Consolidation and Verification of Claims under IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) lays down a structured framework for resolving the insolvency of companies and individuals in India. One of its important stages in the liquidation process is the consolidation of claims, governed by Section 38 of the Code and relevant Liquidation Process Regulations.

This stage ensures that all creditors — financial, operational, workmen, employees, and other stakeholders — get an opportunity to submit and prove their claims before the liquidator. The purpose is to identify the total liability of the corporate debtor accurately so that its assets can be distributed fairly.

Meaning of Consolidation of Claims

The term consolidation of claims refers to the process where the liquidator receives, collects, and verifies all claims made by different categories of creditors against the corporate debtor.

The process begins soon after the liquidation commencement date — when the corporate debtor enters liquidation after the resolution process fails. The liquidator, appointed by the National Company Law Tribunal (NCLT), invites all stakeholders to submit their claims within a specified time period.

Through this process, every liability of the corporate debtor is consolidated and recorded. This helps prevent disputes at a later stage and ensures that the assets are distributed according to law.

Legal Framework on Consolidation of Claims under IBC

The legal basis for consolidation of claims is found in the following provisions:

• Section 38 of the Insolvency and Bankruptcy Code, 2016
• Regulations 16 to 24 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
• Relevant forms from Schedule II of the Regulations (Forms C to G)

Together, these provisions specify how claims are to be submitted, the time limits involved, the forms to be used, and the proof required to support such claims.

Time Period for Collection of Claims

According to Section 38(1) of the IBC, the liquidator must receive or collect the claims of creditors within thirty days from the date of commencement of the liquidation process.

Under Regulation 16, any person who believes they are a stakeholder must submit their claim, or update a claim already submitted during the Corporate Insolvency Resolution Process (CIRP), along with interest, if any, before the last date mentioned in the public announcement.

This time-bound process ensures that the liquidation proceeds smoothly and creditors act promptly.

Submission of Claims by Financial Creditors

Under Section 38(2), a financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility.

If the information relating to the claim is not available in an information utility, the financial creditor may submit the claim in the same manner as an operational creditor, as per Section 38(3).

As per Regulation 18, a financial creditor must submit proof of claim to the liquidator in Form D of Schedule II, through electronic means.

Documents that can prove a financial claim include:

• Records available with an information utility, if any
• Financial contracts supported by financial statements
• Records showing that amounts committed by the financial creditor were drawn by the corporate debtor
• Financial statements showing the debt remains unpaid
• Court or tribunal orders adjudicating non-payment of the debt

The liquidator verifies these documents to confirm the existence and amount of debt.

Submission of Claims by Operational Creditors

An operational creditor is a person who has provided goods or services to the corporate debtor. As per Section 38(3) and Regulation 17, such creditors must submit proof of claim to the liquidator either in person, by post, or electronically, using Form C of Schedule II.

Supporting documents may include:

• Contracts or purchase orders for supply of goods or services
• Invoices demanding payment for goods or services supplied
• Court or tribunal orders confirming non-payment
• Financial statements showing outstanding dues

Operational creditors must ensure that the invoices pertain to the corporate debtor and not any group company. The liquidator checks for discrepancies such as duplicate claims, disputes, or debit notes issued by the debtor.

Claims by Workmen and Employees

Workmen and employees are a special class of operational creditors. Regulation 19 governs their claims.

A workman or employee must submit proof of claim to the liquidator in Form E of Schedule II. Where there are numerous workmen or employees, their authorised representative can submit one consolidated claim in Form F of Schedule II.

Evidence to prove claims may include:

• Records in an information utility, if available
• Employment contracts or appointment letters
• Wage slips or salary statements showing unpaid dues
• Court or tribunal orders recognising non-payment

If a workman or employee fails to make a claim, the liquidator may rely on the books of account of the corporate debtor to admit such claims.

Claims by Other Stakeholders

Not all stakeholders are creditors. Some may have other forms of financial interest, such as shareholders or guarantors. Regulation 20 covers such cases.

A stakeholder, other than financial or operational creditors or employees, must submit proof of claim in Form G of Schedule II by person, post, or electronic means.

Documents that may serve as proof include:

• Records from an information utility, if any
• Documentary evidence or bank statements showing unpaid amounts
• Evidence of shareholding or ownership interest
• Court or tribunal orders adjudicating unpaid claims

These claims help the liquidator determine the overall liability structure of the corporate debtor.

Creditors Who Are Both Financial and Operational

In some cases, a creditor may have both financial and operational dealings with the debtor. Under Section 38(4), such creditors must submit separate claims:

• For the financial portion, in the manner prescribed for financial creditors
• For the operational portion, in the manner prescribed for operational creditors

This ensures that both kinds of claims are treated appropriately and prioritised according to law.

Withdrawal or Variation of Claims

Under Section 38(5), a creditor may withdraw or vary a claim within fourteen days of its submission.

This provision allows creditors to correct any errors or make adjustments before the verification process begins. However, once the liquidator has verified the claim, withdrawal or modification is not ordinarily permitted unless approved by the NCLT.

Production of Bills of Exchange or Promissory Notes

Under Regulation 22, if a debt is based on bills of exchange, promissory notes, or similar negotiable instruments, the claimant must produce the original instrument before the liquidator.

This helps prevent multiple claims on the same instrument and ensures the authenticity of the debt.

Verification of Claims

After all claims are received, the next step is verification, governed by Section 39 of the IBC and Regulation 30 of the Liquidation Process Regulations.

The liquidator must verify the claims submitted under Section 38 within thirty days from the last date for receipt of claims.

Verification involves checking the accuracy, completeness, and validity of the submitted documents. The liquidator may call for further documents or evidence from the creditor or corporate debtor if required.

Regulation 23 – Substantiation of Claims

The liquidator has the authority to seek clarification or additional proof from claimants to substantiate any part of their claim. This ensures that only genuine and legally enforceable debts are admitted.

Regulation 24 – Cost of Proof

The claimant bears the cost of proving the claim, while the liquidator’s expenses for verification and determination form part of the liquidation cost.

If a claim is found to be false or misleading, the liquidator can attempt to recover the verification cost from that claimant and report the matter to the Insolvency and Bankruptcy Board of India (IBBI).

Admission or Rejection of Claims

Once the verification is complete, Section 40 empowers the liquidator to admit or reject claims, in whole or in part.

If a claim is rejected, the liquidator must record written reasons for such rejection and communicate the decision to both the creditor and the corporate debtor within seven days of the decision.

This transparency helps creditors understand the basis of acceptance or rejection and protects their right to appeal before the adjudicating authority.

Role of the Liquidator

The liquidator acts as a neutral professional appointed by the NCLT to manage the liquidation proceedings. In the context of claim consolidation, the liquidator’s functions include:

• Making a public announcement inviting claims
• Receiving and maintaining a register of claims
• Verifying documents and information received
• Communicating admission or rejection to claimants
• Maintaining transparency and records for audit and regulatory review

The liquidator may also seek advice from the consultation committee, which represents various stakeholders, although its advice is not binding.

Conclusion

The process of consolidation of claims under Section 38 of the Insolvency and Bankruptcy Code, 2016 forms the backbone of a fair liquidation mechanism. It ensures that every creditor and stakeholder gets an equal opportunity to present claims, supported by evidence, within a fixed timeline.

By standardising forms, verification procedures, and documentation, the IBC has introduced clarity and discipline into India’s insolvency regime.