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I-9
The First Edition of the Commentary on the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the Code’ or ‘IBC’) is before the readers. The enactment of the Code has brought the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. As per its Preamble, the Code is a step towards ensuring “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 the interests of all the stakeholders including alteration in the order of priority of payment of Government dues”.
The Code has established the Insolvency and Bankruptcy Board of India (IBBI), a statutory body which has completed five years of its establishment besides also celebrating 5 years of the enactment of the Code itself. As a regulator, the IBBI has
PREFACE
Prior to its enactment, a comprehensive legislation on insolvency matters was needed for various reasons. Notable ones being development of credit markets, encouraging entrepreneurship and improving ease of doing business. Before the IBC regime, there was multiplicity of laws governing insolvency and bankruptcy of corporate entities. Multiple fora were dealing with the enforcement of diverse legislative provisions and the complexity resulted in inadequate, ineffective and delayed resolutions. The Code not only takes care of insolvency resolution but also comprehensively covers the aspect of liquidation of Corporate Persons and bankruptcy of individuals including partnership firms.
It is noteworthy that all the provisions of the Code are yet to be made effective even after more than 5 years of its enactment. This fact itself indicates the arduous task of implementing the vast insolvency regime which was aimed at while enacting the Code. We should also not lose sight of the fact that the Code has undergone regular statutory amendments addressing various issues that arose during its implementation. Besides Corporate Insolvency Resolution Process (CIRP) that came into effect from December 2016, resolution process for personal guarantors to Corporate Debtors was made effective from December, 2019. The recent introduction of Pre-packaged Insolvency Resolution Process (PPIRP) for MSMEs in who have committed default of Rupees Ten lakhs and above upto Rupees One Crore is towards ensuring that MSMEs can come forward for resolution of its own defaults while the management remains in the hand of its Board of Directors.
done a tremendous job in framing and updating regulations for carrying out the Corporate Insolvency Resolution Process (CIRP) and other processes to be undertaken under the provisions of the Code. Besides, the IBBI has been pro-active in monitoring insolvency resolutions which is needed for effective implementation of new insolvency regime that is aimed at speedy resolution.
I-10
There are four pillars under the Code: Insolvency Professionals, Information Utilities, Adjudicating Authorities NCLTs and IBBI. Out of these four, Insolvency Professionals are the only pillar who are professionals carrying great responsibility of undertaking the resolution process of a Corporate Debtor or an individual, as the case may be. While the Insolvency Professionals undertake the resolution process in accordance with the Code and its Regulations, the Committee of Creditors takes all decisions with its commercial wisdom that are considered supreme and cannot be interfered with by the Adjudicating Authority. The Standing Committee of Finance in its 32nd Report (August, 2021) has advocated for having a professional code of conduct for the Committee of Creditors to define and circumscribe its decisions.
The new insolvency regime, through the Code, has achieved results including resolution of large debt-ridden accounts. Though concerns have been raised with reference to the amount of large hair-cuts taken by the Creditors while approving resolution plans, there is no doubt that the mechanism provided under the Code has aimed at speedy insolvency resolution of the defaulting entities and is giving an opportunity to have an ‘easy exit’. The judicial journey of the Code is also interesting to follow. At the beginning, only the provisions relating to resolution of Corporate Debtors were made effective. The Code was initially tested on constitutional validity on various grounds, including on the ground of discrimination and creation of different classes of creditors. Then arose the issue of applicability of provisions of the Limitation Act to the Code. Initially, the NCLAT had held that the provisions of Limitation Act are not applicable to the provisions of the Code which led to insolvency petitions filed by even those Financial and Operational Creditors whose debts were time-barred. Later, the Supreme Court reversed the NCLAT’s findings and made the provisions of the Limitation Act applicable to the Code. Section 238A was later introduced by the Parliament to put this issue at rest. Thereafter, the Supreme Court recognized homebuyers as financial creditors as the agreements between homebuyers and developers would have commercial effect of a borrowing. The liability of guarantors after the resolution of a Corporate Debtor has also remained debatable issue in many cases. Insofar as individual bankruptcy is concerned, only the provisions relating to Personal Guarantors to Corporate Debtors were made effective while the same in relation to other categories of individuals were not made effective. The Supreme Court has upheld the constitutional validity of this notification of the Executive. The Covid-19 pandemic saw the provisions for initiating CIRP of Corporate Debtors suspended for a year and the threshold limit of amount of default for initiating CIRP against Corporate Debtor increased from Rupees One lakh to Rupees One Crore. The Legislature introduced the provisions of Pre-packaged Insolvency Resolution Process (‘PPIRP’) for the
I-11
There have been many challenges faced especially in the working of the NCLT benches who are expected to perform in a time-bound manner for quick resolution of Corporate Debtors. The infrastructural requirement of DRTs and DRATs and the expertise available with its members who would be expected to supervise the individual bankruptcy process is also to be looked into in Furtherfuture.developments in the Code that are expected in future are introduction of framework for Cross-border insolvency and Group Insolvency. Also, the provisions relating to insolvency resolution and bankruptcy for individuals and partnership firms, including Limited Liability Partnerships (LLPs) and proprietorship firms are expected to come into force for the insolvency regime as envisaged under the Code to have effect over all expected to be covered.
Date: August 25, 2022 New Delhi
I-12
RP VATS
MSME Corporates where default committed is in range between Rupees Ten lakhs and Rupees One Crore.
We thank our Associates at VGC Law Firm who have given their necessary assistance in helping us in writing this book and the entire team of Taxmann for printing it in the present form. We hope the readers would benefit from the book. Suggestions are welcome.
APOORV SARVARIA YASHIKA SARVARIA
The Code, still developing like a young child, the law on the subject has been developing at a high pace with verdicts coming from different judicial fora. We have tried to incorporate all relevant decisions of the Supreme Court, High Courts, NCLAT and NCLTs covering all the aspects dealt by the Code.
I-13 Foreword I-5 About the authors I-7 Preface I-9 List of Cases I-29 SECTION-WISE COMMENTARY ON INSOLVENCY AND BANKRUPTCY CODE, 2016 PART I PRELIMINARY 1. 1.3 2. 1.29 3. 1.32 PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATEPRELIMINARYPERSONS 4. 1.54 5. 1.56 CORPORATE INSOLVENCY RESOLUTION PROCESS 6. 1.100 7. 1.103 CONTENTS
17.
14.
29A.
8. 1.178 1.192 1.217 1.235 1.237 1.243 1.244 1.259 1.264 1.266 1.298 1.309 1.319 1.324 1.339 1.342 1.345 1.365 1.371 1.375 1.388 1.397 1.402 1.402 1.406 1.409 1.413 1.442 1.476 1.503 1.508
26.
11.
10.
11A.
12A.
19.
9.
23.
29.
30.
12.
13.
15.
16.
18.
22.
I-14
25.
21.
27.
28.
25A.
10A.
31.
32.
20.
32A.
24.
46.
I-15
33.
39.
PRE-PACKAGEDRESOLUTIONINSOLVENCYPROCESS 1.642 1.648 1.651 1.656
54A.
41.
34.
54.
35.
48.
38.
40.
52.
37.
42.
50.
51.
LIQUIDATION PROCESS 1.518 1.530 1.540 1.571 1.578 1.581 1.586 1.588 1.590 1.591 1.597 1.607 1.610 1.612 1.613 1.615 1.616 1.618 1.619 1.627 1.634 1.640
54B.
54D.
47.
49.
36.
43.
45.
54C.
44.
53.
54N.
54H.
54E. 1.657 1.659 1.665 1.669 1.671 1.680 1.682 1.694 1.696 1.696 1.699 1.702
54P.
54F.
56. 1.707 57. 1.708 58. 1.710 VOLUNTARY
60. 1.750 61. 1.770 62. 1.786 63. 1.792 64. 1.795 65. 1.796
54M.
54G.
54-O.
59. 1.729 ADJUDICATING
FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS 1.704 LIQUIDATION OF CORPORATE PERSONS AUTHORITY FOR CORPORATE PERSONS
54J.
55.
54L.
I-16
54-I.
54K.
78.
I-1766. 1.800 67. 1.802 67A. 1.805
74.
PRELIMINARY 1.820 1.821
79.
80.
77.
PART III
INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS
72.
OFFENCES AND PENALTIES 1.805 1.808 1.809 1.812 1.812 1.813 1.814 1.816 1.816 1.817 1.818
73.
71.
FRESH START PROCESS 1.825 1.827
81.
77A.
68.
69.
76.
75.
70.
100.
106.
87.
110.
104.
94.
93.
97.
88.
90.
82.
108.
INSOLVENCY RESOLUTION PROCESS 1.845 1.847 1.850 1.852 1.854 1.857 1.859 1.861 1.862 1.863 1.865 1.866 1.868 1.870 1.872 1.873 1.877 1.878 1.879 1.880
I-18 1.829 1.830 1.833 1.834 1.835 1.837 1.838 1.839 1.841 1.841 1.843 1.844
91.
83.
85.
92.
105.
99.
102.
107.
109.
113.
98.
101.
84.
111.
103.
89.
96.
86.
95.
112.
BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS 121. 1.889 122. 1.890 123. 1.892 124. 1.894 125. 1.896 126. 1.898 127. 1.899 128. 1.899 129. 1.901 130. 1.903 131. 1.904 132. 1.905 133. 1.907 134. 1.909 135. 1.911 136. 1.913 137. 1.913 138. 1.915 139. 1.916 140. 1.917 141. 1.918 142. 1.920 143. 1.921 144. 1.922
I-19114. 1.881 115. 1.882 116. 1.883 117. 1.884 118. 1.885 119. 1.887 120. 1.888
165.
164.
172.
158.
ADMINISTRATION AND DISTRIBUTION OF THE ESTATE OF THE BANKRUPT 149. 1.929 150. 1.930 151. 1.932 152. 1.933 153. 1.934 154. 1.936 155. 1.937 156. 1.938 157. 1.939 1.940 1.941 1.943 1.945 1.947 1.948 1.949 1.952 1.954 1.956 1.958 1.960 1.960 1.961 1.963 1.964 1.965 1.967
166.
174.
160.
159.
161.
163.
170.
162.
148.
175.
I-20 1.922 146. 1.925 1.926 1.928
145.
169.
147.
168.
167.
171.
173.
184.
THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA 188. 1.986 189. 1.988 190. 1.991 191. 1.992 192. 1.992 193. 1.995 194. 1.997 195. 1.998
REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITIES
I-21176. 1.968 177. 1.970 178. 1.972
PART IV
OFFENCES AND PENALTIES 1.980 185. 1.981 186. 1.981 187. 1.984
ADJUDICATING AUTHORITY FOR INDIVIDUALS AND PARTNERSHIP FIRMS 179. 1.975 180. 1.976 181. 1.977 182. 1.978 183. 1.979
I-22
INSOLVENCY PROFESSIONALS 206. 1.1022 207. 1.1025 208. 1.1034
INFORMATION UTILITIES 209. 1.1048 210. 1.1049 211. 1.1054 212. 1.1055 213. 1.1057 214. 1.1062 215. 1.1066
POWERS AND FUNCTIONS OF THE BOARD
INSOLVENCY PROFESSIONAL AGENCIES 199. 1.1008 200. 1.1009 201. 1.1010 202. 1.1015 203. 1.1015 204. 1.1018 205. 1.1019
196. 1.998 197. 1.1006 198. 1.1008
I-23216. 1.1067
INSPECTION AND INVESTIGATION 217. 1.1068 218. 1.1072 219. 1.1082 220. 1.1082
FINANCE, ACCOUNTS AND AUDIT 221. 1.1098 222. 1.1099 223. 1.1100
PART V MISCELLANEOUS 224. 1.1102 225. 1.1103 226. 1.1104 227. 1.1106 228. 1.1113 229. 1.1113 230. 1.1114 231. 1.1115 232. 1.1118 233. 1.1119 234. 1.1119 235. 1.1120 235A. 1.1123 236. 1.1123 237. 1.1124 238. 1.1125
I-24
THE FIRST SCHEDULE 1.1176 THE SECOND SCHEDULE 1.1176 THE THIRD SCHEDULE 1.1177 THE FOURTH SCHEDULE 1.1177 THE FIFTH SCHEDULE 1.1177 THE SIXTH SCHEDULE 1.1178 THE SEVENTH SCHEDULE 1.1178 THE EIGHTH SCHEDULE 1.1178 THE NINTH SCHEDULE 1.1179 THE TENTH SCHEDULE 1.1179 THE ELEVENTH SCHEDULE 1.1179 THE TWELFTH SCHEDULE 1.1186 APPENDIX : 1.1189
SUBJECT INDEX 1.1223
238A. 1.1131 239. 1.1151 240. 1.1156 240A. 1.1168 241. 1.1171 242. 1.1172 243. 1.1173 244. 1.1174 245. 1.1175 246. 1.1175 247. 1.1175 248. 1.1175 249. 1.1175 250. 1.1175 251. 1.1176 252. 1.1176 253. 1.1176 254. 1.1176 255. 1.1176
RULES AND REGULATIONS
2.313*2.310*2.231*2.1672.87*2.20*2.3*2.32*2.68**2.276*2.322*2.328*2.334*2.373*2.385*2.424*2.431*2.434* See
I-25
I-26 2.478*2.453*2.456*2.480*2.499*2.507*2.532*2.553*2.568*2.575*2.623*2.678* GUIDELINES ISSUED UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016 3.46*3.36*3.3*3.50* See
5.3*
6.3* See
NOTIFICATIONS ISSUED UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
CIRCULARS ISSUED UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
I-27 3.82*3.69*3.75*
RBI (PRUDENTIAL FRAMEWORK FOR RESOLUTION OF STRESSED ASSETS) DIRECTIONS, 2019
4.3*
S. 14 1.266 Seec commentary on section 15 Moratorium.14.Explanation.—bacd
1.267 S. 14 ab Provided a a
2A Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to
3 The provisions of sub-section 1 shall not apply to: a such transactions as may be notified by the Central Government in con sultation with any financial sector regulator or any other authority; b a surety in a contract of guarantee to a corporate debtor. vide i
videvide
COMMENTS
S. 14 1.268
“
14.1 LEGISLATIVE HISTORY
Explanation.—Explanation
ii
“
3 The provisions of sub-section 1 shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”
such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;”.
dbac
1.269 S. 14
14.2 OVERVIEW
protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.”
iii aa
Licences, permits, clearances etc. -Vide
i.e. inter alia
S. 14 1.270.
14.3 MEANING AND OBJECTIVE OF MORATORIUM
Duration of order of moratorium:
Shiv Kumar Tulsian and another Union of India “...moratorium implies postponement of obligations of the debtor to pay his creditor...
Words and Phrases, Permanent Edition, Volume 27A, page 210
Supply of essential goods or services: vide -
Non-applicability of moratorium:
Lanco Infratech Limited through its interim Resolution Professional Isolloyd Engineering Technologies Limited
1.271 S. 14 -
-
S. 14 1.272
14.4 INSTITUTION OF SUITS OR CONTINUATION OF PENDING SUITS OR PROCEEDINGS AGAINST THE CORPORATE DEBTOR INCLUDING EXECUTION OF ANY JUDGMENT, DECREE OR ORDER IN ANY COURT OF LAW, TRIBUNAL, ARBITRATION PANEL OR OTHER AUTHORITY a a Alchemist Asset Reconstruction Co. Ltd. Hotel Gaudavan P. Ltd.
14.4-1 Continuation of the suit proceedings as per Section 14 of the Code includes taking procedural steps such as filing of written statement Golden Jubilee Hotels Limited EIH Ltd.
“The motivation behind the moratorium is that it is value maximising for the entity to continue operation even as viability is being assessed during the IRP. There should be no additional stress on the business after the public announce ment of the IRP. The order for the moratorium during the IRP imposes a stay not just on debt recovery actions, but also any claims or expected claims from, old lawsuits or on new lawsuits, for any manner of recovery from the entity.”
Recommendations of the BLRC
1.273 S. 14 inter alia
i.ea
a
“the institution of suits or continuation of pending suits or proceedings against the corporate debtor”
14.4-2 Counter Claim
SSMP Industries Ltd. Perkan Food Processors (P.) Ltd.
S. 14 1.274
14.4-4 Arbitration Proceedings
K. S. Oils Ltd. State Trade Corporation of India Ltd.
non est
Ltd.vide
Alchemist Asset Reconstruction Co. Ltd. Hotel Gaudavan P. Ltd.
14.4-3 Continuation of proceedings against the Director of the Corporate Debtor not permissible where the cause of action against the Corporate Debtor and the Director are inextricably linked Golden Jubilee Hotels Limited v. EIH
1.275 S. 14
Professional Meenakshi Energy Ltd.
Power Grid (Supra)
Power Grid Corporation of India Ltd. Jyoti Structures Ltd. a inter alia a viz., a b a c a d e i.e f a “by or against the corporate debtor” a g i.e. i.e. a P. Mohanraj Shah Brothers Ispat (P.) Ltd. Power Grid (Supra)
V. Nagarajan Resolution
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