Standard Operating Practise for NCLT Cases by CBIC | A facilitator for IBC Process

[2022] 139 taxmann.com 97 (Article)

Introduction

Preamble of Insolvency & Bankruptcy Code, 2016

“An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto”.

Success of Insolvency & Bankruptcy (IBC) Ecosystem depends on timely and proactive action on the part of various stakeholders for timely resolution. Even though there are sufficient provisions to safeguard the interest of stakeholder, instances of failure on the part of stakeholders especially the statutory authorities will often place them in a difficult situation.

Once the Corporate Insolvency Resolution Process (here in referred to as CIRP) or Liquidation Process is initiated under the Insolvency & Bankruptcy Code,2016 the Corporate Debtor (here in referred to as CD) falls under the jurisdiction of adjudication authority ‘National Company Law Tribunal – NCLT’.

CD prior to commencement of CIRP/Liquidation might have undertaken transactions affecting various stakeholders. It will be a cumbersome task for Resolution Professional/Liquidator appointed by NCLT to arrive at the amount due to the stakeholders as on the Insolvency Commencement Date/Liquidation Commencement Date.

Public Announcement under IBC Code is suffice for the Resolution Professional/Liquidator to move ahead. Once the stakeholder fails to act and submit their claims on time, thereafter the claim submission will be difficult. However, certain stakeholders being unware of the provisions will resort to litigation if they are not able to submit the claims on time and thereby affecting the time bound completion of IBC process coupled with additional cost burden on Corporate Debtor.

Since IBC is a separate code by itself, the Hon’ Adjudicating Authorities, Appellate authorities, Highcourts and the Supreme Court has reiterated that the claims must be submitted on time.

Now the CBIC came forward with SOP to be followed by the GST and Customs Department while considering the cases falling under IBC. This articles tries to discuss on the legal provisions on public announcement, challenges faced by the Resolution Professional/Liquidator, jurisprudence on the matter, how the SOP works, areas not addressed and authors opine thereon.

Relevant Provision of IBC Code, 2016

• Public Announcement

– Public Announcement during CIRP: Section 13(1)(b) & Section 15 on read with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016).
– Public Announcement during Liquidation: Section 33(1)(b)(ii) on read with Regulation 12 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

Once the CIRP/Liquidation commence, the initial step to be taken by the Interim Resolution Professional/Liquidator will be in form of Public Announcement inviting general public comprising the stakeholders to submit their claims on time.

Even though public announcement is made on time, certain stakeholders will come forward with claim towards the closure of CIRP. There will be some stakeholders who will not submit their claims and drag the Resolution Professional to litigation for not intimating them well in advance.

IBC Code 2016 is framed in such a manner that Public Announcement will be sufficient for intimation to stakeholders to come forward with submission of claims.
Lack of SOP’s/awareness on the part Statutory Authorities was creating road blocks for the officers of the respective department to act fast to protect their interest as a stakeholder.

• Approval of Resolution Plan – Section 31(1)
It provides that

“If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan”.

CIRP is looked upon by the nation as a whole as a mechanism for timely resolution of an ailing corporate and protecting the interest of stakeholders.

Once CIRP/Liquidation clock starts running, the Resolution Professional has to perform various statutory functions in a time bound manner.

It will be responsibility of the stakeholders to come forward and submit their claim and cannot sleep over their right and time.

It is a well settled principle of law that once a resolution plan is approved by the adjudicating authority and the claim was not submitted by the statutory authorities, the plan can’t be challenged at later stage.

• Model Time line

✓ Regulation 40A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016)
✓ Regulation 12 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

Resolution Professional/Liquidator is bound to follow the model timeline and complete the CIRP/Liquidation on time.

Preamble of the IBC code intends a timebound resolution for maximising the value. With the passage of time, the dilution in value will happen fast for an ailing organisation. In order to prevent such dilution and take it to next level of resolution will be a challenging task all times.

Challenges faced by Resolution Professional in CIRP & Liquidation Process

Even though public notice will be issued the most of the stakeholders remain unaware of the same and will submit their claim after the statutory time limit/after approval of resolution plan.

RP/Liquidator has to write several letter with Statutory Authorities to turn up. However, in practise the statutory authority submit claim with inordinate delays.

On discharging the duties under the Code and time bound value maximation and completion the RP/Liquidator has to reject the claims not submitted on time which may further drag the CD & RP/Liquidator to unnecessary litigation.

Unnecessarily dragging the Resolution Applicant/Resolution Applicant/Liquidator by those who have not submitted there is affecting the smooth conduct of the IBC Eco system.

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