ASSIGNMENT

The corporate insolvency resolution process (CIRP) for corporate persons under the
Insolvency and Bankruptcy Code, 2016 was introduced with the primary objective of
providing for a time-bound, viable resolution mechanism whereby a corporate entity could be
maintained as a going concern while protecting the interests of the creditors. While striking a
balance between the time-bound nature of resolution process and ensuring that the interests of
all the creditors are addressed, an interesting question arises in relation to the status of a claim
which may be raised by a creditor beyond the timelines which are prescribed under the Code.

In accordance with section 15(1)(c) of the Code read with regulation 6(2)(c) of the
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016, once the application for initiation of the CIRP is admitted by the
National Company Law Tribunal, a public announcement is required to be released by the
IRP for inviting claims and such public announcement is required to provide for the last date
(being 14 days) for submission of such claims from the date of the appointment of the IRP.
Regulation 12(2) states that the Creditors who fails the submit the claims with proof within
14 days can submit their claims within 90 days from the Insolvency Commencement date.

In the above context, it is important to note regulation 12(2) of the CIRP Regulations, which
states that: “A creditor, who failed to submit proof of claim within the time stipulated in the
public announcement, may submit such proof to the interim resolution professional or the
resolution professional, as the case may be, till the approval of a resolution plan by the
committee.”

In view of the above, a creditor may file its claim before the IRP or the resolution
professional even after the prescribed period, but until the approval of a resolution plan by the
committee of creditors (COC). Notably, under section 31(1) of the Code, if the NCLT is
satisfied that the resolution plan as approved by the COC meets the requirements of the Code,
it shall by order approve the resolution plan which shall be binding on the corporate debtor
and its employees, members, creditors, guarantors and other stakeholders involved in the
resolution plan. Therefore, it appears that once the resolution plan is approved by the NCLT,
it becomes binding on all the creditors, including a creditor who may not have filed a claim in
accordance with the provisions of the Code.
In the recent orders/judgment, the hon’ble Tribunals have condoned the delay even after the
time period of 90 days is elapsed, citing that the amended regulation 12(2) is directory.

This issue was considered by the NCLT in the matter of Alchemist ARC Ltd. and Moser
Baer India Ltd.1 The NCLT observed: “There is no provision in the Parliamentary Statute,
i.e., the Insolvency and Bankruptcy Code, 2016, for extending the period beyond the last date
for submission of claims. However, regulation 12(2) has provided that a Creditor can submit
the proof of claim even after the stipulated date mentioned in the public announcement.
According to the provisions of regulation 12(2) such claim can be filed till the approval of a
resolution plan by the Committee”.

ARGUMENTS FOR OR AGAINST THE CREDITOR

1. In order to initiate a corporate insolvency resolution process, it is the sine qua non for
the financial creditor to show that the corporate debtor owes a financial debt within
the meaning of Section 5(8) of the Code and that he himself is a financial creditor
within the meaning of Section 5(7).
From a bare perusal of Section 7 of the IBC, it is pertinent that the insolvency can be
triggered by a "Financial Creditor" individually or jointly against the corporate debtor
when a default has occurred. In order to understand the term "Financial Creditor", the
requirement of the term "Financial Debt" has to be satisfied which is defined in
Section 5(8) of IBC. The opening words of the definition clause would indicate that a
financial debt is a debt along with interest which is disbursed against the
consideration for the time value of money and it may include any of the event
enumerated in sub-clause (a) to (i). Therefore, the key feature of financial transaction
is its consideration for the time value of money. In the case of Indus Financial Ltd.
v. Quantum Ltd.2 NCLT held that the provisions of Section 7 of the Code have come
into operation, which prescribes that a financial creditor may file an application for
initiating Corporate Insolvency Resolution Process against a Corporate Debtor when a
default has occurred. It is required that a Financial Creditor shall furnish the record of
the default.

1
CP No. (IB)23/PB/2017.
2
C.P. No. 1043 I&BP/NCLT/MB/MAH/2017.
Regulation 8(1) of Insolvency Resolution Process of Corporate Person states that a person
claiming to be a financial creditor needs to submit documentary proof of such claim in order
to be acknowledged for the CIRP. Further, clause (2) provides for various modes of providing
proof.

Pursuant to the aforementioned Regulation, the NCLT in Urban Infrastructure Trustee Ltd.
v Neelkanth Township and Construction Pvt. Ltd.3 held that three kinds of showings are
required to prove a default.

i. Firstly, records available under information utility;

ii. ii. Secondly, the Bench can pass an order against the financial creditor if the other
relevant document including the financial debt showing the claim as a debt, a
record evidencing the amounts committed by the financial creditor to the
corporate debtor under the facility has been drawn by the corporate debtor, if that
evidence is not available;
iii. iii. Thirdly, if the financial creditor can show an order of a court or tribunal that
has adjudicated upon the non-payment of the debt.

Since these categories have been disjointed using the word ‘or’, if the financial creditor is
able to produce any of these records showing default, then the Bench has invariably to
consider that default of the payment has been proved.4

2. The principles of natural justice must be duly considered by the Hon’ble Court while
considering the claims filed by the Creditors against the Corporate Debtor. The
Calcutta High Court upholds the principles of Natural Justice in Sree Mitaliks Ltd. &
Anr. v Union of India5. The Court said that NCLT and NCLAT are required to afford
a reasonable opportunity of hearing to the respondent before passing its order. It is
also open to the parties to point out that the NCLT and the NCLAT are bound to
follow the principles of natural justice while disposing of proceedings before them.
Therefore, anything contrary to it would be in violation of rules of natural justice.6

3
C.P. No. 69/I&NP/NCLT/MAH/2017.
4
CS (DR.) D.K. JAIN, GUIDE TO INSOLVENCY & BANKRUPTCY CODE 194 (1st ed., 2017).
5
W.P. 7144 (W) of 2017.
6
Punjab National Bank Vs. M/s. James Hotels Ltd., CP(IB) N0. 15/Chd/CHD/2017.