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Insolvency & Bankruptcy Code

Course Contents/Syllabus:
Module I: Introduction to Insolvency & Bankruptcy Code Weightage (%)
Insolvency and Bankruptcy: Social, Legal, Economic and Financial 20%
Perspectives,
Need for Insolvency and Bankruptcy Code: Exploring the rationale and
objectives
Companies Act, 2013: Drawing the interface
Sick companies and recovery of debt
Interface of IBC with other laws
Key Definitions and Salient features of the IBC
Module II Scheme of Insolvency and Bankruptcy

Authorities and Enforcement Mechanism in IBC 2016 20%

Role of Adjudicating Authorities
Role of the Insolvency and Bankruptcy Board of India (IBBI)
Role of Information Utilities
Appellate Authorities and analysis of some important cases
Module III: Introduction Corporate Insolvency

Corporate Insolvency Resolution Process (CIRP) 20%

Initiating an application for Resolution and role of Interim Resolution
Professional
Committee of Creditors: Powers, Duties and Processes
Information Memorandum and Resolution plan
Fast Track Resolution
Cross Border Insolvency: International Perspective
Module IV: Resolution Process and liquidation

Moving from Resolution to Liquidation 20%

Experiences and interface under the Companies Act 2013
Role of IPs as a liquidator and liquidation process
Liquidation Estate: Determination of Claims
Voluntary Liquidation

Important questions:

Need for IBC

Salient features of IBC

Difference between financial and operational creditors

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Functions of resolution professionals

Functions of liquidator

Functions of committee of creditors

Functions of IBBI

Functions of information utilities

Insolvency professional agencies

Composition, Powers and jurisdiction of NCLT

Fast track insolvency process

Cross border insolvency

CIRP process, Liquidation process

Fresh start process

Insolvency of individuals and partnership firms.

The Insolvency and Bankruptcy Code, 2016 (IBC)

MODULE 1

Introduction to IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate
the existing framework by creating a single law for insolvency and bankruptcy. It was introduced amidst
various other reforms introduced by the Government, with focused emphasis on the Ease of Doing
Business in India. Ease of Doing Business not only means speedy and easy entry, and ease of carrying out
operation of businesses; it also covers in its ambit, the ease of exit.

This Code applies to a company registered under the Companies Act 1956, a Limited liability partnership,
Partnership firms and Individuals. Under the Insolvency and Bankruptcy Code, any financial creditor or an
operational creditor can initiate corporate insolvency process against a corporate debtor when the
corporate debtor commits a default in repayment of debts. Default involves non repayment of debt when
it has become due and payable.
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Hence, when any financial or operational creditor is not honoured duly, he can initiate the insolvency
proceedings against the corporate debtor.

IBC lays down strict time frame for each and every process for resolution process right from admission of
application, appointment of Interim Resolution Professional, lodging of claim, formation of Creditors
Committee, consideration of resolution plan and submission of plant to adjudicating authority and its
approval thereof.

The IBC has 255 sections and 11 Schedules. IBC is divided into 4 parts i.e.

• Preliminary (Part I);

• Insolvency Resolution and Liquidation of Corporate Persons (Part II);

• Insolvency Resolution and Liquidation of Individuals and Partnership Firms (Part III);

• Regulation of insolvency professionals, agencies and information utilities (Part IV).

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate
the existing framework by creating a single law for insolvency and bankruptcy.

Insolvency and Bankruptcy Code, 2016 is considered as one of the biggest insolvency reforms in the
economic history of India.

This was enacted for reorganization and insolvency resolution of corporate persons, partnership firms and
individuals in a time bound manner for maximization of the value of assets of such persons.

IBC resolve claims involving insolvent companies. This was intended to tackle the bad loan problems that
were affecting the banking system. Two years on the IBC has succeeded in a large measure in preventing
corporates from defaulting on their loans. The IBC process has changed the debtor-creditor relationship.
A number of major cases have been resolved in two years, while some others are in advanced stages of
resolution.

Applicability of code

Applies to whole of India including J&K and Ladakh.

Persons covered:

• Company

• Limit Liability Partnership

• An individual

• A Hindu Undivided Family

• A Partnership

• A Trust

• Any other entity established under a statute, and includes a person resident outside the India.
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Who can approach

Any person whose amount is due with the Company or LLP (minimum amount 1,00,00,000) can approach
to NCLT (National Company Law Tribunal) under IBC (Insolvency and Bankruptcy Code) 2016 for
Liquidation of that Company / LLP.

Examples are written as following:

1. Financial/ Operational Creditors

2. Corporate Debtor

3. Corporate Applicant

4. An Employee: A person who was / is working in a Company / LLP may file a petition if his dues are
1,00,00,000 or more.

5. Service Provider: Any service provider who has given the services and raised the Invoice but
unable to recover the dues may file a petition if his dues are 1,00,00,000 or more. (After central govt.
notification dated 24.03.2020)

6. Goods Provider: Any Goods Provider who has delivered the goods and raised the Invoice but
unable to recover the dues may file a petition if his dues are 1,00,00,000 or more. (After central govt.
notification dated 24.03.2020)

Need of Insolvency & Bankruptcy Code

There was no single law dealing with insolvency and bankruptcy in India. The liquidation of companies
and individuals were handled under various Acts (around 12 in number).

Some of them were:

• Presidency Towns Insolvency Act, 1909

• The Provincial Insolvency Act, 1920

• Sick Industrial Companies Act

• The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (also known as the Sarfaesi Act)

• Companies Act 2013

• Recovery of debts due to banks and financial Institutions Act

It led to an overlapping jurisdiction of different authorities like High Court, Company Law Board, Board for
Industrial and Financial Reconstruction (BIFR) and Debt Recovery Tribunal. This overlapping jurisdictions
and multiplicity of laws made the process of insolvency resolution very cumbersome in India.
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As per the World Bank data, it takes an average 4.3 years to wind up a company in India. It is easier to
start a business than to exit it. The new Insolvency and Bankruptcy Code seeks to cut it to 1 year.

The new Code seeks to help banks and other creditors from recovering their loans from the bankrupt
companies in a timely and efficient way.

Aims & Objective of IBC

The Code applies to companies, partnerships and individuals. It provides for a time-bound process to
resolve insolvency. When a default in repayment occurs, creditors gain control over debtors assets and
must take decisions to resolve insolvency within a 180-day period. To ensure an uninterrupted resolution
process, the Code also provides immunity to debtors from resolution claims of creditors during this period.
The Code also consolidates provisions of the current legislative framework to form a common forum for
debtors and creditors of all classes to resolve insolvency. Under IBC debtor and creditor both can start
recovery proceedings against each other.

The main objective of this Code is:

• Consolidate and amend all existing insolvency laws in India.

• To simplify and expedite the Insolvency and Bankruptcy Proceedings in India.

• To protect the interest of creditors including stakeholders in a company.

• To revive the company in a time-bound manner.

• To promote entrepreneurship.

• To get the necessary relief to the creditors and consequently increase the credit supply in the
economy.

• To work out a new and timely recovery procedure to be adopted by the banks, financial
institutions or individuals.

• To set up an Insolvency and Bankruptcy Board of India.

• Maximization of the value of assets of corporate persons.

Advantage to lenders for resorting to IBC

• Creditors in control as most decision making with the lenders.

• Time bound and quick solution for stressed and NPA accounts.

• Change of management possible.

• Brings financial lenders to a platform - enabling quick decision making and arriving at consensus
quickly.
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• Prepare and examine resolution plan by professionals appointed by creditors ensuring fearless
decision making.

• Final approval by NCLT (a legal entity) which ensures accountability and vigilance.

• Fair chance to viable and sustainable entities for time bound revival. In case of unviable accounts,
faster, transparent and smooth liquidation process.

• Clear and fair distribution of funds in case of liquidation. Government / Statutory dues do not get
priority.

• Protection of assets of secured borrowers with maximization of realization.

• Positive support from government for realization and resolution of NPAs.

Advantage to Borrowers to approach NCLT

• There is no need to pay Court Fee in NCLT (which is 5% or more in courts)

• In Courts generally it takes 3-4 years but not in NCLT because in NCLT we dont approach for
recovery of money.

• Less chances for settlement in less amount.

• Provides for time bound resolution forcing lenders to take a decisive action.

• A Resolution plan approved by NCLT has legal sanction and is binding on all stakeholders.

• Transparent process under judicial supervision removes investigation and vigilance fear from the
lenders perspective which is expected to improve decision making.

• Preempt all creditors, legal cases and other recovery actions during moratorium period.

• Not only loans, but all types of debt, including operational creditors and government dues can be
restructured/realigned/reduced under the Code.

• The Borrower has the option of applying himself under the code in which case borrowers
proposed IP would be appointed as IRP.

• Company to work under the control of IRP/RP who are supposed to preserve the economic value
of the company as a going concern entity.

• It can be used as a measure of last resort when other options like CDR, SDR, S4A have been
exhausted.

• Attracting investor (financial / strategic/ JV Partner) would be easier particularly in case of unlisted
companies.

• The Possibility of raising additional finance as the same will have priority as it will form part of
CIRP cost.
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Features of the Insolvency and Bankruptcy Code: The Insolvency and Bankruptcy Code, 2016 has
following distinguishing features:-

• Comprehensive Law: Insolvency Code is a comprehensive law which envisages and regulates the
process of insolvency and bankruptcy of all persons including corporates, partnerships, LLP’s
andindividuals.

• No Multiplicity of Laws: The Code has withered away the multiple laws covering the recovery of debts
and insolvency and liquidation process and presents singular platform for all the reliefs relating to
recovery of debts andinsolvency.

• Low Time Resolution: The Code provides a low time resolution and defines fixed time frames for
insolvency resolution of companies and individuals. The process is mandated to be completed within 180
days, extendable to maximum of 90 days. Further, for a speedier process there is provision for fast-track
resolution of corporate insolvency within 90 days. If insolvency cannotberesolved, theassets of the
borrowers may be sold to repay creditors.

• One Window Clearance: It has been drafted to provide one window clearance to the applicant whereby
he gets the appropriate relief at the same authority unlike the earlier position of law where in case the
company is not able to revive the procedure for winding up
andliquidationhastobeinitiatedunderseparatelawsgovernedbyseparateauthorities.

• One Chain of Authority: There is one chain of authority under the Code. It does not even allow the civil
courts to interfere with the application pending before the adjudicating authority, thereby reducing the
multiplicity of litigations. The National Company Law Tribunal (NCLT) will adjudicate insolvency resolution
for companies. The Debt Recovery Tribunal (DRT) will adjudicate insolvency resolution forindividuals.

• Priority to the interests of workman and employees: The Code also protects the interests of workman
and employees. It excludes dues payable to workmen under provident fund, pension fund and gratuity
fund from the debtor’s assets duringliquidation.

• New Regulatory Authority: It provides for constitution of a new regulatory authority ‘Insolvency and
Bankruptcy Board of India’ to regulate professionals, agencies and information utilities engaged in
resolution of insolvencies of companies, partnership firms and individuals. The Board has already been
established and started functioning.

Important Definitions & Concepts

Insolvency

legal terms, insolvency is a state where the liabilities of an individual or an organization exceeds its asset
and that entity is unable to raise enough cash to meet its obligations or debts as they become due for
payment. Technically insolvency could be a financial state when the value of total assets of an individual
or a group exceeds its liabilities.

Insolvency is the inability of a person or companies to pay their bills as and when they becomes due and
payable. It is a situation where individuals or companies are unable to repay their outstanding debt. If
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insolvency cannot be resolved, assets of the debtor may be sold to raise money, and repay the outstanding
debt.

The term Insolvency is a state whereas Bankruptcy is the effect of that act. In legal terms, insolvency is a
state where the liabilities of an individual or an organization exceeds its assets and that entity is unable
to raise enough cash to meet its obligations or debts as they become due for payment. When an individual
is unable to pay off his liabilities and debts then he generally files for bankruptcy. Here the entity asks for
help from government to pay off his debts to his creditors.

The main reasons behind insolvency are primarily poor management and financial constraints.

This is much more prevalent in smaller companies.

Some common rationale for insolvency are:

a. Bad debt- obviously money owned by customers

b. Management- failure to acquire adequate skills, imprudent accounting, lack of information

system

c. Finance- loss of long term finance, over gearing or lack of cash flow

d. Other- for examples excessive overheads etc.

Bankruptcy

Bankruptcy is when a person or company is legally declared incapable of paying their due and payable
bills.

When an individual is unable to pay off his liabilities and debts then he generally files for bankruptcy. Here
is asks for help from government to pay off his debts to his creditors. Bankruptcy could of two types,
namely, reorganization bankruptcy and liquidation bankruptcy. Usually people tend to restructure the
repayment plans to pay them easily under reorganization bankruptcy. And under liquidation bankruptcy,
the debtor tends to sell of certain of their assets to pay off their debts for their creditors.

The Blacks Law Dictionary defines the work Bankrupt as the state or condition of a person who is unable
to pay its debt as they are or has become, due. The condition of one whose circumstances are such that
he is entitled to take the benefit of the federal bankruptcy laws. The term includes a person against whom
an involuntary petition has been filed, or who has filed a voluntary petition.

Under bankruptcy law, the condition of a person or firm that is unable to pay debts as they fall due, or in
the usual course of trade or business and financial condition such that businesses or persons debts are
greater than aggregate of such debtors property at a fair value.

Insolvency Vs. Bankruptcy

• Insolvency is not the same as bankruptcy. Insolvency is a state of economic distress, whereas
bankruptcy is a court order that decides how an insolvent debtor will deal with unpaid obligations. That
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usually involves selling assets to pay the creditors and erasing debts that cant be paid. Bankruptcy can
severely damage a debtors credit rating and ability to borrow for years.

• An individual or company can be insolvent without being bankrupt � especially if the insolvency
is temporary and correctable � but not the opposite.

• Insolvency can lead to bankruptcy if the insolvent party is unable to successfully address its
financial condition.

• Insolvent companies can reverse course by cutting costs, selling assets, borrowing money,
renegotiating debt or allowing themselves to be acquired by a larger corporation that agrees to take over
the insolvent companys debts in return for control of its products or services.

Liquidation

Liquidation is the process of winding up a corporation or incorporated entity.

Default

Default means non-payment of debt when whole or any part or installment of the amount of debt has
become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. In
IBC, default means failure to pay whole or any part or installment of amount of debt or interest due of
minimum Rs.1 Crore. Default amount under section 4 of IBC was Rs.1 Lakh, but after central govt.
notification dated 24.03.2020, minimum default amount raised to Rs.1 Crore.

Financial Creditor, Operational Creditor & Corporate Debtor

It means any person to whom a financial debt and operational debt respectively, is owed and includes a
person to whom such debt has been legally transferred or assigned to. By amendment in IBC, Homebuyers
Recognized as Financial Creditors giving them due to representation in the Committee of Creditors (CoC).
Thus, now home buyers will be an integral part of the decision making process.

The Code differentiates between both, financial creditors are those whose relationship with the entity is
a pure financial contract, such as loan or debt security and therefore is debt, along with interest, if any,
which is disbursed against the consideration for the time value of money, whereas Operational creditors
are those whose liabilities from the entity comes from a transaction on operations. Operational Creditors
includes government & employees or workmen. A corporate debtor is the Corporate Person who owes a
debt to any person.

Corporate Applicant

Corporate Applicant means:

a. Corporate Debtor, or
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b. A Member or the partner of the corporate debtor who is authorized to make an application for
the CIRP under the constitutional documents of the corporate debtor, or

c. An individual who is in-charge of managing the operations and resources of the corporate debtor,
or

d. A person who has control and supervision over the financial affairs of the corporate debtor;

Committee of Creditors (CoC)

The committee of creditor formed under section 21 of the code and shall consist of all the financial
creditors of the corporate debtor. The interim resolution professional after collation of claims and
assessing the information of the debtor constitute a committee of creditors.

There voting share shall be determined on the basis of the financial debt owed to them. Otherwise
provided in the code, all the decisions of the committee of creditors shall be taken by a vote of not less
than 51%. It shall require a resolution professional to furnish any financial information in relation to the
corporate debtor during the resolution process. The committee of creditor passes resolution plan by vote
of 66%.

Moratorium

The term Moratorium is nowhere defined in the Code, however, the term in basic parlance means, a
stopping of activity for an agreed amount of time. Under the Code, Moratorium is actually described as a
period wherein no judicial proceedings for recovery, enforcement of security interest, sale or transfer of
assets, or termination of essential contracts can be instituted or continued against the Corporate Debtor.

The Adjudicating Authority [National Company Law Tribunal], whilst admitting a petition against the
Corporate Debtor is required to declare the moratorium period as described under Section 14 of the Code.

The main purpose of declaring the moratorium period is to keep the Corporate Debtors assets intact
during the CIRP, which otherwise may be attached by any competent court of law during the pendency of
proceedings against the Corporate Debtor. In other words, the moratorium ensures that the time-bound
completion of the CIRP and also that the corporate debtor may continue as a going concern.

Apart from staying the pending proceedings, the moratorium also casts a bar upon the directors of the
company, who cannot use or take the amount available on the date of declaration of the moratorium in
the company. If the moratorium period is not declared, the insolvency process will be frustrated which in
turn will fail the objective of the Code.

Punishment - Under Section 74 of the IBC, officials of the corporate debtor who violate provisions of
moratorium can be imprisoned for a minimum of three years, which may be extended up to five years.
Such officials will also be fined a minimum of Rs 100,000 but not more than Rs 300,000. Officials of
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creditors who knowingly and willfully authorize or permit such contravention can be jailed for a minimum
of one year, with a maximum tenure of five years. Such officials will also be fined a minimum of Rs 100,000,
with the maximum penalty of up to Rs 10 million.

Further, the Honble National Company Law Appellate Tribunal, vide its recent judgment has also held that
in case any Director withdraws money from the account of the company during the moratorium period,
he will be held liable for the criminal offences of misappropriation and breach of trust.

Resolution Applicant

As per the Code, a Resolution Professional has to appoint a Resolution Applicant who in-turn is required
to prepare different resolution plans for different stakeholders in corporate insolvency resolution process.
The code defines the resolution applicant under section 5(25) as a person who submits a resolution plan
to insolvency professional. A resolution plan specifies the details of how the debt of a defaulting debtor
can be restructured.

Corporate Insolvency Resolution Process (CIRP)

The creditors committee will take a decision regarding the future of the outstanding debt owed to them.
They may choose to revive the debt owed to them by changing the repayment schedule or sell (liquidate)
the assets of the debtor to repay the debts owed to them. If a decision is not taken in 180 days, the debtors
assets go into liquidation.

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MODULE II

The Insolvency and Bankruptcy Code, 2016 creates a new institutional framework comprising of five
pillars:

Insolvency and Bankruptcy Board of India

Insolvency Professional Agencies

Insolvency Professionals

Information Utilities

Adjudicating Authority
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All these pillars help in facilitating the formal insolvency resolution process and liquidation within a
defined time-frame.

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA:

The Insolvency and Bankruptcy Board of India was established on 1st October, 2016 under the Insolvency
and Bankruptcy Code, 2016 (Code).

It is a key pillar of the ecosystem responsible for implementation of the Code.

IT IS A UNIQUE REGULATOR: Regulates a profession as well as processes. It has regulatory oversight over
the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and
Information Utilities. It writes and enforces rules for processes, namely, corporate insolvency resolution,
corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code. It has
recently been tasked to promote the development of, and regulate, the working and practices of,
insolvency professionals, insolvency professional agencies and information utilities and other institutions,
in furtherance of the purposes of the Code. It has also been designated as the ‘Authority’ under the
Companies (Registered Valuers and Valuation Rules), 2017 for regulation and development of the
profession of valuers in the country.

Composition of the Board

(a) a Chairperson;

(b) three members from amongst the officers of the Central Government not below the rank of Joint
Secretary or equivalent, one each to represent the Ministry of Finance, the Ministry of Corporate Affairs
and Ministry of Law,ex-officio;

(c) one member to be nominated by the Reserve Bank of India, exofficio;

(d) five other members to be nominated by the Central Government, of whom at least three shall be the
whole-time members

Section 196. (1) The Board shall, subject to the general direction of the Central Government, perform all
or any of the following functions namely:

(a) Register insolvency professional agencies, insolvency professionals and information utilities and
renew, withdraw, suspend or cancel such registrations.

(aa) promote the development of, and regulate, the working and practices of, insolvency professionals,
insolvency professional agencies and information utilities and other institutions, in furtherance of the
purposes of this Code.
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(b) Specify the minimum eligibility requirements for registration of insolvency professional agencies,
insolvency professionals and information utilities.

(c) Levy fee or other charges for carrying out the purposes of this Code, including fee for registration and
renewal of insolvency professional agencies, insolvency professionals and information utilities.

(d) Specify by regulations standards for the functioning of insolvency professional agencies, insolvency
professionals and information utilities.

(e) Lay down by regulations the minimum curriculum for the examination of the insolvency professionals
for their enrolment as members of the insolvency professional agencies.

(f) Carry out inspections and investigations on insolvency professional agencies, insolvency professionals
and information utilities and pass such orders as may be required for compliance of the provisions of this
Code and the regulations issued hereunder.

(g) Monitor the performance of insolvency professional agencies, insolvency professionals and
information utilities and pass any directions as may be required for compliance of the provisions of this
Code and the regulations issued hereunder.

(h) Call for any information and records from the insolvency professional agencies, insolvency
professionals and information utilities.

(i) Publish such information, data, research studies and other information as may be specified by
regulations.

(j) Specify by regulations the manner of collecting and storing data by the information utilities and for
providing access to such data.

(k) Collect and maintain records relating to insolvency and bankruptcy cases and disseminate information
relating to such cases.

(l) Constitute such committees as may be required including in particular the committees laid down in
section 197.

(m) Promote transparency and best practices in its governance.

(n) Maintain websites and such other universally accessible repositories of electronic information as may
be necessary.

(o) Enter into memorandum of understanding with any other statutory authorities

(p) Issue necessary guidelines to the insolvency professional agencies, insolvency professionals and
information utilities.

(q) Specify mechanism for redressal of grievances against insolvency professionals, insolvency
professional agencies and information utilities and pass orders relating to complaints filed against the
aforesaid for compliance of the provisions of this Code and the regulations issued hereunder.
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(r) Conduct periodic study, research and audit the functioning and performance of to the insolvency
professional agencies, insolvency professionals and information utilities at such intervals as may be
specified by the Board.

(s) Specify mechanisms for issuing regulations, including the conduct of public consultation processes
before notification of any regulations.

(t) Make regulations and guidelines on matters relating to insolvency and bankruptcy as may be required
under this Code, including mechanism for time bound disposal of the assets of the corporate debtor or
debtor.

(u) Perform such other functions as may be prescribed.

(2) The Board may make model bye-laws to be to adopted by insolvency professional agencies which may
provide for—

(a) The minimum standards of professional competence of the members of insolvency professional
agencies.

(b) The standards for professional and ethical conduct of the members of insolvency professional
agencies.

(c) Requirements for enrolment of persons as members of insolvency professional agencies which shall
be non-discriminatory. Explanation.—For the purposes of this clause, the term "non-discriminatory"
means lack of discrimination on the grounds of religion, caste, gender or place of birth and such other
grounds as may be specified.

(d) The manner of granting membership.

(e) Setting up of a governing board for internal governance and management of insolvency professional
agency in accordance with the regulations specified by the Board.

(f) The information required to be submitted by members including the form and the time for submitting
such information.

(g) The specific classes of persons to whom services shall be provided at concessional rates or for no
remuneration by members.

(h) The grounds on which penalties may be levied upon the members of insolvency professional agencies
and the manner thereof.

(i) A fair and transparent mechanism for redressal of grievances against the members of insolvency
professional agencies.

(j) The grounds under which the insolvency professionals may be expelled from the membership of
insolvency professional agencies.

(k) The quantum of fee and the manner of collecting fee for inducting persons as its members.

(l) The procedure for enrolment of persons as members of insolvency professional agency.

(m) The manner of conducting examination for enrolment of insolvency professionals.

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(n) The manner of monitoring and reviewing the working of insolvency professional who are members.

(o) The duties and other activities to be performed by members.

(p) The manner of conducting disciplinary proceedings against its members and imposing penalties.

(q) The manner of utilising the amount received as penalty imposed against any insolvency professional.

3) Notwithstanding anything contained in any other law for the time being in force, while exercising the
powers under this Code, the Board shall have the same powers as are vested in a civil court under the
Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:—

(a) The discovery and production of books of account and other documents, at such place and such time
as may be specified by the Board.

(b) Summoning and enforcing the attendance of persons and examining them on oath.

(c) Inspection of any books, registers and other documents of any person at any place.

(d) Issuing of commissions for the examination of witnesses or documents.

Insolvency professional (IP)?

Who is an insolvency professional (IP)? Ans. As per the Insolvency and Bankruptcy Code, 2016 (the Code),
an insolvency professional (IP) means an eligible person:

• a. enrolled with an insolvency professional agency (IPA) as its member and,

• b. registered with Insolvency and Bankruptcy Board of India (IBBI/the Board) as an insolvency
professional (IP).

INSOLVENCY PROFESSIONALS (IPS):

The Code provides for insolvency professionals as intermediaries who would play a key role in the
efficient working of the bankruptcy process.

The role of the IP encompasses a wide range of functions, which include adhering to procedure of the law,
as well as accounting and finance related functions. He shall have the power and responsibility to monitor
and manage the operations and assets of the enterprise. In the resolution process, the insolvency
professional verifies the claims of the creditors, constitutes a creditors committee, runs the debtor's
business during the moratorium period and helps the creditors in reaching a consensus for a revival plan.
In liquidation, the insolvency professional acts as a liquidator and bankruptcy trustee.

IPs are licensed professionals registered with IBBI who act as Resolution Professional/ Liquidator/
Bankruptcy trustee in an insolvency resolution process. A Specialized category of officers is created to
administer and enforce the resolution process, manage the affairs of the corporate debtor and share
information with creditors to help them in decision-making. The adjudicating authority shall appoint an
interim resolution professional within 14 days from the insolvency commencement date.
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He shall collect the information relating to the debtors assets, finances and operations, take its control
and custody, receive and collate claims and constitute a committee of creditors.

The personnel i.e. managers and employees of the corporate debtors shall extend cooperation to
insolvency professional. He shall make efforts to preserve the value of corporate debtors property and
manage the operations as a going concern. Within 7 days of the constitution of the committee of creditors,
they should by a vote of 66% resolve to appoint an interim resolution professional as resolution
professional or replace him by another one.

Some important duties and function of the Insolvency Professional:

• To make public announcement of insolvency process in English and local language newspaper.

• To manage affair of the company as a going concern.

• To collect information relating to the assets, finances and operation of corporate debtor for
determining the financial position

• To collect all claims received from creditors and assess them.

• To constitute a committee of creditors etc.

• To appoint to registered valuers to evaluate the assets.

• To coordinate with NCLT and IBBI.

Insolvency Professional Entity (IPE)

The IBBI has now allowed an Insolvency Professional Entity (IPE) to be registered as an Insolvency
Professional (IP) and carry on the activity of such professionals under the insolvency and bankruptcy code
(IBC). This is a big policy shift as earlier only individuals were permitted to register and function as an IP in
India. This is expected to address the limitations posed by IP being an individual in dealing with large and
complex processes requiring concurrent efforts and actions. Also, this will foster collaboration amongst
individual insolvency professionals to form an IPE and register as an ‘Insolvency Professional’. The increase
in collaboration amongst IPs to form an organisational set up will definitely assist them in managing their
mandates efficiently, which will ultimately improve the outcome of resolution process of corporate debtor
under IBC.

A Company, a registered partnership firm or a limited liability partnership may be recognized as an IPE
subject to the conditions:

o Its objective is to provide support services to insolvency professionals or to carry on the activities
of an insolvency professional or both;

o It has a net worth of not less than rs. 100 crore;

o Majority of its equity shares and voting rights are held by insolvency professionals who are its
directors, in case it is a company;
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o Majority of capital contribution is made by insolvency professionals, who are its partners, in case
it is a company;

o Majority of capital contribution is made by insolvency professionals, who are its partners, in case
it is a limited liability partnership firm or a registered partnership firm;

o Majority of its partners or directors, as the case may be , are insolvency professionals;

o Majority of its whole time directors are insolvency professionals, in case it is a company,

o None of its partners or directors is a partner or a director of another insolvency professional

entity.

Insolvency Professional Agencies

The Code provides for establishment of insolvency professionals agencies to enroll and regulate
insolvency professionals as its members in accordance with the Insolvency and Bankruptcy Code 2016 and
read with regulations. Functions of Insolvency professional agencies (IPA): It will perform three key
functions:

1. Regulatory functions- drafting detailed standards and codes of conduct through bye-laws, that
are made public and are binding on all members.

2. Executive functions- monitoring, inspecting and investigating members on a regular basis;

gathering information on their performance, with the overarching objective of preventing frivolous
behaviour, and malfeasance in the conduct of IP duties

3. Quasi-judicial functions- addressing grievances of aggrieved parties, hearing complaints against

members and taking suitable actions.

At present, there are 3 IPA’s:

1. Indian Institute of Insolvency Professionals of ICAI-

2. ICSI Institute of Insolvency Professionals-

3. Insolvency Professional Agency of Institute of Cost Accountants of India

INFORMATION UTILITIES

“information utility” means a person who is registered with the Board as an information utility under
section 210;

The task of gathering, collating and passing the information from the creditors to the corporate was
envisaged with the information utilities under the Insolvency and Bankruptcy Code, 2016.
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At present, the financial data of the creditors can only be obtained from the income tax department and
not from any other source. The Information Utilities are present to fulfil this loophole present in the
economy. Under section 209-216, in Chapter V of the code, the wide configuration for governance,
origination and core services of the information utilities is legislated. Only the IBBI has the ability to licence
the IU’s and also can exercise the power to control them as well as the grouping of knowledge and to
provide such access to the information. National E-Governance Services Limited is the only operative
information utility at present.

Before the insolvency resolution process can begin, a crucial step is to correctly establish the facts as to
what assets are available, who the applicants are, and what contracts are in force. This has customarily
involved paper-based processes and it has its own challenges such as the need to make sure that the
documents in hand are true copies. All stakeholders involved in the insolvency or bankruptcy process of
the debtor should have access to the debtor’s reliable financial information. Hence, to overcome these
problems, the Bankruptcy Law Reforms Committee (BLRC) came up with a solution to digitize all credit
transactions, to make them available on a digital platform subject to access rules and to give legal sanctity
to such digital records. Such electronic records would allow rapid identification of creditors, establishment
of the Committee of Creditors (COC) on default and assessment of the viability of the debtor by the
committee.

The electronic records of IU are admissible as evidence. Once the information is stored in an IU, the
creditor and the debtor will be estopped from disputing any of this information. In Innovative Industries
Ltd. vs. ICICI Bank and Ors[ii], the Supreme Court has held that when a corporate debtor commits default
of a financial debt, the adjudicating authority has merely to see the records of the information utility or
other evidence produced by the financial creditor to satisfy itself that a default has occurred.

Categories of Information
The Bankruptcy Law Reforms Committee has identified the following categories of information which
must be made available in the IU[iii]:

1. Reliable and readily accessible records of liabilities of a solvent entity;

2. Clear evidence of the instance of default;
3. Records of assets that are pledged as collateral against secured credit contracts; and
4. Reliable and readily accessible records that comprise the balance sheet and cash flow
statements of the entity.

The IU is not considered as the owner of the information but as the custodian of the information.

The core services of an IU are determined by two sections of the IBC. These are Section 3(9) of IBC and
Section 3(13) of IBC. Section 3(9) defines core services and Section 3(13) defines financial information.
These provisions suggest that core services of an IU should include the acceptance, storage,
authentication and access to information which includes assets, debts, security interest, balance sheet
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and cash flow statements and default. What is critical to the insolvency resolution procedure is the credit
contract record and the occurrence of a default. It is this information which is used to initiate the CIRP.

NATIONAL COMPANY LAW TRIBUNAL NCLT

The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408 of
the Companies Act, 2013. The National Company Law Tribunal has been setup as a quasi-judicial body to
govern the companies registered in India and is a successor to the Company Law Board.

In the first phase the Ministry of Corporate Affairs have set up eleven Benches, one Principal Bench at
New Delhi and ten Benches at New Delhi, Ahmadabad, Allahabad, Bengaluru, Chandigarh, Chennai,
Guahati, Hyderabad, Kolkata and Mumbai. These Benches will be headed by the President and 16 Judicial
Members and 09 Technical Members at different locations.

Scope of National Company Law Tribunal

The National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the Company Law
Board, Board for Industrial and Financial Reconstruction (BIFR), The Appellate Authority for Industrial and
Financial Reconstruction (AAIFR) and the powers relating to winding up or restructuring and other
provisions, vested in High Courts. Hence, the National Company Law Tribunal will consolidate all powers
to govern the companies registered in India. With the establishment of the NCLT and NCLAT, the Company
Law Board under the Companies Act, 1956 has now been dissolved.

Advantages for National Company Law Tribunal

• NCLT is a specialized court only for Corporates, i.e., companies registered in India.

• This will be no more than a Tribunal for the Corporate Members.

• NCLT will reduce the multiplicity of litigation before different forums and courts.

• NCLT has multiple branches and is able to provide justice at a close range.

• NCLT consists of both judicial and technical members while deciding on matters.

• The time taken to windup a company is reduced.

• Speedy disposal of cases will help reduce the number of cases.

• NCLT & NCLAT have exclusive jurisdiction.

Powers of National Company Law Tribunal (NCLT)

The Tribunal and the Appellate Tribunal is bound by the rules laid down in the Code of Civil Procedure and
is guided by the principles of natural justice, subject to the other provisions of this Act and of any rules
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that are made by the Central Government. The Tribunal and the Appellate Tribunal has the power to
control its own procedure.

Further, no civil court has the jurisdiction to consider any suit or proceeding with reference to any matter
which the Tribunal or the Appellate Tribunal is empowered to decide.

National Company Law Tribunal enjoys a wide range of powers. Its powers include:

• Power to seek assistance of Chief Metropolitan Magistrate.

• De-registration of Companies.

• Declare the liability of members unlimited.

• De-registration of companies in certain circumstances when there is registration of companies is

obtained in an illegal or wrongful manner.

• Remedy of oppression and mismanagement.

• Power to hear grievance of refusal of companies to transfer securities and rectification of register
of members.

• Protection of the interest of various stakeholders, especially non-promoter shareholders and

depositors.

• Power to provide relief to the investors against a large set of wrongful actions committed by the
company management or other consultants and advisors who are associated with the company.

• Aggrieved depositors have the remedy of class actions for seeking redressal for the acts/omissions
of the company which hurt their rights as depositors.

• Powers to direct the company to reopen its accounts or allow the company to revise its financial
statement but do not permit reopening of accounts. The company can itself also approach the Tribunal
through its director for revision of its financial statement.

• Power to investigate or for initiating investigation proceedings. An investigation can be conducted

even abroad. Provisions are provided to assist investigation agencies and courts of other countries with
respect to investigation proceedings.

• Power to investigate into the ownership of the company.

• Power to freeze assets of the company.

• Power to impose restriction on any securities of the company.

• Conversion of public limited company into private limited company.

• If the company cannot or has not held an Annual General Meeting as required under the
Companies Act or a required Extraordinary General Meeting, then the Tribunal has powers to call for a
General Meetings.

• Power to alter the financial year of a company registered in India.

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NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT)

Appeal from order of Tribunal can be raised to the National Company Law Appellate Tribunal (NCLAT).
Appeals can be made by any person aggrieved by an order or decision of the NCLT, within a period of 45
days from the date on which a copy of the order or decision of the Tribunal.

On the receipt of an appeal from an aggrieved person, the Appellate Tribunal would pass such orders,
after giving an opportunity of being heard, as it considers fit, confirming, changing or setting aside the
order that is appealed against. The Appellate Tribunal is required to dispose the appeal within a period of
six months from the date of the receipt of the appeal.

Adjudicating Authorities (AA)

Adjudicating Authorities (AA) have the exclusive jurisdiction to deal with insolvency related matters.

• National Company Law Tribunal (NCLT) is the AA for Corporate and LLP insolvency.

• Debt Recovery Tribunal (DRT) would be AA for individual or partnership Firms Insolvency.

A person aggrieved by the order of the Adjudicating Authority under Part III of IBC (insolvency resolution
and bankruptcy for individuals and partnership firms), viz. DRT, may prefer an appeal to the Debt Recovery
Appellate Tribunal (DRAT) under Section 181. Thus, statutory forums in the form of NCLAT and DRAT have
been designated as the appellate authority under IBC for redressal of grievances arising out of an order
of the Adjudicating Authority under Part II and Part III of IBC respectively. Further, any person aggrieved
by an order of the NCLAT or DRAT may file an appeal to the Supreme Court on a question of law arising
out of such order. Thus, IBC provides for a three-tier adjudicatory mechanism, for dealing with all issues
that may arise in relation to the insolvency resolution and liquidation for corporate persons and insolvency
resolution and bankruptcy for individuals and partnership firms, namely:

i. NCLT/ DRT;

ii. the NCLAT/ DRAT

iii. the Supreme Court.

It shall be the National Company Law Tribunal (NCLT) having the territorial jurisdiction over the place
where the registered office of the corporate person is located. Any insolvency resolution, liquidation or
bankruptcy proceedings shall stand transferred to NCLT.

Any person aggrieved by its order can prefer an appeal to the National Company Law Appellate Tribunal
(NCLAT) within 30 days of the NCLT order, which in turn can be appealed to the Supreme Court within 45
days of NCLAT order on questions of law arising out of such order. If both the Appellate courts are satisfied
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about the sufficient cause they may extend the time for appeal by 15 days. No civil court shall have
jurisdiction over the matters of NCLT.

Who can approach

Any person whose amount is due with the Company or LLP (minimum amount 1,00,00,000) can approach
to NCLT (National Company Law Tribunal) under IBC (Insolvency and Bankruptcy Code) 2016 for
Liquidation of that Company / LLP.

Examples:

▪ Financial/ Operational Creditors

▪ Corporate Debtor
▪ Corporate Applicant
▪ An Employee: A person who was / is working in a Company / LLP may file a petition if his dues are
1,00,00,000 or more.
▪ Service Provider: Any service provider who has given the services and raised the Invoice but
unable to recover the dues may file a petition if his dues are 1,00,00,000 or more. (After central
govt. notification dated 24.03.2020)
▪ Goods Provider: Any Goods Provider who has delivered the goods and raised the Invoice but
unable to recover the dues may file a petition if his dues are 1,00,00,000 or more. (After central
govt. notification dated 24.03.2020)

Jurisdiction to file the application before NCLT

Jurisdiction as per the State in which Company (to whom we are filling a suit) is registered. As per that
state connected NCLT shall be the jurisdiction to file the petition.

Applicability of Limitation Law

At the outset, it may be noted that the law of limitation would apply equally to an applicants claim as well
as claims of other creditor who submit proof of claim before the RP/liquidator. As per the Act, being a
general law, the right to sue accrues when the default has occurred and the default should have occurred
not beyond 3 years from filing of the application.

However, when introduced, the Code did not explicitly provide for applicability of limitation law for
matters under the Code- hence the anomaly.

The issue of applicability of the Limitation Act to proceedings under the IBC emerged as a moot point. The
same was initially dealt with by the National Company Law Appellate Tribunal (NCLAT) in Speculum Plast
Private Limited Vs. PTC Techno Private Limited and in Neelkanth Township and Construction Pvt. Ltd. Vs.
Urban Infrastructure Trustees Ltd wherein it was held that the Limitation Act will not be applicable to
proceedings under the IBC.
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However, this position left litigants with many unanswered queries. Furthermore, having realized the
ambiguity with respect to the applicability of the Limitation Act upon proceedings under the IBC, the
Parliament inserted section 238A to the IBC through the Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 that took effect on 6th June 2018. This states that the provisions of the Limitation
Act will apply to proceedings under the IBC.

238A. Limitation:

The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or Appeals
before the Adjudicating Authority, the National Company aw Appellate Tribunal, the Debt Recovery
Appellate Tribunal, as the case may be.

Furthermore, the Supreme Court in of B.K. Educational Services Private Limited Vs. Parag Gupta and
Associates clarified the applicability of the Limitation Act and held:

27�It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9
of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. The right to
sue, therefore, accrues when a default occurs. If the default has occurred over three years prior to the
date of filing of the application, the application would be barred under Article 137 of the Limitation Act,
save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be
applied to condone the delay in filing such application.

Conflict between Supreme Court & NCLAT

The Supreme Court in Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd.,
September 2019 held that the proceedings under section 7 of the IBC are an application and not suits;
thus they would fall within the residuary Article 137 of the Limitation Act and the right to apply will arise
from the date of default.

It was again reiterated by the Supreme Court in Jignesh Shah Vs. Union of India, September 2019that the
right to apply under the IBC will be from date of default and not from the date of enactment of the IBC,
i.e., 1st December 2016.

While the abovementioned judgments were pronounced by the Supreme Court on 18th September 2019
and 25th September 2019 respectively, the NCLAT has once again stoked uncertainty by passing a
judgment on 26th September 2019, whereby in B. Prashanth Hegde Vs. SBI, 26th September 2019it
applied article 137 and held that the right to apply under section 7 of IBC will accrue on 1st December
2016, i.e., when IBC was enacted. The NCLAT also held that since the banks have initiated proceedings
under provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (SARFAESI Act), the period of limitation will also be governed by articles 61
and 62 of the Limitation Act.

However, this reasoning of the NCLAT is contrary to the observation of the Supreme Court in Jignesh Shah,
wherein the Court stated that only the date of default will be relevant for the purpose of winding up
proceedings (and, by extension, to IBC applications). Having noticed the divergent view of the NCLAT, the
Supreme Court in Sagar Sharma Vs. Phoenix ARC Pvt. Ltd., 30th September 2019 has made it loud and
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clear that the judgment passed by the Supreme Court should be taken in letter as well as spirit and hence
NCLAT cannot, time and again, apply Article 62 to the applications made under the IBC.

However, even after such remarks from the Supreme Court, as recently as on 3rd December 2019, the
NCLAT in Sesh Nath Singh Vs. Baidyabati Sheoraphuli Cooperative Bank Ltd held that time spent in
proceedings under the SARFAESI Act can be condoned by the virtue of section 14 of the Limitation Act for
the purpose of filing an application under the IBC.

It is pertinent to mention here that under section 14 only such time can be condoned that was spent in
bona fide proceedings due to defect of jurisdiction. The NCLAT failed to notice that proceedings under the
SARFAESI Act before the enactment of IBC are not without defect of jurisdiction and, therefore, the same
cannot be used to condone the delay for filing a petition under IBC.

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Module 3 IBC

Corporate insolvency Resolution Process (CIRP)

Initiating an application for resolution and role of interim resolution professional
Committee of creditors (COC) : Powers, duties and process
Information memorandum and resolution plan
Fast track resolution
Cross border insolvency: international perspective

Corporate insolvency Resolution Process (CIRP)

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The corporate insolvency resolution process (CIRP) is dealt with under Sections 7 and 10 of
IBC, 2016.

It is ideal to note that the ambit of winding up was previously covered by the Companies Act,
1956 / the Companies Act, 2013. Following the enactment of the Insolvency Code in 2016, the
new process that replaced the concept of winding up was termed as the Corporate Insolvency
Resolution Process (CIRP). The process functions to resolve issues in relation to the defaulting
companies within a reasonable period of time thereby maintaining the company as a whole. This
insolvency resolution process has been widely covered under Chapter I of Part II of the
Insolvency and Bankruptcy Code, 2016.

Who can initiate the CIRP

It is necessary to understand that if any default is committed by a corporate debtor (person who
has taken the loan or the amount from a creditor or bank), the CIRP process can be initiated by
means of filing an application before the Adjudicating Authority in the provided manner. It is
also ideal to note that CIRP can be initiated by a financial creditor as well and there is no bar on
the same. Thus, CIRP may be initiated by either:

1. Financial creditor (FC) under Section 7.

2. An operational creditor (OC) under Section 9.
3. A corporate applicant of a corporate debtor under Section 10 of the Code.

Consequences of initiation of CIRP

There are generally two consequences that can follow the initiation of CIRP, namely:

1. Revival of the corporate debtor, or

2. Liquidation.
It is noteworthy to mention that the underlying purpose of the Code of 2016 is to go with the first
consequence that is a revival of corporate debtors. Only when the same is not in favour,
liquidation is called for. Revival can further lead to a restructuring of the existing set-up or a new
plan of ownership that needs to be implemented.

Stages in the CIRP process

CIRP has a three-stage process:
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Pre-admission Process(Sections 3 to 11)

A person who can apply to NCLT to initiate the CIRP process Under Section 7 as Financial
Creditor “FCs”, in Section 9 as an Operational Creditor “OCs”, or in Section 10 as a Corporate
Debtor “CDs”.

Post-Admission Process (Sections 12 to 32A)

After an application to NCLT, it is their discretion whether to accept or reject an application. The
whole process of CIRP process should be completed within 180 Days from the date of admission
an application extension is allowed for 90 days only one extension is allowed by NCLT
However, CIRP should be completed within a period of a maximum of 330 days from the date
the insolvency commencement date Otherwise, the Company would go into the Liquidation
process as per Sections 33 to 54.

Liquidation Stage (Sections 33 to 42 and Sections 52 to 54)

If the resolution plan fails for a company, such a company would go into the liquidation process.

The trigger point for the initiation of the CIRP is when the default amount is more than one crore
rupees (10,000,000), earlier it was just one lakh rupees (1,00,000). Financial creditors,
operational creditors, or corporate debtors apply to recover their debts before the adjudicating
authority i.e. NCLT (National Company Law Tribunal).

NCLT within 14 days of receipt of an application passes an order to accept or In case reject the
application by giving notice to the applicant to rectify the default within 7 days from receipt of
notice from the NCLT.

On acceptance of an application that date will be called the insolvency Commencement Date. By
acceptance of an application as per Section 14 of IBC. The moratorium period will start with, the
appointment of an Interim Resolution Professional by an Adjudicating Authority after that Public
Announcement by an Interim Resolution Professional in Form A of IBBI.

Who are the main stakeholders in IBC

There are Four Main Stakeholders:

1. Interim Resolution Professionals (IRP)/ Resolution Professionals (RP).

2. Committee of Creditors (COC).
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3. Resolution Applicant (RA).

4. National Company Law Tribunal (NCLT).
One of the primary players who play a major role in CIRP is the Interim Resolution Professional
(IRP), who constitutes a Committee of Creditors (COC) as per Section 21 of IBC. The COC
appoints or regularises a Resolution Professional by conducting a meeting as per Section 24 of
IBC after that the Resolution Professional should prepare an Information Memorandum as per
Section 29 and Regulation 36.

‘Resolution applicant’ means a person who presents a resolution Plan to the Resolution
Professional; however, a resolution applicant should fulfill the condition of Section 29A of IBC.
Resolution Applicant submits a resolution plan with an affidavit that he is not disqualified under
Section 29A.

The Committee of Creditors may approve a resolution plan by VOTING a minimum of 66% of
the voting share of the Financial creditors. The Resolution Professional should submit a
resolution to the National Company Law Tribunal. The resolution plan is approved by a COC,
followed by which the National Company Law Tribunal gives the order to approve the plan
should be binding on corporate debtors and their employee, members, creditors, guarantors, and
other stakeholders involved in that plan. First-ever successful insolvency resolution scheme
under IBC was Synergies-Dooray Automotive Ltd.

Conclusion

One of the major steps taken to ease doing business in India is the CIRP process. The IBC has
imbibed some of the best international practices of an asset resolution mechanism. It provides an
honourable exit mechanism for honest business failures and enables the release of credit locked
into the stressed assets for better resource allocation. This market-driven, transparent resolution
mechanism instill confidence in the financial system and attracts many new investors to invest in
Indian businesses. A significant achievement of the IBC has been the change brought in the
debtor-creditor relationship. Debtors are resolving stress early to avoid being pushed into
insolvency.

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Resolution Professional – Role, Responsibilities and Duties under IBC

Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) is a system

incorporated in the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The
Code”). In this, a corporate debtor that has defaulted in making payments to its creditors
undergoes an insolvency process.

The intent behind CIRP is to make an attempt at reviving the corporate debtor instead of
liquidating or winding it up to reimburse the creditors. The Code, and subsequent amendments,
have designated a period in which CIRP has to be concluded. CIRP commencement date is the
date on which the adjudicating authority passes an order to admit the CIRP application.

Interim Resolution Professional

The adjudicating authority appoints a person on the commencement date of insolvency who will
conduct the entire proceeding. This person is the Interim Resolution Professional (IRP). The IRP
is responsible to conduct the proceedings of CIRP and also to ascertain the operations of the
corporate debtor as a going concern.

As the term suggests, the IRP’s appointment is temporary until a Resolution Professional is
appointed by the Committee of Creditors (COC).

Duties of IRP

Section 18 of the Code lays down the duties of the IRP in CIRP. The duties are as follows;

• Collate information pertaining to the operations, assets and finances of the corporate
debtor to understand its financial position;
• Gather all the claims made by the creditors against the corporate debtor;
• Form the COC;
• Manage finances and govern the operations of the corporate debtor as a going concern
until an RP is appointed by the COC;
• Take custody of all the assets, tangible or intangible, in the name of the corporate debtor
until such process is in motion;
• Any other duties as directed by the Insolvency and Bankruptcy Board of India (IBBI).

Appointment of Resolution Professional by COC

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The IRP constitutes the COC by virtue of Section 18 of the Code. The COC’s first order of
business, after the commission of the committee, is to appoint the Resolution Professional. As
per Section 22 of the Code, the COC holds its first meeting within 7 days of its constitution. In
this meeting, the committee discusses if the IRP can be appointed as the Resolution Professional
to continue to conduct the CIRP.

The committee then takes a vote and if the majority is equal to or more than sixty-six per cent,
then the IRP becomes the Resolution Professional. However, the committee can also resolve to
replace the IRP and appoint a difference licensed Resolution Professional to conduct the process.
In this case, the committee applies to the adjudicating authority to appoint the Resolution
Professional.

The adjudicating authority subsequently chooses a Resolution Professional and forwards the
choice to the IBBI for its approval. If the board does not approve the Resolution Professional as
selected by the adjudicating authority, then the IRP resumes its position until IBBI appoints a
person. This is also applicable in the case where the IBBI does not respond to the adjudicating
authority within ten days of receiving the name.

Responsibilities and Duties of Resolution Professional

The COC appoints the Resolution Professional who then conducts the CIRP. He is one of the
most vital members of the entire process with several responsibilities and functions to perform;

1. Protect and preserve the value of corporate debtor’s property and manage corporate
debtor’s operations as a going concern
2. Take control and custody of any assets over which corporate debtor has ownership rights
as per its balance sheet or information utility or depository
3. Gather all information pertaining to the corporate debtor’s assets, finances, and operations
for determining its financial position.
4. Receive, verify and collate claims received from creditors in response to the public
announcement;
5. take custody and control of all assets including business records
6. Represent and act on behalf of the corporate debtor with third parties and exercise rights
for the benefit of the corporate debtor in all proceedings – judicial, quasi-judicial, or
arbitration,
7. Raise interim finance was needed for running the CIRP
8. Maintain an updated list of claims
9. Convene and attend all meetings of the Committee of Creditors/ Financial Creditors
10. Invite a resolution plan for the corporate debtor from prospective resolution applicants/
investors.
11. Present resolution plans at CoC meetings
12. File applications for the avoidance of preference/ undervalued/ extortionate/ fraudulent
transactions were determined.
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13. making a public announcement of the insolvency resolution process in respect of the
corporate debtor;
14. examining each resolution plan received so as to see whether the resolution plan meets the
criteria enlisted under section 30 (2) and presenting the eligible resolution plans at the
meetings of the committee of creditors;
15. submission of the resolution plan approved by the committee of creditors to the
adjudicating authority for approval of the latter;
16. Placing the CoC-approved plan for approval of adjudicating authority.

Conducting CIRP

Section 23 of the Code empowers the Resolution professional to conduct the CIRP. The
Resolution Professional has to moderate all the stages of CIRP and ensure smooth and timely
execution of the process. The extent of management of the operations of the corporate debtor by
the Resolution Professional does not end at the culmination of the process. The Resolution
Professional remains responsible for the going concern of the operations until the execution of
the resolution plan.

Operations of the corporate debtor as a going concern and asset management

The Resolution Professional’s most important function is to ensure the operations of the
corporate debtor as a going concern. This means that even though the corporate debtor is
undergoing an insolvency process, its operations must be preserved until such process concludes.
The Resolution Professional has professional freedom to ensure that the operations do not fester.

The Resolution Professional also takes control of the assets and finances of the corporate debtor.
He also protects and preserves the value of such assets and ensures that they remain unfettered
until a resolution plan is executed. Based on this, the Resolution Professional also prepares an
information memorandum which in turn assists the resolution applicant to compile a resolution
plan.

Analysis of the Resolution Plan

The IBBI has devised requirements that a resolution plan must comprise. The resolution
applicants submit resolution plans to the Resolution Professional. On receiving them, the
Resolution Professional examines and analyses every resolution plan. He has to ensure that the
resolution plans comply will all the requirements set by the IBBI.

The adjudicating authority can reject the plan if it does not meet the requirements set by the
IBBI. This could also lead to termination of the Resolution Professional. The Resolution
Professional presents all the resolution plans before the COC to take a vote. The plan which is
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approved with a majority of minimum sixty-six per cent, is presented before the adjudicating
authority.

Liquidator

The adjudicating authority can pass an order to liquidate the corporate debtor under several
circumstances. When it does, the adjudicating authority appoints a liquidator. The first option for
the liquidator is the Resolution Professional. In this case, the Resolution Professional takes the
responsibilities of a liquidator and conducts the liquidation process.

The insolvency professional or a Resolution Professional is the backbone of the process.

Resolution Professional is the first person appointed and the last person to be relieved. The
primary role of the Resolution Professional is to ensure the revival of the corporate debtor.
However, more important for the Resolution Professional is to keep the process transparent and
fair.

………………………….

Committee of Creditors: Functioning, Composition and Significance

Committee of creditors is formed under regulation 21 of the code, and a major decision-maker in the
corporate insolvency resolution process. Let’s find out more in detail.

To make the Corporate Insolvency Resolution Process effective, based on the guidance and suggestions
of the members of the committee of creditors, the resolution plan is prepared for the company. As per
this code, a company that is registered under the Companies Act 1956, such as Limited liability
partnership, Partnership firms, and Individuals or under the Insolvency and Bankruptcy Code, any financial
or operational creditor can start the process of corporate insolvency against the corporate debtor. This
can be initiated only when the corporate debtor is a defaulter in repayment of debts.

Definition: Committee of creditors

In the process of insolvency, the committee of creditors holds an influential position. This committee of
creditors is considered to be a higher level decision-making body in initiating and governing the Corporate
Insolvency Resolution Process. According to regulation 21 of the code, a committee of creditors is
formulated to fulfill the responsibility of the interim resolution professional so as to call for claims from
all the creditors. The maximum time duration should be 14 days from the public announcement and once
the claim gets verified, the committee of creditors is formed.

The mandatory condition of the code is to have all financial creditors in the committee of creditors. As per
the regulations of the code, it also lists the financial creditors and operational creditors separately. A
financial creditor is the one to whom the financial debt and the interest is due, for example Home-buyers,
banks, bond holders, guarantee providers, etc. On the other hand, an operational creditor is a person who
owns debts related to the goods and services supply, which includes employees, government dues.
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Role & responsibility of Committee of creditors

Based on the Corporate Insolvency Resolution Process under the code, the committee of creditors have
multiple roles and responsibilities to fulfil. Here are some major responsibilities:

All important decisions are finalized after the approval from the creditors of the committee of creditors.
Committee of creditors are liable to decide about the restoration of the corporate debtor by accepting
the resolution plan.
They decide about the interim resolution professional as resolution professional or they can even decide to
replace the insolvency professional as resolution professional.
They conduct regular meetings in which the rules are discussed for the working of interim resolution
professionals that ultimately determines the fate of the corporate debtor.
The esteemed committee of creditors functions on the administrative decisions taken by the resolution
professional.
They are responsible for the evaluation and approval of the resolution plan along with the modification, if
any required.
Once the committee of creditors is confident about the practicality and viability of the proposed
resolution plan, they can approve it with the mandate of more than 66% of the vote.

Composition of committee of creditors

The formation of the Committee of Creditors (CoC) holds the position of a higher authority in the
Corporate Insolvency Resolution Process (CIRP). All the decisions related to the administration of the
corporate debtor are to be taken by the creditors of the Committee of creditors in the meeting, based on
the majority vote count of the members.

According to the code, Section 18 and Section 21 directs the Interim Resolution Professional to constitute
the Committee of Creditors, once the collation of all the claim proof is done. Whereas, the sub-section
(2) of Section 21, clearly indicates that shall encompass ‘all the financial creditors of corporate debtors’.

Powers of committee of creditors

Being an authoritative entity, a committee of creditors are majorly involved in the decisions and also
determine the proceedings, actions and role of the creditors. Here are some of the powers that are given
to them as per the regulations of code:

The committee of creditors have the power to decide about the regular functioning of the corporate
debtor and also can take the important decisions in the company’s favor.
They can approach the adjudicating authority as it is the national company law tribunal, especially when
there is a doubt of any foul play.
They can apply to the adjudicating authority to change the interim resolution professional if needed.
They can choose to proceed ahead with the liquidation process of the corporate debtor even without any
approval on any resolution plan.
They are empowered to exercise their commercial wisdom to take any decision for the corporate debtor.
This is implied on the committee of creditors as they have a better knowledge on the subject and are
competent in addressing the serious situation of the company under distress.
Also, they are authorized to reduce the notice period, which ranges between five days to 24 hours, only
when it's necessary. If there is an authorized representative, the minimum notice period is 48 hours.
Therefore, all the above mentioned powers are given to the committee of creditors strictly according to
the insolvency and bankruptcy code, 2016.
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Conclusion
From the above points, the role and relevance of the committee of creditors has been reflected and how
they can take up their roles and responsibilities in the right direction towards fulfilling the process of
corporate insolvency resolution. Though the conditions and demands vary depending on the case they
are dealing with, the core areas to remain active as a committee member remains the same.

…………….
The Information Memorandum under the Insolvency and Bankruptcy Code, 2016

IBC was introduced to consolidate and amend the laws relating to reorganization and insolvency
resolution of Corporate Persons, Partnership Firms, and Individuals in a time bound manner for
maximization of value of assets of such persons, to promote entrepreneurship, availability of credit
and balance the interests of all the stakeholders.

As per the scheme of the Code, once a petition filed under section 7, 9 or 10 is admitted by the
Hon’ble National Company Law Tribunal (“NCLT” or “Adjudicating Authority”), an
Insolvency Professional (“IP”) is appointed who is thereafter responsible for taking control over
the management of the Corporate Debtor and keeping it as a going concern. Additionally, the RP
is also responsible for collating the claims from the Creditors of the Corporate Debtor and invite
Resolution Plans from the Prospective Resolution Applicants, seeking to resolve the state of
insolvency of the Corporate Debtor.

Hence, in order to enable the Resolution Applicants to prepare a Resolution Plan for the Corporate
Debtor, the Code enshrines a duty upon the RP to prepare a document containing all relevant
details of the Corporate Debtor (e.g., assets, liabilities, ongoing litigations, etc.) in order to assist
such Resolution Applicants. This document which contains all the relevant information of the
Corporate Debtor is called an Information Memorandum which is defined under section 5(10) of
the Code as under: –

“5(10) Information Memorandum means a memorandum prepared by the Resolution

Professional under sub-section (1) of section 2”.

Duty of the Resolution Professional to prepare an Information Memorandum

Under section 25(2)(g) read with Section 29 of the Code, a duty is cast upon the RP to prepare an
IM in such form and manner containing such relevant information as prescribed by the Insolvency
and Bankruptcy Board of India (“Board”).

Upon the appointment of a RP, section 25 of the Code stipulates that it shall be the duty of such
RP to preserve and protect the assets of the Corporate Debtor and ensure that it remains a going
concern. As part of its duty, the RP is also responsible to take custody of all the assets of the
Corporate Debtor including all business records. Therefore, by taking possession of all such
information, records and assets of the Corporate Debtor, the RP can assess the viability of business
of the Corporate Debtor and manage negotiation between the Debtor and Creditors. Further, based
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on such negotiations, the RP shall endeavor to invite proposals to revive the business of the
Corporate Debtor and such proposals can be invited not only from the Debtor and the Creditors
but from every market participant as well.

At this juncture, the report of the Bankruptcy Law Reforms Committee[1] comes into picture
which provides an idea with respect to the role of the RP in preparing the IM. In para 5.3.2, the
report states: –

• The RP must provide the most updated information about the entity as accurately as is
reasonably possible to this range of service providers.
• The information collected on the entity is used to compile an information memorandum,
which is signed off by the debtor and the creditors committee, based on which solutions
can be offered to resolve the insolvency.
• Once the information memorandum is created, the RP must make sure that it is readily
available to whoever is interested to bid a solution for the IRP.

Additionally, the Board, through its press release[2] bearing no. IBBI/PR/2018/33 dated
20.11.2018, released a draft specimen for the RPs to refer while preparing IM of the Corporate
Debtor. This specimen provides a broad perspective of what details should the RP keep in mind
while preparing an IM along with any such additional information which may be relevant in respect
of a particular Corporate Debtor.

What information should be included in an Information Memorandum?

Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) provides the information which
should necessarily be included in the IM by a RP. Sub-regulation 2 of regulation 36 under the
CIRP Regulations provides that: –

“36. Information memorandum –

(2) [The information memorandum shall highlight the key selling propositions and contain all
relevant information which serves as a comprehensive document conveying significant
information about the corporate debtor including its operations, financial statements, to the
prospective resolution applicant and shall contain the following details of the corporate debtor-]
–

(a) [assets and liabilities [including contingent liabilities] with such description, as on the
insolvency commencement date, as are generally necessary for ascertaining their values.

Explanation: ‘Description’ includes the details such as date of acquisition, cost of acquisition,
remaining useful life, identification number, depreciation charged, book value, [geographical
coordinates of fixed assets] and any other relevant details.]
 lOMoARcPSD|25785379

(b) the latest annual financial statements;

(c) audited financial statements of the corporate debtor for the last two financial years and
provisional financial statements for the current financial year made up to a date not earlier than
fourteen days from the date of the application;

(d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount
of their claims admitted and the security interest, if any, in respect of such claims;

(e) particulars of a debt due from or to the corporate debtor with respect to related parties;

(f) details of guarantees that have been given in relation to the debts of the corporate debtor by
other persons, specifying which of the guarantors is a related party;

(g) the names and addresses of the members or partners holding at least one per cent stake in the
corporate debtor along with the size of stake;

(h) details of all material litigation and an ongoing investigation or proceeding initiated by
Government and statutory authorities;

(i) the number of workers and employees and liabilities of the corporate debtor towards them;

(j) [company overview including snapshot of business performance, key contracts, key investment
highlights and other factors which bring out the value as a going concern over and above the
assets of the corporate debtor such as brought forward losses in the income tax returns, input
credit of GST, key employees, key customers, supply chain linkages, utility connections and other
pre-existing facilities

(k) Details of business evolution, industry overview and key growth drivers in case of a corporate
debtor having book value of total assets exceeding one hundred crores rupees as per the last
available financial statements]

(l) other information, which the resolution professional deems relevant to the committee.”

Hence, from Regulation 36 of the CIRP Regulations, it comes to light that an IM is a

comprehensive document that seeks to provide key elements of the Corporate Debtor to the
Prospective Resolution Applicant in order to enable them to gauge the viability of business of the
Corporate Debtor and thereafter, submit Resolution Plan to resolve the state of insolvency of the
Corporate Debtor. Further, this regulation needs to be read in light of the explanation provided
under sub-section 2 of the section 29 of the Code wherein it explains that the Information
Memorandum must contain all the “relevant information” which may be required by the
Resolution Applicant to prepare a Resolution Plan for the Corporate Debtor.

The Hon’ble Supreme Court of India, in the matter of Ebix Singapore Private Limited Vs. CoC of
Educomp Solutions Limited & Anr[3] and in the matter of Kundan Care Products Limited Vs. Mr
 lOMoARcPSD|25785379

Amit Gupta and Ors[4], dealt with the duty of the RP to provide accurate information of the
Corporate Debtor and made the following observation: –

“189. Under the IBC, there is a duty upon the RP to collect as much information about the
Corporate Debtor as is accurately possible to do. When such information is communicated
through an IM to the Resolution Applicant, the RP must be careful to clarify when its information
is not comprehensive and what factors may cause a change.”

Similarly, the Hon’ble National Company Law Appellate Tribunal (“NCLAT”), in the matter of
Kushal Ltd. Vs. Kartik Baldwa[5] dealt with the allegations upon the RP wherein the Appellant
stated that the Resolution Professional failed to disclose the ongoing assessment proceedings under
the Income Tax Act, 1961 which were pending during the preparation of the IM and also alleged
that the IM depicted a higher production capacity of the Corporate Debtor while the actual
production capacity was comparatively low. The Hon’ble NCLAT while dealing with non-
disclosure of ongoing assessment in the IM observed as under: –

“Another contention of the Appellants is that, pending tax proceedings are not disclosed in the
Information Memorandum by CIRP, in fact, the CIRP disclosed the tax liability and the appellants
at Point No. 51 of the resolution plan agreed as follows:

“51. “Taxes” or “Tax” shall means any and all present and future, direct or indirect, claims for
tax, levy, impost, duty, cess, statutory dues or other charge of a similar nature (including any
penalty or Interest payable in connection with any failure to pay or any delay in paying any of the
same) including on gross receipts, sales, turnover, value addition, use, consumption,, property,
service, franchise, capital, occupation, license, excise, documents (such as stamp duties) and
customs and other taxes, duties, assessments, or fees, however imposed, withheld, levied, or
assessed by any Governmental Authority.”

As the appellants themselves agreed to pay the future liability of taxes, non-disclosure of any
pending cases as to assessment is not a ground. On the other hand, CIRP is under obligation to
disclose pending cases but not the assessments. Hence, non-disclosure is not a ground to conclude
that the CIRP made any misrepresentation.”

Further, while dealing with the second contention, the Hon’ble NCLAT took into account the
observations made by the Hon’ble Supreme Court in the aforementioned judgements and made the
following observations on “Relevant Information” to be provided by the RP: –

“In the explanation annexed to Section 29, the word ‘relevant information’ is explained. It means
the information required by the resolution applicant to make the resolution plan for the Corporate
Debtor which shall include financial position of the Corporate Debtor. All information relating to
dispute against the Corporate Debtor on any other matter pertaining to the Corporate Debtor as
may be specified. Therefore, the word ‘relevant information’ referred in Section 29 (1) of IBC is
only an information required by the resolution applicant i.e., appellants herein to make resolution
plan for the Corporate Debtor. Here, the Resolution Professional disclosed the information based
on the report of MITCON available and he is not an expert to make an assessment of the
 lOMoARcPSD|25785379

production capacity of the industry, therefore, he only disclosed those details regarding
production capacity based on earlier report submitted by MITCON, such information is relevant
for the purpose of making a resolution plan for the Corporate Debtor by the Resolution Applicant.

Thus, the Resolution Professional disclosed relevant information enabling the resolution
applicants/ appellants to make appropriate application by submitting resolution plan for the
Corporate Debtor. Such act would not amount to fraudulent misrepresentation.”

Therefore, after perusing the aforementioned judgements passed by the Hon’ble Supreme Court
of India as well as the Hon’ble NCLAT, it becomes clear that although the RP shall strive to
provide the most accurate information related to the Corporate Debtor as available with him, he is
not expected to make an assessment of the information and reports referred to in the Information
Memorandum.

Period prescribed under the Code for issuing Information Memorandum

Under Regulation 36(1) of the CIRP Regulations, the RP is required to submit the IM to each
member of the CoC, on or before ninety-fifth day from the Insolvency Commencement date.
Therefore, keeping in view purpose of the Code, i.e., to resolve the state of insolvency of the
Corporate Debtor in a time bound manner, the Code stipulates the aforementioned timeline for
issuing the IM to the members of the CoC so as to ensure that ample time is provided to the CoC
as well as the Resolution Applicant for assessing the viability of the business of Corporate Debtor
and thereafter submit a Resolution Plan.

Hence, in an ideal situation, where the RP is appointed in the first meeting of the CoC i.e., T+30,
such RP shall submit the IM with the members of the CoC on or before ninety-fifth day from the
Insolvency Commencement Date. However, in another situation where the resolution to appoint
RP could not be passed in the first meeting of the CoC, Regulation 17(3) provides that the IRP
shall continue to perform the functions as a deemed RP from the forty-first day from Insolvency
Commencement Date till the appointment of a RP, in which case, such IRP/Deemed RP shall be
responsible to submit the IM to the members of the CoC, until the appointment of a RP, within the
stipulated limit of ninety-fifth day from the Insolvency Commencement Date.

It is noteworthy to mention here that the RP is enjoined with the duty of preparation of an IM and
this, it must do within the stipulated time as prescribed under the Code. In some situations, the RP
may face a challenge from the suspended management of the Corporate Debtor and may face
difficulty in taking possession over the records and assets of the Company. In these situations,
although the Code provides a remedy in the form of an Application under section 19(2) for seeking
directions to the suspended management to cooperate with the RP however, despite this, the RP
shall proceed to prepare an information memorandum after obtaining details of the Corporate
Debtor from the records which are compulsorily filed by the Company under the Companies Act.

It will not be out of place to mention here that the Hon’ble NCLAT in Bimalesh Bhardwaj Vs.
Value Infratech India Pvt. Ltd.[6] directed the Board to investigate the conduct of the Resolution
Professional by taking note of the fact that the RP resorted to ingenious way of circumventing his
responsibility, including that of preparing an IM and ordered: –
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“26. From the minutes of second meeting of the CoC, it is clear that the Resolution Professional
has resorted to very novel and ingenious way of circumventing the duties imposed upon him in the
IBC for preparation of information memorandum, exclusion of time to extend CIRP period and
inviting Expression of Interest for Resolution Plan for the Corporate Debtor….

27. Thus we find that the CoC was not constituted in accordance with the provisions of IBC. In the
matter, the CIRP was not pursued with fairness and due diligence by the Resolution Professional
and the resolution for liquidation of the Corporate Debtor was taken in a meeting with an improper
voting share ascribed to Respondent No. 4 and taken in unseemly haste. These are actions of
omissions and commissions, which we cannot absolve the Resolution Professional from his
conduct should be investigated by Insolvency and Bankruptcy Board of India and action as
appropriate may be taken against the present Resolution Professional.”

Important compliances by the Resolution Professional for issuing Information Memorandum

1. While preparing an IM under the Code, the RP is required to follow certain timelines stipulated
under the CIRP Regulations and further comply with other provisions of the Code to ensure that
the information of the Corporate Debtor, which may contain important business records,
Intellectual Property, or other material information cannot be misused by the competitors. Hence,
sub-section (2) of section 29 states that the RP shall provide access to all the relevant information
of the Corporate Debtor to the Resolution Applicant after such Applicant undertakes to: –

i. Comply with provisions of law for the time being in force relating to confidentiality and
insider trading;
ii. To protect any intellectual property of the Corporate Debtor if may have access to;
iii. Not to share relevant information with third parties unless clauses (a) and (b) of this sub-
section 2 of section 29 are complied with.

Additionally, sub-regulation (4) of Regulation 36 provides further clarity that the RP shall share
the IM with the members of the Committee of Creditors (“CoC”) as well as the Resolution
Applicant only after receiving an undertaking from such member or the Resolution Applicant to
the effect that the information provided in the IM shall not be used by such person to cause undue
gain or undue loss to itself or any other person and comply with the section 29(2) of the Code.

2. Compliance under Regulation 40B (1) of the CIRP Regulation requires the RP to make certain
disclosure on the website designated by the Board, on the occurrence of certain events, in such
form along with enclosures as may be specified and required. Therefore, within 7 days of issuing
IM to the members of CoC under regulation 36, the RP is required to submit a disclosure in Form
CIRP – 3 on the website designated by the Board.

3. Additionally, there may be certain occasions when the RP is unable to issue the IM within time
prescribed under the CIRP Regulations. These occasions may arise due to non-submission of
undertaking by the members of the CoC which is required prior to the issuance of the IM. In such
circumstances, where IM is not issued within 51 days from the date of public announcement, the
RP shall file a disclosure in Form CIRP 7 as provided under Regulation 40B (1A) of the CIRP
Regulations.
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Conclusion

The information memorandum is a comprehensive document that provides significant details about
a corporate debtor to prospective resolution applicants. It includes information such as the
corporate debtor’s assets, liabilities (including contingent liabilities), financial statements, list of
creditors, related party debts, guarantees given by others, stakeholder details, litigation and
investigations, worker and employee details, and other relevant information, hence, the
stakeholders of CIRP shall ensure timely preparation of the Information Memorandum to ensure
successful resolution of the Corporate Debtor.

Resolution Plan - Meaning, Content, Drafting and Submission

Section 5(26) of the IBC, 2016 - "Resolution plan" means a plan provided by the resolution
applicant for the corporate debtor's bankruptcy resolution as a going concern in line with Chapter
II of Part II of the Insolvency and Bankruptcy Code. A resolution applicant, in simple terms, is
"anyone who submits a resolution proposal to the resolution professional."

A Resolution Plan is a rehabilitation plan for a corporate debtor (CD) that is going into
insolvency. It is a report based on the information memorandum provided by the Resolution
Professional that focuses on legal, financial, management, and technical methods to help the CD
get back on its feet. It must be approved by the committee of creditors ("COC") and meet the IBC's
required conditions.

Preparation and Submission of the Resolution Plan

A Resolution Applicant must submit information in accordance with the RFRP (Request
for Resolution Plan) which is shared by RP after Coc’s approval along with the requirements set
forth in the IBC, 2016 and CIRP Regulations. The applicant must sign and date each document in
the place given therein and also sign each page of all documents. (The Resolution Applicant must
submit any undertakings, authorizations, forms, documents, and information needed by Applicable
Law and available in this RFRP.) Documents connected to the Resolution Plan should be signed
in the manner specified in the relevant format of such document in this RFRP, either by the
Resolution Applicant or an Authorised Representative of the Resolution Applicant. All requisite
forms, documents, and authorizations must be signed and stamped by the Authorised
Representative of the Resolution Applicant. (Each Resolution Applicant shall submit an affidavit
in support of the IBC, 2016 related Undertaking, which should be certified and notarized by a
notary public.) A Resolution Applicant should give the requested information to prove the
Resolution Applicant's competence and ability to manage and administer the company to the
satisfaction of the CoC. Strict adherence to forms, documentation, or authorizations stipulated in
the RFRP is needed. Where information is sought in specified forms/documents/authorizations,
the Resolution Applicant must refrain from using any brochures/pamphlets. Non-compliance with
forms, documentation, or authorizations, as well as the submission of inadequate material, may
 lOMoARcPSD|25785379

result in the Resolution Plan being declared non-responsive. Each form, paper, or authorization
must be signed by the Resolution Applicant and correctly stamped / corporate seal affixed.

Mandatory contents of the Resolution Plan

The Resolution Applicant is responsible for preparing the Resolution Plan in compliance with the
IBC, the CIRP Regulations (as amended to date), and this RFRP. According to Section 30 of the
IBC, 2016 and Regulations 38 and 39 of the CIRP Regulations, the Resolution Applicant must
include the following in the plan:

• Information and details, along with affidavit, of the Resolution Applicant and all
“connected persons” (as defined under Section 29A of IBC, 2016 );
• Specific sources of funds that shall be used for the payment of the Insolvency
Resolution Process Cost in priority to the repayment of any other debts of the Company to the
satisfaction of the COC;
• Specific sources of funds that shall be used for the payment of the Operational
Creditors in priority over financial creditors
• Term of the Resolution Plan and its implementation schedule
• Stipulate mechanism regarding management and control of the affairs of the Company
post the approval of the Resolution Plan by the Adjudicating Authority and post the Transfer
Date
• Manner of implementation and supervision of the Proposed Transaction
• Declaration to the effect that the Resolution Plan is not in contravention of provisions
of the Applicable Law
• All conditions stated under Section 30 of IBC, 2016 and Regulation 38 of the CIRP
Regulations are satisfied to the effect and
• Resolution Plan conforms to the requirements as specified by the IBBI
The Applicant shall, in accordance with the IBC and the CIRP Regulations, in particular
Regulation 38 thereof, provide in the plan, all such details in the Resolution Plan, including but
not limited to those mentioned in this RFRP document, which shall be required to assess the
viability and feasibility of the plan by the Committee of Creditors.

Execution of Resolution Plan

To implement the plan, the IBC, under Regulation 38 (2), requires the resolution plan to clarify
the following points:
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• The plan's conditions and implementation timetable, such as - (1) timeline for payment
of CIRP costs, OC, dissident FC, and other stakeholders, if any; and (2) getting clearance
under the Competition Commission Act, RBI in regard to ECBs, and SEBI, depending on the
circumstance.
• Control and management of the CD's operations during its tenure.
• Adequate standards for supervising implementation, during which the Resolution
Applicant may or may not advise that the resolution plan be a part of the monitoring
committee.
To summarize, the v becomes applicable on the CD and its stakeholders, including the Central
Government, the State Government, or any other local authority to whom the CD owes any
statutory dues after the committee of creditors approves it under Section 30 (4) and the
Adjudicating Authority orders it under Section 31(2).

FTCIRP (Fast Track Corporate Insolvency Resolution Process)

Chapter IV (Sections 55 to 58) of the Insolvency and Bankruptcy Code, 2016 explicitly provides
for a fast-track corporate insolvency resolution process (CIRP) for certain eligible companies. The
fast-track CIRP is designed to expedite the insolvency process for smaller companies and enable
their efficient restructuring or liquidation. In simple words, this procedure aims to eliminate the
excess delay in the insolvency process of a small-scale company, which does not require a large
number of days for winding up.

WHO IS A CORPORATE DEBTOR IN A FTCIRP? (Section-55)

An application may be made in respect of the following corporate debtors-

1. A Small-sized company (as defined under Section 2 clause (85) of the Companies Act,
2013);
2. A startup other than a partnership firm (as defined by the Ministry of Commerce and
Industry);
3. An unlisted company with total assets of less than one crore rupees (as reported in the
financial statement of the preceding financial year).

TIME PERIOD FOR COMPLETION OF FTCIRP? (Section-56)

FTCIRP must be completed within 90 days from the insolvency commencement date and a further
extension of 45 days can be granted by the NCLT only once, by a vote of 75% of the Committee
of Creditors (CoC).

HOW FTCIRP IS INITIATED? (Section-57)

To initiate a fast-track CIRP, an application shall be made filed by a creditor (including both
financial as well as operational creditors) or a corporate debtor and the following documents must
be annexed-
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• Proof of the existence of default upheld by the records available with the information
utility.
• Any such other information specified by the Board.

PROCEDURE DURING FTCIRP? (Section-58)

Step– I- Filing of an application for initiating FTCIRP as per section 57 of the Code.

Step– II- Appointment of an IRP by the Adjudicating Authority.

Step– III- Public Announcement made by the IRP within three days of his appointment.

Step– IV- Submission of claims of all, within 10 days of the appointment of IRP and verification
of the submitted claims within 7 days of submission of the last claim.

Step-V- Formation of Committee of Creditors (CoC) and meetings are conducted by the
Resolution Professional.

Step-VI- Appointment of a Registered Valuer within 7 days of appointment of RP, for determining
the fair value for the assets of CD.

Step– VII- Formation of a Resolution Plan.

Step-VIII- Submission and Approval of the Resolution Plan by the Adjudicating Authority.

CONCLUSION:

The concept of fast-track corporate insolvency resolution process has been introduced in
the Insolvency and Bankruptcy Code, 2016 to skip the long-lasting legal battles with various courts
and to fasten the insolvency resolution process of small-sized firms, which does not require a large
number of days for completing their insolvency process. The best thing about FTCIRP is that the
procedure followed is the same as a regular CIRP but it is revved to wind up in a shorter span of
time.

An overview of Cross-Border Insolvency in India

INTRODUCTION
The rapid growth of technology, trade, and the corporate world has resulted in the rising number
of multinational entities eventually creating a borderless relation among countries and
businesses.
In the present times, almost every country has trade relations extending beyond one jurisdiction.
Having a presence in various jurisdictions also results in having creditors and debtors situated at
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various such locations. This makes the insolvency process including overlapping of different
laws and proceedings, a complicated process.
However, the extent to which the domestic laws coincide with the foreign regulation pertaining
to insolvency is a question open for consideration.
What is cross- border insolvency?
When an insolvent debtor has credit and/or debtors in more than one jurisdiction i.e. in different
countries, this circumstance is referred to as cross-border insolvency or international insolvency.
In instances of domestic insolvency proceedings, different stages such as identification of the
assets of the debtor, identification of credits and the due payable to them are done by the
Insolvency Professional whereby, based on the priority rule, the claims are settled post the
approval from the Adjudicatory Authority.
The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced as the primary legislation
governing insolvency and bankruptcy in India. Even though IBC has made progress in the
harmonization of the insolvency process in India, it does not stipulate sufficient procedure for the
regulation of cross-border insolvency proceedings.
In the meanwhile, the Ministry of Corporate Affairs (MCA) through its Insolvency Law
Committee on Cross-Border Insolvency (ILC) assessed the implementation of the Code. Since
the current insolvency framework is not at par with the Global Standards, the ILC in its report
suggested re-evaluating the current insolvency framework and adopting the United Nations
Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border
Insolvency, 1997 (Model Law) to resolve the concerns relating to cross-border insolvency in
India.
LEGAL FRAMEWORK GOVERNING CROSS- BORDER INSOLVENCY IN INDIA
The process pertaining to cross-border insolvency is primarily focused on regulating the
insolvency proceedings that operate beyond the ambit of domestic jurisdiction and the
constraints involved in the same.
The following are the aspects involved in cross-border insolvency:

• Protection of interests of the domestic and foreign creditors to be at par;

• Value of the assets of a debtor located in different jurisdictions to be safeguarded;

• Uniformity in the insolvency law and practices of different jurisdictions;

• Coordination and cooperation amongst Courts and other Judicial Authorities in various
jurisdictions and the domestic laws applicable therein.
Section 234 and 235 of IBC
IBC provides two provisions that assist in cross-border insolvency disputes i.e. Section
234 and Section 235.
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Section 234 of the IBC empowers the Central Government to enter into bilateral agreements with
foreign jurisdiction in order to resolve the issues of cross-border insolvency.
Section 235 on the other hand, empowers the Adjudicating Authority to issue letters of request
on Courts of the country with which the bilateral agreement has been entered into under Section
234 with an aim to address the fate of assets of the corporate debtors which are located outside
India.
Although bilateral agreements are a time-consuming, expensive, and not conclusive source of
reliance due to the multiple layers of negotiation involved, these provisions at least shine a light
on the issue of cross-border insolvency in IBC.
Balancing competing clauses of different treaties entered into with separate jurisdictions due to
the presence of assets of the corporate debtor’s assets in multiple locations could be one of the
most cumbersome issues to be addressed by the adjudicating authority.
Through its Report in March 2018, the ILC accepted the fact that the present provisions i.e.
Section 234 and 235 of the IBC fail to provide a comprehensive framework to address cross-
border issues.
Hence, adopting the base from the Model law seems to be a fair solution since the complexities
involved in the cross-border regime required in-depth study for adopting the Model law in India
as well.
UNCITRAL MODEL LAW ON CROSS-BORDER INSOLVENCY, 1997
The Model Law stipulates the legislative guidance for states on cross-border insolvency. The
UNCITRAL Model Law has been strongly recommended for providing a wide-ranging solution
for resolving cross-border insolvency issues. The World Bank has acknowledged the
international aspects of insolvency proceedings and has observed that the laws for international
insolvency should provide for rules of with respect to choice of law, jurisdiction, recognition of
foreign judgments and cooperation among the Courts of various countries.
The International Monetary Fund (IMF) is another body that encourages the adoption of the
Model Law in order to provide for an effective means of reducing the difficulties faced in cross-
border disputes thereby achieving cooperation and coordination amongst Courts and concerned
authorities in different jurisdictions.
The Model Law is governed by the following four principles:
1. Access
The objective of the Model Law is to provide direct access to domestic courts to the foreign
creditors and/or professionals thereby enabling them to participate in or commence the
insolvency proceedings against any concerned debtor.
2. Recognition
The Model Law provides recognition of foreign proceedings in Domestic Courts of any country
and enables the Domestic Courts to determine the relief to be granted in accordance with the
foreign proceedings.
3. Cooperation
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Another objective of the Model Law is to provide for bringing about effective cooperation
between Insolvency Professionals and Courts of various jurisdictions and to ensure coordination
so as to efficiently manage the conduct of concurrent proceedings in different jurisdictions.
4. Coordination
The aim of the Model Law seems to be to assist countries to mold their insolvency laws in a
modern, harmonized and fair framework so as to address the instances of cross-border
insolvency more effectively. However, the Model Law respects the differences in domestic laws
and primarily focuses on improving cooperation and coordination between countries, instead of
attempting to unify the domestic laws.

DRAFT PART Z
With an aim to address the limitations of the prevailing cross-border insolvency mechanism, or
the lack thereof, India has released a set of draft guidelines containing a specific chapter i.e. Part
Z (the Draft chapter) on cross-border insolvency.
The Model Law is the basis of the Draft. The Draft guidelines were recommended by the ILC
vide its Report submitted on 16.10.2018.
Once the need for adopting the Model law was felt, blending the provisions of the legislation
along with the Indian framework began and resulted into the birth of Draft Part Z subordinate
legislation of which was recommended by the Cross-border Insolvency Rules/ Regulation
Committee (CBIRC).
Highlights of the Draft Chapter:

• The Draft Chapter is applicable only to the corporate debtors and is not extended to
personal insolvency or individual debtors.

• The Draft Chapter is applicable only to those countries who have adopted the Model Law
in their domestic legislation.

• The Draft Chapter determines the Centre of Main Interests (COMI). According to
Section 14 of the Draft Chapter, it is presumed that the COMI for a corporate debtor is in
its registered office subject to the condition that the registered office the corporate debtor
has not been moved to another jurisdiction within three months prior to the
commencement of the insolvency proceedings.

• The Draft Chapter provides for two types of foreign proceedings i.e. Foreign Main
Proceedings and Foreign Non-main Proceedings.
“Foreign main proceeding refers to a foreign proceeding taking place in the State where the
corporate debtor has the centre of its main interests. Whereas, a foreign non-main proceeding
means a foreign proceeding, other than a foreign main proceeding, which takes place in a State
where the corporate debtor has an establishment.”
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JUDICIAL RECOGNITION- JET AIRWAYS DISPUTE [State Bank of India v. Jet

Airways (India) Ltd.]
In 2019, Jet Airways became the first Indian company to be involved in a cross-border ruling in
India. With the direction to conduct a “Joint Corporate Insolvency Resolution Process”, the
National Company Law Tribunal (NCLT) set a leading precedent for the coming cross-border
insolvency disputes.
An application under Section 7 of the IBC was filed by the State Bank of India against Jet
Airways, on the admission of which, the corporate insolvency resolution process began on
20.06.2019. The NCLT was aware of the commencement of insolvency proceedings against Jet
Airways in the Dutch Court with a bankruptcy administrator being appointed in the Netherland
for deciding the fate of assets of the Jet Airways located in The Netherlands. The Dutch
proceedings began when two European creditors filed a bankruptcy petition against Jet Airways
with a claim of unpaid dues amounting to INR 280 crores.
The Bankruptcy Administrator appointed by the Dutch Court moved the Mumbai Bench of
NCLT praying the Bench to recognize the insolvency proceedings which had commenced in The
Netherlands and stay the insolvency proceeding in India against Jet Airways since a competent
Court as per Article 2(4) of the Dutch Bankruptcy Act was adjudicating the matter in The
Netherlands.
Parallel proceedings in separate jurisdictions would detriment the interest of the creditors and
have a bearing on the restructuring of the assets and claims against the corporate debtor. The
NCLT, however, refused to stay the proceedings since Section 234 and 235 of the IBC which
covered cross-border insolvency had not been into effect, thereby barring the Bankruptcy
Administrator from participating in the Indian insolvency proceedings. The NCLT also refused
to recognize the proceedings which had commenced in The Netherlands and declared them void.
On an Appeal before the National Company Law Appellate Tribunal (NCLAT) filed by the
Bankruptcy Advisor, the Order passed by the NCLT was set aside on an assurance that alienation
of any offshore assets of Jet Airways shall not happen by the Bankruptcy Administrator.
Further, cooperation between the Bankruptcy Administrator and Resolution Professional was
directed by the NCLAT whereby the Bankruptcy Administrator shall be allowed to participate in
the meetings of the committee of creditors as well as an observer solely.
Pursuant to the decision, a cross-border insolvency protocol was devised by the Resolution
Professional and the Bankruptcy Administrator having considered the principles of the Model
Law. India was identified as the COMI and the Dutch proceedings happened as non-main centre
proceedings.
REMARKS
The need for having a robust framework addressing all niche issues pertaining to cross-border
insolvency was long felt. Although various committees have presented their reports on cross-
border insolvency, the present framework comprising of Section 234 and 235 IBC are inadequate
to cover all aspects of insolvency.
The Model Law is a constructive step taken towards building such a mechanism but it is also not
independent of its own shortcomings. In the Indian perspective, reciprocity is one of the biggest
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concerns amongst all apart from infrastructural inefficiencies in India for the implementation and
adoption of the Model Law.
However, subsequent to overcoming the obstacles and shortcomings, the Model Law may be
able to assure collaboration and communication across different jurisdictions, as well as
successfully resolve cross-border conflicts involving India.

……………………………………………

Module 4

Company Liquidation Process in India Under IBC

What Is Company Liquidation?

Company Liquidation is a process rather than a term. Liquidation is the procedure under which a
company is wound up. Company Liquidation under IBC may be
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1. Voluntary (where the Company is solvent) or

2. Compulsory (where the Company is insolvent).

The liquidator’s function is to convert the company’s assets into cash & cash equivalents and to
distribute the proceeds among the creditors to the extent possible. Any surplus is then distributed
among the members of the Company under liquidation.

Effect & Consequences Of Company Liquidation

• The moratorium implemented under section 14 of the IBC shall cease to have effect
from the day the National Company Law Tribunal (NCLT) passes such liquidation
order
• Subject to Section 52 of IBC, no suit or legal proceedings shall be instituted against
the corporate debtor. However, a lawsuit or legal proceeding may be initiated by the
liquidator only with the prior approval of the Adjudicating Authority, and on behalf
of the corporate debtor
• Under this section, the order of liquidation shall be a notice of discharge to the
corporate debtor’s officers, employees, and workers, except when the corporate
debtor’s business is carried out during the Company Liquidation process by the
Liquidator under IBC.

Company Liquidation Process & Steps In A Nutshell-

Stage I: Appointment of Liquidator

• Appointment of Liquidator (Section 34) who has submitted the written consent in
Form AA of Schedule II
• A public announcement needs to be made in Form B of Schedule II within five days
of the pronouncement of the order for liquidation to invite claims, which shall be
submitted inside 30 days from the liquidation initiation date
• Once the liquidation order passes, the resolution professional must do the filling of
CIRP-5

Stage II: Verification of Claims & Reporting

• Verification and acceptance of claims and appointment of Valuers.

• Preparation of Asset Memorandum and other reports-

• Asset Memorandum- To evaluate the assets of the CD and prepare a report within 75
days. (Section 35(1)(c), Reg 5(1), Reg 34)
• Progress Report- The reporting of the progress of the liquidation within 15 days
from the end of each quarter. (Sec. 35(1)(n))
• Preliminary Report- Report prepared by Regulation 13 to be submitted within 75
days. (Reg 2(1)(f) r.w. Reg 13)
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• First Progress report- The quarterly report under Regulation 15 to be submitted

within 15 days of the end of every quarter (Reg 2(1)(g) r.w. Reg 15).
• Subsequent Progress Report- In case the insolvency professional ceases to act as a
liquidator, then within 15 days from the date of cessation, submit the following
progress report.
• Sale Reports- To be enclosed with the Progress report after the sale of each asset
according to Reg 5(1) r.w. Reg 36.
• Minutes of consultation with the stakeholders – After every meeting, Minutes of
consultation with the stakeholders are to be circulated as per Reg 5(1) r.w. Reg 8.
• The Final Report, before distribution, is to be submitted within one year according to
Reg 5(1) r.w. Reg 45

Provide Copies of the reports and minutes to stakeholders in electronic or physical forms: on
application from stakeholders; receipt of the cost of making reports or minutes; receipt of a
confidentiality undertaking. (Reg 5(3))

Stage III- Distribution of proceeds

• The Liquidator shall form Liquidation Estate (subject to inclusions and

exclusions) and open a bank account in the name of the corporate debtor, followed by
the words “in liquidation,” in a scheduled bank, for the receiving the amounts due to
the CD and initiate the sale of assets.
• The liquidation process of any CD under the IBC Code shall be completed within one
year from the liquidation commencement date, even if applications for avoidance
transactions are pending.
• The liquidator shall not sell any property, whether immovable, movable or any
actionable claims of the corporate debtor under liquidation, to any person who is
ineligible under section 29A of the Code to become a resolution applicant.
• The proceeds from realisation shall be distributed by the Liquidator within 90 Days
(earlier six months) from the receipt of the amount among the stakeholders.
(Regulation 42)
• The liquidator shall distribute the assets per the waterfall mechanism (Section 53) after
the filing of stakeholders and the asset memorandum with the Adjudicating Authority.

Stage IV- Dissolution of Corporate Debtor under IBC

• After liquidating all the corporate debtor’s assets, the Liquidator must file an
application before the Adjudicating Authority for the corporate debtor’s dissolution
under Section 54 of the Code.
• If the Liquidator believes that there are insufficient realisable assets to cover the cost
of the company liquidation and further inquiry is not necessary into the affairs of the
corporate debtor, they may apply for an early dissolution (Regulation 14 of the
Company Liquidation Regulations) at any time after the initial report is submitted.
• Orders for dissolution should be filed with the appropriate authority where the CD is
registered.
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Laws Governing Company Liquidation Of A Company

Adjudicating Authority may approve the Resolution Plan under section 31 (1) or pass an order for
liquidation of the Corporate Debtor (CD) according to the provisions of Section 33 (Liquidation
Commencement Date) (i.e., Chapter III of Part II of IBC) in the following cases: –

• Where no application is filed with the Adjudicating Authority (NCLT) seeking

approval of the resolution plan within the prescribed timeline (180 to 270 days,
extendable to 330 days, from admission)
• Where NCLT rejects the resolution plan for non-compliance
• Where the Committee of Creditors(CoC) decides to liquidate the CD before
confirmation of a resolution plan; or
• Where the CD contravenes, the terms agreed in the resolution plan approved by the
NCLT

The Section provides procedures for Company Liquidation which should be read in accordance
with the IBBI (Liquidation Process) Regulations, 2016 (herein after referred to as Company
Liquidation Regulations).

Conclusion
The Company Liquidation provided under the Insolvency and Bankruptcy Code, 2016 (IBC) is the
last resort since the whole, and the sole intention of the IBC is to keep the CD going concern and
revive it utilising corporate restructuring. The process is time-bound, efficient, and under the
supervision of the NCLT. However, the process of Company Liquidation and winding up under
IBC is big-budgeted & inordinately lengthy and results in almost complete erosion of asset value.
The liquidator can explore any one of the following options as provided in the Company
Liquidation Regulations to keep the corporate debtor as a going concern even if the Liquidation
order is passed.

• Compromise or Arrangements as per Regulation 2B of Company Liquidation

Regulations.
• Sale of Corporate Debtor as a going concern per Regulation 32(e) of Company
Liquidation Regulations.
• Sale of Business of Corporate Debtor as a going concern per Regulation 32(f) of
Company Liquidation Regulations.

Voluntary Liquidation Under IBC 2016

In India, there are two ways in which a company may be liquidated: Compulsory and Voluntary.

Voluntary liquidation under IBC, 2016 allows corporate entities to liquidate themselves at
will. Voluntary Liquidation provided under IBC, 2016, is a quick, efficient, a prescribed timely
 lOMoARcPSD|25785379

process which ensures that the assets of the Corporate Persons does not lose its value and involves
speedy realization to the stakeholders.

Laws Governing Voluntary Liquidation Of A Company

Section 255 in conjunction with Schedule XI of Insolvency and Bankruptcy Code, 2016 eliminates
the need for Section 304 to 325 of The Companies Act, 2013. As a result, the Insolvency and
Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 were notified on
1st April 2017. Finally, Section 59 under Chapter V in IBC covers “Voluntary Liquidation
procedures for Corporate Persons”.

This process is available to companies that have not committed any default and want to liquidate
themselves. The Voluntary Liquidation provided under the Insolvency and Bankruptcy Code,
2016, is a quick, efficient, a prescribed timely process which ensures that the assets of the
Corporate Persons does not lose its value and involves speedy realization to the stakeholders.

What Is Voluntary Liquidation Under IBC, 2016

The Code mandates 3 (three) major conditions for a Corporate Person which intends to liquidate
itself voluntarily:

• The Corporate Person has not committed any default

• Declaration from majority of Directors verified by an Affidavit that the Corporate
Person has no debts or will be able to pay its debts in full from the proceeds of assets
to be sold in the liquidation process and lastly,
• That the Corporate Person is not being liquidated to defraud any person.

Within 4 (four) weeks of the declaration specified in Point No. b hereinabove, majority of the
Directors or Partners, as the case may be, shall pass a special resolution (SR) liquidating the
Corporate Person and appoint an Insolvency Professional to act as the Liquidator.

Where the Corporate Person owes any debt to any person, creditors representing two-third
(2/3rd) in value of the debts of the Corporate Person shall approve the special resolution (SR)
passed by the Directors, Partners for liquidation of the Corporate Person.

Effect:
Once the Liquidation is commenced, the corporate person shall cease to carry on its business,
unless required for beneficial winding up of the Corporate Person and the corporate person shall
continue until it is dissolved.
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Voluntary Liquidation Process & Steps In A Nutshell

• Public Announcement by the Liquidation calling claims from creditors of the

Corporate Persons
• Collation, Verification of the claims and thereby preparation of the list of
Stakeholders by the Liquidator
• Liquidator to value and sell the assets of the Corporate Persons
• Liquidator to realize uncalled capital or unpaid capital contribution from any
contributory to Corporate Person
• Liquidator to open a bank account in the name of Corporate Person followed by “in
voluntary liquidation” for receipt of all monies due to the Corporate Person.
• Liquidator to distribute the proceeds from realization within 30 days from the receipt
of the amount to the Stakeholders
• Liquidator to deduct the Liquidation Cost before distribution of the proceeds to
Stakeholders
• An asset that cannot be sold readily due to its peculiar nature shall be distributed
amongst the Stakeholders
• Various Reporting to National Company Law Tribunal by the Liquidator as per the
prescribed timelines provided under the Liquidation Regulations:
o Preliminary Report
o List of Stakeholders
o Annual Status Report
o Minutes of consultations with Stakeholder
o Maintenance of Registers and Books of Accounts
o Maintenance of Receipts and Payments Account
o Final Report

• Liquidator to endeavor completion of Liquidation Process within 270 days from the
Liquidation Commencement Date
• Once the affairs of the Corporate Person have been completely wound up and its
assets are fully liquidated, then the Liquidator shall make an application along with
the Final Report to the National Company Law Tribunal for dissolution of the
Corporate Person.
• When the Hon’ble NCLT passes an order for Dissolution, the Corporate Person shall
stand dissolved.

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Module 5

Fresh start process

The procedure of a fresh start is codified in Chapter II of Part III of the code. Individuals and
partnership businesses can use the fresh start method to discharge their debts which are
 lOMoARcPSD|25785379

comparatively small and restart fresh with no liabilities. This procedure is available as an
alternative to insolvency and bankruptcy.
Who can Make an Application for a Fresh Start Process?
According to Section 80, IBC 2016, A debtor who is unable to pay his debts and who fulfills the
conditions required given in the act can file an application for a fresh start process. It may be
made by a debtor either personally or through a Resolution Professional.
Conditions to be fulfilled by the debtor to make an application for Fresh Start
It is provided under section 80(2), IBC, 2016:-
1. The gross annual income of the debtor does not exceed 60,000 rupees;
2. The aggregate value of the assets of the debtor does not exceed 20,000 rupees;

3. The aggregate value of the qualifying debts does not exceed 35,000 rupees;

4. He is not an undischarged bankrupt;

5. He does not own a dwelling unit, irrespective of whether it is encumbered or not;

6. A fresh start process, insolvency resolution process, or bankruptcy process is not subsisting
against him; and

7. No previous fresh start order under this Chapter II has been made in relation to him in the
preceding 12 months of the date of the application for fresh start.
Filing of application for Fresh start Process
If the debtor meets the above-mentioned requirements, he may apply for a fresh start. Now,
according to Section 81(3), IBC, 2016, the application for the fresh start process must be
completed in the appropriate format and accompanied by the fees set forth in the Code’s attached
rules. The application for a fresh start procedure must include the following annexures, which
must be accompanied by an affidavit:
1. A list of all debts owed by the debtor as of the date of the said application along with details
relating to the amount of each debt, interest payable thereon, and the names of the creditors
to whom each debt is owed.
2. The interest payable on the debts and the rate thereof is stipulated in the contract.
3. A list of security held in respect of any of the debts.
4. The financial information of the debtor and his immediate family up to 2 years prior to the
date of the application.
5. The particulars of the debtor’s personal details.
6. The reasons for making the application.
7. The particulars of any legal proceedings which, to the debtor’s knowledge have been
commenced against him.
8. The confirmation that no previous fresh start orders under the Chapter II have been made in
respect of the qualifying debts of the debtor in the preceding 12 months of the date of the
application.
Interim Moratorium
• As per Section 80(2), IBC, 2016, an Interim Moratorium is a period in which all legal
proceedings are deemed to have been stayed and creditors cannot initiate any legal action or
proceeding against such debts.
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• The interim Moratorium will start from the date of filing the application for a fresh start and
will be applicable till the date of admission or rejection of the application.
Appointment of resolution professional. (Section 82)
An application under section 80 is filed by the debtor through a Resolution Professional, under
Section 82(1)
• The Adjudicating Authority shall direct the Board within 7 days of the date of receipt of the
application and shall seek confirmation from the Board that there are no disciplinary
proceedings against the resolution professional who has submitted such an application.
• The Board shall communicate to the Adjudicating Authority in writing either the
confirmation or rejection of the appointment of the resolution professional who filed an
application and nominating another resolution professional suitable for the fresh start
process.
An application under section 80 is filed by the debtor himself and not through the Resolution
Professional under Section 82(3)
• The Adjudicating Authority shall direct the Board within 7 days of the date of the receipt of
an application to nominate a resolution professional for the fresh start process.
• The Board shall nominate a resolution professional within 10 days of receiving the direction
issued by the Adjudicating Authority.
• The Adjudicating Authority shall by order appoint the resolution professional recommended
or nominated by the Board.
• A resolution professional appointed by the Adjudicating Authority shall be provided a copy
of the application for a fresh start.
Examination of application by resolution professional (Section 83)
• The resolution professional shall examine the application within 10 days of his appointment,
and submit a report to the Adjudicating Authority, either recommending acceptance or
rejection of the application.
• The report shall contain the details of the amounts mentioned in the application which in the
opinion of the resolution professional are qualifying debts and liabilities eligible for
discharge.
• The resolution professional may call for such further information or explanation in
connection with the application as may be required. The debtor or any other person, as the
case may be, shall furnish such information or explanation within 7 days of receipt of the
request.
• The resolution professional shall presume that the debtor is unable to pay his debts at the
date of the application if:
o In his opinion, the information supplied in the application indicates that the debtor is
unable to pay his debts and he has no reason to believe that the information supplied is
incorrect or incomplete and
o He has reason to believe that there is no change in the financial circumstances of the
debtor since the date of the application enabling the debtor to pay his debts.
1.

• The resolution professional shall reject the application, if in his opinion:

o The debtor does not satisfy the conditions specified or
o The debts disclosed in the application by the debtor are not qualifying debts or
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o The debtor has deliberately made a false representation or omission in the application or
with respect to the documents or information submitted.
• The resolution professional shall record the reasons for recommending the acceptance or
rejection of the application in the report to the Adjudicating Authority and shall give a copy
of the report to the debtor.
Admission or Rejection of the application by Adjudicating Authority
• As per Section 84, IBC, 2016, The Adjudicating Authority may within 14 days from the date
of submission of the report by the resolution professional, pass an order to either admit or
reject the application.
• The order passed accepting the application shall state the amount which has been accepted as
qualifying debts by the resolution professional and other amounts eligible for discharge for
the purposes of the fresh start order.
• A copy of the order passed by the Adjudicating Authority along with a copy of the
application shall be provided to the creditors mentioned in the application within 7 days of
the passing of the order.
Effect of admission of application
• As per section 85, IBC, 2016, on the date of admission of the application, the moratorium
period shall commence in respect of all the debts.
During the moratorium period
• Any pending legal action or legal proceeding in respect of any debt shall be deemed to have
been stayed, and the creditors shall not initiate any legal action or proceedings in respect of
any debt.
• Also, During the moratorium period, the debtor shall:
o Not act as a director of any company, or directly or indirectly take part in or be
concerned in the promotion, formation, or management of a company;
o Not dispose of or alienate any of his assets.
o Inform his business partners that he is undergoing a fresh start process.
o Be required to inform prior to entering into any financial or commercial transaction of
such value as may be notified by the Central Government, either individually or jointly,
that he is undergoing a fresh start process.
o Disclose the name under which he enters into business transactions if it is different from
the name in the application admitted under section 84;
o Not to travel outside India except with the permission of the Adjudicating Authority.
o The moratorium ceases to have an effect at the end of the period of 180 days beginning
with the date of admission unless the order admitting the application is revoked.
Objections by the creditor and their examination by Resolution Professionals.
• As per Section 86, Any creditor mentioned in the order of the Adjudicating Authority to
whom a qualifying debt is owed may, within a period of 10 days from the date of receipt of
the order object only on the following grounds,
o The inclusion of debt as a qualifying debt or
o The incorrectness of the details of the qualifying debt specified.
1.

• A creditor may file an objection by way of an application to the resolution professional. The
resolution professional shall examine the objections and either accept or reject the
objections, within 10 days of the date of the application.
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• The resolution professional may examine any matter that appears to him to be relevant to the
making of a final list of qualifying debts. Once objections are examined the resolution
professional shall prepare an amended list of qualifying debts for seeking a discharge order.
Application against decision of Resolution Professional
• As per Section 87, IBC, 2016, The debtor or the creditor who is aggrieved by the action
taken by the resolution professional may, within 10 days of such decision, make an
application to the Adjudicating Authority challenging such action on any of the following
grounds,
o That the resolution professional has not given an opportunity to the debtor or the creditor
to make a representation.
o That the resolution professional colluded with the other party in arriving at the decision.
o That the resolution professional has not complied with the requirements of the section.
• The Adjudicating Authority shall decide the application within 14 days of such application,
and make an order as it deems fit.
Replacement of Resolution Professional
• As per Section 89, IBC, 2016, where the debtor or the creditor is of the opinion that the
resolution professional appointed is required to be replaced, he may apply to the
Adjudicating Authority for the replacement of such a resolution professional.
• The Adjudicating Authority shall within 7 days of the receipt of the application make a
reference to the Board for replacement of the resolution professional. The Board shall,
within 10 days of the receipt of a reference from the Adjudicating Authority, recommend the
name of an insolvency professional to the Adjudicating Authority against whom no
disciplinary proceedings are pending.
• On being satisfied by the recommendation of the board the adjudicating authority shall
appoint the suggested Insolvency professional as resolution professional to continue forward
the fresh start process.
Revocation of order admitting the application
• As per Section 91, IBC, 2016, The resolution professional may submit an application to the
Adjudicating Authority seeking revocation of its order on the following grounds,
o If due to any change in the financial circumstances of the debtor, the debtor is ineligible
for a fresh start process; or
o Non-compliance by the debtor with the restrictions imposed off.
o If the debtor has acted in a mala fide manner and has wilfully failed to comply with the
provisions of this Chapter.
• Within 14 days of receiving the application, the Adjudicating Authority may admit or reject
the application by order. On the passing of the order admitting the application, the
moratorium and the fresh start process shall cease to have an effect.
Discharge order.
• As per Section 92, IBC, 2016, At least 7 days before the moratorium period ends, the
resolution professional must compile a final list of qualified debts and submit it to the
Adjudicating Authority.
• At the end of the moratorium period, the Adjudicating Authority shall issue a discharge order
discharging the debtor from the qualifying debts.
• From the date of the application until the date of the discharge order, the Adjudicating
Authority shall discharge the debtor from all the penalties, interest including punitive
 lOMoARcPSD|25785379

interest, and any other sums owing under any contract in respect of the qualifying debts but
not from his pending debts.

Bankruptcy for Individuals and Partnership firms | IBC

Background
Part III of Insolvency and Bankruptcy Code, 2016 (Insolvency Code, 2016) [sections 79 to
187] deal with provisions relating to Bankruptcy for Individuals and partnership firms.

These provisions will replace Present Presidency Towns Insolvency Act, 1909 and
Provincial Insolvency Act, 1920.

The provisions in the Insolvency Code in respect of insolvency resolution and Bankruptcy
for Individuals and partnership firms have been notified and made effective from 1-12-
2019 only for personal guarantors of corporate debtors (not for other individuals and
partnership firms).

These provisions have not been made applicable to other individuals and partnership
firms (position as in May, 2021).

Provisions of bankruptcy was made applicable to personal guarantors of corporate

debtors w.e.f. 23-11-2017 – Section 2 of Insolvency Code was amended w.e.f. 23-11-2017
to provide that the Code will apply to personal guarantors of corporate guarantors as a
category different from individuals.

The intention was make the provisions relating to Insolvency Resolution and Bankruptcy
for individuals and partnership firms (part III of Code) applicable to personal guarantors
even if the part III was not made applicable immediately to other individuals and
partnership firms.

The provisions could apply when recovery from personal guarantor was possible.
However, there was no provision where the personal guarantor himself required
insolvency resolution or bankruptcy process. Now, these provisions have been made w.e.f.
1-12-2019.
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1.1 Overview of the provisions

Part III of Insolvency Code, 2016 deals with insolvency resolution and liquidation for
individuals and firms. For individuals and firms, there are two distinct processes – fresh
start and insolvency resolution. These are followed by bankruptcy order.

Debt Recovery Tribunal (DRT) will be adjudicating authority and DRAT will be appellate
authority for individuals and firms.

The ‘fresh start’ will apply to individuals whose income is below

Rs. 5,000 per month and debt amount does not exceed Rs. 35,000. In their case, work of
insolvency resolution will be handled mostly by ‘insolvency professional’. Appellate
Authority (DRT) will have only supervisory role.

This amount is so meagre that there will be very few individuals who will be eligible and in
fact, for them, even this process is beyond their means.

In case of other individuals and firms, the process is similar to that applicable to corporate
persons.

The process will be handled by ‘resolution professional’ under supervision of ‘Adjudicating

Authority’.

Insolvency Resolution Process will be initiated. Efforts will be made to finalise ‘repayment
plan’ with concurrence of debtor and committee of creditors.

If the efforts succeed and repayment plan is successfully implemented, the individual or
firm will get a discharge order.

If efforts fail, the person will be declared ‘bankrupt’. The resolution professional will take
over estate of the bankrupt. He will sell or dispose it off and satisfy repayments of creditors
to the extent possible.

After that, the bankrupt will get a ‘discharge order’.

The discharge order will be registered with Board (IBBI) in a register maintained under
section 196 of Insolvency Code, 2016.

2. Adjudicating Authority
In relation to insolvency matters of individuals and firms, the Adjudicating Authority shall
be the Debt Recovery Tribunal (DRT) having territorial jurisdiction over the place where
the individual debtor actually and voluntarily resides or carries on business
or personally works for gain – section 179(2) of Insolvency Code, 2016.
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“Adjudicating Authority” means the Debt Recovery Tribunal constituted under sub-section
(1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 –
section 79(1) of Insolvency Code, 2016.

However, in case of personal guarantors to corporate debtors, NCLT will be ‘adjudicating

authority’ as per section 60 of Insolvency Code.

2.1 Powers of Adjudicating Authority (DRT)

The Debt Recovery Tribunal shall have overriding jurisdiction to entertain or dispose of –
(a) any suit or proceeding by or against the individual debtor (b) any claim made by or
against the individual debtor (c) any question of priorities or any other question whether
of law or facts, arising out of or in relation to insolvency and bankruptcy of the individual
debtor or firm under this Code – section 179(2) of Insolvency Code, 2016.

Firm – “Firm” means a body of individuals carrying on business in partnership whether or

not registered under section 59 of the Indian Partnership Act, 1932 (9 of 1932) – section
79(16) of Insolvency Code, 2016.

Claim – “Claim” means— (a) a right to payment, whether or not such right is reduced to
judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured (b) right to
remedy for breach of contract under any law for the time being in force, if such breach
gives rise to a right to payment, whether or not such right is reduced to judgment, fixed,
matured, un-matured, disputed, undisputed, secured or unsecured – section 3(6) of
Insolvency Code, 2016 [definition notified and effective from 1-11-2016].

2.2 Period of moratorium to be excluded for purpose of limitation

While computing the period of limitation specified for any suit or application in the name
and on behalf of a debtor, the period during which there was moratorium shall be excluded
– section 179(3) of Insolvency Code, 2016.

3. Civil court not to have jurisdiction

Civil court or any authority shall not have jurisdiction to entertain any suit or proceedings
in respect of any matter on which DRT or DRAT have jurisdiction under Insolvency Code,
2016 – section180(1) of Insolvency Code, 2016.

No injunction shall be granted by any court, Tribunal or authority in respect of any action
taken, or to be taken, in pursuance of any power conferred on DRT or DRAT under the
Insolvency Code, 2016 – section180(2) of Insolvency Code, 2016.

4. Appeal against order of DRT

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Appeal against order of DRT shall be filed with DRAT (Debt Recovery Appellate Tribunal)
within 30 days. This period can be extended by further 15 days by DRAT if sufficient cause
is shown – section 181 of Insolvency Code, 2016.

5. Appeal to Supreme Court

An appeal from an order of DRAT can be filed before Supreme Court within 45 days only on
question of law. This period can be extended by further 15 days by Supreme Court if
sufficient cause is shown – section 182 of Insolvency Code, 2016.