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Conundrum for liquidators: Delay in filing claims under IBC

INTRODUCTION
Since the Insolvency and Bankruptcy Code, 2016 came into play there have been a lot of palpable loopholes coming up. Every codification seeks time to evolve and get along with the dynamics. The authors will point out one such loophole which is still suffering from lack of modern jurisprudence. To meet the general compliance all the stakeholders have to file their claims on or before the stipulated date prescribed by the Resolution Professional. Regulation 12(2) of the CIRP Regulation asserts any creditor who failed to submit his claim within the stipulated time can still file it on or before the ninetieth day of insolvency commencement date. This implies that IBC provides for filing of claims even after the due date in insolvency proceedings. However, no such express mention has been made in this regard for liquidation proceedings. In this write up various judicial pronouncements, rules and regulations will be looked into for championing condonation of delay in filing of claims in liquidation proceedings.
NEED FOR OVERHAUL
The creditors are permitted to submit their claims before the Resolution Professional till the final Resolution Plan gets approved by the Committee of Creditors in insolvency proceedings. In Edelweiss Reconstruction Co. Pvt. Ltd. vs. Adel Landmarks ltd. the NCLT has stated that rejection of claims on the ground of delay is not permissible as Regulation 12(2) is a directory in nature. Therefore, the regulations and the NCLT share the same footing concerning condonation of delay in Insolvency proceedings.
Regulation 16 of the IBBI (Liquidation Process) Regulations, 2017 talks about the submission of claims. Accordingly all the stakeholders are required to submit their claims before the last date mentioned in the public announcement. There is no indication whatsoever making it feasible for a creditor to file their claims even after the limitation period stipulated is over. At the same time Regulation 31 of IBBI (Liquidation Process) Regulations, 2017 provides an opportunity to the liquidator to modify the entries made for stakeholders. But the creditors seeking relief for delay cannot be covered under this provision as it relates to existing stakeholders only. Thereby, it is pretty evident that the IBC makes no mention of condonation of delay in filing claims. It is imperative to have clarity on this aspect as cases have been coming up putting the liquidator in a complex situation due to lack of jurisprudence.
As the IBC does not dwell upon the loophole, the recourse that can get out of this quagmire is the Companies Act. Section 271 of the Companies Act, 2013, talks about the winding up of a corporate entity. Due to the absence of rules, reliance is being placed on the Company Court Rule, 1959 for governing the Companies Act, 2013. Under the Companies Court Rules, 1959, Rule 147 talks about fixation of a date within which the creditors have to make their submissions. However, if a creditor fails to do so Rule 177 will come into the picture. It stipulates the procedure to be followed if a stakeholder fails to prove his debt. According to the rule, the stakeholder has the recourse of approaching the court if he fails to make his submissions on time. At the same time Rule 178 enshrines the right of a creditor shall be recompensed of the money which is in the hands of the Liquidator for the time being available for distribution of dividends. There is an exception to this rule i.e. the creditor who has not proved his debt will not be allowed to disturb or interfere with the declaration of dividend before the acceptance of his debt. The reason being, he was not in the list of stakeholders at that time.
After skimming through Rule 177 and 178 it is clear that the liquidator can accept claims of the creditors even after the last date fixed in a public announcement. The principle mentioned in Rule 178 has been recognized across the globe and is enshrined in various Insolvency law. For instance, The Bankruptcy Act of Singapore Section 118 of and In UK Insolvency Rules, 2016 under rule 14.40. It can also be dated back to various traditional laws that existed in India like Under Section 72 of Presidency Towns Insolvency Act, 1909 and Under section 73 of the Provincial Insolvency Act, 1920. Even though, Section 177 of the IBC treads on the path of the above principle, it is of no help. The reason being, it does not specify in clear terms that whether the principle will be applicable in liquidation proceedings.
SUPPLEMENTAL PRECEDENTS
In Re: Kamla Syntex Ltd., the Delhi High Court placing reliance upon section 474 of the Companies Act, 1956 read with Rule 178 of the Companies (Court) Rules, 1959 held that creditor has the option at any time before the final distribution of the assets to come in and prove his debt, but be cannot disturb any dividend which has already been paid.  The court stated that rejecting the claim of a creditor on the ground of delay is not acceptable.
The Delhi High Court relied upon the ruling in Ganeshilal Gupta vs. Bharatpur Oil Mill, where the court ruled that even though there was a long delay in proof filing, the claim’s still within the limitation period. The consequence of delay will be guided by the Companies Act U/S 474, which says any creditor who fails to prove his debt or claim within the limitation period will be excluded from any distribution made for his debt/claim is proved.
In Kamla Syntex Ltd, the court also placed reliance upon In re Metcalfe (1879) where the court observed that as long as undistributed assets are still available the creditor may come in, which was further referred In re Kit Hill Tunnel.
Further reference was made to General Rolling Stock Company and T.R. Rajakumari vs. Motion Picture Producers Combine Ltd. where the courts observed that “an application for excusing delay in filing proof of a claim should be allowed, and as long as without disturbing the dividend already paid or declared to a creditor justice can be made, there’s no solid justification why he should be obstructed from receiving his dividend”[1].
Apart from the various judicial precedents, the Delhi High Court touched upon the views expressed in Buckley on the Companies Acts: “Before the company is dissolved, the creditor is allowed come in and prove; the punishment for not doing so is not exclusion altogether, but disentitlement from the benefit of any distribution made before proof”[2].
After pondering upon various judicial precedents it is clear that a creditor has recourse for satisfying his claim whenever he wishes prior to the final distribution of his assets. Although at this juncture there is no express provision in IBC on the principle on condonation of delay. The settled position of law has been accepted by various NCLT until now. In the case of UCO Bank vs. Nicco Corporation Limited after referring to Rule 177 and Rule 178 of the Company Court Rule the NCLT placed reliance on T.R. Rajakumari vs. Motion Picture Producers Combine Ltd. and held that no prejudice will be caused if the claim of the applicant to condone the delay in submission of a claim is adjudicated and admitted[3]. Before NCLT (Kolkata Bench) similar question of law with regards to condonation of the delay came in the case of Asmi Enterprises vs. Yog Industries Ltd where the NCLT tread upon the same path as was followed by the Mumbai Bench to settle the proposition[4].
CONCLUSION
It can be contended that a creditor cannot be restrained from satisfying his claim if he was unable to prove his debt before the stipulated time. The stand taken by the Courts and NCLT on this aspect does not deviate in any manner. The courts have referred to archaic traditional laws to provide clarification. The Insolvency and Bankruptcy Code is new legislation that is designed to meet the contemporary dynamics of society. Therefore it is imperative to have a mechanism of itself, instead of relying upon the Company Courts Rules, 1959. Section 42 of IBC permits a stakeholder to approach the Adjudicating Authority if the liquidator rejects his claim. So through this provision a creditor can apply for condonation of delay. An amendment is required in Section 177 of IBC to specify in clear terms that it applies to liquidation proceedings. Apart from that, in terms of Regulation 12(2) of CIRP Regulation a similar section can be accommodated for liquidation proceedings under IBBI (Liquidation Process) Regulations, 2017 to entertain the claims of a stakeholder even if has failed to do file it within the specified date.

REFERENCES

[1]MANU/TN/0303/1941.

[2]Buckley on the Companies Acts, thirteenth edition, page 544.

[3]CP(IB) No. 03/KB/2017.

[4] CP No. 82/IBC/NCLT/MB/MAH/2017.

ABOUT THE AUTHOR(S)

 

Ranjeet Soni is a 4th Year Student at Dr. Ram Manohar Lohiya National Law University, Lucknow. He has a keen interest in Intellectual Property Law, Constitutional Law. and Policy Making.

 

 

 

 

 

 

 

Rohit Shrivastava is a 4th Year Student at Institute of Law, Nirma University, Ahmedabad. His areas of interests are Corporate Finance Law and Securities Law.

 

 

 

 

In-content Picture Credit: businesstoday.in

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