{"id":4548,"date":"2025-02-11T09:13:38","date_gmt":"2025-02-11T03:43:38","guid":{"rendered":"https:\/\/lawjurist.com\/?p=4548"},"modified":"2025-02-17T21:38:20","modified_gmt":"2025-02-17T16:08:20","slug":"rejection-of-claim","status":"publish","type":"post","link":"https:\/\/lawjurist.com\/index.php\/2025\/02\/11\/rejection-of-claim\/","title":{"rendered":"Rejection of Claim"},"content":{"rendered":"\t\t
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Author: Sangamithirai. V, Chettinad School of Law<\/strong><\/em><\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t

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INTRODUCTION<\/b><\/em><\/p>\n

The Code, Insolvency and Bankruptcy in 2016 instituted in India a standardized process for  resolving insolvency as well as bankruptcy cases of any individual or corporate entities.  Considered as one of the central elements of the process is claims made by creditors against a  corporate debtor under insolvency. Claims are supposed to indicate the value that the creditors  have in the debtor’s financial books, and their acceptance or rejection would drastically  influence the outcome of the process. <\/p>\n

An Insolvency Professional or the adjudicating authority rejects claims when they do not match  the prescribed requirements or are not supported by proper documentation to be recognized.  The grounds on which claims are rejected depend on several basis that may range from lack of  proper debt, to evidence, or even procedural inadmissibility of claims, for late filing. These  rejections can create severe troubles for creditors since they may lose the power to recover dues  and, as a result, make their condition worse. <\/p>\n

All stakeholders engaged in the insolvency process should be aware of the intricacies  surrounding claim rejections. It goes a long way toward informing not only creditors’ capacity  to realize their claims but also results in efficiency and effectiveness of the framework in the  handling of the insolvency resolution process. As the IBC evolves, implications of claim  rejections will remain at the top of legal practitioners’, policymakers’, and financial institutions’  radar screens. <\/p>\n

LEGAL PRINCIPLES <\/em><\/strong><\/p>\n

Rejection of Claims under the Insolvency and Bankruptcy Code, 2016 is governed by a set of  legal principles to ensure a transparent process with fairness. Indispensable knowledge for the  creditors, insolvency professionals, and those stakeholders involving themselves in insolvency  proceedings. <\/p>\n

Filing and rejection of claims The procedure for the filing and rejection of claims is mentioned  under the IBC. Specific sections as such section 72, Section 83, and Section 94 of the IBC  elaborate on the initiation of insolvency proceedings by the admission of claims. The IBBI’s  regulations add to the procedural requirements of filing claims. <\/p>\n

Grounds for Rejection<\/em><\/strong>: Claims can be rejected on specific grounds, such as: <\/p>\n

Insolvency and Bankruptcy in 2016 <\/em><\/strong><\/p>\n

<\/p>\n

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  • It may not get accepted if it is not supported by proper documentation, such as missing  invoice or contract <\/li>\n
  • It does not accept the claims from the ineligible creditors. Creditors who are operational  and financial creditors do not satisfy the definition provided under IBC and thus, cannot  be accepted. <\/li>\n
  • Claims can be presented within the given time frame. Failure to do that within the given  time frame will lead to automatic rejection. <\/li>\n
  • The creditor bears the burden of proof, and he should be able to show a basis for the  claim. If the creditor fails to set up a proper basis for his claim, an IP may reject the  claim. The principle’s core message is one of emphasis on documentation. <\/li>\n
  • An IP is further empowered to scrutinize claims and use his discretion to determine  whether a claim is genuine or not. The discretion vested in an IP should be used justly  and transparently, keeping in mind all relevant evidence. <\/li>\n
  • An appeal is in place in the case of rejection by creditors. There is thus an element of  review and rectification in place, and such a right ensures that this process will have  fairness. Such a right exists before the National Company Law Tribunal (NCLT). <\/li>\n
  • The rejection process needs to be fair and, in any case, conducted in accordance with  the basic tenets of natural justice. There should be transparency that creditors are  informed of reasons for rejection and an opportunity of response or provision of  additional documentation before a decision becomes final. <\/li>\n
  • The principles determining the rejection of claims are heavily influenced by various  judgments that established legal precedents. Judgments by courts provided  interpretations to clarify the scope of powers vested with the IP and rights of creditors,  thereby making the legal environment more predictable. <\/li>\n
  • The ranking of the claim influences the process of rejection. It is so because, normally  operational creditors stand above the rank of financial creditors and this fact would be  preserved while the process of claim evaluation goes on. The creditors need to be aware  of this ranking to understand the process of rejection properly. <\/li>\n
  • Rejection of claims would have an impact on the resolution process of insolvency. As  claims recognized would affect the process of distribution of assets, rejection should  not deviate from achieving a fair resolution in a time-bound manner for all stakeholders. <\/li>\n<\/ul>\n

    CASE LAWS<\/b><\/em><\/p>\n

    Innoventive Industries Ltd. vs. ICICI Bank (2018)<\/em><\/strong><\/p>\n

    The Supreme Court of India in this landmark judgment rightly emphasized that the  Adjudicating Authority should admit a petition in case of default repayment of any debt. The  court had clarified the procedural aspect relating to admitting the claims and has made it clear  that the claims have to be considered based upon the existence of debt and default rather than  the merit involved in the disputes underlying them.<\/p>\n

    Sashidhar v. Indian Overseas Bank (2019)<\/b>6<\/b><\/p>\n

    This judgment dealt with the issue of rejections based on the grounds of misfiling. The Supreme  Court placed its reliance on the fact that an Insolvency Professional is duty-bound to verify  claims with due diligence. The Supreme Court observed that a rejection must be cogent enough  and that IP must ensure that all valid claims are considered so as not to vitiate the insolvency  proceedings. <\/p>\n

    M\/s. Shree Ram Urban Infrastructure Ltd. v. Arihant Superstructures Ltd. (2021)<\/b>7<\/b> <\/b><\/p>\n

    This case concerned the question of whether a creditor could file an appeal against an order  where claims have been disallowed. Here, the NCLAT held that creditors have a right to file an  appeal against the order passed by the IP rejecting the claims and hence, provides a process of  redressal and reinforces an essential public interest aspect of transparency of the claim  verification process. <\/p>\n

    REAL WORLD APPLICATIONS<\/b><\/em><\/p>\n

    Corporate Restructuring: <\/b><\/p>\n

    At the time of entry into bankruptcy, a business faces financial stress, and at this stage, it denies  all claims for the purpose of ensuring that only valid and substantiated claims are considered  and only those creditors are addressed who do have a chance of recovery. This ensures that  negotiations are structured in an integrated manner and formulating a restructuring package  that is workable. <\/p>\n

    Development of Creditor Strategy: <\/b><\/p>\n

    The need to plan and strategize the efforts of creditors while filing claims is great, where lessons  from previous precedents and case laws dictate the outcome. For instance, most financial  establishments have a culture of studying previous case laws to ensure the claims put forward  are sufficiently documented. Strategic planning in this regard will play a critical role during  recovery in cases of insolvency. <\/p>\n

    Negotiation and Settlements <\/b><\/p>\n

    Refusal of claims may often result in renegotiations by creditors and debtors. For instance, if  one significant claim is refused, then other creditors may be prompted to negotiate settlements  so as not to go through the long lengthy legal battles. This dynamic fosters an environment  where parties are more predisposed toward settling amicably. <\/p>\n

    Compliance with the Law and Governance: <\/b><\/p>\n

    Companies operating in high-insolvency sectors must develop strong frameworks that  guarantee compliance. Financial record keeping will be proper, communication with creditors  timely, and regulatory requirements adhered to. Governance in this area is fundamentally  important in keeping stakeholders’ trust and preventing insolvency. <\/p>\n

    Consequences on Real Estate Projects<\/b>: <\/p>\n

    Claim rejection in the real estate sector has tremendous implications on projects under-going.  In case contractors or suppliers’ claims are rejected, the construction work might seize, or more  disputes delay the completion of the project. This would have rippling effects on the  homebuyer, the investor, and the market at large. <\/p>\n

    Implications in the Banking Sector <\/b><\/p>\n

    Another aspect that banks pay much attention to is the rejection of claims due to its significant  implications related to defaulting and instability among borrowers. High rejections of claims  indicate risks in the system, and thus banks are compelled to reorient their lending and risk  management practices, thereby indirectly influencing credit availability in the economy. <\/p>\n

    CHALLENGES <\/b><\/em><\/p>\n

    Challenges in the rejection of claims under the Insolvency and Bankruptcy Code One challenge  is that the above, in their rejection of claims, presents a number of issues, capable of  complicating the insolvency process of creditors, debtors, and even insolvency professionals.  A comprehension of the challenges in this regard is important for effective navigation of the  IBC framework. <\/p>\n

    Prime concerns arise around documentation and proof. Creditor[s] are entitled to produce proof  for the claims he brings in, be it an invoice, agreement, or some other paper work. The catch is  that a substantial number of creditors would find it difficult to gather every single piece of  information and record involved, particularly in relation to large sums or debts collected over  the years. In this regard, an insufficient document and proof may result in the actual entitlement  for recovery at the hands of creditors being nullified. <\/p>\n

    Other relevant problems include the time factor of filing claims. The IBC ensures rigid  timelines while filing claims; failure to meet the same may invite automatic rejection. Creditors  are often at the risk of either not knowing the deadlines or being incapable of compiling claims  within the time of the file, which is especially true when there is a pressure situation such as  insolvency in place. This can disadvantage small creditors disproportionately as they might not  have resources or the wherewithal and legal experience to handle the process on their own. <\/p>\n

    CONCLUSION<\/b><\/em><\/p>\n

    Finally, the rejection of claims under the IBC has emerged as one of the most critical aspects  in shaping the insolvency landscape in India. Though a process through which fairness and  integrity are ensured by filtering out unsubstantiated claims, it continues to prove to be very  difficult for creditors and stakeholders. Documentary requirements, strict timelines, and vague  rejection criteria also weave a web when creditors are faced with such problems while handling  the claims process. Moreover, frequent changes in judicial interpretations further tape the  picture. The IBC can definitely be made effective if the above issues are amended through more  exact guidelines for creditor management as well as better facilitation for creditors. This will  therefore enable the IBC to respond more credibly to the mandate of delivering timely and just settlements of disputes between parties, further driving health towards a better financial ecosystem and regaining confidence in the insolvency process for parties involved. <\/span><\/p>\n

    REFERENCES <\/b><\/em><\/p>\n

    Book Referred: <\/b><\/p>\n

      \n
    • Taxmann\u2019s Insolvency and Bankruptcy Law Manual with IBC Law Guide Online Websites: <\/b><\/li>\n<\/ul>\n

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