Contents at a glance About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface to the second edition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Foreword to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxix Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xli PART I PRELIMINARY Chapter 1
Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATEÂ PERSONS
Chapter 1
Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Chapter 2
Corporate Insolvency Resolution Process. . . . . . . . . . . . . . . . . . . . . . . 65
Chapter 3
Liquidation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Chapter 4
Fast Track Corporate Insolvency Resolution Process. . . . . . . . . . . . . 187
Chapter 5
Voluntary Liquidation of Corporate Persons. . . . . . . . . . . . . . . . . . . . 193
Chapter 6
Adjudicating Authority for Corporate Persons . . . . . . . . . . . . . . . . . . 207
Chapter 7
Offences and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
PART III INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS Chapter 1
Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
Chapter 2
Fresh Start Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
Chapter 3
Insolvency Resolution Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Chapter 4
Bankruptcy Order for Individuals and Partnership Firms. . . . . . . . . . 277
Chapter 5
Administration and Distribution of the Estate of the Bankrupt. . . . . . 291 xiii
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Chapter 6
Adjudicating Authority for Individuals and Partnership Firms. . . . . . 311
Chapter 7
Offences and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
PART IV REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES ANDÂ INFORMATION UTILITIES Chapter 1
Insolvency and Bankruptcy Board of India. . . . . . . . . . . . . . . . . . . . . 321
Chapter 2
Powers and Functions of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . 333
Chapter 3
Insolvency Professional Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
Chapter 4
Insolvency Professionals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Chapter 5
Information Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Chapter 6
Inspection and Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Chapter 7
Finance, Accounts and Audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 PART V MISCELLANEOUS
Chapter 1
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405 ANNEXURES
Annexure I
The Insolvency and Bankruptcy Code, 2016. . . . . . . . . . . . . . . . . . . . 425
Annexure II
Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599
Annexure III Relevant Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895 Annexure IV Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 Annexure V
xiv
Press Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925
Table of contents About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface to the second edition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Preface to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Foreword to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxix Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xli PART I PRELIMINARY Chapter 1
1.1 1.2 1.3
1.4
Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Objective of Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Extent and applicability of the Code (Sections 1 and 2). . . . . . . . . . . . . . . . . 5 Short title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3.1 1.3.2 Extent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Commencement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3.3 Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.3.4 General definitions (Section 3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.4.1 1.4.2 Bench. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Bye-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4.3 1.4.4 Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Chairperson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4.5 1.4.6 Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Corporate person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.7 1.4.8 Corporate debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Core services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.9 1.4.10 Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.11 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.12 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.13 Financial information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.14 Financial institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1.4.15 Financial product. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 xv
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1.4.16 1.4.17 1.4.18 1.4.19 1.4.20 1.4.21 1.4.22 1.4.23 1.4.24 1.4.25 1.4.26 1.4.27 1.4.28 1.4.29 1.4.30 1.4.31 1.4.32 1.4.33 1.4.34 1.4.35 1.4.36 1.4.37
Financial service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Financial service provider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Financial sector regulator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Insolvency professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Insolvency professional agency. . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Information utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Person resident in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Person resident outside India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Prescribed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Secured creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Security interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Specified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Transfer of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Workman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Residuary clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Chapter 1 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.2 Applicability of Part II of the Code (Section 4). . . . . . . . . . . . . . . . . . . . . . . 25 1.3 Key definitions (Section 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 1.3.1 Unless the context otherwise requires. . . . . . . . . . . . . . . . . . . . . . 25 Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.3.2 1.3.3 Auditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Chapter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.3.4 1.3.5 Constitutional document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Corporate applicant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 1.3.6 1.3.7 Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 1.3.8 Financial creditor and financial debt. . . . . . . . . . . . . . . . . . . . . . . 37 1.3.9 Financial position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 1.3.10 Information memorandum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 xvi
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1.3.11 1.3.12 1.3.13 1.3.14 1.3.15 1.3.16 1.3.17 1.3.18 1.3.19 1.3.20 1.3.21 1.3.22 1.3.23 1.3.24 1.3.25 1.3.26 1.3.27 Chapter 2
2.1 2.2
2.3
Initiation date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Insolvency commencement date . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Insolvency resolution process costs. . . . . . . . . . . . . . . . . . . . . . . . 44 Insolvency resolution process period. . . . . . . . . . . . . . . . . . . . . . . 46 Interim finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Liquidation cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Liquidation commencement date. . . . . . . . . . . . . . . . . . . . . . . . . . 48 Liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Operational creditor and operational debt. . . . . . . . . . . . . . . . . . . 49 Personal guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Resolution applicant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Resolution plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Voting share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Corporate Insolvency Resolution Process. . . . . . . . . . . . . . . . . . . . . 65
Corporate insolvency resolution process (Section 6). . . . . . . . . . . . . . . . . . . 65 By whom and when can corporate insolvency resolution 2.1.1 process be initiated?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Initiation of corporate insolvency resolution process by financial creditors (Section 7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Default in payment of a financial debt. . . . . . . . . . . . . . . . . . . . . . 65 2.2.1 Default towards any financial creditor. . . . . . . . . . . . . . . . . . . . . . 67 2.2.2 2.2.3 Application by financial creditor. . . . . . . . . . . . . . . . . . . . . . . . . . 68 Notice to corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2.2.4 2.2.5 Existence of default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Directory and mandatory time period . . . . . . . . . . . . . . . . . . . . . . 74 2.2.6 2.2.7 Admission/rejection of the application of the financial creditor for initiating the corporate insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Commencement of corporate insolvency resolution process. . . . . 76 2.2.8 2.2.9 Withdrawal of application for initiating the corporate insolvency resolution process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 2.2.10 Key events in the corporate insolvency resolution process initiated by a financial creditor. . . . . . . . . . . . . . . . . . . . . 80 Initiation of corporate insolvency resolution process by operational creditors (Sections 8 and 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 2.3.1 Default in payment and demand notice (Section 8). . . . . . . . . . . . 80 xvii
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2.3.2 2.3.3 2.3.4
Application by the operational creditor (Section 9). . . . . . . . . . . . 86 Notice to corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Admission/rejection of the application of the operational creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 2.3.5 Directory and mandatory time period . . . . . . . . . . . . . . . . . . . . . . 93 Commencement of corporate insolvency resolution process. . . . . 93 2.3.6 2.3.7 Withdrawal of application for initiating the corporate insolvency resolution process by operational creditor. . . . . . . . . . 93 2.3.8 Key events in the corporate insolvency resolution process initiated by an operational creditor. . . . . . . . . . . . . . . . . . 95 2.4 Initiation of corporate insolvency resolution process by the corporate applicant (Section 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 2.4.1 Default in payment of financial debt/operational debt. . . . . . . . . . 96 Application under Sick Industrial Companies (Special 2.4.2 Provisions) Repeal Act, 2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Application by corporate applicant. . . . . . . . . . . . . . . . . . . . . . . . 97 2.4.3 Notice to financial creditors and operational creditors . . . . . . . . . 97 2.4.4 2.4.5 Admission/rejection of the application . . . . . . . . . . . . . . . . . . . . . 98 Directory and mandatory time period. . . . . . . . . . . . . . . . . . . . . . . 98 2.4.6 Commencement of corporate insolvency resolution process. . . . . 98 2.4.7 Withdrawal of application for initiating the corporate 2.4.8 insolvency resolution process by operational creditor. . . . . . . . . . 99 Key events in the corporate insolvency resolution 2.4.9 process initiated by the corporate applicant. . . . . . . . . . . . . . . . . . 99 2.5 Interim arrangement for filing procedure under NCLT Rules. . . . . . . . . . . 100 2.6 Persons not entitled to initiate the corporate insolvency resolution process (Section 11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Persons not entitled to initiate the corporate insolvency 2.6.1 resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 2.7 Time limit for completion of the corporate insolvency resolution process (Section 12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Time-limit for completion of corporate insolvency 2.7.1 resolution process is mandatory. . . . . . . . . . . . . . . . . . . . . . . . . . 101 2.8 Moratorium, public statement and appointment of interim resolution professional (Section 13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101 2.8.1 “After the admission” or “at the time of admission”?. . . . . . . . . 102 2.9 Moratorium (Section 14). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 2.9.1 Recovery and enforcement action is only prohibited against the properties of the corporate debtor. . . . . . . . . . . . . . . 105 2.10 Public announcement (Section 15). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108 xviii
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2.11 Appointment of interim resolution professional (Section 16). . . . . . . . . . . 109 2.11.1 Applications by financial creditors and corporate applicants . . . 109 2.11.2 Applications by operational creditors . . . . . . . . . . . . . . . . . . . . . 109 2.11.3 Written confirmation from the proposed interim resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 2.11.4 Term of the interim resolution professional. . . . . . . . . . . . . . . . . 110 2.12 Powers and duties of the interim resolution professional . . . . . . . . . . . . . . 112 2.12.1 Management of the affairs of the corporate debtor by the interim resolution professional (Section 17). . . . . . . . . . . . . . . . 112 2.12.2 Duties of the interim resolution professional (Section 18). . . . . 114 2.12.3 Personnel of corporate debtor to extend cooperation to the interim resolution professional in managing the affairs of the corporate debtor (Section 19). . . . . . . . . . . . . . . . . 123 2.12.4 Management of operations of the corporate debtor (Section 20). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 2.12.5 Committee of creditors (Section 21). . . . . . . . . . . . . . . . . . . . . . 125 2.13 Appointment of insolvency resolution professional (Section 22). . . . . . . . 128 2.13.1 Eligibility to be appointed as resolution professional. . . . . . . . . 128 2.13.2 Appointing the interim resolution professional as the resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 2.13.3 Appointing a different resolution professional . . . . . . . . . . . . . . 130 2.14 Resolution professional to conduct corporate insolvency resolution process (Section 23). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 2.15 Meeting of the committee of creditors (Section 24) . . . . . . . . . . . . . . . . . . 131 2.15.1 When and how often must meetings be convened?. . . . . . . . . . . 131 2.15.2 Notice of meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 2.15.3 Participants of a committee of creditors meeting . . . . . . . . . . . . 133 2.15.4 Quorum at the meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 2.15.5 Participation by video conferencing . . . . . . . . . . . . . . . . . . . . . . 134 2.15.6 Conduct of meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 2.15.7 Minutes of meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 2.15.8 Voting share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136 2.16 Duties of the resolution professional (Section 25). . . . . . . . . . . . . . . . . . . . 137 2.17 Avoidance of transactions not to affect corporate insolvency resolution process (Section 26) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 2.18 Right to replace resolution professional (Section 27) . . . . . . . . . . . . . . . . . 138 2.19 Resolution professional to act with the approval of the committee of creditors (Section 28). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 2.19.1 Prior approval of the committee of creditors. . . . . . . . . . . . . . . . 140
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2.19.2
2.20
2.21
2.22
2.23
Actions of the resolution professional without approval of the committee of creditors are void. . . . . . . . . . . . . . . . . . . . . 141 Preparation of information memorandum (Section 29). . . . . . . . . . . . . . . . 141 2.20.1 Preliminary information memorandum. . . . . . . . . . . . . . . . . . . . 142 2.20.2 Completing the information memorandum. . . . . . . . . . . . . . . . . 143 2.20.3 Persons entitled to information memorandum. . . . . . . . . . . . . . . 143 2.20.4 Confidentiality undertaking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 2.20.5 Further information [Regulation 36(3) of the CIRP Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Resolution plan (Section 30). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 2.21.1 What is a resolution plan?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 2.21.2 Who can submit a resolution plan?. . . . . . . . . . . . . . . . . . . . . . . 146 2.21.3 Mandatory requirements of every resolution plan. . . . . . . . . . . . 146 2.21.4. Till when can a resolution plan be submitted?. . . . . . . . . . . . . . . 147 2.21.5 Approval of committee of creditors. . . . . . . . . . . . . . . . . . . . . . . 147 2.21.6 Removal of difficulties in implementing a resolution plan. . . . . 148 Approval of resolution plan (Section 31). . . . . . . . . . . . . . . . . . . . . . . . . . . 148 2.22.1 Conditions for approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 2.22.2 Modification of resolution plan by NCLT- permissible?. . . . . . . 149 2.22.3 Approval of the NCLT is binding . . . . . . . . . . . . . . . . . . . . . . . . 149 2.22.4 Moratorium shall terminate upon approval of resolution plan . . 149 2.22.5 Record of proceedings to be filed with the board . . . . . . . . . . . . 149 Rejection and appeal (Section 32). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Chapter 3
3.1
3.2
xx
Liquidation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Initiation of liquidation (Section 33). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Who can initiate the liquidation process? . . . . . . . . . . . . . . . . . . 151 3.1.1 When can the liquidation process be initiated?. . . . . . . . . . . . . . 151 3.1.2 3.1.3 Order of liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Public announcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 3.1.4 3.1.5 Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Discharge of officers, employees and workmen of the 3.1.6 corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Appointment of official liquidator (Section 34). . . . . . . . . . . . . . . . . . . . . . 154 3.2.1 When the resolution professional is to be appointed as liquidator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 3.2.2 When a different insolvency professional is to replace the resolution professional as the liquidator . . . . . . . . . . . . . . . . 155 3.2.3 Liquidator to be vested with powers of the board of directors and key managerial personnel of the corporate debtor. . 156 3.2.4 Fees of the liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
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3.3
3.4
3.5
3.6
3.7 3.8
3.9 3.10 3.11
3.12
Powers and duties of the liquidator (Section 35). . . . . . . . . . . . . . . . . . . . . 157 3.3.1 Powers and functions subject to the directions of the NCLT. . . . 157 3.3.2 Duties of the liquidator to prepare and submit reports . . . . . . . . 159 Recoveries of monies due and realization of uncalled 3.3.3 capital or unpaid capital contribution [Regulations 39 and 40 of IBBI (Liquidation Process) Regulations] . . . . . . . . . . 160 3.3.4 Other duties of the liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 Power to consult stakeholders entitled to a distribution of 3.3.5 the assets of the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . 161 Liquidation estate (Section 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 What is liquidation estate?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 3.4.1 Composition of the liquidation estate . . . . . . . . . . . . . . . . . . . . . 162 3.4.2 3.4.3 Assets that do not form part of the liquidation estate . . . . . . . . . 163 Preparation of asset memorandum. . . . . . . . . . . . . . . . . . . . . . . . 164 3.4.4 Access to information (Section 37). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Liquidator’s powers to seek information. . . . . . . . . . . . . . . . . . . 165 3.5.1 3.5.2 Sources of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Creditors’s right to seek information. . . . . . . . . . . . . . . . . . . . . . 166 3.5.3 Consolidation of claims (Section 38). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Time period for consolidation of claims . . . . . . . . . . . . . . . . . . . 166 3.6.1 3.6.2 Right of creditors to submit claims. . . . . . . . . . . . . . . . . . . . . . . 166 Withdrawal/modification of claim. . . . . . . . . . . . . . . . . . . . . . . . 167 3.6.3 Verification of claims (Section 39). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Admission and rejection of claims (Section 40) . . . . . . . . . . . . . . . . . . . . . 168 3.8.1 Admission and rejection of claims. . . . . . . . . . . . . . . . . . . . . . . . 168 List of stakeholders [Regulation 31 of IBBI (Liquidation 3.8.2 Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 Valuation of claims (Section 41) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Appeal against rejection of claims by the liquidator (Section 42). . . . . . . . 169 Preferential transactions (Section 43) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 3.11.1 Application for avoidance of preferential transactions. . . . . . . . 169 3.11.2 What are preferential transactions?. . . . . . . . . . . . . . . . . . . . . . . 170 3.11.3 What are not preferential transactions?. . . . . . . . . . . . . . . . . . . . 170 3.11.4 Relevant time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 Powers of the NCLT in relation to prefential transactions (Section 44) . . . 171 3.12.1 What orders can the NCLT pass in relation to preferential transactions?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 3.12.2 Protection of preferential transactions in good faith and for value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
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3.12.3 3.13
3.14 3.15
3.16 3.17
3.18 3.19 3.20
3.21
3.22
xxii
Presumptions relating to transactions in good faith and for value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Avoidance of undervalued transactions (Section 45). . . . . . . . . . . . . . . . . . 172 3.13.1 What is an undervalued transaction?. . . . . . . . . . . . . . . . . . . . . . 172 3.13.2 Duty to report/reverse undervalued transactions. . . . . . . . . . . . . 173 3.13.3 Expert assessment of value of transactions. . . . . . . . . . . . . . . . . 173 3.13.4 No duty to determine undervalued transactions. . . . . . . . . . . . . . 173 Relevant period for undervalued transactions (Section 46). . . . . . . . . . . . . 173 Right of creditors and the corporate debtor to report undervalued transactions (Section 47) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 3.15.1 Right to report undervalued transactions. . . . . . . . . . . . . . . . . . . 174 3.15.2 Orders the NCLT may pass in relation to the transactions. . . . . . 174 3.15.3 Orders the NCLT may pass against the liquidator/ resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 Orders of the NCLT against undervalued transactions (Section 48). . . . . . 174 Undervalued transactions to defraud creditors (Section 49) . . . . . . . . . . . . 175 3.17.1 Fraudulent undervalued transaction. . . . . . . . . . . . . . . . . . . . . . . 175 3.17.2 Orders of the NCLT in relation to undervalued transactions to defraud creditors . . . . . . . . . . . . . . . . . . . . . . . . . 175 Avoidance of extortionate credit transactions (Section 50). . . . . . . . . . . . . 176 3.18.1 What are extortionate credit transactions?. . . . . . . . . . . . . . . . . . 176 3.18.2 Application for avoidance of extortionate credit transactions. . . 176 Orders of the NCLT in respect of extortionate transaction (Section 51). . . 176 Disclaimer of onerous property or contract [Regulation 10 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178 3.20.1 What is onerous property or contract ? . . . . . . . . . . . . . . . . . . . . 178 3.20.2 Application disclaimer of onerous property or contract . . . . . . . 178 3.20.3 Effect of the order passed by NCLT. . . . . . . . . . . . . . . . . . . . . . .179 Right of secured creditors in relation to security interest (Section 52). . . . 179 3.21.1 Right to relinquish security interest. . . . . . . . . . . . . . . . . . . . . . . 179 3.21.2 Right to realise security interest. . . . . . . . . . . . . . . . . . . . . . . . . . 179 3.21.3 Verification of security interest by the liquidator. . . . . . . . . . . . . 179 3.21.4 Realisation of security interest as per applicable laws. . . . . . . . . 180 3.21.5 Assistance of NCLT in relation to realising security interest . . . 180 3.21.6 Treatment of proceeds from realisation of security interest . . . . 181 3.21.7 Insolvency resolution process costs of the secured creditor . . . . 181 Sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 3.22.1 Manner and mode of sale of assets [Regulations 33 and 34 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . 182
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3.22.2
Valuation of assets intended to be sold [Regulation 35 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . 182 3.22.3 Sale of assets and report thereof [Regulation 36 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . 183 3.23 Distribution of assets [Section 53 read with Regulations 41 to 46 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . 183 3.23.1 Liquidation waterfall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 3.23.2 Contractual arrangements between recipients during distribution of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Manner of distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 3.23.3 3.23.4 Deduction of fees of the liquidator . . . . . . . . . . . . . . . . . . . . . . . 185 3.23.5 Distribution when liquidation assets are insufficient to pay debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 3.23.6 Distribution of unsold assets [Regulation 38 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . 185 3.24 Dissolution of the corporate debtor (Section 54). . . . . . . . . . . . . . . . . . . . . 186 3.24.1 Completion of liquidation [Regulation 44 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . 186 3.24.2 Unclaimed proceeds of liquidation or undistributed assets [Regulation 46 of IBBI (Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 3.24.3 Dissolution of corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . 186 Chapter 4
4.1 4.2 4.3 4.4 4.5
Against Whom can the Fast Track Corporate Insolvency Resolution Process be Initiated (Section 55). . . . . . . . . . . . . . . . . . . . . . . . 187 Time period for completion of the fast track process (Section 56). . . . . . . 188 Who can initiate the fast track corporate insolvency resolution process? (Section 57). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 Applicability of provisions of the corporate insolvency resolution process to the fast track process (Section 58) . . . . . . . . . . . . . . . . . . . . . . . 189 Regulations for fast track insolvency resolution process for corporate persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
Chapter 5
5.1
Fast Track Corporate Insolvency Resolution Process . . . . . . . . . . 187
Voluntary Liquidation of Corporate Persons. . . . . . . . . . . . . . . . . 193
Voluntary liquidation of corporate persons (Section 59). . . . . . . . . . . . . . . 193 5.1.1 Who can initiate voluntary liquidation?. . . . . . . . . . . . . . . . . . . . 193 5.1.2 Procedural requirements and conditions as specified by the Insolvency and Bankruptcy Board of India. . . . . . . . . . . . . . 193 5.1.3 Essential conditions for companies in voluntary liquidation proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 xxiii
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5.1.4
Essential conditions for initiation of voluntary liquidation proceedings of a corporate person. . . . . . . . . . . . . . . 195 5.1.5 Commencement of voluntary liquidation proceedings for corporate persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 5.1.6 Provisions applicable to voluntary liquidation . . . . . . . . . . . . . . 197 Effect of liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 5.1.7 5.2 Appointment of liquidator [Regulations 5 & 6 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 5.2.1 Eligibility for appointment as liquidator. . . . . . . . . . . . . . . . . . . 198 Remuneration of the liquidator . . . . . . . . . . . . . . . . . . . . . . . . . . 199 5.2.2 5.3 Powers and duties of the liquidator [Regulations 8 to 14 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . 199 5.3.1 Public announcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Duties of the liquidator to prepare and submit reports . . . . . . . . 200 5.3.2 Recoveries of monies due and realization of uncalled 5.3.3 capital or unpaid capital contribution [Regulations 32 and 33 of IBBI (Voluntary Liquidation Process) Regulations]. . 200 Other duties of the liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 5.3.4 Power to consult stakeholders entitled to a distribution of 5.3.5 the assets of the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . 201 Detection of fraud or insolvency [Regulation 40 of IBBI 5.3.6 (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . 201 5.4 Claims [Regulations 15 to 30 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 Right of creditors and stakeholders to submit claims . . . . . . . . . 201 5.4.1 5.5 Verification of claims [Section 39 read with Regulation 29 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . 202 5.6 Admission and rejection of claims (Section 40) . . . . . . . . . . . . . . . . . . . . . 202 Admission and rejection of claims. . . . . . . . . . . . . . . . . . . . . . . . 202 5.6.1 5.6.2 List of stakeholders [Regulation 30 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . 202 5.7 Valuation of claims (Section 41) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 5.8 Appeal against rejection of claims by the liquidator [Section 42 read with Regulation 29(2) of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 5.9 Sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 5.10 Distribution of assets [Section 53 read with Regulations 34 and 35 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . 204 5.10.1 Manner of distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 5.11 Dissolution of the corporate debtor (Section 54). . . . . . . . . . . . . . . . . . . . . 204 xxiv
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5.11.1 5.11.2 5.11.3
Completion of liquidation [Regulation 37 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . 204 Unclaimed proceeds of liquidation or undisributed assets [Regulation 39 of IBBI (Voluntary Liquidation Process) Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 Dissolution of corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . 205
Chapter 6
6.1
6.2
6.3 6.4 6.5 6.6
6.7
6.8
Adjudicating Authority for Corporate Persons . . . . . . . . . . . . . . . 207 Single adjudicating authority for all corporate persons (Section 60). . . . . . 207 Territorial jurisdiction of the NCLT. . . . . . . . . . . . . . . . . . . . . . . 207 6.1.1 Subject-matter jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 6.1.2 Personal guarantors of the corporate debtor are also 6.1.3 subject to the jurisdiction of the NCLT. . . . . . . . . . . . . . . . . . . . 210 Exclusion of moratorium period for computation 6.1.4 of limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Appeals and appellate authority (Section 61) . . . . . . . . . . . . . . . . . . . . . . . 210 6.2.1 Appellate authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210 Limitation period for filing of appeal. . . . . . . . . . . . . . . . . . . . . . 211 6.2.2 Grounds of appeal against an order approving a 6.2.3 resolution plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6.2.4 Grounds of appeal against a liquidation order. . . . . . . . . . . . . . . 212 Appeal to the Supreme Court (Section 62) . . . . . . . . . . . . . . . . . . . . . . . . . 212 Civil court to have no jurisdiction (Section 63). . . . . . . . . . . . . . . . . . . . . . 213 Expeditious disposal of applications (Section 64). . . . . . . . . . . . . . . . . . . . 213 Penalty for fraudulent or malicious initiation of proceedings (Section 65) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 6.6.1 Fraudulent or malicious initiation of insolvency resolution process of liquidation proceedings. . . . . . . . . . . . . . . 214 6.6.2 Fraudulent or malicious initiation of voluntary liquidation proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 Fraudulent conduct of business (Section 66). . . . . . . . . . . . . . . . . . . . . . . . 214 What is fraudulent conduct of business?. . . . . . . . . . . . . . . . . . . 214 6.7.1 6.7.2 Penalty for fraudulent conduct of business. . . . . . . . . . . . . . . . . 214 Directors/partners of corporate debtor liable for penalty. . . . . . . 214 6.7.3 Further directions that the NCLT may issue (Section 67). . . . . . . . . . . . . . 215 Further action in relation to any person. . . . . . . . . . . . . . . . . . . . 215 6.8.1 6.8.2 Further action in relation to creditors. . . . . . . . . . . . . . . . . . . . . . 216
Chapter 7
7.1
Offences and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Punishment for concealment of property (Section 68) . . . . . . . . . . . . . . . . 217
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7.1.1
7.2
7.3
7.4
7.5 7.6 7.7
7.8 7.9
xxvi
Concealment of property during the period of twelve months prior to insolvency commencement date. . . . . . . . . . . . . 217 7.1.2 Concealment of property at any time after the insolvency commencement date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217 7.1.3 Punishment for fraudulent concealment . . . . . . . . . . . . . . . . . . . 218 Punishment not applicable in the absence of intent to 7.1.4 defraud or conceal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218 Punishment for defrauding transactions (Section 69) . . . . . . . . . . . . . . . . . 218 7.2.1 Transactions defrauding creditors. . . . . . . . . . . . . . . . . . . . . . . . 218 Punishment for defrauding transactions. . . . . . . . . . . . . . . . . . . . 219 7.2.2 Punishment not applicable to certain offences committed 7.2.3 five years before insolvency commencement date. . . . . . . . . . . . 219 7.2.4 Punishment not applicable to certain offences committed with no intent to defraud creditors. . . . . . . . . . . . . . . . . . . . . . . . 219 Punishment for misconduct in the course of the corporate insolvency resolution processs (Section 70) . . . . . . . . . . . . . . . . . . . . . . . . 219 7.3.1 Misconduct during corporate insolvency process. . . . . . . . . . . . 219 Punishment for misconduct during the corporate 7.3.2 insolvency resolution process . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 Punishment not applicable if there is no intent. . . . . . . . . . . . . . 220 7.3.3 Punishment for insolvency professional for 7.3.4 contravention of Part II of the Code . . . . . . . . . . . . . . . . . . . . . . 220 Punishment for destruction or falsification of books of the corporate debtor (Section 71). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 What constitutes the offence of destruction or 7.4.1 falsification of books of the corporate debtor? . . . . . . . . . . . . . . 221 Punishment for the offence of destruction or falsification 7.4.2 of books of the corporate debtor . . . . . . . . . . . . . . . . . . . . . . . . . 221 Punishment for wilful and material omissions from statements relating to the affairs of the corporate debtor (Section 72) . . . . . . . . . . . . . 221 Punishment for false representation to creditors (Section 73). . . . . . . . . . . 222 Punishment for contravention of moratorium or resolution plan (Section 74) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 7.7.1 Contravention of moratorium by the corporate debtor or an officer thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 Contravention of moratorium by a creditor. . . . . . . . . . . . . . . . . 223 7.7.2 7.7.3 Wilful contravention of resolution plan. . . . . . . . . . . . . . . . . . . . 223 Punishment for false information in application (Section 75). . . . . . . . . . . 223 Punishment for non-disclosure of dispute or repayment of debt to an operational creditor (Section 76). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
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7.9.1 7.9.2
Wilful concealment by an operational creditor. . . . . . . . . . . . . . 224 Authorisation of wilful concealment by an operational creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 False in material particulars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 7.9.3 7.10 Punishment for providing false information in an application filed by the corporate debtor (Section 77). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 7.10.1 Furnishing of false information by the corporate debtor. . . . . . . 225 7.10.2 Authorisation of the providing of false information by the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 7.10.3 False in material particulars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 PART III INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS Chapter 1
Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 1.2 Applicability of Part III of the Code (Section 78). . . . . . . . . . . . . . . . . . . . 229 1.3 Key definitions (Section 79). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .229 Adjudicating Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 1.3.1 1.3.2 Associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 Bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 1.3.3 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 1.3.4 Bankruptcy debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 1.3.5 1.3.6 Bankruptcy commencement date. . . . . . . . . . . . . . . . . . . . . . . . . 246 Bankruptcy order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 1.3.7 Bankruptcy process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 1.3.8 1.3.9 Bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246 1.3.10 Chapter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 1.3.11 Committee of creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 1.3.12 Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 1.3.13 Discharge order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 1.3.14 Excluded assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 1.3.15 Excluded debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 1.3.16 Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 1.3.17 Immediate family. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 1.3.18 Partnership debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 1.3.19 Qualifying debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 1.3.20 Repayment plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
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1.3.21 1.3.22
Resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 Undischarged bankrupt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Chapter 2
2.1 2.2
2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13
Fresh Start Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Fresh start process – eligibility for making an application before DRT (Section 80). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Requirement under application by debtor for fresh start order (Section 81) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 Interim moratorium period (Section 81) . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 Appointment of resolution professional (Section 82) . . . . . . . . . . . . . . . . . 253 Examination of the application by resolution professional (Section 83). . . 254 Admission/rejection of the application for fresh start (Section 84). . . . . . . 255 Effect of admission of application (Section 85). . . . . . . . . . . . . . . . . . . . . . 255 Objections by creditor (Section 86). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259 Challenge to the decision of resolution professional (Section 87). . . . . . . . 259 General duties of the debtor (Section 88) . . . . . . . . . . . . . . . . . . . . . . . . . . 260 Replacement of resolution professional (Section 89) . . . . . . . . . . . . . . . . . 260 Application to drt seeking directions for compliances and revocation of admission order (Sections 90 and 91). . . . . . . . . . . . . . . . . . 261 Discharge order (Section 92). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Chapter 3
3.1 3.2
3.3 3.4
3.5 3.6 3.7
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Insolvency Resolution Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Initiation of insolvency resolution process by debtor (Section 94). . . . . . . 263 Application by the debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 3.1.1 Eligibility of the debtor to make application. . . . . . . . . . . . . . . . 263 3.1.2 Initiation of insolvency resolution process by creditors (Section 95). . . . . 264 Application by the creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 3.2.1 Details and documents to be submitted along with 3.2.2 the application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 Interim moratorium (Section 96). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 Appointment and replacement of resolution professional (Sections 97 and 98). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 3.4.1 Appointment of resolution professional. . . . . . . . . . . . . . . . . . . . 266 Replacement of resolution professional. . . . . . . . . . . . . . . . . . . . 267 3.4.2 Report by the resolution professional (Section 99). . . . . . . . . . . . . . . . . . . 268 Admission/rejection of the application (Section 100). . . . . . . . . . . . . . . . . 269 Moratorium, public announcement and claims of the creditors (Sections 101 to 104). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 3.7.1 Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 3.7.2 Public announcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
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3.7.3 Registration of claim by creditors. . . . . . . . . . . . . . . . . . . . . . . . 270 Repayment plan (Sections 105 and 106). . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Preparation of the repayment plan. . . . . . . . . . . . . . . . . . . . . . . . 270 3.8.1 3.8.2 Report of the resolution professional. . . . . . . . . . . . . . . . . . . . . . 271 3.9 Meeting of the creditors, approval of repayment plan and report of the meeting (Sections 107 to 113). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 Summoning and conduct of the meeting of creditors . . . . . . . . . 271 3.9.1 3.9.2 Voting rights of creditors and approval of repayment plan. . . . . 272 Rights of secured creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 3.9.3 Report of creditor’s meeting on repayment plan and 3.9.4 notice of decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 3.10 Passing of order on repayment plan by the DRT, its effect, implementation of repayment plan, its completion or premature termination and discharge order (Sections 114 to 119). . . . . . . . . . . . . . . . 274 3.10.1 DRT’s order and its effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 3.10.2 Implementation and supervision of repayment plan. . . . . . . . . . 275 3.10.3 Completion of repayment plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 275 3.10.4 Premature end of repayment plan . . . . . . . . . . . . . . . . . . . . . . . . 275 3.10.5 Discharge order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 3.8
Chapter 4
4.1
4.2 4.3
4.4
Bankruptcy Order for Individuals and Partnership Firms. . . . . . 277 Application for bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277 When can the bankruptcy process be initiated? (Section 121) . . 277 4.1.1 Who can file an application for bankruptcy?. . . . . . . . . . . . . . . . 277 4.1.2 Application by debtor (Section 122). . . . . . . . . . . . . . . . . . . . . . 278 4.1.3 4.1.4 Application by creditor (Section 123). . . . . . . . . . . . . . . . . . . . . 278 Effect of application – interim moratorium (Section 124). . . . . . . . . . . . . . 279 Bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279 Appointment of bankruptcy trustee (Section 125). . . . . . . . . . . . 279 4.3.1 Standard of conduct and fee of the bankruptcy trustee 4.3.2 (Sections 143 and 144). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 Replacement of the bankruptcy trustee (Section 145). . . . . . . . . 280 4.3.3 4.3.4 Resignation of the bankruptcy trustee (Section 146). . . . . . . . . . 280 Vacancy in the office of the bankruptcy trustee (Section 147). . . . 281 4.3.5 4.3.6 Duty of the earlier/outgoing bankruptcy trustee . . . . . . . . . . . . . 281 Release of the bankruptcy trustee (Section 148). . . . . . . . . . . . . 282 4.3.7 Bankruptcy order, its validity and effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 4.4.1 Bankruptcy order (Section 126). . . . . . . . . . . . . . . . . . . . . . . . . . 282 4.4.2 Effect of bankruptcy order (Section 128) . . . . . . . . . . . . . . . . . . 282 4.4.3 Submission of financial statement by the bankrupt (Section 129). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 xxix
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4.5
4.6 4.7
4.8
4.4.4 Modification or recall of bankruptcy order (Section 142). . . . . . 283 Public notice, registration of claims and preparation of list of creditors. . . 284 Notice to creditors (Section 130). . . . . . . . . . . . . . . . . . . . . . . . . 284 4.5.1 4.5.2 Registration of claims and preparation of list of creditors (Sections 131 and 132). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 Meeting of creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Summoning of the meeting of creditors (Section 133). . . . . . . . 285 4.6.1 4.6.2 Conduct of the meeting of creditors (Sections 134 and 135). . . . 285 Discharge of the bankrupt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Completion of administration and report of the 4.7.1 bankruptcy trustee thereof (Section 137). . . . . . . . . . . . . . . . . . . 285 4.7.2 Discharge order and effect thereof (Sections 138 and 139). . . . . 286 Disqualification and restriction on the bankrupt . . . . . . . . . . . . . . . . . . . . . 286 Disqualifications of bankrupt (Section 140) . . . . . . . . . . . . . . . . 286 4.8.1 Restrictions on the bankrupt (Section 141). . . . . . . . . . . . . . . . . 287 4.8.2
Chapter 5
5.1
5.2
5.3 5.4
5.5
5.6 5.7
xxx
Administration and Distribution of the Estate of the Bankrupt. . . 291 Estate of the bankrupt (Section 155). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 What is estate of bankrupt?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291 5.1.1 Composition of the estate of bankrupt. . . . . . . . . . . . . . . . . . . . . 291 5.1.2 Assets that do not form part of the estate of the bankrupt. . . . . . 291 5.1.3 Functions, duties, rights and powers of the bankruptcy trustee (Section 149 to 152). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 Functions of bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 292 5.2.1 Rights of bankruptcy trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 5.2.2 5.2.3 General powers of the bankruptcy trustee. . . . . . . . . . . . . . . . . . 292 Other powers of the bankruptcy trustee. . . . . . . . . . . . . . . . . . . . 293 5.2.4 Power of the bankruptcy trustee to acquire control. . . . . . . . . . . 294 5.2.5 Restrictions on disposal of property by the bankrupt. . . . . . . . . . . . . . . . . .294 After acquired property of the bankrupt (Section 159). . . . . . . . . . . . . . . . 295 5.4.1 What is an after acquired property?. . . . . . . . . . . . . . . . . . . . . . . 295 Claim of the bankruptcy trustee on ‘after acquired 5.4.2 property’ and procedure thereof. . . . . . . . . . . . . . . . . . . . . . . . . . 295 Onerous property of bankrupt (Section 160). . . . . . . . . . . . . . . . . . . . . . . . 296 What is an onerous property? . . . . . . . . . . . . . . . . . . . . . . . . . . . 296 5.5.1 Notice of disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 5.5.2 5.5.3 Effect of notice of disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Disclaimer of leaseholds (Section 162). . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 Challenge against disclaimed property (Section 163). . . . . . . . . . . . . . . . . 298 5.7.1 Who can make the challenge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 298
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5.8
5.9
5.10 5.11
5.12 5.13 5.14
5.15
5.7.2 Order(s) passed of the DRT and effect thereof . . . . . . . . . . . . . . 298 Avoidance of undervalued transactions (Section 164). . . . . . . . . . . . . . . . . 298 What is an undervalued transaction?. . . . . . . . . . . . . . . . . . . . . . 298 5.8.1 5.8.2 Relevant period for undervalued transactions. . . . . . . . . . . . . . . 299 Application to DRT by bankruptcy trustee . . . . . . . . . . . . . . . . . 299 5.8.3 5.8.4 Orders of the DRT against undervalued transactions. . . . . . . . . . 299 Preference transactions (Section 165). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 5.9.1 What are preference transactions?. . . . . . . . . . . . . . . . . . . . . . . . 300 Relevant period for preference transactions . . . . . . . . . . . . . . . . 300 5.9.2 Application to DRT by bankruptcy trustee . . . . . . . . . . . . . . . . . 300 5.9.3 Orders of the DRT against preference transactions. . . . . . . . . . . 300 5.9.4 Effect of orders passed under sections 164 and 165 (Section 166). . . . . . . 301 Avoidance of extortionate credit transactions (Section 167). . . . . . . . . . . . 302 5.11.1 What are extortionate credit transactions?. . . . . . . . . . . . . . . . . . 302 5.11.2 Application to DRT for extortionate credit transactions. . . . . . . 302 5.11.3 Orders of the DRT in respect of extortionate transaction . . . . . . 302 Obligations under the contract (Section 168). . . . . . . . . . . . . . . . . . . . . . . .303 Provisions in relation to deceased bankrupt (Sections 169 and 170). . . . . . 303 Proof of debts (Sections 171 to 173). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 5.14.1 Submission of proof of debt by a creditor. . . . . . . . . . . . . . . . . . 304 5.14.2 Submission of proof of debt by a secured creditor . . . . . . . . . . . 305 5.14.3 Value of the bankruptcy debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 5.14.4 Mutual credit and set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 Distribution of assets (Sections 174 to 178) . . . . . . . . . . . . . . . . . . . . . . . . 306 5.15.1 Distribution of interim dividend . . . . . . . . . . . . . . . . . . . . . . . . . 306 5.15.2 Distribution of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 3.15.3 Distribution of interim dividend . . . . . . . . . . . . . . . . . . . . . . . . . 306 3.15.4 Claims of creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307 3.15.5 Priority of payment of debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 3.15.6 Situations where an advantage shall be given to a creditor. . . . . 309 3.15.7 Distribution of surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
Chapter 6
6.1
6.2 6.3
Adjudicating Authority for Individuals and Partnership Firms. . . 311 Adjudicating authority for individuals and partnership firms and its territorial jurisdiction (Section 179). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 DRT’s jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 6.1.1 6.1.2 Computation of limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 No jurisdiction of civil courts, tribunals or authority (Section 180) . . . . . . 312 Appeals and expeditious disposal of applications (Sections 181 and 182). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 xxxi
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6.3.1 6.3.2 6.3.3
Appeal to DRAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .312 Appeal to the Supreme Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . 312 Expeditious disposal by DRT and DRAT . . . . . . . . . . . . . . . . . . 313
Chapter 7
7.1
7.2 7.3
Offences and Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 Punishment for false information (Section 184) . . . . . . . . . . . . . . . . . . . . . 315 Punishment against the debtor and creditor both. . . . . . . . . . . . . 315 7.1.1 7.1.2 Punishment against the creditor who promises to vote dishonestly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315 7.1.3 Punishment against the insolvency professional. . . . . . . . . . . . . 316 Punishment against the bankrupt (Section 186). . . . . . . . . . . . . . . . . . . . . . 316 Punishment against the bankruptcy trustee (Section 187). . . . . . . . . . . . . . 317
PART IV REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITIES Chapter 1
Insolvency and Bankruptcy Board of India . . . . . . . . . . . . . . . . . . 321 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 1.2 Establishment and incorporation of the board (Section 188). . . . . . . . . . . . 321 1.3 Constitution of the board (Section 189). . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 Appointment of the members. . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 1.3.1 Qualifications of a board member. . . . . . . . . . . . . . . . . . . . . . . . 324 1.3.2 1.4 Removal of members (Section 190). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 1.5 Power of the chairperson (Section 191). . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 1.6 Meetings of the board (Section 192). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326 1.7 Members not to participate in meetings in certain cases (Section 193). . . . 327 1.8 Vacancies etc (Section 194). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328 1.9 Power to designate financial sector regulator (Section 195). . . . . . . . . . . . 330 Chapter 2
Powers and Functions of the Board. . . . . . . . . . . . . . . . . . . . . . . . . 333
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 2.2 Powers and functions of the board vis-à-vis insolvency professional agencies, insolvency professionals and information utilities (Section 196). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 2.2.1 Administrative powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 2.2.2 General regulatory powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 2.2.3 Power to regulate the internal operations of insolvency professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336 2.2.4 General powers of the board . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 xxxii
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2.3 2.4
2.2.5 Quasi-judicial powers of the board . . . . . . . . . . . . . . . . . . . . . . . 341 Power to constitute advisory, executive or any other committee (Section 197) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 Power to get delay condoned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
Chapter 3:
3.1 3.2
3.3 3.4 3.5
Insolvency Professional Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . 345 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 Registration of insolvency professional agencies (Section 199 to 201) . . . 346 Principles governing registration of insolvency 3.2.1 professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346 3.2.2 Process and procedure for the registration of insolvency professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348 Appeal against order of the board (Section 202). . . . . . . . . . . . . . . . . . . . . 354 Governing board for insolvency professional agency (Section 203). . . . . . 354 Functions of the insolvency professional agency (Section 204). . . . . . . . . 356
Chapter 4
4.1 4.2
4.3
Insolvency Professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 Enrollment and registration of insolvency professionals (Section 206 and 207) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359 4.2.1 Eligibility for registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 Procedure for registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 4.2.2 Temporary surrender and disciplinary proceedings. . . . . . . . . . . 366 4.2.3 Functions and obligations of insolvency professionals (Section 208). . . . . 368 4.3.1 Functions of insolvency professionals. . . . . . . . . . . . . . . . . . . . . 368 Code of conduct of an insolvency professional. . . . . . . . . . . . . . 369 4.3.2
Chapter 5
Information Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 Registration of information utilities (Section 209 and 210). . . . . . . . . . . . .374 Eligibility for registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374 5.2.1 5.2.2 Procedure for registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 Conditions for registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 5.2.3 5.3 Shareholding of an information utility [Regulation 8 of IBBI Information Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378 5.4 Governing board for information utilities (Section 212). . . . . . . . . . . . . . . 378 5.5 Compliance regulations [Regulations 10 & 11 of IBBI Information Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 5.6 Grievance redressal policy [Regulation 12 of IBBI Information Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
5.1 5.2
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5.7
Technical standards and bye laws [Regulations 13, 14, 15 & 16 of IBBI Information Utilities Regulations] . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 Technical standards [Regulation 13 of IBBI Information 5.7.1 Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380 Technical committee [Regulation 14 of IBBI Information 5.7.2 Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 381 Bye-laws of information utilities [Regulations 15 & 16 5.7.3 of IBBI Information Utilities Regulations]. . . . . . . . . . . . . . . . . 381 5.8 Services provided by an information utility (Section 213 read with Regulations 17 to 23 of IBBI Information Utilities Regulations). . . . . . . . 382 5.9 Financial information management (Sections 215 and 216). . . . . . . . . . . . 382 5.9.1 Procedure for submission and access of information . . . . . . . . . 382 Registration of users [Regulation 18 of IBBI Information 5.9.2 Utilities Regulations]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 Processing information [Regulations 20, 21 and 25 of 5.9.3 IBBI Information Utilities Regulations] . . . . . . . . . . . . . . . . . . . 384 Accessing information [Regulations 22, 23, 24 and 26 of 5.9.4 IBBI Information Utilities Regulations] . . . . . . . . . . . . . . . . . . . 385 Rights and obligations of persons submitting financial 5.9.5 information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385 5.10 Duties and obligations of information utility [Section 214 read with Regulations 28 to 37 of IBBI Information Utilities Regulations]. . . . 386 Chapter 6
6.1
Inspection and Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389
Complaints and investigation against insolvency professional agency, its member or information utility (Section 217). . . . . . . . . . . . . . . 389 6.2 Investigation and appointment of investigating authority by the board (Section 218) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 389 Powers of the investigating authority . . . . . . . . . . . . . . . . . . . . . 390 6.2.1 6.3 Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392 6.3.1 Purpose of inspection [Regulation 3(4) of IBBI Inspection and Investigation Regulations]. . . . . . . . . . . . . . . . . . 392 Issuance of notice of inspection [Regulation 4(1) of IBBI 6.3.2 Inspection and Investigation Regulations]. . . . . . . . . . . . . . . . . . 393 Process of conduct of inspection (Powers of the 6.3.3 inspecting authority and duties of the service provider). . . . . . . 393 6.3.4 Reports of the inspecting authority (Interim and Final). . . . . . . . 393 6.4. Investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394 6.4.1 Issuance of notice of investigation [Regulation 8(1) of IBBI Inspection and Investigation Regulations]. . . . . . . . . . . . . 394
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6.4.2
6.5 6.6
Process of conduct of inspection (Powers of the investigating authority and duties of the service provider). . . . . 395 Reports of the investigating authority (Interim and Final) . . . . . 396 6.4.3 Show cause notice (Section 219). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397 Disciplinary committee – Constitution and powers (Section 220) . . . . . . . 398 Disposal of the show cause notice [Regulation 13 of 6.6.1 IBBI Inspection and Investigation Regulations]. . . . . . . . . . . . . 398 6.6.2 Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398 Powers of the board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399 6.6.3
Chapter 7
7.1 7.2 7.3
Finance, Accounts and Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Grants by Central Government (Section 221). . . . . . . . . . . . . . . . . . . . . . . 401 Board’s fund (Section 222) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 Accounts and audit (Section 223) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 PART V MISCELLANEOUS
Chapter 1
1.1 1.2
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
Constitution of the insolvency and bankruptcy fund (Section 224). . . . . . . 405 Board to be bound by directions of the Central Government (Section 225) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 1.3 Power of the Central Government to supersede the board (Section 226) . . 406 Circumstances under which the board can be superseded 1.3.1 by Central Government. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406 Members of the board to vacate their posts upon supersession. . . 406 1.3.2 Reconstitution of the board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 1.3.3 1.3.4 Central Government to lay notification before the House. . . . . . 407 1.4 Power of the Central Government to extend operation of the Code to financial service providers (Section 227). . . . . . . . . . . . . . . . . . . . . . . . . 407 1.5 Budget (Section 228). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 1.6 Annual report of the board (Section 229) . . . . . . . . . . . . . . . . . . . . . . . . . . 408 1.7 Delegation of power by the board (Section 230). . . . . . . . . . . . . . . . . . . . . 408 1.8 Exclusion of jurisdiction of civil courts (Section 231) . . . . . . . . . . . . . . . . 408 1.9 Members of the board to be considered public servants (Sections 232 and 233). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 1.10 Agreements with foreign countries and letter of request (Sections 234 and 235). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409 1.10.1 Letter of request to reciprocating countries. . . . . . . . . . . . . . . . . 409 1.11 Trial of offences by special courts (Section 236). . . . . . . . . . . . . . . . . . . . . 410 xxxv
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1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20
1.11.1 Provisions of the Code of Criminal Procedure to apply . . . . . . . 410 1.11.2 Presence of authorized person not required. . . . . . . . . . . . . . . . . 411 Powers of the High Court (Section 237) . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Code to have overriding effect (Section 238) . . . . . . . . . . . . . . . . . . . . . . . 411 Power to make rules (Section 239) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Power to make regulations (Section 240) . . . . . . . . . . . . . . . . . . . . . . . . . . 414 Rules and regulations to be laid before Parliament (Section 241). . . . . . . . 419 Power to remove difficulties (Section 242). . . . . . . . . . . . . . . . . . . . . . . . . 419 Repeal of certain enactments and savings (Section 243). . . . . . . . . . . . . . . 420 Transitional provisions (Section 244) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421 Amendments of Acts (Sections 245 to 255). . . . . . . . . . . . . . . . . . . . . . . . . 421 ANNEXURES
Annexure I
The Insolvency and Bankruptcy Code, 2016. . . . . . . . . . . . . . . . . . 425
Annexure II Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599 (A) Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 599 (B) Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016. . . . 621 (C) Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016. . . . . . 627 (D) Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 641 (E) Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 653 (F) Insolvency and Bankruptcy Board of India (Insolvency Resolution (G) Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707 (H) Insolvency and Bankruptcy Board of India (Engagement of Research Associates and Consultants) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . 755 (I) Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761 (J) Insolvency and Bankruptcy Board of India (Advisory Committee) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 771 (K) Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775 (L) Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803
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(M) Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 841 (N) Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 . . . . . . . . . . . . . . . 853 (O) Companies (Transfer of Pending Proceedings) Rules, 2016. . . . . . . . . . . . . . . . . . 891 Annexure III Relevant Notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 895 Annexure IV Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911
A. Relevant Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911 B. Guidelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917 C. Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924
Annexure V Press Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 925
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Table of cases A.S. Mittal v Presiding Officer, Debt Recovery Tribunal and Ors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .257, 258 Alpha & Omega Diagnostics (India) Ltd. v Asset Reconstruction Company of India Limited & Ors.. . . . . . . . . . . . . . . . . . . . . . . . .105 Asset Reconstruction Company of India Limited & Ors v Alpha & Omega Diagnostics (India) Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Col. Vinod Awasthy v AMR Infrastructures Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Era Infra Engineering Ltd. v Prideco Commercial Projects Pvt. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Gujarat Oleo Chem Ltd. v IDBI Bank Ltd. & Ors.. . . . . . . . . . . . . . . . . . . . . . . . . .98 Gurbachan Singh Saluja v Debt Recovery Tribunal and Ors. . . . . . . . . . . . . . . . .258 IDBI Bank Limited v Jaypee Infratech Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119 Indian Bank v M/s Athena Demwe Power Limited . . . . . . . . . . . . . . . . . . . . . .71, 92 Industrial Development Bank Limited v Company Law Board & Ors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .210 JK Jute Mills Company Limited v M/s Surendra Trading Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29, 47, 74, 93, 98, 101, 111 Kirusa Software Private Ltd. v Mobilox Innovations Private Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26, 35, 84 Lokhandwala Kataria Construction Private Limited v Nisus Finance and Investment Managers LLP . . . . . . . . . . . . . . . . . . . . .76, 78, 79, 94, 212 M/s Innoventive Industries Ltd. v ICICI Bank and Anr . . . . . . . . . . . . . . . .69, 72, 91 M/s. Alcon Laboratories (India) Private Limited v M/s. Vasan Health Care Private Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82 M/s. DF Deutsche Forfait AG and Anr. v M/s. Uttam Galva Steel Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26, 34, 35, 85 M/s. One Coast Plaster v M/s. Ambience Private Limited and Ors.. . . . . . . . . .33, 35 Macquerie Bank Limited v Uttam Galva Mettalics Limited . . . . . . . . . . . . . . .83, 89 Madras Bar Association v Union of India and Another . . . . . . . . . . . . . . . . . . . . . .27 Mothers Pride Dairy India Private Limited v Portrait Advertising and Marketing Private Limited . . . . . . . . . . . . . . . . . . . . . . . .79, 94, 213 xxxix
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Mukesh Kumar & Anr. v AMR Infrastructures Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . 50 Neelkanth Township and Construction Pvt. Ltd v Urban Infrastructure Trustee Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40, 66, 73 Nikhil Mehta & Sons and Ors. vs. AMR Infrastructures Ltd. . . . . . . . . . . . . . . 38, 66 R.S. Polychem v M/s. Ekdantam Infra Pvt. Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Sanjeev R. Apte v I.F.C.I. Limited and Ors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 Sanjive Kanwar v AMR Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Satish Mittal v Ozone Builders & Developers Pvt. Ltd.. . . . . . . . . . . . . . . . . . . . . . 50 Satwant Singh Sawhney v Dr. Ramarathnam, Assistant Passport Officer, New Delhi. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 Seema Gupta v Supreme Infrastructure India Ltd. & Ors.. . . . . . . . . . . . . . . . . . . . 81 Smart Timing Steel Ltd. v National Steel and Agro Industries Ltd.. . . . . . . . . . . . . 87 Smt. Maneka Gandhi v Union of India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 State Bank of India v Prafulchandra V Patel and Ors.. . . . . . . . . . . . . . . . . . . . . . 256 Synergies Dooray Automotive Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Union of India v R. Gandhi, President, Madras Bar Association. . . . . . . . . . . . . . . 26 Uttam Galva Steels Limited v DF Deutsche Forfait AG & Anr. . . . . . . . . . 83, 88, 90 VIP Finvest Consultancy Pvt. Ltd. v Bhupen Electronic Limited . . . . . . . . . . . . . 152 VNR Infrastruture Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
xl
Abbreviations 2013 Act – Companies Act, 2013 AAIFR – Appellate Authority for Industrial and Financial Reconstruction Adjudicating Authority Rules – Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 BIFR – Board for Industrial and Financial Reconstruction BLRC – Bankruptcy Law Reforms Committee CIRP – Corporate Insolvency Resolution Process CIRP Regulations/IBBI (CIRP) Regulations – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 CoC – Committee of Creditors Code – Insolvency and Bankruptcy Code, 2016 Committee Report – Bankruptcy Law Reforms Committee’s Report CPI – Consumer Process Index Draft Bill – Insolvency and Bankruptcy Bill, 2015 DRAT – Debts Recovery Appellate Tribunal DRT – Debts Recovery Tribunal IBBI (CIRP Amendment) Regulations – Insolvency and Bankruptcy Board of India (Resolution Process for Corporate Persons) (Amendment) Regulations, 2017 IBBI (Fast Track CIRP Amendment) Regulations – Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2017 IBBI (Fast Track CIRP) Regulations – Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 IBBI (Liquidation Process) Regulations – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 IBBI (Procedure for Governing Board Meetings) Regulations, 2017 – Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017 IBBI (Voluntary Liquidation Process) Regulations – Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 xli
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IBBI Information Utilities Regulations – Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 IBBI Insolvency Professional Agencies Regulations – Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016 IBBI Insolvency Professionals Regulations – Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 IBBI Inspection and Investigation Regulations – Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 IBBI Model Bye-Laws and Governing Board of Insolvency Professional Agencies Regulations – Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 IBBI Regulations for Engagement of Research Associates and Consultants, 2017 – Insolvency and Bankruptcy Board of India (Engagement of Research Associates and Consultants) Regulations, 2017 IBBI/Board – Insolvency and Bankruptcy Board of India IP – Insolvency Professional IRP – Interim Resolution Professional Joint Committee – Joint Committee on the Insolvency and Bankruptcy Code 2015 MCA – Ministry of Corporate Affairs NCLAT – National Company Law Appellate Tribunal NCLAT Rules – National Company Law Appellate Tribunal Rules, 2016 NCLT – National Company Law Tribunal NCLT Rules – National Company Law Tribunal Rules, 2016 NPA – Non-performing Assets RDB Act – Recovery of Debts and Bankruptcy Act, 1993 RP – Resolution Professional SARFAESI Act – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 SEBI – Securities and Exchange Board of India SICA (Repeal) Act – Sick Industrial Companies (Special Provisions) Repeal Act, 2003 UNCITRAL – United Nations Commission on International Trade Law
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Part I Preliminary
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Part I: Chapter 1: (ยง 1 and 2)
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Part I: Chapter 1: (§ 1 and 2)
Part I: Chapter 1: Preliminary 1.1
INTRODUCTION
An effective and efficient insolvency regime is the foundation of a strong economy. As per the United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency Law, an efficient and effective legal framework should strike a balance between the need to address the debtor’s financial difficulty and the interests of various stakeholders. It is easy to lose sight of the objective of insolvency laws – whether they aim to act as a revival mechanism for distressed entities, or as a recovery mechanism for creditors. As mentioned in the UNCITRAL Legislative Guide on Insolvency Law, an effective and efficient insolvency regime should aim at achieving the following key objectives: Certainty in the market to promote economic stability and growth; Maximization of value of assets; Striking a balance between liquidation and reorganization; Ensuring equitable treatment of similarly situated creditors; Provision for timely, efficient and impartial resolution of insolvency; Preservation of the insolvency estate to allow equitable distribution to creditors; Ensuring a transparent and predicable insolvency law that contains incentives for gathering and dispensing information; Recognition of existing creditor rights and establishment of clear rules of ranking of priority claims; and Establishment of framework for cross-border insolvency. Before the enactment of the Insolvency and Bankruptcy Code, 2016, there was no single legal framework in India that dealt with insolvency and bankruptcy. The provisions relating to insolvency and bankruptcy were scattered over many legislations viz: (i) For companies (a) Sick Industrial Companies (Special Provisions) Act, 1985 (dealing with sick industrial companies), (b) The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and (c) The Companies Act, 2013
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(ii)
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For individuals (a) The Presidency Towns Insolvency Act, 1909 and (b) The Provincial Insolvency Act, 1920.
Liquidation of companies was handled by the High Courts and Bankruptcy and Insolvency proceedings were filed before District Courts or High Courts, as the case may be. After nearly two decades of work by various committee(s), the Bankruptcy Law Reform Committee (the Committee) began to breathe life into the Code. The Committee was set up by the Department of Economic Affairs, Ministry of Finance, under the Chairmanship of Mr. T.K. Vishwanathan (former Secretary General, Lok Sabha and former Union Law Secretary) by an office order dated 22 August 2014. The mandate of the Committee was to study the “corporate bankruptcy legal frameworks in India” and submit a report to the government for reforming the system. The Committee approached the framing of the Code in the following manner(i)
To examine the existing legal framework for corporate insolvency and suggest immediate reforms (for which the Committee submitted an interim report in February 2015); and
(ii)
To develop an “Insolvency Code” for India covering all the aspects of personal and business insolvency (for which the Committee submitted its reports in November 2015 in two volumes) – (a) Volume I: Rationale and Design and (b) Volume II: Draft Code.
The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha on 21 December 2015 and was then referred to a Joint Committee of both houses of Parliament. The Insolvency and Bankruptcy Code, 2016 was moved in the Lok Sabha on 23 December 2015 and was passed in the Lok Sabha on 5 May 2016. The upper house of Parliament (ie the Rajya Sabha) passed the Code on 11 May 2016 and the President’s assent was granted on 28 May 2016.
1.2
OBJECTIVE OF CODE
The objective of the Code is: “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 maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India and for matters connected therewith or incidental thereto.”
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As per the World Bank’s ‘Doing Business’ rankings1, India’s overall rank in 2017 is 130 out of a total 190 countries. India’s consistently poor ranking is widely attributed to the inefficient mechanism in the areas of ‘enforcing contracts’ and ‘resolving insolvency’, in which India is ranked at 172 and 136, respectively. A compelling factor for India’s poor ranking in the categories of ‘enforcing contracts’ and ‘resolving insolvency’ is the legal framework for resolving contractual disputes and for recovery of monies by creditors and investors in insolvency proceedings. The Insolvency and Bankruptcy Code, 2016 is widely regarded as a giant leap forward in improving India’s rankings on the World Bank’s indices by streamlining the scattered insolvency laws of India into a single legislation which governs bankruptcy and insolvency laws for all debtor entities including companies, limited liability partnerships (LLP) and individuals. The Insolvency and Bankruptcy Code, 2016 is a consolidated piece of legislation dealing with insolvency resolution process and liquidation or bankruptcy, has been enacted with an objective of dealing with all matters relating to insolvency and bankruptcy for all the debtors in a time bound and efficient manner in order to protect the value of assets of the insolvent/bankrupt for the benefit of the creditors. The Code also blends well with the “ease of doing business in India” narrative of the Government.
1.3
EXTENT AND APPLICABILITY OF THE CODE (SECTIONS 1 AND 2)
1.3.1
Short title
This Code has been enacted by Parliament in the Sixty-seventh year of the Republic of India as “The Insolvency and Bankruptcy Code, 2016”.
1.3.2
Extent
Section 1(2) provides that, the Code shall extend to whole of India provided that Part III of the Code (which deals with insolvency resolution process and bankruptcy of individuals and partnership firm) shall not extend to the State of Jammu and Kashmir.
1.3.3
Commencement
As per sec 1(3) of the Code, the commencement dates of different provisions of the Code and the date on which the said provisions shall come into effect shall be as per the gazette notification of the Central Government in this regard. Hence, any
1
Available at: http://www.doingbusiness.org/data/exploreeconomies/india/ Accessed on 1 August 2017.
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reference in any such provision to the commencement of the Code shall be construed as a reference to the commencement of that provision.
1.3.4
Applicability
As per sec 2, the provisions of the Code shall apply to: (a) all companies incorporated under the Companies Act, 2013 or any other previous company law; (b) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; (c) any limited liability partnership incorporated under the Limited Liability Partnership Act, 2008; (d) such body incorporated under any law for the time being in force, as may be specified by the Central Government by notification in addition to partnership firms and individuals; and (e) partnership firms (unlimited liability) and individuals. Author’s Comment The Bankruptcy Law Reforms Committee in its report dated November 2015 envisaged categories of entities for whom these provisions would be applicable, which are as follows: (a) Sole proprietorships where the legal personality of the proprietorship is not different from the individual who owns it; (b) Personal guarantors; (c) Consumer finance borrowers; (d) Student loan borrowers; (e) Credit card borrowers; (f) Farmers; (g) Micro-finance borrowers; and (h) Partnership firms. A significant feature of this Code is the applicability of the insolvency provisions to individuals regulating the process by which individuals can seek relief under the Code. Prior to this Code, individuals were governed by different legislation for different geographic territories in India, viz the Presidency Towns Insolvency Act, 1909 for Calcutta, Bombay and Madras and the Provincial Insolvency Act, 1920 for the rest of India, respectively, which have been repealed by the Code.
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Part I: Chapter 1: (§ 3)
GENERAL DEFINITIONS (SECTION 3)
The definition clause of the Code opens with the expression “unless the clause otherwise requires”. This qualification is to be borne in mind with respect to all definitions given in this section. The expression means that the definitions have to be read in the context in which it is used, and purposive interpretation of the definition is to be given effect to. Hence, the definitions under sec 3 of the Code are not conclusive and have to be read in light of the context and scheme of the Code.
1.4.1
Board
“Board” is defined under sec 3(1) as the Insolvency and Bankruptcy Board of India established under sec 188(1) of this Code. As per sec 188, the Board is a body corporate having perpetual succession and a common seal established by the Central Government by notification. The Board was established by the Ministry of Corporate Affairs notification S.O. 3110(E) dated 1 October 2016 with its head office at New Delhi. The Board has been established to regulate the functioning of various crucial players and functionaries under the Code, including Insolvency Professionals, Insolvency Professional Agencies and Information Utilities. Although the Code lays down much of the operational framework for the insolvency and bankruptcy processes, the Board is required to make regulations from time to time on the mechanism for various matters of insolvency and bankruptcy under the Code. Between 29 August 2016 and 31 March 2017, the Board has brought out a number of rules and regulations under the Code including the regulations governing Corporate Insolvency Resolution Process and the Liquidation of Corporate Persons. Accordingly, the Board has the unique privilege of being a developer and a regulator in that it performs a multi-faceted role of acting as the regulator of key market players, ie the Insolvency Professionals and Agencies while at the same time paving the way for the functioning and of the insolvency and bankruptcy processes through the making of rules and regulations. Chapter 1 of Part IV of the Code deals with the establishment and constitution of the Board while Chapter II of Part IV deals with its powers and functions. The official website of the Board is www.ibbi.gov.in.
1.4.2
Bench
“Bench” under sec 3(2) refers to the bench of the Adjudicating Authority. As per sec 5(1) of the Code, the National Company Law Tribunal (NCLT) constituted under sec 408 of the Companies Act, 2013 will be the Adjudicating Authority for corporate persons and as per sec 79(1) of the Code, the Debt Recovery Tribunal (DRT) constituted under sec 3(1-A) of the Recovery of Debts
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and Bankruptcy Act, 1993 will be the Adjudicating Authority for individuals and partnership firms.
1.4.3
Bye-laws
As per sec 3(3), “bye laws” means the bye-laws made by the Insolvency Professional Agencies under sec 205 of the Code. Section 205 provides that every Insolvency Professional Agency is empowered to make bye-laws to govern its internal regulation after obtaining the approval of the Board. These bye-laws have to be consistent with the model bye-laws specified by the Board under sec 196(2). In exercise of powers conferred by sec 196, 203 and 205 read with sec 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 were notified on 22 November 2016. As per the Model Bye-Laws, every Company registered as an Insolvency Professional Agency is required to constitute a Governing Board (comprising of its Board of Directors) and put in place internal bye-laws in accordance with the Model ByeLaws. As of 31 May 2017, the following institutions are registered as Insolvency Professional Agencies: (a) Indian Institute of Insolvency Professionals of ICAI – an Insolvency Professional Agency formed by the Indian Institute of Chartered Accountants of India to enroll and regulate its member insolvency professionals. (b) ICSI Insolvency Professionals Agency – an Insolvency Professional Agency formed by the Institute of Company Secretaries to enroll and regulate its member insolvency professionals. (c) Insolvency Professional Agency of Institute of Cost Accountants of India – an Insolvency Professional Agency formed by the Institute of Cost Accountants of India to enroll and regulate its member insolvency professionals.
1.4.4
Charge
“Charge” is defined under sec 3(4) as an interest or lien created on the property or assets of any person, or any of its undertakings or both. This interest or lien is created by making such asset, property or undertaking a security for payment. The provision expressly includes a mortgage within the definition of a charge.
1.4.5
Chairperson
“Chairperson” is defined under sec 3(5) as the Chairperson of the Insolvency and Bankruptcy Board of India established under sec 188(1) of the Code.
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By the Ministry of Corporate Affairs notification S.O. 3111(E) dated 1 October 2016 and in exercise of powers under sec 189 of the Code, the Central Government appointed Mr. Madhu Sudan Sahoo as the Chairperson of the Board with effect from 1 October 2016 for a period of five years or until he reached the age of sixtyfive or until further orders, whichever is earlier.
1.4.6
Claim
As per sec 3(6), “claim” has been given a very wide definition and it means the following: (a) a right to payment whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; and (b) a 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, unmatured, disputed, undisputed, secured or unsecured. Author’s Comment The Code does not intend that a claim is only those amounts that are formally put forth or intimated to the Interim Resolution Professional or Resolution Professional, as the case may be, through the proof of claims process provided in reg 7 to 9 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations). As per sec 18(1)(a) read with sec 23(2) of the Code, the Interim Resolution Professional or Resolution Professional, as the case may be, is required to collect all information relating to the assets, finances and operations of the corporate debtor, including a list of assets and liabilities as on the initiation date for determining the financial position of the corporate debtor. Under reg 13 of the CIRP Regulations, the Interim Resolution Professional or Resolution Professional, as the case may be, is required to verify the claims of creditors and maintain a list of creditors of the corporate debtor. With respect to verification of claims, under reg 10 of the CIRP Regulations, the Interim Resolution Professional or Resolution Professional, as the case may be, may seek such evidence or clarification from a creditor for substantiating the claim. In the event a claim cannot be admitted or verified precisely, as per reg 14 of the Code, the Interim Resolution Professional or Resolution Professional, as the case may be, must make the best estimate of the amount based on the information available Therefore, even assuming a situation where a creditor does not come forward and submit a claim to the Interim Resolution Professional or Resolution Professional, as the case may be, in terms of the CIRP Regulations, the Code requires the Interim Resolution Professional or Resolution Professional, as the case may be, to
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admit/verify the claims against such financial creditor on the basis of documents and information available with him/her after making necessary efforts to obtain the additional information required.
1.4.7
Corporate person
As per sec 3(7), “corporate person” means, (a) a company as defined in sec 2(20) of the Companies Act, 2013; (b) a limited liability partnership as defined in sec 2(1)(n) of the Limited Liability Partnership Act, 2008; (c) any other person incorporated with limited liability under any law for the time being in force, other than a financial service provider.
1.4.8
Corporate debtor
“Corporate debtor” under sec 3(8) is defined as a corporate person, who owes a debt to any person. Corporate debtor under the Code would include the corporate persons including companies, limited liability partnerships and any other persons as notified by the government, from time to time.
1.4.9
Core services
As per sec 3(9), “core services” are defined as services rendered by an Information Utility for:
accepting electronic submission of financial information in such form and manner as may be specified;
safe and accurate recording of financial information;
authenticating and verifying the financial information submitted by a person; and
providing access to information stored with the Information Utility of persons as may be specified.
Information utilities are important players in the insolvency resolution process established by the Code which are expected to provide the infrastructure for quick and reliable access to all information relating to the corporate debtor and its creditors. Information utility is defined under sec 3(21) of the Code. As per reg 3(a) of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, the sole object of every Information Utility must be to provide core services and other services under the said regulations, and to discharge such functions as may be necessary for providing these services.
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1.4.10 Creditor “Creditor” is defined under sec 3(10) as any person to whom a debt is owed, and includes the following: (a) financial creditor; (b) operational creditor; (c) secured creditor; (d) unsecured creditor; and (e) decree holder. “Financial creditor” is defined under sec 5(7) and “operational creditor” under sec 5(20) of the Code. While unsecured creditor and decree holder have not been defined under the Code, secured creditor is defined under sec 3(30) of the Code.
1.4.11 Debt As per sec 3(11), “debt” means a liability or obligation in respect of a claim which is due from any person.
1.4.12 Default As per sec 3(12), “default” is defined as non-payment of a debt by a debtor or a corporate debtor. Default may either be of whole of the debt or a part thereof, that is, when any part or instalment of the amount of the debt has become due and payable, and has not been repaid by the debtor or corporate debtor. “Corporate debtor” as defined under sec 3(7) means a corporate person who owes debt, while “debtor” has been defined under sec 79(12) which provides that a debtor includes a judgment-debtor.
1.4.13 Financial information As per sec 3(13), “Financial information” in relation to a “person” (as defined under sec 3(23) of the Code) is any one or more of the following categories:
records of the debt of the person;
records of liabilities when the person is solvent;
records of assets of person over which security interest has been created;
records, if any, of instances of default by the person against any debt;
records of the balance sheet and cash-flow statements of the person;
and such other information as may be specified.
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Author’s Comment Much of the corporate insolvency individual bankruptcy resolution process under the Code revolves around financial information pertaining to the corporate debtor or the debtor, as the case may be. Once an applicant has initiated the Corporate Insolvency Resolution Process against a corporate debtor, the primary task of the Interim Resolution Professional or the Resolution Professional, as the case may be, is to determine the financial position of the corporate debtor. Financial position is defined as the financial information of a person as on a particular date. Ultimately, the financial information relating to the corporate debtor forms a substantial amount of the information relating to the corporate debtor in the information memorandum, on the basis of which a resolution plan for resolving the insolvency of the corporate debtor may be prepared.
1.4.14 Financial institution As per sec 3(14), a “financial institution” is defined as: (1) a scheduled bank which is a bank included in the second schedule of the Reserve Bank of India Act, 1934; (2) financial institution under sec 45-I of the Reserve Bank of India Act, 19342;
2
Section 45-I(c): “financial institution” means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:– (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own: (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature: (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972: (iv) the carrying on of any class of insurance business; (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,– (a) agricultural operations; or (aa) industrial activity; or] (b) the purchase or sale of any goods (other than securities) or the providing of any services; or Cont…
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(3) public financial institution as defined in sec 2(72) of the Companies Act, 20133; (4) any other such institution as may be notified by the Central Government as a financial institution.
1.4.15 Financial product “Financial product”, according to sec 3(15) means any of the following financial instruments: securities; contracts of insurance; deposits; credit arrangements including loans and advances by banks and financial institutions; retirement benefit plans; small savings instruments; foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately; or any other such instrument as may be prescribed. Cont…
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(c) the purchase, construction or sale of immovable property, so however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons; Explanation.– For the purposes of this clause, “industrial activity” means any activity specified in sub-clauses (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964; Section 2(72): “public financial institution” means— (i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956; (ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of sub-section (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; (iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India: Provided that no institution shall be so notified unless— (A) it has been established or constituted by or under any Central or State Act; or (B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments;
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1.4.16 Financial service As per sec 3(16), “financial service” includes any of the services, mentioned below:
accepting of deposits;
safeguarding and administering assets consisting of financial products belonging to another person or agreeing to do so;
effecting contracts of insurance;
offering, managing or agreeing to manage assets consisting of financial products belonging to another person;
rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of
buying, selling, or subscribing to a financial product;
availing a financial service; or
exercising any right associated with a financial product or financial service;
establishing or operating an investment scheme;
maintaining or transferring records of ownership of a financial product;
underwriting the issuance or subscription of a financial product; or
selling, providing, or issuing stored value or payment instruments or providing payment services.
1.4.17 Financial service provider A “financial service provider” has been defined under sec 3(17) of the Code as a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator as defined under sec 3(18) of the Code.
1.4.18 Financial sector regulator Section 3(18) provides for the definition of a “financial sector regulator”. It is defined as an authority or a body constituted under any law for the time being in force for the purpose of regulating services or transactions of the financial sector. This definition includes:
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the Reserve Bank of India;
the Securities and Exchange Board of India;
the Insurance Regulatory and Development Authority of India;
the Pension Fund Regulatory Authority; and
such other regulatory authorities as may be notified by the Central Government.
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1.4.19 Insolvency professional As per sec 3(19), an “Insolvency Professional” is defined as a person enrolled as a member of an Insolvency Professional Agency under sec 206 of this Code and registered with the Insolvency and Bankruptcy Board of India under sec 207 as an Insolvency Professional. Sections 206 and 207 are provided within Chapter IV of Part IV of the Code, which delineate the specific provisions for enrolment of Insolvency Professionals and their functions and obligations respectively. This provision establishes one of the most crucial players in the Corporate Insolvency Resolution Process - the Insolvency Professional. The Code envisages the creation of a class of such highly skilled and licensed professionals who have been given substantial powers to manage the insolvency and bankruptcy resolution process. As per the report of the Committee, an Insolvency Professional is required to be able to act and perform in the following roles as a: •
Resolution professional (RP) to resolve insolvency for a firm or an individual;
•
Bankruptcy Trustee in an individual bankruptcy process; and
• Liquidator in a firm liquidation process. Therefore, the role played by an Insolvency Professional is far more diverse than that by an official liquidator in the erstwhile regime, given that an Insolvency Professional is engaged in the process much before the stage of liquidation or bankruptcy. By notification reference no. IBBI/2016-17/GN/REG003 dated 23 November 2016, the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 have been notified by the Board with effect from 29 November 2016.
1.4.19.1 Classes of insolvency professionals By a press release dated 23 November 2016, the Board has listed the following categories of individuals as being eligible for registration as Insolvency Professionals: •
Advocates with 10 years of post-membership experience (practice or employment) subject to passing the Limited Insolvency Examination;
•
Chartered Accountants with 10 years of post-membership experience (practice or employment) subject to passing the Limited Insolvency Examination;
•
Company Secretaries with 10 years of post-membership experience (practice or employment) subject to passing the Limited Insolvency Examination;
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a Graduate with 15 years of post-qualification managerial experience subject to passing the Limited Insolvency Examination; and
•
any other individual on passing the National Insolvency Examination.
1.4.19.2 National Insolvency Examination and Limited Insolvency Examination As per reg 3(1) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, the Board, by itself or through a designated agency, is required to conduct a National Insolvency Examination to test the knowledge and practical skills of individuals in the areas of insolvency, bankruptcy and allied subjects. In addition, under reg 3(2) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, the Board is required to conduct a Limited Insolvency Examination to test the knowledge and practical skills of individuals in the areas of insolvency, bankruptcy and allied subjects. The Board has so far announced two rounds of Limited Insolvency Examinations – the first round from 31 December 2016 to 30 June 2017, and the second round from 1 July 2017 to 30 June 2018. The examination is a multiple choice examination (four choices for each question) and has a total of 80 questions of 1 mark each and 10 questions of 2 marks each which are required to be completed in under 2 hours. Every incorrect answer will be negatively marked by 25% of the marks that question carries, and a score of 60% is required to pass the examination. The registration fee for the examination is presently INR 1,000.
1.4.19.3 Temporary registration without examination By a press release dated 23 November 2016, the Board informed that Advocates, Chartered Accountants, Company Secretaries and Cost Accountants with more than 15 years of practice experience could seek registration, without any examination. But applications for such were required to be submitted on or before 31 December 2016 and the registration was valid for a limited period of six months. After the expiry of the period of six months, even such persons who had temporarily registered themselves as Insolvency Professionals would be required to obtain permanent registration by clearing the Limited Insolvency Examination or National Insolvency Examination.
1.4.20 Insolvency professional agency An “Insolvency Professional Agency” is defined in sec 3(20) as any person registered with the Insolvency and Bankruptcy Board of India under sec 201 as an Insolvency Professional Agency. Section 201 of the Code lays down the procedure for the registration of an Insolvency Professional Agency.
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Insolvency Professional Agencies perform the role of specialized intermediaries with whom Insolvency Professionals are enrolled. They are private professional agencies registered with the Insolvency and Bankruptcy Board of India who facilitate the process of insolvency resolution, liquidation and bankruptcy by overseeing the conduct of the Insolvency Professionals. The Bankruptcy Law Reforms Committee recommended a new model of “regulated self-regulation” for Insolvency Professionals by creating a two-tier structure, wherein the Insolvency Professional Agencies will regulate the working of the Insolvency Professionals who are enrolled with them. These Agencies have been given wide powers under this Code and can frame bye-laws establishing rules and standards for their members. The Board supervises and regulates the functioning of the Insolvency Professional Agencies. By notification reference no. IBBI/2016-17/GN/REG002 dated 21 November 2016, the Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016 have come into force. The said regulations provide for the eligibility criteria for registration with the Board and process of registration and surrender of certificate of registration amongst other things. As of 31 May 2017, the following institutions are registered as Insolvency Professional Agencies: (a) Indian Institute of Insolvency Professionals of ICAI – an Insolvency Professional Agency formed by the Indian Institute of Chartered Accountants of India to enroll and regulate its member insolvency professionals. (b) ICSI Insolvency Professionals Agency – an Insolvency Professional Agency formed by the Institute of Company Secretaries to enroll and regulate its member insolvency professionals. (c) Insolvency Professional Agency of Institute of Cost Accountants of India – an Insolvency Professional Agency formed by the Institute of Cost Accountants of India to enrol and regulate its member insolvency professionals.
1.4.21 Information utility Section 3(21) of the Code defines “Information Utility” as a person registered with the Insolvency and Bankruptcy Board as an Information Utility under sec 210. Section 210 provides for the registration of Information Utilities. The provisions for registration of Information Utilities and the guidelines governing their working are provided in Chapter V of Part IV of this Code. By notification no. IBBI/201617/GN/RG009 dated 31 March 2017, the Board notified the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 with effect from 1 April 2017.
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Information utilities have been created to regulate and manage the flow of critical information in the insolvency and bankruptcy regime. Such utilities serve to collect information which are necessary for the efficient resolution of the insolvency and bankruptcy process, as well as convey information as and when requested. The Board licenses and regulates the functioning of Information Utilities. The Bankruptcy Law Reforms Committee envisioned a regime which facilitates the development of a competitive industry of Information Utilities employing a tariff based arrangement allowing for easy access of information in the course of resolving insolvency and bankruptcy. The Committee sought to make a comprehensive information dissemination system, which would include the existing systems such as the Registrar of Companies, by allowing for their registration under the uniform title “Information Utilities” with the Board. The primary function of Information Utilities is to provide core services as defined under sec 3(9) of the Code and other services as provided for in the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017. By Press Release dated 4 May 2017, the Board has informed of the constitution of a Technical Committee in accordance with reg 14 of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017. The task of the said Technical Committee is to give its recommendations for laying down technical standards for the performance of core services under the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, and specifically on the following matters: (a) the Application Programming Interface; (b) standard terms of service; (c) registration of users; (d) unique identifier for each record and each user; (e) submission of information; (f) verification of information; (g) data integrity; (h) consent framework for providing access to information to third parties; (i) security of the system; (j) security of information; (k) risk management framework; (l) porting of information; (m) exchange or transfer of information between Information Utilities; (n) inter-operability among Information Utilities; (o) preservation of information; and (p) purging of information. 18
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1.4.22 Notification Section 3(22) defines “notification” as a notification published in the Official Gazette. The terms “notified” and “notify” have to be construed according to this definition.
1.4.23 Person A “person” as defined under sec 3(23) includes: an individual; a Hindu Undivided Family; a company; a trust; a partnership; a limited liability person; and any other entity established under a statute. Therefore, the Code includes both natural and legal persons within the definition of “person”. A person resident outside India is also included within the ambit of this definition. The Code therefore seeks to establish a single unified framework governing bankruptcy and insolvency in relation to all persons other than financial firms. It is pertinent to note that by including persons resident outside India, the Code attempts to address the issues in international settlement of claims, if either the defaulting party or the aggrieved party are not based in India.
1.4.24 Person resident in India As per sec 3(24), “person resident in India” is accorded the same meaning as the meaning assigned to such term under sec 2(v) of the Foreign Exchange Management Act, 19994.
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Section 2(v): “person resident in India” means(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include(A) a person who has gone out of India or who stays outside India, in either case(a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come to or stays in India, in either case, otherwise than(a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or Cont…
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1.4.25 Person resident outside India Section 3(25) defines “a person resident outside India” as a person other than a person resident in India.
1.4.26 Prescribed As per sec 3(26), “prescribed” is defined as prescribed by rules made by the Central Government.
1.4.27 Property Section 3(27) provides for a suggestive list of the types of property included within the ambit of this Code. It is a wide-ranging definition including every kind of property such as:
money;
goods;
actionable claims;
land and every description of property situated in India or outside India; and
every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property.
1.4.28 Regulations Section 3(28) defines “regulations” within the meaning of this Code as the regulations made by the Insolvency and Bankruptcy Board of India.
1.4.29 Schedule “Schedule”, according to sec 3(29), is a schedule annexed to this Code.
1.4.30 Secured creditor Section 3(30) defines “secured creditor” as a creditor who has a security interest in its favour.
Cont…
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India;
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1.4.31 Security interest Section 3(31) defines a security interest as a right, title or interest or a claim to property which has been created in favour of a secured creditor or has been provided for a secured creditor. This interest is created by a transaction which secures payment or performance of an obligation. This definition includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person. It is pertinent to note that the definition of a security interest specifically excludes a performance guarantee.
1.4.32 Specified In sec 3(32), the term “specified” is defined as specified by the regulations made by the Insolvency and Bankruptcy Board under this Code. The term “specify” is to be construed in accordance with this definition.
1.4.33 Transaction A “transaction” as per sec 3(33) includes an agreement or arrangement in writing entered into by a corporate debtor for the transfer of assets, or funds, goods or services, either from, or to, the corporate debtor.
1.4.34 Transfer The meaning of the term “transfer” has been provided in sec 3(34). It includes:
sale;
purchase;
exchange;
mortgage;
pledge;
gift;
loan; or
any other form of transfer of right, title, possession or lien.
1.4.35 Transfer of property “Transfer of property” is defined under sec 3(35) as the transfer of any property. This definition includes the transfer of any interest in the property and the creation of any charge upon such property. As per sec 3(4), a charge is created on a property by the creation of an interest or lien on such property, including mortgage by virtue of it being made a security for payment.
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1.4.36 Workman Workman, as defined under sec 3(36), shall have the same meaning as assigned to it in sec 2(s) of the Industrial Disputes Act, 19475.
1.4.37 Residuary clause Section 3(37) is a residuary clause which provides that the definition of all the terms and expressions used but not defined in this Code but defined under the Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Securities Contact (Regulation) Act, 1956, the Securities Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall be assigned to the terms within the meaning of this Code.
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Section 2(s): “workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-(i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or (ii) who is employed in the police service or as an officer or other employee of a prison; or (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.