Customer rights still a grey area in Insolvency and Bankruptcy Code

Customer rights still a grey area in Insolvency and Bankruptcy Code

Insolvency and bankruptcy code; consumer right

News:

1. Even after a key amendment in the Insolvency and Bankruptcy Code (IBC), 2016, the grey areas are still not been fixed.

Important facts:

The key issue which still revolves around the Insolvency and Bankruptcy Code (IBC), 2016 is as follows:

• The Insolvency and Bankruptcy Code (IBC), 2016 classified company creditors into two categories:  (a) financial creditors (banks and financial intuitions) and (b) operational creditors (suppliers and vendors).
• It did not address the position of other creditors or customers who could not fit into either of the two categories.
• As a result, the other creditors comprised segments like homebuyers, deposit holders and customers who had made advance payment for purchase, etc.
• Thus, an amendment was brought in 2017 where Regulation 9A created a new residuary category of creditors, namely, other creditors (all creditors other than financial and operational).
• This enables other creditors to file claims against a firm under insolvency by filing Form F with the Resolution Professional (RP).
• But the recent cases of Aircel and Nathella have again brought into focus the question whether customers who had paid advances to these companies can file their claims in Form F (meant for other creditors) with the RP since their position as far as repayment is concerned still remains to be determined.
• There is no answer to the classification of customers of Aircel and Nathella and the like.

1. The suggestive way out for this issue is that creditor/customer too should deemed to be a financial creditor and/or permitted to be part of the committee of creditors and have a vote.
2. Additionally, it is to be noted that there is no definite rule on the treatment of customers under the IBC, 2016.
3. It is because of the complexities of business models, dynamics of day-to- day transactions and dynamics of different scheme.

• As for example: In the case of Jaypee Infratech, though homebuyers do not fall under the definition of financial creditors, the Supreme Court intervened and directed that the dues owed to buyers should be paid off first.
• Based upon such intervention, the Insolvency Law Committee has recommended that homebuyers with an agreement with the developers should be treated as financial creditors.