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Delayed Submission Of Claim By Operational Creditor In Liquidation Process

Ashkrit Tiwari
6 Jun 2021 6:52 AM GMT
Delayed Submission Of Claim By Operational Creditor In Liquidation Process
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During the procedure of insolvency resolution, if the resolution plan fails, the corporate debtor is liquidated. Under S.33 of Chapter III of the Insolvency and Bankruptcy Code, 2016 ("Code"), which deals with liquidation process, the National Company Law Tribunal ("NCLT") orders the liquidation of corporate debtor and a liquidator is appointed as per section 34 of the Code. Regulation 12...

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During the procedure of insolvency resolution, if the resolution plan fails, the corporate debtor is liquidated. Under S.33 of Chapter III of the Insolvency and Bankruptcy Code, 2016 ("Code"), which deals with liquidation process, the National Company Law Tribunal ("NCLT") orders the liquidation of corporate debtor and a liquidator is appointed as per section 34 of the Code. Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 ("Regulations") requires the liquidator to make public announcement in a prescribed manner whereby it calls upon the stakeholders to submit their claims as on liquidation commencement date and provides the last date for submission of claim which is required to be 30 days from the liquidation commencement date.

Section 38 of the Code further requires the liquidator to receive and collect the claims within a period of 30 days and as per sub-section (3) an operational creditor is required to submit its claim before the liquidator in a prescribed manner. As per Regulation 16 and 17, an operational creditor has to submit its proof of claim as on the liquidation commencement date in Form C of Schedule II to the liquidator in person, by post or by electronic means. The liquidator, after verification of claims under section 39 of the Code, may either admit or reject the claims. Once the decision, either to admit or reject the claim, has been taken by the liquidator, aggrieved creditors, including operational creditors, have the remedy to appeal before the adjudicating authority within 14 days from the receipt of the decision under section 42 of the Code.

Therefore, as per the provisions of the Code and Regulations, an operational creditor is required to submit proof of claim before the liquidator within 30 days of the liquidation commencement date. The question arises is – what if the operational creditor (or any other creditor) fails to submit their claim before the liquidator within prescribed time limit?

The answer lies in the scheme of the Code and Regulations and rulings of the different adjudicating authorities. Although there is no specific provision empowering the liquidator to condone the delay in submission of claims, the operational creditors needs to modify the list of stakeholders as per regulation 31 (4) of the Regulations when directed by the adjudicating authority. The scheme of the Code does not abridge the right of creditors to claim their dues out of liquidation process till the distribution of assets. At the same time, it is also true that the liquidator has no power to accept the claims after last date of submission. However, once operational creditors submit their claims after expiry of 30 days from liquidation commencement date and liquidator rejects their claim, as is required by law, the operational creditor may prefer an appeal before NCLT and pray for a direction to the liquidator to receive the claim and accordingly the liquidator shall modify the list of stakeholders, if the NCLT orders so.

NCLT, Kolkata Bench, ("Kolkata Bench") vide its order dated 14.02.2018 dealt with a similar situation in UCO Bank v. Nicco Corporation Limited (In Liquidation). The appellant (a financial creditor) failed to submit proof of claim before the liquidator after the expiry of prescribed time. The claim was rejected by liquidator, open which the financial creditor filed an appeal under section 42 of the Code. The Kolkata Bench noticed that there was no provision under the Regulations which extends the power to liquidator to condone the delay in filing a proof of claim and resultantly observed that there is no infirmity or illegality in the order of liquidator. It further observed that, "So the question is whether the adjudicating authority can condone the delay and direct the liquidator to reconsider the claim in its merit?" After discussing relevant provisions of the Code and Regulations as well as Rules 177 and 178 of the Companies (Courts) Rules, 1959, the Kolkata Bench condoned the delay and granted opportunity to the creditor to re-submit the claim.

Also, in Asmi Enterprises v. Yog Industries Ltd., the NCLT, Mumbai Bench, ("Mumbai Bench") vide its order dated 10.04.2019 granted a similar relief. The operational creditor submitted its claim after expiry of 30 days' prescribed limit. The Mumbai Bench, while placing reliance on UCO Bank (supra) condoned the delay in submitting proof of claim. The Bench, inter alia, observed that:

8. Therefore, in my opinion, because the liquidation proceedings are yet to be finalized in the present case, no prejudice will be caused if the claim of the applicant is adjudicated and admitted. The delay in submission of the claim by the Applicant deserves condonation. Hence, I hereby condone the delay in the submission of the claim in accordance with the provisions of code. The Ld. Liquidator is directed to consider the claim of the Applicant and admit the same after determining its veracity.

Similarly, the Mumbai Bench in its order dated 27.01.2020 in Saba Bahar Iranian Co. v. Royal Agro Green Food Industries Pvt. Ltd., condoned the delay in submitting a claim before liquidator. In fact, Mumbai Bench recently in its order dated 09.09.2020, in SI Crance Services v. Ms Dipti Mehta, considered the Covid-19 situation as a reasonable ground for condonation of delay in filing a claim before liquidator.

The aforementioned observations need to be read with the order dated 21.05.2018 passed by the NCLT, New Delhi Bench, ("New Delhi Bench") in M/s Globe Express Services v. M/s MM Cargo, wherein it was observed that "it is only after distribution of Assets that no further claim can be entertained".

It becomes clear, thus, that if a creditor fails to submit proof of claim within the stipulated time of 30 days from liquidation commencement date, the claim first needs to submitted before the liquidator, and after the claim is rejected for want of limitation, the creditor/claimant can approach the NCLT under section 42 of the Code and seek condonation of delay and direction to the liquidator for reconsideration of the claim. However, such direction can be made only before distribution of the assets of the corporate debtor. Once assets are distributed, according to provisions of the Code, even NCLT cannot direct the liquidator to reconsider the claim of a creditor.

Views are Personal.

The Author is and Advocate practicing at the Supreme Court and the High Court of Delhi.


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