Submission, Consolidation, Verification of Claims and List of Stakeholders in Liquidation Process under Insolvency and Bankruptcy Code 2016 (IBC)

Liquidation Process
Claims under Liquidation

Submission, Consolidation, Verification & List of stakeholders under Liquidation Process

A ‘Reasoned order’ will have an appearance of ‘Justice’”– NCLAT1

I. Consolidation of claims[Sec. 38]

1. Submission of Claims [Sec. 38(1) & LP Reg.-16]:

  • The liquidator shall receive or collect the claims of creditors within a period of 30 days from the date of the commencement of the liquidation process.
  • A person, who claims to be a stakeholder, shall submit its claim, or update its claim submitted during the CIRP, including interest, if any, on or before the last date mentioned in the public announcement.
  • A person shall prove its claim for debt or dues to him, including interest, if any, as on the liquidation commencement date.

 

a) Claims by financial creditors [Sec. 38(2) & LP Reg.-18]

A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility. Where the information relating to the claim is not recorded in the information utility, the financial creditor may submit the claim in the same manner as provided for the submission of claims for the operational creditor.

A person claiming to be a financial creditor of the corporate debtor shall submit proof of claim to the liquidator in electronic means in Form D of Schedule II. The existence of debt due to the financial creditor may be proved on the basis of:

(a) the records available in an information utility, if any; or

(b) other relevant documents which adequately establish the debt, including any or all of the following-

(i) a financial contract supported by financial statements as evidence of the debt;

(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;

(iii) financial statements showing that the debt has not been repaid; and

(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.

b) Claims by operational creditors [Sec. 38(3) & LP Reg.-17]

A person claiming to be an operational creditor of the corporate debtor, other than a workman or employee, shall submit proof of claim to the liquidator in person, by post or by electronic means in Form C of Schedule II. The existence of debt due to an 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 which adequately establish the debt, including any or all of the following –

(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; and

(iv) financial accounts.

c) Claims by workmen and employees [LP Reg.-19]

A person claiming to be a workman or an employee of the corporate debtor shall submit proof of claim to the liquidator in person, by post or by electronic means in Form E of Schedule II. Where there are dues to numerous workmen or employees of the corporate debtor, an authorized representative may submit one proof of claim for all such dues on their behalf in Form F of Schedule II. The existence of dues to workmen or employees may be proved by them, individually or collectively, on the basis of-

(a) records available in an information utility, if any; or

(b) other relevant documents which adequately establish the dues, including any or all of the following –

(i) a proof of employment such as contract of employment for the period for which such workman or employee is claiming dues;

(ii) evidence of notice demanding payment of unpaid amount and any documentary or other proof that payment has not been made; and

(iii) an order of a court or tribunal that has adjudicated upon the non-payment of dues, if any.

The liquidator may admit the claims of a workman or an employee on the basis of the books of account of the corporate debtor if such workman or employee has not made a claim.

d) Claims by other stakeholders [LP Reg.-20]

A person, claiming to be a stakeholder other than those under Regulations 17(1), 18(1), or 19(1), shall submit proof of claim to the liquidator in person, by post or by electronic means in Form G of Schedule II. The existence of the claim of the stakeholder may be proved on the basis of –

(a) the records available in an information utility, if any, or

(b) other relevant documents which adequately establish the claim, including any or all of the following-

(i) documentary evidence of notice demanding payment of unpaid amount or bank statements of the claimant showing that the claim has not been paid and an affidavit that the documentary evidence and bank statements are true, valid and genuine;

(ii) documentary or electronic evidence of his shareholding; and

(iii) an order of a court, tribunal or other authority that has adjudicated upon the non-payment of a claim, if any.

II. Partly a financial creditor and partly an operational creditor [Sec. 38(4)]

A creditor who is partly a financial creditor and partly an operational creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in Claims by financial creditors and to the extent of his operational debt as provided in Claims by operational creditors.

III. Withdraw the Claim [Sec. 38(5)]

A creditor may withdraw or vary his claim under this section within fourteen days of its submission.

IV. Production of bills of exchange and promissory notes [Reg.-22]

Where a person seeks to prove a debt in respect of a bill of exchange, promissory note or other negotiable instrument or security of a like nature for which the corporate debtor is liable, such bill of exchange, note, instrument or security, as the case may be, shall be produced before the liquidator before the claim is admitted.

V. Verification of claims [Sec. 39 & LP Reg.-30]

 The liquidator shall verify the claims submitted under section 38 within such time as specified by the Board.

As per Regulation 30, the liquidator shall verify the claims submitted within thirty days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be.

a) Further documents [Sec. 39(2)

The liquidator may require any creditor or the corporate debtor or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.

b) Substantiation of claims [LP Reg.-23]

The liquidator may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim.

c) Cost of proof [LP Reg.-24]

A claimant shall bear the cost of proving its claim. Costs incurred by the liquidator for verification and determination of a claim shall form part of liquidation cost. If a claim or part of the claim is found to be false, the liquidator shall endeavor to recover the costs incurred for verification and determination of claim from such claimant, and shall provide the details of the claimant to the Board.

VI . Admission or rejection of claims [Sec. 40]

The liquidator may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be. Where the liquidator rejects a claim, he shall record in writing the reasons for such rejection. The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within seven days of such admission or rejection of claims.

Fee of the RP & the cost incurred by him, being resolution cost, the Liquidator shall determine the claim u/s 40 of IBC, NCLAT in the matter of Sanjay Kumar Ruia Vs. Catholic Syrian Bank Ltd. & Anr. held tath we make it clear that the fee of the ‘Resolution Professional’ and the cost incurred by him, being ‘resolution cost’, we have allowed the ‘Liquidator’ to determine the claim under Section 40 of the I&B Code, Appellant being not the ‘creditor’. Once the amount is shown as ‘fees’ and ‘resolution cost’ the same to be paid in terms of Section 53 of the Code.

Appellate Tribunal is not inclined to decide the claim & counter claim, matter of Performance Bank Guarantee, NCLAT in the matter of KSB Shanghai Pump Co Ltd Vs. Lanco Infratech Ltd, represented by its IRP Mr. Savan Godiawala held that the direction as sought for by appellants to direct not to pay any amount to the Corporate Debtor, cannot be ordered. In case the Performance Bank Guarantees have been invoked, and the Corporate Debtor has received the amount out of the Performance Bank Guarantees, in such case we are of the view that the appellants can file their respective claim before Liquidator who may decide the claim in terms of Section 40 of the Code. Thereafter if any person be aggrieved, such person is entitled to file appeal under Section 42 of the Code before the Adjudicating Authority.

Rejection of claim with proper reason- Indian Oil Corporation Ltd. Vs. Mr. Ashish Arjun Kumar Rathi, Liquidator of SBQ Steels Pvt. Ltd. [2020] ibclaw.in 107 NCLAT

NCLAT held that:

  • As a matter of fact, ascribing reasons are the ‘heart and soul’ of a reasoned order/ judgement. It is relevantly pointed out that in the impugned order of the Adjudicating Authority, the said Authority at paragraph 9 and among other things observed that the Appellant (Applicant) is not entitled to claim anything that has not been crystallised in the Agreement and that has not been agreed between the parties and opined that the ‘Liquidator’ had rightly rejected these two claims. But the Adjudicating Authority at para 10 of the impugned order had proceeded to observe that the ‘Liquidator’ had not assigned reasons in detail for rejection of the two claims in the subject matter in issue, but that was not to mean reasons were not furnished and resultantly came to the conclusion that when the claim itself was not claimable, for the sake of giving reasons in detail that procedure was required to be repeated and continuing further, not giving any reasons in detail could not be a ground for invalidating the claim already considered and rejected by ‘Liquidator’.
  • It is to be borne in mind that in the erstwhile Insolvency period where the claim of creditor arose from the contract which provided interest, the interest could be claimed only upto the date of winding up of the order as per decision ‘Esmail Esoof Moolla v. Chartered Bank, (1931) 1 Comp Cas 235’.
  • It is to be pointed out that as per Section 40 of the Code, the ‘Liquidator’ is to determine the claims admitted under this section in such manner as may be prescribed by the Insolvency & Bankruptcy Board of India. Not assigning reasons and that too in a rejection order relating to a claim is not a ‘prudent and reasonable course of action’, as opined by this Tribunal.
  • On a careful consideration of respective contentions, on going through the impugned order of the Adjudicating Authority and keeping in mind of the contents of the e-mail table sent on 23.04.2019, this Tribunal comes to a resultant conclusion that the ‘Liquidator’ had not assigned detailed reasoning in respect of the non-admissibility of the claim relating to investment made in storage facility for Rs.2,35,00,000/- and in respect of ‘Interest’ merely stated that as per contractual agreement there was no provision for an interest and hence not considered, are incorrect and legally untenable in the eye of law. The very observations of the Adjudicating Authority in the impugned order that the ‘Liquidator’ had not given reasons in detail but that does not mean that reasons are not given etc., will go to show that the same is not a valid and correct one.
  • In this regard, as per Section 40 of the Code a ‘Liquidator’ being an ‘Authority’ decides the matter in a quasi-judicial manner and his decision is open to challenge u/s 42 of the I&B Code. An unreasoned order may be just and valid from the point of view of an authority who passes the same. But to the affected, the said order is not a ‘valid one’. A ‘Reasoned order’ will have an appearance of ‘Justice’.
  • A decision by judicial or quasi-judicial Authority not informed of reasons provides room for arbitrariness and such decision cannot be supported. In terms of the ingredients of Section 40 of the Code, reasons are to be spelt out for rejecting the claims, which in the present case was not followed by the ‘Liquidator’.
  • An ‘Adjudicating Authority’ can interfere when a ‘Liquidator’ had not exercised its discretion in a bonafide manner or he had proposed a thing which no reasonable person would act.
  • A ‘Liquidator’ as an Officer of the ‘Adjudicating Authority’/ Tribunal is expected to perform his duties fairly, justly and honorably in dealing with the claims of persons.
  • It cannot be forgotten that ‘Interest’ due on damages sought for violation of contract gives rise to a legal right to claim payment. It also qualifies as an ‘actionable claim’.

Appeal against the decision of liquidator [Sec. 42]: A creditor may appeal to the Adjudicating Authority against the decision of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision. The liquidator shall modify an entry in the list of stakeholders filed with the Adjudicating Authority, in the manner directed by the Adjudicating Authority while disposing off an appeal preferred under section 42.

NCLAT in Indian Oil Corporation Ltd. Vs. Mr. Ashish Arjun Kumar Rathi, Liquidator of SBQ Steels Pvt. Ltd.  [2020] ibclaw.in 107 NCLAT held that as per Section 40 of the Code a ‘Liquidator’ being an ‘Authority’ decides the matter in a quasi-judicial manner and his decision is open to challenge u/s 42 of the I&B Code. An unreasoned order may be just and valid from the point of view of an authority who passes the same. But to the affected, the said order is not a ‘valid one’. A ‘Reasoned order’ will have an appearance of ‘Justice’.

Pendency of the case before High Court is not to come in the way of the liquidator to decide the claim-NCLAT

NCLAT in the matter of Power Grid Corporation of India Vs. Deepak Cables (India) Limited held that if Adjudicating Authority has passed order of liquidation, at this stage as creditor will get right to file fresh claim application before the liquidator who is required to decide the same in terms of Sections 38 & 39 of the Code. In such case, if the claim of the creditor is rejected by the liquidator under Section 40, it will be open to the creditor to prefer an appeal against the decision of the liquidator under Section 42 of the Code. So far as pendency of the arbitration proceeding is concerned, after liquidation it is open to the Arbitral Tribunal to proceed in the arbitration. However, NCLAT is not inclined to express any opinion with regard to the same. NCLAT is of the view that if the claim is filed by the Corporate Debtor, there is no bar to proceed in the arbitration and if it proceeds, its counter claim is to be decided. If the counter claim is awarded in favour of the Appellant and if certain amount is payable to it, it can take advantage of the same.

VII. Determination of valuation of claims [Sec. 41]

The liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board The Board specified the following regulations for determination of valuation of claims:

a) Determination of quantum of claim [LP Reg.-25]

Where the amount claimed by a claimant is not precise due to any contingency or any other reason, the liquidator shall make the best estimate of the amount of the claim based on the information available with him.

b) Debt in foreign currency [LP Reg.-26]

The claims denominated in foreign currency shall be valued in Indian currency at the official exchange rate(rate published by the Reserve Bank of India or derived from such reference rates) as on the liquidation commencement date.

c) Periodical payments [LP Reg.-27]

In the case of rent, interest and such other payments of a periodical nature, a person may claim only for any amounts due and unpaid up to the liquidation commencement date.

d) Debt payable at future time [LP Reg.-28]

A person may prove for a claim whose payment was not yet due on the liquidation commencement date and is entitled to distribution in the same manner as any other stakeholder. Subject to any contract to the contrary, where a stakeholder has proved for a claim, and the debt has not fallen due before distribution, he is entitled to distribution of the admitted claim reduced as follows-

X/ (1+r)n

where–

(a) “X” is the value of the admitted claim; (b) “r” is the closing yield rate (%) of government securities of the maturity of “n” on the date of distribution as published by the Reserve Bank of India; and (c) “n” is the period beginning with the date of distribution and ending with the date on which the payment of the debt would otherwise be due, expressed in years and months in a decimalized form.

e) Mutual credits and set-off [LP Reg.-29]

Where there are mutual dealings between the corporate debtor and another party, the sums due from one party shall be set off against the sums due from the other to arrive at the net amount payable to the corporate debtor or to the other party.

Illustration: X owes Rs. 100 to the corporate debtor. The corporate debtor owes Rs. 70 to X. After set off, Rs. 30 is payable by X to the corporate debtor.

VIII. List of stakeholders [LP Reg.-31]

The liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted under these Regulations, with-

(a) the amounts of claim admitted, if applicable,

(b) the extent to which the debts or dues are secured or unsecured, if applicable,

(c) the details of the stakeholders, and

(d) the proofs admitted or rejected in part, and the proofs wholly rejected.

File the list before AA: The liquidator shall file the list of stakeholders with the Adjudicating Authority within forty-five days from the last date for receipt of claims, and the filing of the list shall be announced to the public in the manner specified in Regulation 12(3). The liquidator may apply to the Adjudicating Authority to modify an entry in the list of stakeholders filed with the Adjudicating Authority, when he comes across additional information warranting such modification, and shall modify the entry in the manner directed by the Adjudicating Authority. The liquidator shall modify an entry in the list of stakeholders filed with the Adjudicating Authority, in the manner directed by the Adjudicating Authority while disposing off an appeal preferred under section 42.

The list of stakeholders, as modified from time to time, shall be-

(a) available for inspection by the persons who submitted proofs of claim;

(b) available for inspection by members, partners, directors and guarantors of the corporate debtor;

(c) displayed on the website, if any, of the corporate debtor.

IX. Stakeholders’ consultation committee[Reg.-31A]

The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to sale under regulation 32.

The composition of the consultation committee shall be as shown in the Table below:

Table

Class of Stakeholders Description Number of Representatives
Secured financial creditors, who have relinquished their security interests under section 52 Where claims of such creditors admitted during the liquidation process is less than 50% of liquidation value Number of creditors in the category, subject to a maximum of 2
Where claims of such creditors admitted during the liquidation process is at least 50% of liquidation value Number of creditors in the category, subject to a maximum of 4
Unsecured financial creditors Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Number of creditors in the category, subject to a maximum of 1
Where claims of such creditors admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 2
Workmen and employees 1 1
Governments 1 1
Operational creditors other than Workmen, employees and Governments Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Number of creditors in the category, subject to a maximum of 1
Where claims of such creditors admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 2
Shareholders or partners, if any 1

Meeting and decision of the Committee
  • The liquidator may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee.
  • If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee.
  • Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator.
  • The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee.
  • The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting.
  • The liquidator shall place the recommendation of committee of creditors made under sub-regulation (1) of regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, before the consultation committee for its information.
  • The consultation committee shall advise the liquidator, by a vote of not less than sixty-six percent of the representatives of the consultation committee, present and voting.
  • The advice of the consultation committee shall not be binding on the liquidator. Where the liquidator takes a decision different from the advice given by the consultation committee, he shall record the reasons for the same in writing.

References

References
1 In Indian Oil Corporation Ltd. Vs. Mr. Ashish Arjun Kumar Rathi, Liquidator of SBQ Steels Pvt. Ltd. [2020] ibclaw.in 107 NCLAT

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