Definition of “Claim” filed in CIRP & Liquidation process.

  Definition of “Claim” filed in CIRP & Liquidation process.

Recently, three landmark judgments were pronounced by the Hon’ble Appellate Authority (NCLAT) in respect of the claims which can be filed in the CIRP & Liquidation process.

i). NCLAT  (2024.09.19) in Department of State Tax Vs. Reliance Communications Ltd. and Anr.  [(2024) ibclaw.in 597 NCLAT, Company Appeal (AT) (Insolvency) No. 1344 of 2024 & I.A. No. 4379, 4861 of 2024.] held that; 

• It is clear that the subsequent Claim was filed on basis of Assessment, which was made by Assessing Authority subsequent to initiation of CIRP. Further the Adjudicating Authority has taken the view that subsequent Claim was filed after the approval of the Plan of the CoC by 02.03.2020. Adjudicating Authority took the view that delay in filing the second Claim cannot be condoned. Apart from the reasons given by the Adjudicating Authority, we are of the view that the Claim which was on the basis of the Assessment made subsequent to the initiation of CIRP could not have been admitted.

[ Link Synopsis ]

ii). NCLAT (2024.09.23) in Gujarat Urja Vikas Nigam Ltd.. Vs. Mr. Udayraj Patwardhan (RP) [(2024) ibclaw.in 615 NCLAT, Comp. App. (AT) (Ins) No. 1183 of 2024 & & I.A. No. 4232 & 4954 of 2024] held that; 

• Explanation of Section 14 clearly stipulate that notwithstanding anything contained in any other law for the time being inforce, no license, permit, concessions or rights, etc., given by any other authority can not be suspended or terminated on ground of insolvency, subject to condition that there is no default in payment of current dues arising or use of continuation of license, permit, concessions or rights, etc.

• We hold that if the Appellant has any recovery towards the Corporate Debtor, he is entitled to initiate suitable recovery proceedings, if allowed by the law and in accordance with the law, which is a different legal right then arising out of filing claims under present petition, but cannot file claims arising after CIRP date.

• We hold that there is a clear law that Resolution Professional can only entertain claims due and filed w.r.t. CIRP commencement date and not due to subsequent event, for which claimant might have other legal remedy.

• It is settled law that the Resolution Professional can collate and verify claims w.r.t. CIRP date and therefore any claims arising subsequent to CIRP date can’t be entertained by Resolution Professional.

[ Link Synopsis ]

iii). NCLAT (2024.09.18) in SBS Holdings Inc.  Vs. Mohan Lal Jain [(2024) ibclaw.in 587 NCLAT, Company Appeal (AT) (Insolvency) No. 624 of 2024] held that; 

• The statutory scheme delineated by the above provisions, makes it clear that the claims to be filed by the claimants as on the liquidation commencement date. The Liquidation Regulations, does not contemplate consideration of any claim, which arises subsequent to liquidation commencement date.

• Regulation 28 being the only Regulation, which deals with a payment not due on the liquidation commencement date and the distribution has been provided in a manner as contained in sub-regulation (2) of Regulation 28, it is clear that no other claim is contemplated to be considered, which is not available on the liquidation commencement date. 

• The statutory scheme delineated by Regulation 12 and Regulation 16, clearly contemplate that a claim has to be filed on the liquidation commencement date. When a claim has not arisen on the liquidation commencement date, the Regulation do not contemplate admission of such claim.

• Regulation 13, as noted above, which provides for sending a Preliminary Report of the assets and liabilities as on the liquidation commencement date, clearly indicate that all liabilities have to be frozen on the liquidation commencement date and the statutory regulation does not contemplate admission of any claim arisen subsequent to liquidation commencement date.

• We are also of the view that claim could not have been entertained by the Liquidator, which arose subsequent to the liquidation commencement date, no error has been committed by the Liquidator in rejecting the claim on the ground that it was filed much beyond the last date for admission of the claim, which was 15.01.2021 and claim was filed by the Appellant, after more than two years.

[ Link Synopsis ]

Let's look into various definitions provided by the Code.

# Section 3(6) “claim” means –

• (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

• (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

# Section 3(10) “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder;

# Section 3(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;

# Section 3(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the  corporate debtor, as the case may be;

From the above definitions provided in the Code it is clear that the claims in respect of debts & liabilities, which are in existence at the time of commencement of CIRP or Liquidation process, can be filed during CIRP & Liquidation process respectively. 

Thus an important yardstick is whether the debt or liability was in existence as on CIRP Commencement Date (DOC) or Liquidation Commencement Date (LCD). CIRP Regulations & Liquidation Regulations, provide for the reference date (DOC or LCD), for admitting of the claims in CIRP & Liquidation process respectively.

Debt or liability in respect of assessment order comes into existence as on the date of assessment order of the concerned authority, irrespective of the period for which it (assessment order) belongs. Accordingly, as clarified by the Hon’ble Appellate Authority (NCLAT);

1. Claims in respect of assessment orders passed after CIRP Commencement Date (DOC)  cannot be accepted by IRP/RP during CIRP.

2. Claims in respect of assessment orders passed after Liquidation Commencement Date (LCD) cannot be accepted by Liquidator during Liquidation Process.

Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. One must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.

--------------------------------------------------------------