In the Corporate Insolvency Resolution Process ("CIRP") initiated under the I&B Code 2016, the claim is an important factor to be decided in the Resolution Plan for the Corporate Debtor. The provisions of the I&B Code strive on the protection of interest of creditors of a company which is under CIRP while completing the insolvency resolution process in a time-bound manner.
Power of IRP/RP to adjudicate claims:
As per provisions of section 18 and section 25 of the I&B Code, it's the duty of the IRP/RP to collate all claims submitted by the creditors in pursuant to the public announcement. It is, however, to be noted that neither Section 18 nor Section 25 expressly cast a duty upon the IRP/RP to verify and admit or reject claims. The duty to verify the claims by the IRP/RP has been provided under Regulation 13 of the CIRP Regulations.
In the matter of Grasim Industries Limited and Edelweiss Asset Reconstruction Company Limited Vs. Tecpro Systems Limited, the Ld' Principal Bench, New Delhi has observed that "a perusal of aforesaid Regulation (i.e. Regulation 13 of the CIRP Regulation) makes it clear that he is under mandatory duty to verify every claim and maintain the list of creditors containing their names along with the amount claimed by them and the amount of their claim admitted." In the said matter the IRP has rejected the claim submitted by the applicant due to the reason that the claim amount was the subject matter of the arbitration before the Arbitral Tribunal and thus the NCLT upheld the decision taken by the IRP.
Further, in the combined appeal filed before the Hon'ble NCLAT in the matter of M/s. Prasad Gempex vs. Star Agro Marine Exports Pvt. Ltd. & Ors. and SREI Infrastructure Finance Ltd. vs. Kannan Tiruvengandam (R.P.) & Anr. [Company Appeal (AT) (Insolvency) Nos. 291 & 591 of 2018], the question arises for consideration is whether the 'Resolution Professional' has jurisdiction to decide or reject the claim of one or other 'Financial Creditor' or 'Operational Creditor'. A similar issue fell for consideration before the Hon'ble NCLAT in M/s. Dynepro Private Limited vs. Mr. V. Nagarajan [Company Appeal (AT) (Insolvency) No. 229 of 2018]. The Hon'ble NCLAT by its judgment dated 30th January 2019 held that 'Resolution Professional' has no jurisdiction to decide the claim of one or other creditors, including Financial Creditor, Operational Creditor, Secured Creditor or unsecured Creditor.
The power of 'Resolution Professional' also fell for consideration before the Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018'. In the said judgment dated 25th January 2019, the Hon'ble Supreme Court held that 'Resolution Professional' has no adjudicatory power. The 'Resolution Professional' has to vet and verify the claims made and ultimately determine the amount of each claim. As opposed to this, the 'Liquidator' in the Liquidation proceedings under the IBC has to consolidate and verify the claims and either admit or reject such claims under Sections 38 to 40 of the Code.
In the recent judgment passed by the Hon'ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors. [Civil Appeal No. 8766-67/2019 and other petitions], it has been held that the role of the RP is not adjudicatory but administrative. Further, with respect to the claim, it has been stated that in the CIRP, all claims must be submitted to and decided by the Resolution Professional so that a prospective Resolution Applicant knows exactly what has to be paid in order that it may then take over and run the business of the Corporate Debtor.
As per the above discussions, we understand that there is no express power granted to an IRP/RP to adjudicate the claim during the CIRP like that power granted to a liquidator to verify and either admit or reject a claim made by a creditor. However, it is evitable to note that the IRP/RP has substantial power to decide which claim and how many claims of a creditor is to be admitted or rejected during the CIRP.
Power of NCLT to adjudicate claims:
The Hon'ble NCLAT in the matter of M/s. Prasad Gempex vs. Star Agro Marine Exports Pvt. Ltd. & Ors. and SREI Infrastructure Finance Ltd. vs. Kannan Tiruvengandam (R.P.) & Anr. [Company Appeal (AT) (Insolvency) Nos. 291 & 591 of 2018], observed that with respect to the claims, a suit or application can be filed against the Corporate Debtor, in terms of provisions of Section 60 of the IBC. The relevant portion of Section 60 is quoted below:
(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.
From the aforesaid provision, it is clear that notwithstanding the order passed under Section 31 of the Code, it is open to a person to file a suit or an application against the Corporate Debtor for admission of the claim even after completion of the period of moratorium. Therefore, the NCLT is having jurisdiction to entertain or dispose of any claim made by or against the Corporate Debtor in terms of section 60(5) of the Code.
The adjudication of a claim under the I & B Code is the legal process by which the right to claim against the corporate debtor is to be decided by the proper authority whether it is IRP/RP or CoC or Adjudicating Authority i.e. NCLT. However, after going through with the various provisions of the I &B Code and CIRP Regulations and relevant judgments it can be concluded that although the power to decide the admission or rejection of a claim is vested with the IRP/RP, the role of the IRP/RP is not adjudicatory but administrative.
Therefore, in case the IRP/RP does not accept any claim of a creditor during the CIRP, then it is the NCLT which will decide the admission or rejection of claim during the CIRP upon the filing of an application by such creditor whose claim has not been admitted by the IRP/RP. As it has been seen in the matter of Mr. Navneet Kumar Gupta(RP of Monnet Power Company Limited) Vs. Bharat Heavy Electricals Limited [Company Appeal (AT) (Insolvency) No. 743 of 2018] which has been filed before the Hon'ble NCLAT arising out of Order dated 12th October 2018 by Ld' NCLT, Mumbai Bench in MA No. 550/2018 in CP 1696/I&BC/MB/MAH/2017 in which Hon'ble NCLAT has considered the issue relating to jurisdiction of the Resolution Professional to reject the claim of Operational Creditors without going into the evidence. This appeal has been filed by the Resolution Professional in the CIRP against 'Monnet Power Company Limited' in which 'Bharat Heavy Electricals Ltd.' (BHEL) (Operational Creditor) has filed an application before the 'Resolution Professional' to admit the entire claim of Rs.977,49,97,545/- along with interest. The 'Resolution Professional' on consideration of the same, had not accepted part of the claim. The Mumbai Bench of NCLT by impugned order dated 12th October 2018 held that the RP has wrongly disallowed the substantial claim in its entirety and directed the RP to re-examine the claim on the basis of the accounts and evidence of BHEL and if the evidence corroborated the claim, the same should also be taken into account while finalizing the total claim of BHEL. The RP being aggrieved by the order of the NCLT has preferred this appeal before the NCLAT. The Hon'ble NCLAT while deciding the issue has referred the judgment of the Apex Court in Swiss Ribbons Pvt. Ltd. & Anr.' (Supra) and also opined that the "Resolution Professional has no Adjudicatory Powers. Therefore, it was held that the RP is directed to act in accordance with the directions of the Adjudicating Authority.
Recently in Mr. S. Rajendaran, Resolution Professional of PRC International Hotels Private Limited V/s Jonathan Mouralidarane, CA (AT)(Ins)1018/2019, the Hon'ble NCLAT held that "we are of the opinion that the 'Resolution Professional' had no jurisdiction to "determine" the claim as pleaded in the Appeal. He could have only "collated" the claim, based on evidence and the record of the 'Corporate Debtor' or as filed by Jonathan Mouralidarane ('Financial Creditor'). If an aggrieved person thereof moves before the Adjudicating Authority and the Adjudicating Authority after going through all the records, comes to a definite conclusion that certain claimed amount is payable, the 'Resolution Professional' should not have moved in Appeal, as in any manner, he will not be affected."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.