Insolvency and Bankruptcy Part 2

Summary of Question-   Limitation Act and section 238A of I&B Code

Question – Whether  Limitation Act, 1963, vide section 238A of I&B Code, is applicable to applications made under s. 7 and s. 9 of the I&B  Code,  on and from the commencement of I&B Code  i. e. from 01.12.2016,   and not from 6.6.2018 on which date Section  238A  of the  I&B Code came into force.
 

Answer- Yes. Section 238A of I&B Code is applicable  on and from the commencement of I&B Code  i. e. from 01.12.2016.
 

Rationale-


In CIVIL APPEAL NO.23988 OF 2017, decided on 11th October 2018, the Hon’ble Supreme Court observed and held: 

"15. In Allied  Motors  (P)  Ltd.  v.  CIT , (1997)  3  SCC  472,  this Court  took  the  view  that  the  amendment  made  to  Section  43-B in  the  Income  Tax  Act  was  retrospective,  holding:
“ 14. ……  As  observed  by  G.P.  Singh  in  his Principles  of  Statutory  Interpretation ,  4 th Edn.  at  p. 291:
“It  is  well  settled  that  if  a  statute  is  curative  or merely  declaratory  of  the  previous  law  retrospective operation   is   generally   intended.”   In   fact   the amendment  would  not  serve  its  object  in  such  a situation  unless  it  is  construed  as retrospective……”
In  the  present  case  also,  it  is  clear  that  the  amendment  of Section  238A  would  not  serve  its  object  unless  it  is  construed as  being  retrospective,  as  otherwise,  applications  seeking  to resurrect  time-barred  claims  would  have  to  be  allowed,  not being  governed  by  the  law  of  limitation."

"16. We  may  also  refer  to  a  recent  decision  of  this  Court  in v.  V.  Ramakrishnan SBI ,  (2018)  SCC  Online  SC  963,  where  this Court,  after  referring  to  the  selfsame  Insolvency  Law  Committee Report,  held  that  the  amendment  made  to  Section  14  of  the Code,  in  which  the  moratorium  prescribed  by  Section  14  was held  not  to  apply  to  guarantors,  was  held  to  be  clarificatory,  and therefore,   retrospective  in  nature,  the  object  being  that  an overbroad  interpretation  of  Section  14  ought  to  be  set  at  rest  by clarifying  that  this  was  never  the  intention  of  Section  14  from the  very  inception."
"21.............. As  in  the  present  case,  and  as  is reflected  in  the  Insolvency  Law  Committee  Report  of  March, 2018,  the  legislature  did  not  contemplate  enabling  a  creditor who  has  allowed  the  period  of  limitation  to  set  in  to  allow  such delayed  claims  through  the  mechanism  of  the  Code. The  Code cannot  be  triggered  in  the  year  2017  for  a  debt  which  was  time barred,  say,  in  1990,  as  that  would  lead  to  the  absurd  and extreme  consequence  of  the  Code  being  triggered  by  a  stale  or dead  claim,  leading  to  the  drastic  consequence  of  instant removal  of  the  present  Board  of  Directors  of  the  corporate debtor  permanently,  and  which  may  ultimately  lead  to  liquidation and,   therefore,   corporate   death.   This  being  the  case,  the expression  “debt  due”  in  the  definition  sections  of  the  Code would  obviously  only  refer  to  debts  that  are  “due  and  payable” in  law,  i.e.,  the  debts  that  are  not  time-barred.... "


"27. It  is  thus  clear  that  since  the  Limitation  Act  is  applicable  to applications  filed  under  Sections  7  and  9  of  the  Code  from  the inception  of  the  Code,  Article  137  of  the  Limitation  Act  gets attracted.  “The  right  to  sue”,  therefore,  accrues  when  a  default occurs.  If  the  default  has  occurred  over  three  years  prior  to  the date  of  filing  of  the  application,  the  application  would  be  barred under  Article  137  of  the  Limitation  Act,  save  and  except  in  those cases  where,  in  the  facts  of  the  case,  Section  5  of  the  Limitation Act   may  be  applied  to  condone  the  delay  in  filing  such application."

 

Summary of Question-   Constitutional Validity of I&B Code

Question –  Summary of legal position explained by the Hon’ble Supreme Court in the case of Swiss Ribbons.

Answer- The Hon’ble Supreme Court in WRIT PETITION (CIVIL) NO. 99 OF 2018 (Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors) along with of other petitions challenging validity of I&B Code, decided on 25th January 2019,   upheld constitutional validity of entire  Insolvency and Bankruptcy Code 2016. The Apex Court has observed and gave findings, inter alia,  

(i) With regard to object , purpose and outcome of the  legislation -  I & B Code

(ii) With regard to distinction &  no discrimination between Financial Creditor and Operational Creditor and as such not amounting violation of Article 14

 (iii) With regard to Section 12A (which deals  with  withdrawal of application admitted under section 7 , 9 or 10) being not  violative of  Article 14

 (iv) With regard to Resolution Professional having no Adjudicatory Powers 

 (v) With regard to section 29A that “related party” under section 29A to debar from participating in resolution process,  would include only person who are connected with the business activity of the defaulter.

 

Rationale-

 

Observations / Findings of the Apex court in the case of Swiss Ribbons:

 

(i) With regard to object , purpose and outcome of the legislation -  I & B Code:

 

“12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor‘s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.”

 

“85. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed,  ̳trial‘ having led to repeated  errors‘, ultimately led to the enactment of the Code…………………………………”

 

“86. We are happy to note that in the working of the Code, the flow of financial resource to the commercial sector in India has increased exponentially as a result of financial debts being repaid…………………………..”

 

(ii) With regard to distinction &  no discrimination between Financial Creditor and Operational Creditor as such not amounting violation of Article 14:

 

“27. According to us, it is clear that most financial creditors, particularly banks and financial institutions, are secured creditors  whereas most operational creditors are unsecured, payments for goods and services as well as payments to workers not being secured by mortgaged documents and the like. The distinction between secured and unsecured creditors is a distinction which has obtained since the earliest of the Companies Acts both in the United Kingdom and in this country. Apart from the above, the nature of loan agreements with financial creditors is different from contracts with  operational creditors for supplying goods and services. Financial creditors generally lend finance on a term loan or for working capital that enables the corporate debtor to either set up and/or operate its business. On the other hand, contracts with operational creditors are relatable to supply of goods and services in the operation of business. Financial contracts generally involve large sums of money. By way of  contrast, operational contracts have dues whose quantum is generally less. In the running of a business, operational creditors can be many as opposed to financial creditors, who lend finance for the set up or working of business. Also, financial creditors have specified repayment schedules, and defaults entitle financial creditors to recall a loan in totality. Contracts with operational creditors do not have any such stipulations. Also, the forum in which dispute resolution takes place is completely different. Contracts with operational creditors can and do have arbitration clauses where dispute resolution is done privately. Operational debts also tend to be recurring in nature and the possibility of genuine disputes in case of operational debts is much higher when compared to financial debts. A simple example will suffice. Goods that are supplied may be substandard. Services that are provided may be substandard. Goods may not have been supplied at all. All these qua operational debts are matters to be proved in arbitration or in the courts of law. On the other hand, financial debts made to banks and financial institutions are well-documented and defaults made are easily verifiable.

 

28. Most importantly, financial creditors are, from the very beginning,involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor‘s business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational  creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.”

 

 

“44. Since the financial creditors are in the business of money lending, banks and financial institutions are best equipped to assess viability and feasibility of the business of the corporate debtor. Even atthe time of granting loans, these banks and financial institutions undertake a detailed market study which includes a techno-economic valuation report, evaluation of business, financial projection, etc. Since this detailed study has already been undertaken before sanctioning a loan, and since financial creditors have trained employees to assess viability and feasibility, they are in a good position to evaluate the contents of a resolution plan. On the other hand, operational creditors, who provide goods and services, are involved only in recovering amounts that are paid for such goods and services, and are typically unable to assess viability and feasibility of business. The BLRC  Report, already quoted above, makes this abundantly clear..."
 

“46. The NCLAT has, while looking into viability and feasibility of resolution plans that are approved by the committee of creditors, always gone into whether operational creditors are given roughly the same treatment as financial creditors, and if they are not, such plans are either rejected or modified so that the operational creditors‘ rights are safeguarded. It may be seen that a resolution plan cannot pass muster under Section 30(2)(b) read with Section 31 unless a minimum payment is made to operational creditors, being not less than liquidation value. Further, on 05.10.2018, Regulation 38 has been amended….”


“ 47. The aforesaid Regulation further strengthens the rights of operational creditors by statutorily incorporating the principle of fair and equitable dealing of operational creditors‘ rights, together with priority in payment over financial creditors.

 

48. For all the aforesaid reasons, we do not find that operational creditors are discriminated against or that Article 14 has been infracted either on the ground of equals being treated unequally or on the ground of manifest arbitrariness.”

 

“84. It will be seen that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code. We havealready seen that repayment of financial debts infuses capital into the  economy inasmuch as banks and financial institutions are able, with the money that has been paid back, to further lend such money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts, which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen‘s dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be seen that unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infracted. For these reasons, the challenge to Section 53 of the Code must also fail.”


 

(iii) With regard to Section 12A (which deals  with  withdrawal of application admitted under section 7 , 9 or 10) being not  violative of  Article 14:
 


52. It is clear that once the Code gets triggered by admission of a creditor‘s petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear  that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case.

 

53. The main thrust against the provision of Section 12A is the fact that ninety per cent of the committee of creditors has to allow withdrawal. This high threshold has been explained in the ILC Report  as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is clear, that  under Section 60 of the Code, the committee of creditors do not have the last word on the subject. If the committee of creditors arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT, and thereafter, the NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, we are of the view that Section 12A also passes constitutional muster.”

 

(iv) With regard to Resolution Professional having no Adjudicatory Powers:

 

“58. It is clear from a reading of the Code as well as the Regulations that the resolution professional has no adjudicatory powers. Section 18 of the Code lays down the duties of an interim resolution professional as follows:…………………………………………………………………………..”

 

                                                                                                               [Emphasis Supplied]

 

“59. Under the CIRP Regulations, the resolution professional has to vet and verify claims made, and ultimately, determine the amount of each claim as follows:

 

10. Substantiation of claims.—The interim

resolution professional or the resolution professional,

as the case may be, may call for such other evidence

or clarification as he deems fit from a creditor for

substantiating the whole or part of its claim.‖

xxx xxx xxx

 

12. Submission of proof of claims.—(1) Subject to

sub-regulation (2), a creditor shall submit claim with

proof on or before the last date mentioned in the public

announcement.

(2) A creditor, who fails to submit claim with proof

within the time stipulated in the public announcement,

may submit the claim with proof to the interim

resolution professional or the resolution professional,

as the case may be, on or before the ninetieth day of

the insolvency commencement date.

(3) Where the creditor in sub-regulation (2) is a

financial creditor under regulation 8, it shall be

included in the committee from the date of admission

of such claim:

Provided that such inclusion shall not affect the

validity of any decision taken by the committee prior to

such inclusion.

 

13. Verification of claims.—(1) The interim resolution

professional or the resolution professional, as the case

may be, shall verify every claim, as on the insolvency

commencement date, within seven days from the last

date of the receipt of the claims, and thereupon

maintain a list of creditors containing names of

creditors along with the amount claimed by them, the

amount of their claims admitted and the security

interest, if any, in respect of such claims, and update

it.

(2) The list of creditors shall be –

(a) available for inspection by the persons

who submitted proofs of claim;

(b) available for inspection by members,

partners, directors and guarantors of the

corporate debtor;

(c) displayed on the website, if any, of the

corporate debtor;

(d) filed with the Adjudicating Authority; and

(e) presented at the first meeting of the

committee.

 

14. Determination of amount of claim.—(1) Where

the amount claimed by a creditor is not precise due to

any contingency or other reason, the interim resolution

professional or the resolution professional, as the case

may be, shall make the best estimate of the amount of

the claim based on the information available with him.

(2) The interim resolution professional or the resolution

professional, as the case may be, shall revise the

amounts of claims admitted, including the estimates of

claims made under sub-regulation (1), as soon as may

be practicable, when he comes across additional

information warranting such revision.

 

It is clear from a reading of these Regulations that the resolution professional is given administrative as opposed to quasi-judicial powers. In fact, even when the resolution professional is to make a determination under Regulation 35A, he is only to apply to the Adjudicating Authority for appropriate relief based on the determination made as follows:……………………………………………………………………………

                                                                                                                      [Emphasis Supplied]

 

60. As opposed to this, the liquidator, in liquidation proceedings under the Code, has to consolidate and verify the claims, and either admit or reject such claims under Sections 38 to 40 of the Code. Sections 41 and 42, by way of contrast between the powers of the liquidator and that of the resolution professional, are set out hereinbelow:

 

41. Determination of valuation of claims.—The

liquidator shall determine the value of claims admitted

under Section 40 in such manner as may be specified

by the Board.

 

42. Appeal against the decision of liquidator.—A

creditor may appeal to the Adjudicating Authority

against the decision of the liquidator accepting or

rejecting the claims within fourteen days of the receipt

of such decision.

 

It is clear from these Sections that when the liquidator  determines  the value of claims admitted under Section 40, such determination is a decision, which is quasi-judicial in nature, and which can be appealed against to the Adjudicating Authority under Section 42 of the Code.

 

                                                                                                                  [Emphasis Supplied]

 

61. Unlike the liquidator, the resolution professional cannot act in a number of matters without the approval of the committee of creditors under Section 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the committee of creditors and by the Adjudicating Authority.

                                                                                                                [Emphasis Supplied]

 

(v) With regard to section 29A that “related party” under section 29A to debar from participating in resolution process,  would include only person who are connected with the business activity of the defaulter.

 

 

“74. What is argued by the petitioners is that the mere fact that somebody happens to be a relative of an ineligible person cannot be good enough to oust such person from becoming a resolution applicant, if he is otherwise qualified. We were urged, by Shri Viswanathan in particular, to apply the doctrine of nexus that is well known and that has been applied by this Court in several judgments……”

 

“75. We are of the view that persons who act jointly or in concert with others are connected with the business activity of the resolution applicant. Similarly, all the categories of persons mentioned in Section 5(24A) show that such persons must be ―connected  with the resolution applicant within the meaning of Section 29A(j). This being the case, the said categories of persons who are collectively mentioned under the caption relative obviously need to have a connection with the business activity of the resolution applicant. In the absence of showing that such person is connected  with the business of the activity of the resolution applicant, such person cannot possibly be disqualified under Section 29A(j). All the categories in Section 29A(j) deal with persons, natural as well as artificial, who are connected with the business activity of the resolution applicant. The expression ―related party, therefore, and ―relative contained in the definition Sections must be read noscitur a sociis with the categories of persons mentioned in Explanation I, and so read, would include only persons who are connected with the business activity of the resolution applicant.”

 

Summary of Question-  Resolution Professional’s Power

 

Question – Whether a Resolution Professional is empowered to take  decision as to  ineligibility of a Resolution Applicant.

Answer- No.  A Resolution Professional under I & B Code is not empowered to take decision as to ineligibility of a  Resolution Applicant but to examine eligibility or ineligibility of the Resolution Applicant and submit report with  Resolution Plans  to the Committee of Creditors (COC) to take decision 

Rationale-

1.  In CIVIL  APPEAL  Nos. 9402-9405  of  2018, decided on 4th. October 2018, the Hon'ble Supreme observed and held :


"77.  However,   it   must   not   be   forgotten   that   a   Resolution Professional   is   only   to   “examine”   and   “confirm”   that   each resolution  plan  conforms  to  what  is  provided  by  Section  30(2). Under   Section 25(2)(i),   the   Resolution   Professional   shall undertake  to  present  all  resolution  plans  at  the  meetings  of  the Committee  of  Creditors.    This  is  followed  by  Section  30(3),  which states   that   the   Resolution   Professional   shall   present   to   the Committee  of  Creditors,  for  its  approval,  such  resolution  plans which  confirm  the  conditions  referred  to  in  sub-section  (2).    This provision  has  to  be  read  in  conjunction  with  Section  25(2)(i),  and with  the  second  proviso  to  Section  30(4),  which  provides  that where  a  resolution  applicant  is  found  to  be  ineligible  under  Section 29A(c),  the  resolution  applicant  shall  be  allowed  by  the  Committee of  Creditors  such  period,  not  exceeding  30  days,  to  make  payment of  overdue  amounts  in  accordance  with  the  proviso  to  Section 29A(c).    A  conspectus  of  all  these  provisions  would  show  that  the Resolution  Professional  is  required  to  examine  that  the  resolution plan  submitted  by  various  applicants  is  complete  in  all  respects, before  submitting  it  to  the  Committee  of  Creditors.    The  Resolution Professional  is  not  required  to  take  any  decision,  but  merely  to ensure  that  the  resolution  plans  submitted  are  complete  in  all respects   before   they   are   placed   before   the   Committee   of Creditors,  who  may  or  may  not  approve  it.    The  fact  that  the Resolution  Professional  is  also  to  confirm  that  a  resolution  plan does  not  contravene  any  of  the  provisions  of  law  for  the  time-being in  force,  including  Section  29A  of  the  Code,  only  means  that  his prima  facie  opinion  is  to  be  given  to  the  Committee  of  Creditors that  a  law  has  or  has  not  been  contravened.    Section  30(2)(e) does  not  empower  the  Resolution  Professional  to  “decide ”  whether the  resolution  plan  does  or  does  not  contravene  the  provisions  of law.  Regulation  36A  of  the  CIRP  Regulations  specifically  provides as  follows:

“(8)   The  resolution   professional   shall   conduct   due diligence  based  on  the  material  on  record  in  order  to satisfy   that   the   prospective   resolution   applicant complies  with- 
a)  the  provisions  of  clause  (h)  of  sub-section  (2) of  section  25; (b)  the  applicable  provisions  of  section  29A, and (c)   other   requirements,   as   specified   in   the invitation  for  expression  of  interest.

(9)   The   resolution   professional   may   seek   any clarification  or  additional  information  or  document  from the  prospective  resolution  applicant  for  conducting  due diligence  under  sub-regulation  (8).

(10)   The   resolution   professional   shall   issue   a provisional   list   of   eligible   prospective   resolution applicants   within   ten   days   of   the   last   date   for submission  of  expression  of  interest  to  the  committee and   to   all   prospective   resolution   applicants   who submitted  the  expression  of  interest.

(11)   Any  objection  to  inclusion  or   exclusion  of  a prospective  resolution  applicant  in  the  provisional  list referred  to  in  sub-regulation  (10)  may  be  made  with supporting  documents  within  five  days  from  the  date  of issue  of  the  provisional  list.

(12)  On  considering  the  objections  received  under  subregulation  (11),  the  resolution  professional  shall  issue the  final  list  of  prospective  resolution  applicants  within ten  days  of  the  last  date  for  receipt  of  objections,  to  the committee.” 
                                                                

                                                                                                                                                     [Emphasis Supplied]
 

78. Thus,  the  importance  of  the  Resolution  Professional  is  to ensure  that  a  resolution  plan  is  complete  in  all  respects,  and  to conduct  a  due  diligence  in  order  to  report  to  the  Committee  of Creditors  whether  or  not  it  is  in  order.  Even  though  it  is  not necessary  for  the  Resolution  Professional  to  give  reasons  while submitting  a  resolution  plan  to  the  Committee  of  Creditors,  it  would be  in  the  fitness  of  things  if  he  appends  the  due  diligence  report carried  out  by  him  with  respect  to  each  of  the  resolution  plans under  consideration,  and  to  state  briefly  as  to  why  it  does  or  does not  conform  to  the  law."

                           [Emphasis Supplied]

 2.  The Hon’ble Supreme court in  WRIT PETITION (CIVIL) NO. 99 OF 2018 (Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors) along with of other petitions challenging validity of I&B Code, decided on 25th January 2019 observed and held :

 “58. It is clear from a reading of the Code as well as the Regulations that the resolution professional has no adjudicatory powers. Section 18 of the Code lays down the duties of an interim resolution professional as follows:…………………………………………………………………………..”

 

                                                                                                               [Emphasis Supplied]

 

“59. Under the CIRP Regulations, the resolution professional has to vet and verify claims made, and ultimately, determine the amount of each claim as follows:

 

10. Substantiation of claims.—The interim

resolution professional or the resolution professional,

as the case may be, may call for such other evidence

or clarification as he deems fit from a creditor for

substantiating the whole or part of its claim.‖

xxx xxx xxx

 

12. Submission of proof of claims.—(1) Subject to

sub-regulation (2), a creditor shall submit claim with

proof on or before the last date mentioned in the public

announcement.

(2) A creditor, who fails to submit claim with proof

within the time stipulated in the public announcement,

may submit the claim with proof to the interim

resolution professional or the resolution professional,

as the case may be, on or before the ninetieth day of

the insolvency commencement date.

(3) Where the creditor in sub-regulation (2) is a

financial creditor under regulation 8, it shall be

included in the committee from the date of admission

of such claim:

Provided that such inclusion shall not affect the

validity of any decision taken by the committee prior to

such inclusion.

 

13. Verification of claims.—(1) The interim resolution

professional or the resolution professional, as the case

may be, shall verify every claim, as on the insolvency

commencement date, within seven days from the last

date of the receipt of the claims, and thereupon

maintain a list of creditors containing names of

creditors along with the amount claimed by them, the

amount of their claims admitted and the security

interest, if any, in respect of such claims, and update

it.

(2) The list of creditors shall be –

(a) available for inspection by the persons

who submitted proofs of claim;

(b) available for inspection by members,

partners, directors and guarantors of the

corporate debtor;

(c) displayed on the website, if any, of the

corporate debtor;

(d) filed with the Adjudicating Authority; and

(e) presented at the first meeting of the

committee.

 

14. Determination of amount of claim.—(1) Where

the amount claimed by a creditor is not precise due to

any contingency or other reason, the interim resolution

professional or the resolution professional, as the case

may be, shall make the best estimate of the amount of

the claim based on the information available with him.

(2) The interim resolution professional or the resolution

professional, as the case may be, shall revise the

amounts of claims admitted, including the estimates of

claims made under sub-regulation (1), as soon as may

be practicable, when he comes across additional

information warranting such revision.

 

It is clear from a reading of these Regulations that the resolution professional is given administrative as opposed to quasi-judicial powers. In fact, even when the resolution professional is to make a determination under Regulation 35A, he is only to apply to the Adjudicating Authority for appropriate relief based on the determination made as follows:……………………………………………………………………………

                                                                                                                      [Emphasis Supplied]

 

60. As opposed to this, the liquidator, in liquidation proceedings under the Code, has to consolidate and verify the claims, and either admit or reject such claims under Sections 38 to 40 of the Code. Sections 41 and 42, by way of contrast between the powers of the liquidator and that of the resolution professional, are set out hereinbelow:

 

41. Determination of valuation of claims.—The

liquidator shall determine the value of claims admitted

under Section 40 in such manner as may be specified

by the Board.

 

42. Appeal against the decision of liquidator.—A

creditor may appeal to the Adjudicating Authority

against the decision of the liquidator accepting or

rejecting the claims within fourteen days of the receipt

of such decision.

 

It is clear from these Sections that when the liquidator  determines  the value of claims admitted under Section 40, such determination is a decision, which is quasi-judicial in nature, and which can be appealed against to the Adjudicating Authority under Section 42 of the Code.

 

                                                                                                                  [Emphasis Supplied]

 

61. Unlike the liquidator, the resolution professional cannot act in a number of matters without the approval of the committee of creditors under Section 28 of the Code, which can, by a two-thirds majority, replace one resolution professional with another, in case they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the committee of creditors and by the Adjudicating Authority.

                                                                                                                [Emphasis Supplied]

 

 

Summary of Question-   Resolution Plan to erstwhile Board of directors

Question – Whether   erstwhile Board of Directors of corporate debtor are to be given a copy of Resolution plans submitted by the Resolution Applicants to the Resolution Professional.

 Answer- Yes.

Rationale-

1. In CIVIL APPEAL NO.8430 OF 2018, decided by the Hon’ble Supreme Court on 31st. January 2019, the Appellant’s case was that appellant’s prayer was for directions to the resolution professional to provide all relevant documents including the insolvency resolution plans  to members of the suspended Board of Directors of the corporate debtor so that they may meaningfully participate in meetings held by the committee of creditors [“CoC”].

2. The Apex Court observed and held, among others, :

“8. The statutory scheme of the Code, insofar as the former members of the Board of Directors are concerned, is as follows: A committee of creditors is first constituted under Section 21consisting only of all the financial creditors of the corporate debtor. Under Section 24, all meetings of this committee are to be conducted by the resolution professional who, however, does not happen to be part of this committee. Section 24(3)(b) is important in that, the resolution professional has to give notice of each and every meeting of the committee of creditors, inter alia, to members of the suspended Board of Directors. Like operational creditors who may attend and participate in such meetings, provided the aggregate dues owing to them are not less than ten per cent of the total debt, both such operational creditors and erstwhile members of the Board of Directors have no vote. Section 25(2)(f) and (i) are also important in that, once the resolution professional convenes meetings of the committee of creditors, he is to present all resolution plans at these meetings. Under Section 30, the resolution professional shall examine each resolution plan received by him in which he must confirm, inter alia, that such plan provides for the repayment of the debts of operational creditors which shall not be less than the amount to be paid to them in the event of liquidation of the corporate debtor. This plan is then submitted to the Adjudicating Authority if it is approved by the requisite majority of the committee of creditors. The Adjudicating Authority under Section 31(1), if satisfied that the plan passes muster, shall then, by order, approve such plan, which shall be binding on all stakeholders involved in the resolution plan, including guarantors.”

 

“9. This statutory scheme, therefore, makes it clear that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i). It cannot be gainsaid that operational creditors, who may participate in such meetings but have no right to vote, are vitally interested in such resolution plans, and must be furnished copies of such plans beforehand if they are to participate effectively in the meeting of the committee of creditors. This is for the reason that under Section 30(2)(b), repayment of their debts is an important part of the resolution plan qua them on which they must comment. So the first important thing to notice is that even though persons such as operational creditors have no right to vote but are only participants in meetings of the committee of creditors, yet, they would certainly have a right to be given a copy of the resolution plans before such meetings are held so that they may effectively comment on the same to safeguard their interest.”

                                                                                                                                                      [Emphasis Supplied]

 

“13. It is also important to note that every participant is entitled to a notice of every meeting of the committee of creditors. Such notice of meeting must contain an agenda of the meeting, together with the copies of all documents relevant for matters to be discussed and the issues to be voted upon at the meeting vide Regulation 21(3)(iii). Obviously, resolution plans are “matters to be discussed” at such  meetings, and the erstwhile Board of Directors are “participants” who will discuss these issues. The expression “documents” is a wide expression which would certainly include resolution plans.”

                                                                                                                                                      [Emphasis supplied]