Chapter-Heads
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Contents
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Acronyms
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Amendments made by Insolvency and Bankruptcy Code (Amendment) Act, 2021 at a glance
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Guide to Insolvency and Bankruptcy Code (Amendment) Act, 2021
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Section Index
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CHAPTER 1 DECLINING STAGE OF AN ORGANISATION
1
CHAPTER 2 INSOLVENCY PROFESSIONAL
40
CHAPTER 3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS
53
CHAPTER 4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS
96
CHAPTER 5 RESOLUTION PLAN BY RESOLUTION APPLICANT
138
CHAPTER 6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS
I-5
170
CHAPTER-HEADS
I-6 PAGE
CHAPTER 6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)
172
CHAPTER 6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION
196
CHAPTER 6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP
218
CHAPTER 7 LIQUIDATION OF CORPORATE PERSON
238
CHAPTER 8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR
255
CHAPTER 9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR
267
CHAPTER 10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN
274
CHAPTER 11 VOLUNTARY LIQUIDATION OF COMPANIES
283
CHAPTER 12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS
290
CHAPTER 13 CROSS BORDER INSOLVENCY AND BANKRUPTCY
298
CHAPTER 14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY
300
I-7
CHAPTER-HEADS PAGE
CHAPTER 15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS
307
CHAPTER 16 FRESH START PROCESS
310
CHAPTER 17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM
316
CHAPTER 18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS
330
CHAPTER 19 BANKRUPTCY TRUSTEE
343
CHAPTER 20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT
354
CHAPTER 21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
358
CHAPTER 22 REGISTERED VALUERS
372
CHAPTER 23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS
379
CHAPTER 24 NCLT AND NCLAT
390
CHAPTER 25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993
402
CHAPTER 26 SARFAESI ACT
424
CHAPTER-HEADS
I-8 PAGE
CHAPTER 27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS SUBJECT INDEX
481 487
Contents PAGE
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Chapter-heads
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Acronyms
I-23
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Amendments made by Insolvency and Bankruptcy Code (Amendment) Act, 2021 at a glance
I-27
Guide to Insolvency and Bankruptcy Code (Amendment) Act, 2021
I-29
Section Index
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1 DECLINING STAGE OF AN ORGANISATION
1.1
Background
1
1.2
Overall scheme of the Insolvency and Bankruptcy Code
9
1.3
Insolvency Code has overriding effect
14
1.4
Limitation Act applies to proceedings before NCLT or NCLAT
16
Provisions in Companies Act, 2013 relating to winding up are applicable to the extent not contrary to Insolvency Code
21
1.6
Insolvency and Bankruptcy Board of India (IBBI)
21
1.7
Adjudicating Authority (AA) and Appellate Authorities
25
1.8
Information Utility (IU)
26
1.9
Insolvency and Bankruptcy Fund
27
1.10
Winding up provisions under Companies Act revamped
28
1.11
Transitory provisions for shifting from winding up proceedings to Insolvency
28
Lenders may apply under SARFAESI and DRT and in addition they can go for Insolvency resolution
30
1.5
1.12
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1.13
Transitory provisions as SICA repealed
32
1.14
Income tax provisions for corporate debtors where application for CIRP has been admitted
32
Promoter/director can be Resolution applicant if Corporate Debtors is MSME
34
Special provisions under GST relating to companies under Insolvency Process
37
Institution and/or continuation of proceedings under FTDR against companies against whom proceedings have been instituted under Insolvency Code
39
Role of Government and its agencies in CIRP and Liquidation Process
39
1.15 1.16 1.17
1.18
2 INSOLVENCY PROFESSIONAL
2.1
Background
40
2.2
Insolvency Professional Agency (IPA)
40
2.3
Insolvency Professional (IP)
42
2.4
Panel of Insolvency Professionals to recommend to NCLT as Interim Resolution Professional or Liquidator
50
Insolvency Professional Entities
51
2.5
3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS
3.1
Background
53
3.2
Initiation of corporate insolvency resolution process
53
3.3
Who can initiate insolvency resolution process
62
3.4
Initiation of proceedings by financial creditor
65
3.5
Insolvency proceedings can be initiated against corporate guarantor or personal guarantors
76
3.6
Initiation of insolvency resolution by operational creditor
79
3.7
Initiation of insolvency resolution process by corporate applicant himself
90
Appointment of Interim Resolution Professional
93
3.8
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3.9
Further procedure before NCLT
94
3.10
Withdrawal of application after admission with approval of 90% voting by CoC
95
4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS
4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9
107 108
Submission of proof of claims to interim resolution professional
112
Committee of Creditors (CoC) Appointment of resolution professional in first meeting of CoC Powers and functions of Committee of Creditors (CoC) Duties of resolution professional
4.10
Prior approval of committee of creditors for certain actions by resolution professional
4.11 4.12
Preparation of information memorandum Protection to insolvency resolution professional in respect of earlier transactions Special Provisions in respect of NBFC with assets of Rs. 500 crore or more
4.13
96 99
Background Moratorium and public announcement Public announcement of corporate insolvency resolution process Appointment and tenure of interim resolution professional
116 123 125 128 131 132 133 133
5 RESOLUTION PLAN BY RESOLUTION APPLICANT
5.1 5.2
Background Ineligible Resolution Applicant
138 139
5.3 5.4
Invitation for expression of interest Submission of resolution plan by resolution applicant to insolvency professional Insolvency resolution process costs Approval of resolution plan by Committee of Creditors
146
5.5 5.6
148 155 157
CONTENTS
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5.7
Submission of plan to Adjudicating Authority
162
5.8
Assistance of district administration in implementing the resolution plan
166
5.9 5.10 5.11 5.12
5.13
Effect if resolution plan rejected by NCLT Appeal against order of adjudicating authority Immunity from prosecution of corporate debtor after approval of CIRP No action against property of corporate debtor in respect of offence committed prior to CIRP if there was change in management or sale of assets
166 166
Preservation of records of CIRP by RP
169
166
168
6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS
6.1 6.2 6.3
Speedy process for insolvency resolution Application for fast track process Procedure for fast track process
170 170 171
6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)
6A.1 Background of the PPIRP (Pre-packaged Insolvency Resolution Process)
172
6A.2 Basic design of pre-packaged insolvency resolution process (PPIRP)
176
6A.3 Application of provisions of CIRP to PPIRP
180
6A.4 Priority to PPIRP over CIRP, except where CIRP proceedings have already commenced
182
6A.5 Eligibility and conditions to apply for PPIRP
184
6A.6 Initiation of PPIRP by Corporate Debtor
186
6A.7 Duties and authorities of Insolvency Professional proposed to be appointed as Resolution Professional
188
6A.8 Procedure prior to application to AA for approval to initiate PPIRP
190
6A.9 Filing of application by Corporate Applicant with Adjudicating Authority
192
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6A.10 Admission or rejection of application by Adjudicating Authority (NCLT)
194
6A.11 Moratorium during PPIRP period
195
6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION
6B.1 Formal process of PPIRP starts only after admission of application
196
6B.2 Conduct of PPIRP by Resolution Professional
197
6B.3 Powers of Resolution Professional during initial stages of PPIRP
199
6B.4 Filing of Application for avoidance of transactions
200
6B.5 Prior approval of Committee of Creditors (CoC) for certain actions by corporate debtor
202
6B.6 Information to be supplied by financial institutions to Resolution Professional
204
6B.7 Submission of List of claims and its updation in PPIRP
204
6B.8 Conduct of business of Corporate Debtor during PPIRP
207
6B.9 Constitution and functioning of Committee of Creditors in PPIRP
208
6B.10 Meeting of Committee of Creditors in PPIRP
211
6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP
6C.1 What is a resolution plan
218
6C.2 Submission of Base Resolution Plan by RP to CoC
222
6C.3 Invitation to Resolution Applicants if CoC does not approve base resolution plan or operational creditors cannot be satisfied
224
6C.4 Furnishing of information to Resolution Applicants
226
6C.5 Submission of resolution plan by resolution applicant and its evaluation
228
6C.6 Submission of Resolution Plans by Resolution Professional to CoC
229
CONTENTS
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6C.7 Submission of Resolution Plan approved by CoC for approval by AA
232
6C.8 Termination of PPIRP which ultimately results in liquidation of corporate debtor
234
6C.9 CoC may terminate PPIRP if corporate debtor eligible for CIRP
236
7 LIQUIDATION OF CORPORATE PERSON
7.1
Initiation of Liquidation
238
7.2
Appointment of Liquidator and his fees
241
7.3
Powers and duties of Liquidator
244
7.4
Liquidation Estate
248
7.5
Realization of security interest by secured creditor
250
7.6
Distribution of unsold assets
251
7.7
Liabilities of contributory in liquidation
252
8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR
8.1 8.2 8.3
Liquidator has powers to access information Ascertaining claims against corporate debtor Avoidance of preferential transactions by liquidator
255 256 258
8.4
Avoidance of undervalued transactions
262
8.5
Action if corporate debtor had defraud creditors
263
8.6
Protection to corporate debtor against extortionate credit transactions
264
Position of secured creditor in liquidation proceedings
265
8.7
9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR
9.1
Realisation of assets by Liquidator
267
9.2
Mode of sale
267
9.3
All money to be paid into bank account except petty cash
268
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CONTENTS PAGE
9.4
Distribution of assets
268
9.5
Distribution of cash to stakeholders
271
9.6
Completion of liquidation within one year
271
9.7
Final report by Liquidator prior to dissolution
272
9.8
Unclaimed proceeds of liquidation or undistributed assets to be transferred to Corporate Liquidation Account
272
9.9
Dissolution of corporate debtor
273
10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN
Insolvency Code is complete code in respect of distribution of assets
274
10.2
Money held in trust has priority over all dues
275
10.3
Statutory dues under other laws
276
10.4
Workmen’s portion of Workmen’s dues previous for two years have overriding priority
277
10.5
Provisions relating to secured creditors
279
10.6
Priority of tax dues in winding up over secured creditors
280
10.7
Preferential Payments under Companies Act
282
10.8
Distribution of surplus amount members
282
10.9
Tax liability under Income Tax in respect of distribution of assets to equity shareholders
282
10.1
11 VOLUNTARY LIQUIDATION OF COMPANIES
11.1
Voluntary liquidation by corporates with no default
283
11.2
Procedure for Voluntary Liquidation
283
11.3
Notification to Registrar after resolution
284
11.4
Application to NCLT after assets wound up
284
11.5
Procedure for voluntary liquidation
284
11.6
Claim by various creditors Proof of claim
285
11.7
Realisation of Assets
286
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11.8
Completion of liquidation
287
11.9
Cases where voluntary liquidation was allowed
289
12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS
Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons
290
12.2
Appeals and Appellate Authority
292
12.3
Appeal to Supreme Court on question of law
294
12.4
Civil Court not to have jurisdiction where NCLT or IBBI has jurisdiction
294
12.5
Expeditious disposal of applications
295
12.6
Penalty for Fraudulent or malicious initiation of proceedings
295
Penalty of carrying on business fraudulently to defraud traders
295
12.1
12.7
13 CROSS BORDER INSOLVENCY AND BANKRUPTCY
13.1 13.2
Enabling provisions for cross border transactions Agreements with foreign countries
298 298
13.3
Letter of request to a country outside India in respect of assets
298
14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY
14.1
Punishments for offences
300
14.2
Punishment for concealment of property
300
14.3
Punishment for transactions defrauding creditors
301
14.4
Punishment for misconduct in course of corporate insolvency resolution process
302
14.5
Offences by insolvency professional
303
14.6
Punishment for falsification of books of corporate debtor
303
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CONTENTS PAGE
14.7
Punishment for wilful and material omissions from statements relating to affairs of corporate debtor
303
14.8
Punishment for false representations to creditors
303
14.9
Punishment for contravention of moratorium or the resolution plan
303
14.10 Punishment for false information furnished in application
304
14.11 Punishment for non-disclosure of (a) dispute or (b) payment of debt by operational creditor
304
14.12 Punishment for providing false information in application made by corporate debtor
304
14.13 Residual punishment of fine for violation of provisions of Insolvency Code
305
14.14 NCLT can ask Government to investigate and Government can file complaint before Special Court
305
14.15 Punishment for providing false information in pre-packaged insolvency resolution process
305
14.16 Punishment for providing false information in pre-packaged insolvency resolution process
306
14.17 When the application shall be deemed to be false in material particulars
306
15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS
15.1
Background
307
15.2
Adjudicating Authority
308
15.3
Civil Court not to have jurisdiction
309
15.4
Appeal against order of DRT
309
15.5
Appeal to Supreme Court
309
16 FRESH START PROCESS
16.1
Introduction
310
16.2
Interim moratorium
312
16.3
Procedure after receipt of application
312
16.4
Objections by creditor
313
16.5
Discharge order
314
CONTENTS
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17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM
17.1
What is insolvency resolution?
316
17.2
Creditor can initiate insolvency resolution process
317
17.3
Interim moratorium
318
17.4
Admission or rejection of application by Adjudicating Authority
319
Moratorium if application is admitted by Adjudicating Authority
319
17.6
Registering of claims by creditors after public notice
320
17.7
Repayment plan by debtor in consultation with resolution professional
320
17.8
Summoning of meeting of creditors
321
17.9
Rights of secured creditors in relation to repayment plan
322
17.5
17.10 Approval of repayment plan by creditors by more than 75% voting
323
17.11 Order of Adjudicating Authority on repayment plan
323
17.12 Report of Completion of repayment plan
324
17.13 Discharge order
324
17.14 Special provisions for insolvency resolution for personal guarantors of corporate debtors
325
18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS
18.1
Bankruptcy if insolvency resolution process fails
330
18.2
Interim moratorium as soon as application is filed
331
18.3
Bankruptcy order by Adjudicating Authority
332
18.4
Statement of financial position by bankrupt
333
18.5
Settlement of claims of creditors
334
18.6
Administration and distribution of estate of bankrupt
335
18.7
Discharge order
335
18.8
Modification or recall of bankruptcy order
336
18.9
Disqualification of bankrupt from bankruptcy commencement date till he is discharged
336
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18.10 Bankruptcy process for personal guarantors to Corporate Debtors
337
19 BANKRUPTCY TRUSTEE
19.1
Standard of conduct of bankruptcy trustee
343
19.2
Release of bankruptcy trustee
344
19.3
Administration and distribution of estate of bankrupt by bankruptcy trustee
344
Approval of creditors for certain acts to be done by bankruptcy trustee
346
19.5
Estate of bankrupt
346
19.6
Onerous property of bankrupt can be disowned
348
19.7
Challenge against disclaimed property
349
19.8
Undervalued transactions
350
19.9
Preference transactions
351
19.4
19.10 Extortionate credit transactions
352
19.11 Proceedings continue even if bankrupt dies
352
20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT
20.1
Proof of debt
354
20.2
Distribution of interim dividend
355
20.3
Distribution of property among creditors
355
20.4
Final dividend
355
20.5
Claims of creditors who had not proved their debt
356
20.6
Priority of payment of debts
356
21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
21.1
Background
358
21.2
Application to NCLT
360
21.3
Sections 230 to 240 is complete code of ‘single window clearance’
362
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21.4
Merger and Amalgamation
363
21.5
Procedure to be followed
365
21.6
Simplified fast track procedure in case of small companies or holding/subsidiary companies
368
21.7
Cross border mergers
369
21.8
Takeover of another company by purchasing 100% of shares
369
Compromise or arrangement may include takeover
370
21.9
21.10 Compulsory offer to purchase of minority shareholding if acquirer already holds 90% or more equity shares
371
21.11 Power to Central Government to order compulsory amalgamation
371
22 REGISTERED VALUERS
22.1
Background
372
22.2
Qualifications and eligibility and registration as valuer
375
22.3
Methods of valuation
378
22.4
Liability of valuer is as ‘expert’
378
23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS
23.1
Removal of name - Short cut to winding up
379
23.2
Striking off name of a company
379
23.3
Company may itself request for removal of its name from register of companies
381
NCLT can issue winding up order even if name of struck off the register
383
23.5
Restrictions in applying for removal of name
383
23.6
Effect if company is dissolved by removing name from register
384
Effect if company carries on business even after name is struck off the register
384
23.8
Fraudulent application for removal of name
384
23.9
Appeal before NCLT against removal of name of company
385
23.4
23.7
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23.10 When NCLT can restore name of company
386
23.11 Restoration of name of company if application made within 20 years
389
24 NCLT AND NCLAT
24.1
Background
390
24.2
Constitution of Tribunal (NCLT)
393
24.3
National Company Law Appellate Tribunal
394
24.4
Provisions common to NCLT and NCLAT
395
24.5
Procedural aspects of NCLT and NCLAT
397
24.6
Appeal to Supreme Court against order of NCLAT
400
25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993
25.1
Background of RDB Act
402
25.2
Debt Recovery Tribunal
409
25.3
General provisions relating to DRT and DRAT
413
25.4
Procedure at Debt Recovery Tribunal
414
25.5
Appeal against order of DRT
418
25.6
Further appeals after order of DRAT
419
25.7
Decree of foreign Court should be executed through DRT only
421
Recovery Powers after issue of certificate
421
25.8
26 SARFAESI ACT
26.1
Overview
424
26.2
Enforcement of Security Interest
427
26.3
How to enforce security interest
435
26.4
How the secured creditor can exercise his right?
441
26.5
Other related provisions
442
CONTENTS
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26.6
Procedure for sale of asset
446
26.7
Takeover of management of defaulting borrower
457
26.8
Application, Appeals and Penalty
459
26.9
Securitisation
464
26.10 Asset Reconstruction Companies
467
26.11 Acquiring financial assets by ARC from Bank/FI
472
26.12 Central Registry under SARFAESI Act
476
26.13 Asset Reconstruction
479
27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS
27.1
Background
481
27.2
RBI Directions on Prudential Framework for Resolution of Stressed Assets
482
Framework for Resolution of Stressed Assets as directed by RBI
483
Provisioning in case of delayed Implementation of Resolution Plan
485
27.5
Prudential Norms
485
27.6
Supervisory Review by RBI
486
27.7
Disclosures by lenders in financial statements
486
27.8
Exceptions to the directions for stressed assets
486
27.3 27.4
SUBJECT INDEX
487
C
H
A
P
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E
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3
Insolvency Resolution of corporate persons 3.1 Background Part II of Insolvency Code, 2016 [sections 4 to 77] deal with Insolvency Resolution and liquidation of corporate persons. This part is divided into seven chapters. Each chapter dealing with different issues relating to Insolvency Resolution and liquidation of corporate persons. The Insolvency Code initially made provisions of corporate insolvency resolution process (CIRP). Now, w.e.f. 4-4-2021 separate provisions have been made for pre-packaged insolvency resolution process (PPIRP) of corporate debtor under Chapter III-A of the Insolvency Code, specifically for MSME sector. The provisions relating to PPIRP are discussed separately.
3.2 Initiation of corporate insolvency resolution process Corporate insolvency resolution process (CIRP) can be commenced when a corporate debtor commits a default - section 4(1) of Insolvency Code, 2016. The default should be minimum Rs one crore - proviso to section 4(1) of Insolvency Code, 2016 [Limit of Rs one lakh increased to Rs one crore vide Notification No. S.O. 1205(E) dated 24-3-2020] - noted and followed in Pankaj Aggrawal v. UOI (2020) 160 SCL 624 = 117 taxmann.com 494 (Del HC). CIRP cannot be initiated if amount involved is less than Rs one lakh (now Rs one crore) - Deltas Pharma v. Life Essential Personalcare (2018) 148 SCL 234 = 94 taxmann.com 222 (NCLT). When amount involved exceeds Rs one lakh (now Rs one crore), Adjudicating Authority is not required to determine exact amount defaulted. Discrepancy in calculation can be settled by CoC - Bank of Baroda v. Barnala Steel Industries P Ltd. (2018) 148 SCL 246 = 94 taxmann.com 202 (NCLT) * Standard Chartered Bank v. Woolways India Ltd. [2018] 94 taxmann.com 381 (NCLT). 53
Para 3.2
INSOLVENCY RESOLUTION OF CORPORATE PERSONS
54
Dispute regarding quantum of admitted liability is immaterial at admission stage of CIRP application, once liability is accepted – Apya Capital Services v. Guardian Homes [2021] 129 taxmann.com 393 (NCLAT). Minimum default for pre-packaged IRP (PPIRP) can be set upto Rupees one crore (presently minimum Rs. 10 lakhs) - The Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors (PPIRP) under Chapter III-A (Pre-packaged insolvency resolution process) - second proviso to section 4 of Insolvency Code inserted vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021. Minimum default should be Rupees ten lakhs in case of PPIRP - Minimum default should be Rs. ten lakhs for the matters relating to the pre-packaged insolvency resolution process of corporate debtor under Chapter III-A of the Insolvency Code - Notification No. S.O. 1543(E) dated 9-4-2021. There is no upper limit for maximum default. Corporate debtor - “Corporate debtor” means a corporate person who owes a debt to any person - section 3(8) of Insolvency Code, 2016 - section 3(8) of Insolvency Code, 2016. IBC Code applies to Government company also - IBC Code applies to Government company also - Hindustan Paper Corporation Limited Officers’ and Supervisors’ Association v. Union of India [2021] 130 taxmann.com 153 (Gauhati HC DB). Proceedings for CIRP is not a ‘suit’, hence partnership firm can apply under Insolvency Code - Application for CIRP is not a ‘suit’. Provisions of section 69(2) of Indian Partnership Act, 1932, applies to ‘suits’ and therefore, same cannot apply to ‘proceedings’ under Code - NN Enterprises v. Relcon Infra Projects Ltd. [2020] 159 SCL 229 = 114 taxmann.com 673 (NCLT) * Shree Dev Chemicals v. Gammon India (2020) 161 SCL 59 = 118 taxmann.com 56 (NCLT) [section 69(2) of Indian Partnership Act bars an unregistered firm from filing a ‘suit’]. Insolvency proceedings before NCLT is not a ‘suit’ - Bimalkumar Manubhai Savalia v. Bank of India [2020] 117 taxmann.com 227 (NCLAT). Reasons for default are not relevant – If there was debt and there is default, application is required to be admitted. Reasons for default are not relevant – Dr. H N Nagaraj v. Edelweiss Asset Reconstruction Co Ltd. (2018) 148 SCL 447 = 84 taxmann.com 326 (NCLAT). [In this case, the applicant argued that the restructured loan instalments were to be paid by selling immovable properties. However, these could not be sold as financial creditor had obtained injunction from Court]. Application is for resolution of insolvency and not recovery proceeding - Application to initiate CIRP is for resolution of insolvency or liquidation and not (in effect) for recovery of debt. Such application cannot be admitted - C Shivakumar Reddy v. Dena Bank (2020) 158 SCL 375 = 114 taxmann.com 219 (NCLAT) - relying on Jignesh Shah v. UOI (2019) 109 taxmann.com 486 = 156 SCL 542 = 10 SCC 750 (SC 3 member bench). NCLT cannot exercise inherent powers to decide any dispute under section 7, 9 or 10 NCLT has to decide issue of ‘dispute’ as per the definition. NCLT cannot exercise inherent powers to decide any dispute under section 7, 9 or 10 (by considering some extraneous matters) – Neha Himatsinghka v. Himatsingka Resorts P Ltd. (2019) 151 SCL 359 = 100 taxmann.com 421 (NCLAT).
55
INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS
Para 3.2
Joint application against two corporate debtors permissible - Joint application against two corporate debtors is permissible if developer and landowner has collaborated i.e. had Joint Development Agreement – Mrs Mamatha v. AMB Infrabuild P Ltd. (2019) 151 SCL 507 = 101 taxmann.com 309 (NCLAT). In Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure (P.) Ltd. [2019] 111 taxmann.com 115 (NCLAT), corporate debtors (landholders) in concert with principal borrower decided to develop an area by constructing infrastructure for allottees. Lands of all corporate debtors were consolidated for construction purpose. It was held that Resolution Process would not succeed if whole project was not taken over by Resolution Professional for consolidated ‘resolution plan’. Hence, group CIRP proceedings is required to be initiated against corporate debtors apart from CIRP already initiated against principal borrower. However, in Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd. (2019) 151 SCL 555 = 101 taxmann.com 464 (NCLAT), it was held that financial creditor cannot file two CIRP against two corporate guarantors, for same set of debt. Consolidated CIRP in case of group companies i.e. holding and subsidiary - In Axis Bank Ltd., In re (2020) 162 SCL 67 = 115 taxmann.com 133 (NCLT), CIRP was initiated against three group companies - one holding and two 100% subsidiaries. It was noted that each 100% subsidiary depended on outcome of holding company, and without consolidation of CIRP of the three companies, resolution was not possible. Hence, consolidation of CIRP was ordered. Direct liquidation if no possibility of revival of corporate debtor - If there is no possibility of revival of corporate debtor, it would be just and proper to put the corporate debtor under liquidation process, rather than to put it in CIRP in first instance - GNB Technologies P Ltd., In re [2020] 115 taxmann.com 188 (NCLT) * Ultratreat Industrial Services v. Karan Processors (P.) Ltd. [2021] 124 taxmann.com 84 (NCLT). Suspension of initiation of CIRP - No CIRP if default occurs on or after 25-3-2020 and upto 24-3-2021 - In view of lockdown due to Covid-19 (Corona virus), if any default occurs on or after 25-3-2020, application for CIRP cannot be filed for one year (initially it was for six months) in specified situations. This is not universal suspension of Insolvency Code but only suspension of CIRP if default occurs during Covid-19 period i.e. 25-3-2020 to 24-32021. Section 10A of Insolvency Code, as introduced w.r.e.f. 5-6-2020, reads as follows Notwithstanding anything contained in sections 7, 9 and 10 of Insolvency Code, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25-3-2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf. No application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period - Explanation to section 10A of Insolvency Code. It is clarified that the provisions of this section shall not apply to any default committed under the said sections before 25-3-2020.
Para 3.2
INSOLVENCY RESOLUTION OF CORPORATE PERSONS
56
3.2-1 Meaning of Corporate Person Corporate person means company or LLP or other body corporate with limited liability. However, the Code does not cover Bank, Financial Institutions, Insurance Company, Asset Reconstruction Company, Mutual Funds, Collective Investment Schemes or Pension Funds. “Corporate person” means a company as defined in section 2(20) of the Companies Act, 2013, a limited liability partnership (LLP) or any other person incorporated with limited liability under any law for the time being in force, but shall not include any financial service provider - section 3(7) of Insolvency Code, 2016. However, section 227 of Insolvency Code empowers Central Government to notify financial services to whom provisions of Insolvency Code shall apply. Under these powers, Insolvency Code has been made applicable to NBFC with assets of Rs 500 crore or more. Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019. “Financial service provider” means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator - section 3(17) of Insolvency Code, 2016. “Financial sector regulator” means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and includes 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 section 3(18) of Insolvency Code, 2016. “Financial service” includes any of the following services - section 3(16) of Insolvency Code, 2016— (a) accepting of deposits. (b) safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so. (c) effecting contracts of insurance. (d) offering, managing or agreeing to manage assets consisting of financial products belonging to another person. (e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of— (i) buying, selling, or subscribing to, a financial product (ii) availing a financial service; or (iii) exercising any right associated with a financial product or financial service. (f) establishing or operating an investment scheme. (g) maintaining or transferring records of ownership of a financial product. (h) underwriting the issuance or subscription of a financial product. (i) selling, providing, or issuing stored value or payment instruments or providing payment services. Financial Product - “Financial product” means 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
Insolvency & Bankruptcy Code Ready Reckoner AUTHOR : V.S. DATEY PUBLISHER : TAXMANN DATE OF PUBLICATION : FEBRUARY 2022 : 9789393880024 : 560 : PAPERBACK
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Description This book is a comprehensive, topic-wise commentary on laws governing Insolvency & Bankruptcy in India. This book covers an analysis of the following Laws: u
Insolvency and Bankruptcy Code, 2016 (IBC) [as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2021]
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Recovery of Debts and Bankruptcy Act, 1993
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Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFESI Act)
The book intends to provide answers to the practical issues faced by professionals on a routine basis. It provides complete and accurate information about all Insolvency and Bankruptcy Laws provisions. The Present Publication is the 2022 Edition, authored by V.S. Datey, updated till January 2022, with the following noteworthy features: u
[Topic-wise Commentary] on the IBC
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[Analysis of all Provisions] of the IBC with relevant Rules/Regulations, Judicial Pronouncements, Circulars and Notifications
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[Previous Amendments at a Glance] made by the Insolvency and Bankruptcy Code (Amendment) Act, 2021
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[Short Commentary/Guide] on the Insolvency and Bankruptcy Code (Amendment) Act, 2021
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