Home buyers breathe a sigh of relief

By Vallari Dubey, (resolution@vinodkothari.com)

IBBI amends CIRP Regulations to include claims of other creditors

IBBI has taken a step towards making positive changes in the Insolvency and Bankruptcy Board of India (‘the Code’). The amendments being brought to Regulations pertaining to Corporate Insolvency Resolution Process, provides a relief to home buyers, who are stuck in the depth of undelivered or unfinished houses. With the aid of the amendments, such home buyers can now proceed to file their claims to the Resolution Professional under the Code.

The Insolvency and Bankruptcy Board of India (‘IBBI’) has issued a notification dated 16^th August, 2017, to make necessary amendments[1] in the existing regulations[2].

What is ‘claim’ as per the Code?

Section 3(6) defines ‘claim’.

3.In this Code, unless the context otherwise requires,—
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(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;
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By virtue of the above definition, claim means, either the right to payment or the right to remedy for breach of contract where such breach leads to a right to payment. Ultimately, claim gives a right payment, whether directly, or indirectly.

The Code imposes an obligation on the IRP to cause a public announcement to be made, immediately on his appointment and call for submission of claims from creditors, inter alia. (Section 13 and 15 of the Code)

Additionally, Section 18 of the Code enumerates a list of duties casted on the IRP, which also speaks about the duty to receive and collate all claims submitted.

The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’)

The CIRP Regulations have been effective from 1^st December, 2016, in order to carry out and further the provisions of the Code pertaining to Corporate Insolvency Resolution Process (‘CIRP’). Chapter IV of the regulations pertains to ‘Proof of Claims’.

Accordingly, claims could be submitted by a financial creditor, an operational creditor and by workmen and employees.

By virtue of the amendment notification, changes have been brought in the categories of creditors, who are eligible to submit their claims.

Section 9A has been inserted by CIRP Amendment Regulation to include creditors other than a financial creditor and operational creditor. Following is a comparison of the situation that existed before the amendment and the situation post amendment:

Similar changes have been brought to the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017, to bring them in line with the amendment in CIRP Regulations.

The claim amounts to ‘claim’ as per the Code; however, the CIRP Regulations of the Code did not provide for submission of any such claim. In absence of any such provision, the aggrieved home buyers were compelled to be left remediless. An amendment in the regulations will therefore, prove to be a savior for such home buyers and other creditors who were otherwise left out in the race to submit claims.

Fate of ‘other creditors’

The amendment, though naturally positive, raises two specifically important issues. First, the amendment has been brought after a period of almost 8 months since the CIRP Regulations were first notified. Numerous applications since the first notification have been filed, admitted and claims have been called for, by means of public announcements. The category of ‘other creditors’ (other than operational and financial creditors) may be happy to have got a specific right to file for their claims now, however, the question is, what about those who never got a chance to exercise the right which was never given to them till this amendment was made.

Second, other creditors are now eligible to file a claim under Regulation 9A, however, they still do not have the right to proceed against a corporate debtor and file an application to initiate corporate insolvency resolution process. This is purely harsh on such other creditors, who will have necessary rely on either the financial creditors or operational creditors, to initiate resolution process, and thereon file their claims with RP.

It is indeed appreciable that IBBI has officially given the powers to other creditors to submit claims, which could have been done earlier. These issues raise eyebrows on the viability of the Code, which has lacked to include creditors other than operational and financial, who would otherwise have no remedy against a corporate debtor. This puts the other creditors in a position, inequitable to operational and financial creditors.

[1] http://egazette.nic.in/WriteReadData/2017/178056.pdf

[2] http://www.ibbi.gov.in/Law/1_CIRP%20REGULATIONS301116.pdf