and Appellate Tribunal/Court:

  • Whether Adjudicating Authority has to decide an Operational Creditors is required to register under GST or not, in case of the Operational Creditor has not taken GSTIN or not registered under GST Act.
  • The Regulation-2B as “The operational creditor shall, alongwith application under section 9, furnish copies of relevant extracts of Form GSTR-1 and Form GSTR-3B filed under the provisions of the relevant laws relating to Goods and Services Tax and the copy of e-way bill wherever applicable.“.
    In case an Operational Creditor who has GSTIN but has not filed such GSTRs under GST Act, whether the application will be rejected on the ground that no GSTRs is furnished alongwith Section 9 application, since he is liable to file GSTRs as per GST law.
    In other words, if an Operational Creditors having registration under GST Law(GSTIN) didn’t file GSTRs for the relevant transaction/period, can CIRP application u/s 9 be rejected on the ground that no GSTRs is furnished alongwith Section 9 application, since he is liable to file GSTRs as per GST law.

Cases where the generation of e-Way Bill is not a requirement:

The below are the cases when the generation of e-Way Bill is not a requirement:

  • When the value of the consignment of goods moved is less than INR 50,000 (however, there are certain goods for which the e-way bill is mandatory even though the value of the goods is less than Rs. 50,000. Examples of such goods are when there is an inter-state movement of goods by the Principal to Job-worker and when the Inter-State Transport of Handicraft goods by a dealer is exempted from GST registration);
  • When the conveyance used is a non-motor vehicle;
  • When goods are transported from port/ airport/ air cargo complex/ land customs station to Inland Container Depot or Container Freight Station for customs clearance;
  • Transport of certain goods.
  • If within the same state, the goods are transported for a distance less than 10 km, from the business place of the transporter to the business place of the consignee;
  • If within the same state, the goods are transported for a distance less than 10 km, from the business place of consignor to the business place of transporter for further transportation.

Existing Provisions: There is no such provisions in the existing CIRP Regulations, 2016.

B. Submission of PAN and email address of Financial/Operational Creditor alongwith CIRP application

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