Public agencies lose crores to delay in filing of claims with NCLT

According to Anuj Tiwari, an advocate practising at the Supreme Court and an expert in insolvency and bankruptcy proceedings, “The delay is generally due to negligence on the part of the concerned officials. In many cases, they are not aware that insolvency proceedings have started against a company.”

State-government owned entities, which have only a localised presence, are more prone to such delays, he said. “On the brighter side, many entities such as Greater Noida Industrial Development Authority take their claims very seriously and take the necessary steps for their recovery,” he added.

There is also a “lack of knowledge on insolvency laws” among officials in public agencies, according to the lawyer.

Take for example what happened with the Employee Provident Fund Organisation (EPFO). The statutory body had started its own recovery proceedings against M/s Ambient Computronics Private Limited instead of filing a claim with the appointed resolution professional (RP) since an insolvency proceeding had already started against the company.

Once the EPFO came to know that a resolution plan had been reached and its claim had not been included, it filed an appeal with the National Company Law Appellate Tribunal (NCLAT). However, the 90-day deadline had passed by then.

Insolvency proceedings against the said company had started in December 2020, and the resolution plan was approved in December 2021.
In its ruling on this appeal, the tribunal made an observation on the poor follow-up by statutory authorities on dues owed to them. Here is the verbatim version of what it said: “Large number of cases are coming where Resolution Professional although have record of the Corporate Debtor which indicates several liability and claims against Corporate Debtor but in absence of want of any claims by such statutory authority, the claim does not find place anywhere in the list of claims or Information Memorandum and there is no obligation of the IRP/RP place such information before the CoC.”

Bigger role for RP?
An insolvency proceeding can be initiated by any of the creditors —financial or operational — or the company itself. Once the petition is admitted by the NCLT, a resolution professional or interim resolution professional is appointed by the tribunal based on the recommendation made by the creditors or by the Insolvency and Bankruptcy Board of India (IBBI). The resolution professional has various tasks including protecting the assets of the company, getting them valued correctly and sold,ensuring the claims on the debtor are valid, and that the proceeds are fairly distributed.

Also read: Experts cheer proposal for part-resolution of assets

But resolution professionals are not mandated to alert all the debtors. They only have to make a public announcement, which can be missed by creditors.

Commenting on the EPFO appeal, the tribunal said that the RP (resolution professional) should be obligated to bring it to the attention of the CoC or Committee of Creditors. Tiwari believes that this has to be implemented urgently. “Someone’s claim must not be abated (or removed) merely because of the delayed filing, even though it (the claim) has been admitted in the records of the company,” he said.

Better late than never
This May, the Department of Revenue, Central Board of Indirect Taxes and Customs, issued an instruction to GST and Customs Authorities to identify an officer who can be alerted by the Insolvency and Bankruptcy Board of India (IBBI), whenever the GST and Customs Authorities have to file their claims as operational creditors. Otherwise, claims were being filed late simply because no one had informed the zonal officers.

The communication to the officials read, “it has been observed that there is an inordinate delay in filing of claims by Customs and GST authorities. This leads to their claims not being admitted and extinguished once a resolution plan is approved”. It went on to comment that the authorities litigate against the rejection even though that isn’t permitted once the resolution plan has been approved.

The note then details a standard operating procedure (SOP) that needs to be put in place “to ensure a robust mechanism of communication from the nominated officer to the field formations and vice-versa and subsequent monitoring of action taken by the field formations on such communication by the Nodal Officer”. The CBIC has nominated the Additional Director General (ADG), DGPM, as the nodal officer.

In the SBI case, the court ended up asking the liquidator to consider the bank’s claim. How it will play out remains to be seen.