Time Limit on Admissibility of Claims During CIRP: Where to Draw the Line?
Table of Contents
One of the objectives of the Insolvency and Bankruptcy Code, 2016 (“the IBC”) is to resolve the insolvency of a corporate debtor within a defined timeline, typically 180 days, extendable by 90 days in exceptional cases. The IBC explains the corporate insolvency resolution process (CIRP), a structured legal mechanism designed to resolve insolvency within the defined time limit. Timely filing of Claims During CIRP by creditors is critical, as it directly impacts their recovery prospects and is a procedural necessity under the IBC, and failure to file within the prescribed period can result in the claim being rejected. The central question regarding the duration of claim admission during CIRP is addressed by the Insolvency and Bankruptcy Board of India ((Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), which allows claims to be accepted within the initial timeline specified in the public announcement and an extended period of 90 days from the insolvency commencement date (ICD).
Legal Framework Governing Filing of Claims
The filing of claims is governed by the IBC and CIRP Regulations. Sections 15(1)(e) and Regulation 6(1) mandate a public announcement within 3 days of the interim resolution professionals (IRPs) appointment, inviting claims from creditors in both English and a regional language. Regulation 12(1) sets a 14 days window from the IRPs appointment for creditors to submit their claims, with an extended period for up to 90 days from the commencement of CIRP for claims under Regulation 12(2). The IRP, under section 18, is responsible for collating claims, which involves collecting and comparing them to verify and arrange them in order, though this role is administrative, not adjudicatory. Further, information utilities (IUs) play a crucial role by recording defaults, which facilitates the verification of claims by providing a reliable source of information on the corporate debtor’s financial obligations. Read more Decree Holder’s Claim Under IBC
Standard Time Limit for Filing Claims During CIRP
Under Regulation 12 of the CIRP regulations, the standard time limit for filing claims is 90 days from the ICD, superseding the initial 14 days for submission of Claims During CIRP. Creditors who miss this deadline may still file claims, but such “late claims” require justification for the delay, and the resolution professional (RP) must verify and categorise them as acceptable or non-acceptable. The RP has discretion to accept belated claims only if they are recommended by the Committee of Creditors (CoC), but the final inclusion requires intervention from the National Company Law Tribunal (NCLT). Judicial flexibility exists in exceptional circumstances, particularly when delays are attributable to the tardy processes of the Adjudicating Authority, NCLT, or the National Company Law Appellate Tribunal (NCLAT), allowing extensions beyond the 330 day outer limit. However, such extensions are rare and only granted if the delay is significant and due to judicial inaction.
Judicial Pronouncements on Late Submission of Claims
NCLT and NCLAT rulings emphasize that once a resolution plan is approved by the CoC, the CIRP must not be reopened for new claims, as this would make the process endless and inefficacious. The Supreme Court has held that admitting claims after CoC approval, even before NCLT’s final approval, jeopardizes the resolution plan and undermines the finality of the process. The Adjudicating Authority’s power is limited to reviewing the plan’s compliance with section 31(1) of the IBC, not reopening the process of new claims. The Supreme Court in Committee of Creditors of Essar Steel v. Satish Kumar Gupta affirmed the finality of a resolution plan approved by the CoC, holding that it binds all stakeholder and ensures certain for the resolution applicant by extinguishing undecided claims. It emphasized the importance of the time-bound resolution process, upholding the 330 day limit as a general rule but allowing exceptions for deserving cases where the plan is nearly finalized, while ensuring the process does not violate constitutional rights.
Challenges in Admitting Late Claims
The challenges in admitting late claims involve:
- Balancing the rights of creditors, particularly those with statutory dues, against the need for a time-bound and efficient resolution process.
- The risk of derailing the CIRP is significant by the CoC, as it could set the clock back and make the process perpetual and inefficacious.
- Admitting late Claims During CIRP can disrupt and distribute under the resolution plan, as the successful resolution applicant must know the exact liabilities they are taking over, and any new claims could jeopardize the plan’s finality and the entitlements of all stakeholders.
Practical Considerations for Creditors
- Creditors must monitor public announcements to identify the deadline for filing claims, as failure to do so can result in the claim being deemed invalid.
- Creditors should IUs to record and verify defaults promptly, as IU records serve as crucial, accepted evidence of debt and default under the IBC.
- Missing the deadline, especially after the public announcement, can lead to automatic denial, as the claim may be considered untimely and the creditor loses the right to participate in the CIRP.
Role of Resolution Professional and and the Committee of Creditors
The role of RPs and the CoC in handling late claims during the CIRP is
- The RP is responsible for receiving, collating, and verifying claims submitted by creditors during the CIRP, and must maintain an updated list of creditors.
- The CoC does not have the power to reclassify a creditors’ status from financial to operational or vice versa, nor can it determine the nature of a claim, its role is limited to approving specific actions as defined under section 28(1) of the IBC.
- While the RP cannot unilaterally admit late claims, such claims may be considered if the creditor provides a valid reason for delay and the NCLT condones if the creditor provides a valid reasons and the NCLT condones the dealy, with the final inclusion subject to CoC recommendation and treatment in the resolution plan.
- Once a resolution plan is submitted and approved, the RP’s discretion in collating and verifying claims is effectively terminated, as the Supreme Court has ruled that no claims can exist outside those acknowledged in the approved resolution plan, thereby extinguishing any unacknowledged claims.
Where to Draw the Line on Time Limit on Admissibility of Claims During CIRP?
The 2023 amendment to the CIRP regulations sets the deadlines for claim submission as the date of issuance for the Request for Resolution Plans or 90 days from the ICD, whoever is later:
- The revised timeline priorises process efficiency and finality by establishing a clear, non-extendable deadline for claim filing, reducing the risk of delays caused by belated submission, while still allowing claims up to the Request for Resolution Plans date to ensure creditors are not entirely excluded.
- The 2023 amendment is a significant reform designed to prevent litigation over claim admissibility and streamline the process.
- The new rule attempts to balance strict timelines for the CIRP with the need for justice by ensuring creditors have a reasonable window to file claims, while preventing the process from being derailed by last-minute filings.
Conclusion
Timely submission of claims is vital for CIRP efficiency, as courts have consistently upheld strict statutory timelines to ensure the process remains time-bound and effective. While timelines are generally considered directory rather than mandatory, courts have allowed limited flexibility for belated claims only before the approval of a resolution plan, provided there are valid reasons for delay. Once a resolution plan is approved, its finality must be respected to maintain the sanctity of the process and prevent reopening for new claims. This principle was reinforced in the Electrosteel case, which clarified that approved resolution plans are sacrosanct and cannot be challenged outside the IBC farmwork.
FAQs
-
What is the time limit to file claims during CIRP?
Claims can be submitted during CIRP for 14 days from the appointment of the IRP, with a further window for submission up to the 90th day of commencement.
-
Can creditors submit claims after the resolution plan is approved?
No, creditors cannot submit a claim after the resolution plan is approved by the CoC and the Adjudicating Authority, as well outstanding claims are extinguished upon approval.
-
Who decides whether a late claim can be admitted in CIRP?
The resolution professional decides whether a late claim can be admitted in CIRP.
-
What happens if a creditor misses the deadline for claim submission?
If a creditor misses the deadline for filing a proof of claim in bankruptcy, the claim may be barred, and the creditor loses the right to be paid from the bankruptcy estate, although the creditor’s security interest in collateral generally remains unaffected.
-
Are there exceptions where late claims are considered valid?
Yes, late claims can be considered valid under the IBC, if they fall within the 3 year period preceding the filing of the insolvency application, as the Supreme Court has ruled that invoices raised within this window should be considered for limitation purposes, even if the original default occurred earlier.
Recent Posts
