Importance of Filing Timely Claims in IBC: A Guide for Government Departments

– Neha Malu, Deputy Associate | resolution@vinodkothari.com 

Introduction

In the landscape of corporate insolvency, the timely submission of claims by creditors is of paramount importance. The Insolvency and Bankruptcy Code, 2016 (“IBC”) provides a structured process for dealing with corporate debtors in distress. This article highlights the necessity of adhering to prescribed timelines for claim submission and underscores the repercussions of delays, drawing on pertinent judicial rulings. Additionally, it offers a comprehensive overview for government departments on the process of filing claims under the IBC.

Now, in case of IBC, there are two stages- 

  1. Corporate insolvency resolution process (CIRP) stage, and
  2. Liquidation stage. 

Upon initiation of CIRP, an interim resolution professional is appointed who makes a public announcement in Form A within 3 days of his appointment. The respective creditors of the concerned corporate debtor are required to file their claims within the timeline specified herein below. However, it is to be noted that if the CIRP of the concerned corporate debtor fails, the creditors are also required to submit their claims once again in the liquidation process. 

Importance of timely submission of claim

The timely filing of claims is not just a procedural formality but a critical factor that influences the recovery prospects of creditors. The following judicial rulings highlight the importance of adhering to timelines and the consequences of failing to do so (specifically in case of government dues):

  1. NCLT, Allahabad Bench in the matter of Commercial Taxes Department, Government of Rajasthan v Deepak Kumar Garg, held that –

….we are of the considered opinion that the instant application filed by the Applicant is not maintainable as it has not been filed within prescribed time limit of the relevant provision of law and hence, is time barred and also, the Applicant came before us when the entire process of the liquidation has already been completed and no cause of action in this regard is pending to be adjudicated upon by us.

  1. NCLAT, New Delhi in Deputy Commissioner, UTGST, Daman Vs. Rajeev Dhingra IRP, held that- 

From a plain reading of the above CIRP Regulations, RP can accept the claim as per extended period as provided in CIRP Regulation 12(2). After extended period of 90 days of the insolvency commencement date, the IRP/RP is not obliged to accept the claim. Prima-facie, the said CIRP regulation has not provided any discretion to RP for admitting their claim after the extended period. Had they submitted their respective claims within the extended time-frame and the RP had not chosen to collate this claim as provided for in IBC, only then can it be rightly contended that there has occurred some material irregularity. In the instant case, the facts on record do not in any manner show that the RP was not diligent in performing his duty or acted in contravention of the of the IBC in rejecting the belated claims of UTGST and AC-CGST.

  1. NCLAT, New Delhi in Deputy Commissioner Commercial Taxes (Audit) Raichur v Surana Industries Ltd held that- 

In terms of impugned order, the Appellate Authority (National Company Law Tribunal) Division Bench I Chennai declined to entertain the appeal preferred against rejection of claim of Appellant by the Liquidator on the ground that no specific application seeking condonation of delay was filed beyond the prescribed period of 14 days. Learned counsel for the Appellant submits that there was a confusion about communication of the impugned order and that manifested in filing of appeal after delay of 7 days beyond the prescribed period. However, that cannot be a ground for seeking condonation as the liquidation process is a time bound process and the Liquidator has to conclude his proceedings within one year as prescribed under Insolvency and Bankruptcy Code, 2016.

In absence of sufficient cause and cogent reason, we are unable to persuade ourselves to interfere with the impugned order

  1. NCLAT, Chennai in The Regional Provident Fund v Titanium Tantalum Products Limited held that- 

43. In `Law’, a `Tribunal’/ a `Court of Law’ has no power to find out a device in granting `Relief’ to a `Party’ who may appeared to have been hard done by. To put is precisely, an `Application’ for condonation of delay undoubtedly create a `jurisdictional fetter’ against `consideration of tangible / substantive matter on merits’. A `Tribunal’ cannot determine the `sufficiency of cause’, apart from the facts pleaded and made out in a given case.

44. Just because the Appellant is a Statutory Organisation, no indulgence’ or `latitude’ can be shown, since the `Law’ applies to one and all in a level playing field. In reality, the Officials must act with as much as diligent as is expected from a `Litigant’, as per decision in District Board, Sargodha V Shemas Din123 I C 83.

Now, looking at the relevance of timely submission of claims in IBC, below, we outline an SOP designed specifically for government departments to navigate the processes of claim submission during the CIRP and liquidation stages under the IBC. This SOP details essential steps and documentation requirements tailored to ensure adherence to timelines and maximize the chances of successful claim recovery.

1. CIRP stage

Snapshot of the model timeline under CIRP (Only relevant portion has been captured):

Section/ Regulation Activity Timeline Remarks 
Section 16(1)Commencement of CIRP and appointment of IRP– 
Regulation 6(1)Public announcement inviting claimsWithin 3 days of appointment of IRPThe public announcement made by the IRP is available on the IBBI website under the tab “Public Announcement” which in updated as and when any announcement is uploaded by the IRP concerned 
Section 15(1)(c) / Regulations 6(2)(c) and 12 (1)Submission of  claimsWithin 14 days from the appointment of IRP Pursuant to the provisions of regulation 12(1), if a creditor fails to submit claim with proof within the time stipulated in the public announcement, it may submit his claim with proof to the IRP/RP, as the case may be, up to the date of (later of the following): Issue of request for resolution plans under regulation 36B or 90 days from the CIRP commencement date.Provided further that the creditor shall provide reasons for delay in submitting the claim beyond the period of ninety days from the insolvency commencement. 

Steps for submission of claims during CIRP: 

  1. Public announcement monitoring 

The Interim Resolution Professional (“IRP”) will make a public announcement inviting claims from creditors within 3 days of the commencement of the CIRP. Government departments should regularly check the IBBI website under the “Public Announcement” tab for relevant notices at: https://ibbi.gov.in/en/public-announcement

Upon identifying a public announcement for a corporate debtor, the department should:

  1. Review the details of the corporate debtor as provided in the announcement.
  2. Check internal records to determine if there are any outstanding demands from the corporate debtor.

If, after reviewing the records, the department concludes that there are no outstanding dues, no further action is necessary. However, if outstanding dues are identified, the department should proceed with the next steps to file a claim.

  1. Computation of the dues and collation of the proof of claim
  1. Right after identification of the concerned corporate debtor, the department shall compute the total outstanding dues pending recovery. 
  2. As a proof of claim following relevant documents shall be attached to the claim form:
    1. Assessment order in case of tax dues
    2. Demand notice or any other official communication stating the dues
    3. Any relevant correspondence or acknowledgments from the corporate debtor
    4. Details of payments received, if any
  3. Submission of claim

The debt owed to the government department falls in the category of “operational debt” in terms of the definition of operational debt provided under section 5(21) of IBC and hence in terms of the provisions of regulation 7 of the IBBI (Insolvency Resolution Process of the Corporate Debtor) Regulations, 2016 (“CIRP Regulations”), claim shall be submitted along with proof thereof to the IRP in person, by post or by electronic means in Form B of the Schedule-I. 

Following set of documents shall be submitted to the IRP:

  1. Affidavit 
  2. Form B
  3. Proof of claim (refer to the list provided in point 2 above)
  4. Summary of pending dues

2. Liquidation stage:

In the event that the CIRP does not culminate in a successful resolution plan and the corporate debtor is directed into liquidation, the claim submission process for creditors, including government departments, must be revisited. The liquidation stage under IBC has its own set of procedures and timelines that must be adhered to with the same diligence as during the CIRP.

Snapshot of the model timeline under Liquidation (Only relevant portion has been captured):

Section/ Regulation Activity Timeline Remarks 
Section 33 and 34Order of liquidation and appointment of liquidator – 
Regulation 12 Public announcement by Liquidator inviting claimsWithin 5 days of his appointmentThe public announcement made by the liquidator is available on the IBBI website under the tab “Public Announcement” which in updated as and when any announcement is uploaded by the IP concerned
Regulation 17 Within 30 days from the date of commencement of liquidationWithin 30 days from the date of commencement of liquidationCreditors must submit their claims afresh even if they have previously submitted claims during CIRP.

Steps for submission of claims during liquidation 

The process of monitoring public announcements, computing dues, collating proof of claims, and submitting these claims to the liquidator during liquidation is similar to that during the CIRP stage, with adjustments for the different timelines and forms required. 

How about a scenario where the timeline has been missed?

While every effort should be made to submit claims within the stipulated timeline, there may be instances where the deadline is missed. In such cases, the concerned department can still seek redress. If the timeline for filing a claim during the liquidation of a corporate debtor is missed, the department can file an application for condonation of delay with the Adjudicating Authority under the provisions of Section 42 of the IBC. 

However, it is crucial to emphasize that any application for condonation of delay must be accompanied by a compelling and sufficient reason for the delay in filing the claim. As discussed in the foregoing paras, NCLTs and NCLATs have consistently held that mere oversight or administrative delays may not suffice as valid grounds for condonation. Therefore, departments must ensure that their reasons for delay are justified and supported by clear evidence to enhance the likelihood of a successful application.

Department specific concerns:

  1. Income Tax Department:
    1. For recovery of all the dues including penalties and interest is calculated and included in the claim.
    2. Relevant documents: relevant assessment orders and notices.
  2. GST Department:
    1. For recovery of all pending GST dues, penalties, and interest.
    2. Relevant documents: relevant GST returns and notices.
  3. Customs Department:
    1. For recovery of pending customs duties and related charges.
    2. Relevant documents: Customs assessment orders, demand notices, bills of entry etc.
  4. State Commercial Tax Departments:
    1. For recovery of state-level taxes such as VAT, Sales Tax, and other state levies.
    2. Relevant documents: Tax assessment orders, demand notices, tax returns etc.
  5. Provident Fund Department:
    1. For recovery of unpaid provident fund contributions by the corporate debtor.
    2. Relevant documents: Contribution statements, demand notices and employer-employee records.
  6. Municipal Corporations:
    1. For recovery of property taxes, water charges, and other municipal dues.
    2. Relevant documents: Tax bills, demand notices, and utility bills.
  7. Telecom Department:
    1. Provide details of unpaid license fees, spectrum usage charges, and other dues.
    2. Relevant documents: invoices and demand notices.
  8. Electricity Department:
    1. Include outstanding electricity dues.
    2. Relevant documents: latest electricity bills and any disconnection notices.

Other Government departments also need to follow the same procedure as outlined in the SOP, ensuring that they compute their dues accurately, collate necessary proof of claim, and submit their claims within the stipulated timelines. 

Conclusion

Following this detailed SOP ensures that government departments can efficiently and effectively file their claims during CIRP and liquidation under the IBC. This guide aims to streamline the process and ensure compliance with IBC provisions. 

However, in order to implement the steps prescribed herein effectively and looking at the number of cases, the Government departments may consider appointing a specific officer to this role of claim submission in case of CIRP and liquidation of the concerned corporate debtor.  

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