[Abhishekh is a student at National University of Study and Research in Law, Ranchi.]
As far as creditors and debtors of the Indian corporate sector are concerned, the preceding decade turned out to be imperative. The enactment of the Insolvency and Bankruptcy Code 2016 (IBC or Code) brought about major changes in the legal framework governing the insolvency and bankruptcy proceedings in India. The enactment of IBC is a quantum leap towards achieving the goal of a speedy and riddle-free procedure governing the settlement of claims of the creditors; but woefully, the judicial inconsistency in outlining the role of resolution professionals (RP) in relation to the determination of creditors’ claims has acted as a stumbling block before it.
Taking note of the prevailing state of uncertainty, the author in light of the recent decision of the National Company Law Appellate Tribunal (NCLAT) in Dipco Private Limited v. Jayesh Sanghrajaka makes an effort to analyse the prevailing judicial inconsistency concerning the role of RP in the determination of claims under the Code.
According to the provisions of IBC, a creditor of the company or the corporate debtor itself can initiate the debt recovery mechanism known as corporate insolvency resolution process (CIRP) by making an application to the National Company Law Tribunal (NCLT). Moreover, by the initiation of CIRP, the primary objective is to determine whether the corporate debtor has sufficient funds and assets to settle the claims of the creditors. Accordingly, the determination of claims of the creditors and the settling of the disputes related to them become a matter of great significance for the insolvency and bankruptcy proceedings under the Code.
Interestingly, despite leaving unattended the issue of appropriate authority to adjudicate the disputed claims, the Code provides sufficiently for the role of RP in the insolvency proceedings. It is noteworthy that Section 25 of the IBC mandates resolution professionals to maintain an updated list of claims made under the Code. In addition to it, Regulations 13 and 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (CIRP Regulations) limits the role of a resolution professional to that of an administrative authority, an authority to verify and collate claims.
Moreover, Section 60 of the IBC declares the NCLT to be the adjudicating authority in relation to insolvency resolution and liquidation proceedings for corporate persons including corporate debtors.
Judicial inconsistency: It gets murkier with every decision
The pioneer decision of the Hon’ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. v. Union of India illuminated upon the powers and the role of the RP in a corporate insolvency resolution process under the Code. The writ petition in the above-mentioned matter challenged the constitutional validity of certain provisions of IBC on numerous grounds, one of them being that the grant of adjudicatory powers to an RP is violative of the basic aspects of justice. The division bench, while upholding the constitutional validity of the Code, observed that the resolution professionals are devoid of any adjudicatory power, and under the CIRP Regulations, the role of an RP is purely administrative as opposed to judicial or quasi-judicial.
The decision of the court in the Swiss Ribbon case is seminal for the issue as it makes the position of law perspicuous by discarding in clear words the judicial or quasi-judicial role of the RP when dealing with the claims of the creditors in a CIRP.
Notably, the NCLAT in M/s. Prasad Gempex v. Star Agro Marine Exports Pvt. Ltd. examined the role of RP in the determination of the claims of the creditors and the powers of NCLT to oversee his decision. The appellate tribunal while categorically denying the possibility of any quasi-judicial powers being vested in an RP by the Code observed that the NCLT is an adjudicating authority under the Code. Moreover, under Sub-Section (6) of Section 60 of IBC, the NCLT is vouchsafed with the power to entertain any suit related to the claims brought before it by the creditors. While deciding the matter in hand, the NCLAT relied on its earlier decision in M/s Dynepro Private Limited v. Mr. V. Nagarajan wherein it had held that resolution professionals have no jurisdiction to decide the claims of one or other creditors under the Code.
Illustrating further on the ‘determining’ powers of the RP, a 3-member bench of NCLAT in Mr. S. Rajendran, Resolution Professional v. Jonathan Mouralidarane observed that under the provision of IBC and CIRP Regulations resolution professionals lack jurisdiction to determine claims and hence, they can only ‘collate’ the claims based on the evidence and the records. The appellate tribunal further observed that:
“…..If an aggrieved person thereof moves before the Adjudicating Authority and the Adjudicating Authority after going through all the records, comes to a definite conclusion that certain claimed amount is payable, the ‘Resolution Professional’ should not have moved in Appeal, as in any manner, he will not be affected.” [Emphasis supplied]
Sadly, the recent decision of the NCLAT in Dipco Private Limited v. Jayesh Sanghrajaka further complicated the issue by taking a rather interesting contrarian approach on the role of the RP and the jurisdiction of NCLT to re-determine the disputed claims of the creditors. According to the order of the appellate tribunal, the decision of a resolution professional for collating the claims of the creditors is of quasi-judicial nature and consequently, the NCLT lacks the jurisdiction to sit in appeal and cannot re-determine the claims already determined by the RP.
Analysis and Recommendations
The decision of the appellate tribunal in the Dipco Pvt. Ltd. case was like a stone in the pool of water; it caused ripples. The analysis of this decision divulges two fundamental presuppositions that aid the observations of the tribunal; the presuppositions that the decision to collate a claim is judicial or quasi-judicial in nature and that an RP ‘determines’ the claims and not merely ‘collates’ them.
Notably, it is due to the judicial and quasi-judicial nature of determination of claims that the NCLT cannot sit on appeal against the decisions of an RP. Astonishingly, the observations of the appellate tribunal in Dipco Pvt. Ltd. case run contrary to the decision of the Hon’ble Apex Court, which is a binding precedent within the territorial limits of the Indian subcontinent. Moreover, on numerous occasions, the Supreme Court and the tribunals have observed that under the provisions of the Code and the CIRP Regulations, the RP is devoid of any adjudicatory powers and hence, the collation of claims by him is purely administrative in nature. Moreover, bestowing adjudicatory powers upon an RP will have the effect of making IBC vulnerable to the threat of unconstitutionality on grounds that the Code grants adjudicatory powers to a non-judicial authority, which violates the basic aspects of the dispensation of justice.
Furthermore, in relation to the second presupposition, a 3-member bench of NCLAT in S. Rajendran case has held that under provisions of the Code and the CIRP Regulations, an RP has no jurisdiction to ‘determine’ the claims of the creditors and thus, he can only collate them based on evidence and records of the corporate debtor.
Owing to the inconsistencies in decisions of the courts and tribunals, the line of distinction between ‘determination’ and ‘collation’ is fading. The term 'collate' has not been defined under IBC or CIRP Regulations due to which it is prudent to seek external aid in the form of dictionary meaning of the terms. According to the definitions provided by the Oxford and the Cambridge dictionaries, ‘collate’ means to collect or bring together different pieces of information or report. In addition, it is noteworthy that this definition lacks the element of discovery and decision making which is necessary to bring an action under the ambit of ‘determination’.
In effect, the discordant decisions of the courts and the tribunals have had a clouding effect on the position of law governing the powers of an RP and the nature of their actions. Accordingly, for the sake of maintaining a speedy and riddle-free procedure under IBC, it is indispensable that the Hon’ble Supreme Court settles the dispute by illuminating the distinction between ‘collation’ and ‘determination’ of claims and its impact on the power of an RP in relation to determination of claims of a creditor under a CIRP.
Furthermore, it will be prudent to act in a manner which effectuates the objectives of the IBC and thus, it is advisable that the resolution professionals should be armed with the determining powers in relation to claims of the creditors with recourse to appeal against such determination before NLCT on certain limited grounds. It is pertinent to note that one of the primary objectives of the Code is to enable the resolution of a corporate insolvency proceeding in a time bound manner. In order to achieve this sacrosanct objective of the Code, it is indispensable to interpret the provisions of the Code and the regulations thereunder in a manner which negates the possibility of delay in the resolution process.
Moreover, in order to accelerate the resolution process, it is essential that there exists a mechanism / authority to filter the claims against the corporate debtors. Interestingly, the Code has vested this power in the RP. In addition, the determination is an indispensable attribute of the functions performed by an RP under the provisions of the Code. It is important to note that if the legislature and the courts acknowledge the determining powers of a resolution professional, it will lead to a dive in the number of insubstantial and frivolous disputes encumbering the process of speedy disposal of claims in a CIRP. It is impractical for the adjudicating authority to estimate all the disputed claims arising out of insolvency proceedings as it will amount to thwarting of the objectives of the Code.
Notably, the central objection against according determining powers to the RP revolves around the threats of unconstitutionality on grounds of an administrative authority performing adjudicatory functions. The author humbly submits that the determination of claims made by an RP is purely administrative in nature and has no judicial implications in case of a dispute unless affirmed by the adjudicatory authority. Thus, where a prima facie case is made out against the RP in a dispute against the determined claims, the adjudicatory body shall have, subject to certain guiding principles, an authority to re-determine the claims. It is noteworthy that the CIRP Regulations also acknowledge the determining powers of an RP in relation to a resolution proceeding. According to Regulation 14 of the CIRP Regulations, an RP determines the imprecise amount claimed by the creditors; the marginal note to the regulation suggests the same.
Accordingly, bestowing determining powers upon an RP is in harmony with the scheme of the Code and the regulations thereunder. Moreover, this will be a step towards achieving a speedy and uncomplicated resolution procedure.