Role of Authorised Representative under IBC 2016

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Role of Authorised Representative under IBC 2016

Indrajit Mukherjee | January 2020

The Hon’ble Supreme Court in August 2019 upheld the amendment in the Insolvency and Bankruptcy Code 2016 (referred as IBC or Code) and conferred the homebuyers the status of financial creditors. As a consequence, the homebuyers are treated at par with banks and financial institutions and are given priority in realisation of their dues from insolvent and bankrupt real estate companies.

Under the IBC, the homebuyers form a part of the Committee of Creditors (CoC) and they can change the management of the developer company, initiate insolvency proceedings under Sec.7 of the Code, approve or disapprove resolution plans or decide to take the company into liquidation. The homebuyers are entitled to be represented in the CoC through their Authorised Representative.

Thus, the role of the Insolvency Professionals (IPs) got extended as an Authorised Representative (AR) for this class of creditors. The Code and the Insolvency and Bankruptcy Board of India laid down Regulations for the Authorised Representatives in regard to performance of their role. Considering that there are 1821 cases till November 25, 2019 filed by Homebuyers against Developers under IBC, the requirement of Authorised Representatives can be guessed vis a vis the IRP / RP when these roles are allotted to registered Insolvency Professionals only. Hence the legal provisions and the role expected of these professionals’ merit discussion and our discussion is focused on only “homebuyers” as a class of creditors which is distinguished from other class of creditors. Based on the experience of the role of AR in CIRP, the necessary amendments to the IBC provisions concerning AR has been given effect in December,2019.

The Insolvency and Bankruptcy Board of India issued circular no. IBBI/CIRP/015/2018 dated 13th July,2018 for Appointment of Authorised Representative for Classes of Creditors under Sec. 21 (6A) of the Insolvency and Bankruptcy Code,2016.

The AR is brought into the CIRP process so that the multiple number of persons in a class of creditors can put their mandate at the CoC and thus take part in the process effectively. Otherwise, the large number of members in the class cannot have access to the CoC meetings for all practical purposes. The AR is appointed to communicate the decision taken by majority of homebuyers on the Agenda items proposed for Resolution at the CoC.

Apart from the provisions in law, the questions that arise in reality which comes before the homebuyers and the AR in fulfilment of the role can be mentioned as:

The Homebuyers in general do not have the knowledge of the provisions of the code and regulations that govern the appointment, role and responsibilities of the AR.
The Homebuyers are not having much familiarity or information on the Insolvency Professionals proposed for their choice of AR.
The AR usually go by the Code and Regulations without being able to relate to the big group of the class who presumably take him / her as the Advocate or nominee to take up all possible issues with the developers at the CoC.
The AR may at times get to manage too many queries, emails and phone calls from the various homebuyers on issues concerning their claims, issues in updating the right contact details, technical issues faced in e-voting, so on and so forth.

The reason why I enumerated these, the role of AR as per the code and regulations may appear very simple with limited responsibility involved. As per the Code the AR is required to communicate the agenda for CoC meetings and taking the mandate given by the homebuyers either in physical or electronic form. But in reality, he has to play the role of a spokesperson for the class even though he has no authority to influence any decision by the CoC.

The provisions of the Code and IBBI (CIRP Regulations) can be quoted before further discussion on the subject.

Sec. 25A. Rights and duties of authorised representative of financial creditors –

The authorised representative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the com-mittee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means.
It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents.
The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions: Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share:

Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor. [(3A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote:

Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in ac-accordance with the provisions of sub- section (3).]

The authorised representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be.

Explanation. – For the purposes of this section, the “electronic means” shall be such as may be specified.

Apart from the Code, the AR is guided by provisions under IBBI (CIRP) Regulations, 2016. The relevant Regulations which may be quoted (the part of the regulations on procedure has not been quoted): 16A. Authorised representative.

The interim resolution professional shall select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of regulation 12, to act as the authorised representative of the creditors of the respective class:

Provided that the choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered.

The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the Adjudicating Authority.
The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is updated. Clarification: The authorised representative shall have no role in receipt or verification of claims of creditors of the class he represents.
The interim resolution professional or the resolution professional, as the case may be, shall provide electronic means of communication between the authorised representative and the creditors in the class.
The authorised representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours.

25A. Voting by Authorised Representative.

The authorised representative shall cast his vote in respect of each financial creditor or on behalf of all financial creditors he represents in accordance with the provisions of subsection (3) or sub-section (3A) of section 25A, as the case may be.

So, the role of the AR in reality involves a lot more than the voting at the CoC. The author understands, from the practical experience of an assignment as AR, that the Authorised Representative may:

Communicate the details of the Provisions of the Code and Regulations to the homebuyers through individual emails and if opportunity is available, during meeting of homebuyers.
The AR may not have any role in the matter of finalization of claim acceptance by the IRP / RP but there is no bar in his communication of the queries / disputes that may be intimated to him concerning claims by any member of the class of creditors.
The AR should make best efforts to reply or revert on every email from the homebuyers on any concern which the AR may convey to the IRP / RP.
Another requirement which is common to any profession, the AR must give fair hearing to any of the issues raised by the homebuyers and communicate the practical position correctly.
The AR can explain the requirements for an agenda, a resolution plan, its implementation and the likely effect of a plan being accepted or rejected.
The AR need to take a balanced approach while engaging with the homebuyers, IRP / RP and encourage the homebuyers to participate in the e-voting process in large numbers so that the majority views of the class of creditors is reflected.

There is a substantial responsibility thrust on the AR to take the CIRP to success in coordination with the IRP/ RP by using his knowledge and the trust imposed on him /her by the class being represented by him/her irrespective of their share in voting. In relevance the deliberations of the Hon’ble Allahabad Bench of the National Company Law Tribunal in June,2019 in the CA No. 223/2018 & CA No.266/2018 in CP No.(IB) 77/ALD/2017 in matter of Jaypee Greens Krescent Homes Buyers Welfare Association Vs. Jaypee Infratech Ltd. Is worth mentioning.

About Author

Indrajit Mukherjee

A post graduate from National Law School, Bangalore, is Head Legal for Arcil Retail Division. He is a member of Internal Complaints Committee of Arcil for investigation of sexual harassment complaints.