There is no denying the fact that timely resolution of disputes and certainty are two of the hallmarks of any mature and efficient judicial system, and are critical for the growth of an economy. The enactment of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) was a step towards this goal. The main objective of the corporate insolvency resolution process (‘CIRP’) under the IBC was to protect the interest of creditors of a company, while also ensuring that the insolvency resolution process is completed in a time-bound manner.

Under the scheme of IBC, the Insolvency Resolution Professional (‘IRP’) is required to issue a public announcement, inter alia, inviting claims against the corporate debtor. “Operational Creditors”, like tax authorities, who are unable to submit its claim with proof within the time stipulated in the public announcement, are allowed to submit the claim with proof to the IRP on or before the 90^th day of the insolvency commencement date. Stipulation of, and adherence to, this time-limit for submission of claims is essential for ensuring a time-bound insolvency resolution process. In this context, it is important to note that basis the doctrine of “clean slate”, no claim, litigation or demand can be enforced against the corporate debtor/ resolution applicant for the period prior to the approval of the resolution plan by the National Company Law Tribunal (‘NCLT’). Therefore, filing of claims by the creditors, as a first step, assumes great significance in the CIRP process.

However, in practice, it is not uncommon to find that, many a times, operational creditors, particularly the revenue authorities, fail to adhere to this statutory time limit for filing their claims, thereby leading to non-admission of their claims by the IRP. While the jury is out on the issue whether the prescribed time-limit is mandatory or directory, there is no denying the fact that delayed claims result in avoidable prolonging of litigation by the revenue authorities before the NCLT, which further strikes at the spirit of a time-bound CIRP regime.

A case on the point is the judgment of the National Company Law Appellate Tribunal (‘NCLAT’) in Office of the Asst. State Tax Commissioner, State Tax Department, Government of Maharashtra vs. Shri Parthiv Parikh & Others, where the NCLAT, while dismissing a challenge filed by the State Tax Department against rejection of its belated claim by the NCLT, observed as under:

“14. In the present case the Operational Creditor – State Tax Department, Government of Maharashtra submitted its claim on 20.12.2019, more than about one year and one month after the invitation of claims through public notice on 2.11.2018. The extended time period for submission of claims with proof is ninety days from the date of initiation of the insolvency resolution process. This period also expired on 31.01.2019. It is undisputed that the RP had filed the Resolution Plan as approved by the Committee of Creditors to the Adjudicating Authority, much before the said claim was preferred before the RP, and the Adjudicating Authority was actively considering the Resolution Plan for necessary approval. After rejection of claim of Appellant by RP, its appeal was filed before the Adjudicating Authority on 21.02.2020 under Section 60(5) of the IBC.

15. Thus, it is clear that much water had flown under the bridge from the date of issue of public notice (on 02.11.2018) and the extended time period of ninety days as provided under Regulation 12(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Resolution Plan as approved by the COC was submitted to the Adjudicating Authority for necessary approval under Section 30. Any interruption in the CIR Process at this stage by including a delayed claim/s would have meant setting the clock back and sending matter back to COC & RP. It cannot be ruled out that if the claim of the Operational Creditor State Tax Department, Government of Maharashtra was accepted at such a late stage, there could have been other such applicants too, who would have demanded accommodation on the same ground allowing late submission of their claims once this window would have opened. It would be trite to emphasise the fact that this would have meant complete disruption of the CIRP and the timelines stipulated therein. Delay would defeat Resolution as this would have resulted in the CIRP and approval of successful Resolution Plan to continue for an indefinite period of time, which is certainly not the intention of IBC. A real hazard in such an event could be liquidation, and corporate death, of an otherwise functional and corporate debtor, with which Resolution Plan approved is set to come out of the Red.

……

20. In the light of the aforementioned discussion, we find that Adjudicating Authority has dealt with the issue of approval of the resolution plan submitted by the Resolution Professional and, inter alia, rejecting the claim of the Appellant in accordance with the requirements of the statute, and in keeping with the overall objective and scheme of the IBC. The order of the Adjudicating Authority provides sufficient and cogent reasons for dismissing IA filed by the Appellant under Section 60(5) on 21.02.2020. It has, thereafter, gone ahead with the approval of successful resolution Plan by passing order in IA No.593/2019 in CP(IB) (172)/2018 while considering all the legal provisions and facts of the case. We, therefore, find no ground and reason for interfering with the Impugned Order and consequently dismiss the appeal….”

More often than not, such delays by the tax authorities are on account of lack of adequate and timely information regarding the CIRP process, lack of inter-personnel/ inter-departmental co-ordination and absence of a well-defined response mechanism with them. Recognizing the practical issues involved and taking cognizance of the issue of delay in filings claims, the Central Board of lndirect Taxes and Customs (‘CBIC’) noted that “….As no separate notice/alerts are received by the department for cases before NCLT / NCLAT, the website www.ibbi.gov.in of NCLT should be visited regularly to check if any case comes under the proceedings where department has to file a claim….”. In continuation of the avowed objective, the CBIC has recently issued detailed Standard Operating Procedure (‘SOP’) for NCLT cases in respect of the IBC.

Explaining the rationale for the SOP, the CBIC has observed that “……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 is also observed that the authorities then litigate on the rejection of each claims, despite the settled position that no claims can be raised once the plan is approved and no demands can be raised on the resolution applicant who has taken over the company through such a resolution plan….. One of the reasons f6r such delay in filing of claims is that concerned Zonal office has not received information regarding initiation of the process in timely manner. Accordingly, it has been proposed that IBBI would share the details of the public announcement on a regular basis to an identified office/ officer or a centralized system and hence it has been requested that such office/ officer/ system in CBIC needs to be identified and intimated to the IBBI for implementing the system for sharing of information.”.

The SOP intends to put in place a robust mechanism of communication between the IBBI, the nominated officer and the field formations. The SOP mandates the appointment of an Additional Director General, DGPM as the Nodal Officer, who would receive information from IBBI regarding initiation of the CIRP. The Nodal Officer has been empowered to nominate JC/ADC (TAR), DGPM as alternate Nodal Officer for assisting him in discharge of his functions under the SOP.

The SOP further provides that the Nodal Officer would disseminate the information received by him from IBBI to all Zonal Principal/ Chief Commi8sioners with a copy to the concerned Principal Commissioner/ Commissioner within 2 working days. The concerned officer/ commisionerate, which has any arrears pending against the company/ unit undergoing CIRP shall file its claim timely and inform the factum of having filed such claims to the Nodal Officer in the prescribed manner.

In addition to a daily check of the IBBI website, for any new parties going into insolvency, by all the field formations, the SOP requires the officers to enter into correspondence with the IRP for finalization of the resolution plan.

Recognizing the importance and role of technology in ensuring faster dissemination of information, the SOP envisages the creation of a dedicated WhatsApp group by the Nodal Officer, which would have the concerned ADC/JC in the Principal Commissioner/ Commissioner’s office and the respective Principal Commissioner/ Commissioner, as its members. Finally, the SOP also mandates the Nodal Officer to submit a consolidated monthly report to the CBIC for the purposes of review of progress/ actions taken by the field formations.

While the release of this SOP is a welcome step by the CBIC towards a collaborative and constructive partnership between stakeholders in ensuring the success of CIRP process, its actual implementation by the concerned officers of the CBIC will be crucial to make it a success. If implemented in the right spirit, this should go a long way in de-litigating the system, while at the same time safeguarding the interests of the revenue.