VARIOUS DIMENSIONS OF ASCERTAINMENT OF CLAIMS

OF THE CREDITOR BY THE LIQUIDATOR

Submitted by - Abhinav Kumar Mathur

Class – VII Semester (B)

Roll No - 1256
 INTRODUCTION

The primary objective of the Insolvency and Bankruptcy Code, 2016 is to promote
entrepreneurship by ensuring availability of credit and felicitating continued investments, and it
intends to do so by consolidating and amending the laws relating to Insolvency, which in turn
ensure that the interest of creditors of a company is protected and resolution is completed in a time-
bound manner. To claim a debt from a corporate debtor, a financial creditor needs to prove his
claim at two different stages of the insolvency resolution process. The first is before liquidation,
which enables the creditor to be a part of the committee of creditors (CoC) & exercise its rights
therein, and the next is during liquidation which ascertains the priority of the creditor to be paid,
and ensures that the creditor receives the maximum debt owed to him by the corporate debtor.

WHETHER PROOF OF DEBT IS MANDATORY OR MERELY PROCEDURAL

The word “proof” Is of great technical importance in the law of insolvency. A creditor needs to
prove his debt in the manner prescribed by this statute and with the documents by which the party
seeks to ascertain their claim.1 Regulation 12 of the Insolvency and Bankruptcy Board of India
(liquidation process) Regulations, 2016, requires a public announcement to all the stakeholders for
them to submit their claim as on the date of the commencement of liquidation. In furtherance to
this regulation 16 requires that any stakeholder who files a claim needs to prove the same as on
the liquidation commencement date.

The provisions, therefore, hold that it is a mandatory requirement for the stakeholders to prove
their claims. The same is reiterated even further by an exclusive provision for employees and
workmen by regulation 19(4), which lays down that's the claims of an employee maybe admitted
based on the books of accounts of the corporate debtor, in a situation where the employee has not
made a claim. It may be added that just the mere presence of debt in the corporate debtors’ books
of accounts is not enough substantial evidence for the claim to be considered. Even though a debt
exists, a claim that has not been submitted by the employee cannot be verified. The case of SBS

1
Govind Prasad v. Pawan Kumar, (1944) 46 BOMLR 306.

2
Transpole Logistic Pvt. Ltd. v. M.M. Cargo Container Line Pvt. Ltd. & Ors,2 The NCLT, in my
humble opinion has erroneously held that the liquidator can solely rely on the balance sheet of the
books of accounts of the corporate data. Such a ruling ultimately looks over the requirement of a
proof of claim as laid down under the code Which lay down detailed procedure and provides for a
timeline for submission of the proof of claims. Proof of claims assumes a paramount position in
the whole process of CIRP as in the limited time, it has to be made sure that all the creditors, both
secured and unsecured, are given a part, if not the whole of the debt, owed to them by the corporate
debtor, thereby, in furtherance to the very objective of IBC.

PROOF OF CLAIMS IN LIQUIDATION IN CONTRAST WITH RESOLUTION

Regulation 13 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
of Corporate Persons) Regulation, 2016, Being titled “verification of claims” lays down that the
interim resolution professional shall verify the claims of the creditors within 7 days from the date
of the commencement of insolvency and further maintain a list of creditors containing their name
along with the Total amount claimed by them. In furtherance to the power Vested in the resolution
professional Under regulation 13 of the IRPCP regulations, it has been made a practice to examine,
reject and admit claims pursuant to the public announcement inviting claims.

As it was mentioned earlier, the Insolvency and Bankruptcy Code accepts claims on two different
stages, the first being resolution and the other, liquidation; hence the job of the liquidator of
collection, verification and collation of claims constitutes a significant function in the liquidation
process. Section 35 of the code mandates the liquidator to verify all claims before accepting them
at the stage of liquidation. The liquidator then has to consolidate all the claims within 30 days from
the date of commencement of the liquidation process and the financial creditors may submit a
record of such a claim with information utility. In case the information relating to the claim has
not been recorded in the information utility, the financial creditor shall submit the claim in the
manner prescribed foreign operational creditor.3

2
CA 152/2018 in CP (IB) 204(ND)/2017.
3
Insolvency and Bankruptcy Code, 2016, S38.

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The liquidator may also reject the claim, and the creditor thereafter may appeal against this
decision to the adjudicating authority.4 A joint reading of section 48 and 32 suggest that a delayed
submission of claims may be admitted by the liquidator only when the same is directed by the
adjudicating authority.5

POSSIBILITY OF SUBMISSION OF CLAIMS AFTER THE MAXIMUM PERIOD ALLOWED FOR THE
SAME HAS ELAPSED

The code in case of individual bankruptcy, under section 177, lays down the entitlement and
penalty of the creditor who fails to prove its debt before the declaration of dividend. It holds that
if a creditor has not proved his debt before the declaration of dividend, he shall not disturb it now
because of his non-participation earlier. The code in the same provision lays down that when he
has proved the debt, he shall be entitled to be paid any dividend or dividends which he has failed
to receive, out of any money for the time being available for the payment of any further dividend.
The Rajasthan High Court6 has rightfully laid down that if the delay is within the parameters laid
down by the Limitation Act, the only consequence of such a delay would be that the claim will be
excluded from the benefit of any distribution made before the debt is proved. The observations in
the Ganeshilal Gupta case7 were as follows: -

(i) A creditor whose filing of proof of debt is delayed is not altogether barred from
establishing his debt.
(ii) The creditor may participate in any time before the final distribution of dividend.
(iii) The claim can be allowed given that it isn’t time-barred, i.e., within the time stipulated
in the Limitation Act.
(iv) Once the distribution of dividend has begun, the creditor may not file for the proof of
debt as the same was considered to be a disturbance in the process of distribution, by
the court.

4
Insolvency and Bankruptcy Code, 2016, S54.
5
UCO Bank v. Nicco Corporation Limited, CA (IB) No. 31/KB/2018 in CP (IB) No. 03/KB/2017.
6
Ganeshilal Gupta vs Bharatpur Oil Mills, 1972 WLN 68.
7
Ibid.

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 (v) The creditor is however entitled to the amount it had failed to receive, and the same has
to be paid to the creditor by the money in the hands of the liquidator for distribution as
dividend.
(vi) The Court further laid down that the said money will first be applied to pay the creditor
and then it shall be used for any future payment of dividend or dividends.

CONCLUSION

Proof of claims, hence, is an extremely important stage in the resolution and the liquidation
process. The Authorities overlooking every part of the process will only be able to help the
creditors recover the most of their debt only with their cooperation. It is the ultimate objective of
the act to male this process least cumbersome for both the debtor and the creditor(s) and the same
can only be achieved if the creditor makes the liquidator known of the debt owed to it by the debtor.
The creditor is also expected to exercise his right of getting his claimed verified in a systematic
manner. Unreasonable laches on part of the creditor cannot be excused as the creditors action have
an impact on various other parties resulting in a domino effect of delay and confusion.