India: Notes on the Insolvency and Bankruptcy Code

Last Updated: 31 March 2017
Practice Guide by Dhir & Dhir Associates

Insolvency & Bankruptcy Code

  • Promulgated on 28.05.2016
  • BIFR scrapped by notification dated 25.11.2016 w.e.f.  1.12.16
  • IBC functional w.e.f. 1.12.16

    • Corporate Insolvency Resolution Process (CIRP) Regulation framed and effective w.e.f. 1.12.16
    • Liquidation Regulation under IBC framed and effective w.e.f. 15.12.16
  • As per Ministry of Corporate Affairs notification dated 07.12.2016 the winding up matters are to be transferred in the following way
    • Winding up for inability to pay debt
    • Where petition filed and served before 15.12.16 the petition will remain with High Court and disposed off under Companies Act, 1956
    • All new petitions to be filed in NCLT under IBC Part-II, Chapter-II (CIRP)
    • Voluntary Winding Up cases to continue with High Court till 1.4.17
    • Cases where BIFR has recorded opinion under Section 20 of SICA for Winding up of the companies
    • Where appeals pending in AAIFR the reference/appeal abates and fresh petition to be filed in NCLT under Part-II, Chapter-II of IBC(CIRP)
    • Where no appeal pending in AAIFR the winding up to be conducted by the High Court under Companies Act, 1956

RESTRUCTURING UNDER IBC

CIRP Procedure under Part-II, Chapter-II of IBC

  • The maximum permissible time for completion of Corporate Insolvency Resolution Process (CIRP) shall be 180 days which can be further extended by another 90 days with the approval of NCLT upon an application made in this behalf by RP if instructed to do so by the Committee of Creditors  (CC) by a vote of 75%
  • Filing of application under CIRP

    • Application for commencement of resolution process can be filed by Financial Creditor (FC), Operational Creditor (OC) or Corporate Debtor (CD)
    • FC means any creditor to whom financial debt is owed by CD and covers
    • Unsecured and Secured FC
    • Money Borrowed against interest
    • Lease or Hire Purchase Sale or Discounting of receivable, towards sale or purchase agreement, derivate transaction, guarantee, counter indemnity against any transaction having commercial effect of borrowing
    • FC/CD can file CIRP application on commitment of default
    • OC has to give a ten days demand notice before filing an application
    • The CIRP applicant whether FC/CD/OC will propose an Insolvency Professional to act as the Interim Resolution Professional (IRP) while filing an application.
  • Admission of CIRP

    • Within 14 days of filing an application, Adjudicating Authority (NCLT) will decide on the admission of the application
    • On admission of application, the NCLT will pass an order-
    • Appointing the proposed IP as IRP
    • Declare a moratorium (Section 14)- all suits, decrees, arbitration matters covered- stay on transferring, alienating, encumbering assets
    • cause public announcement for initiation of CIRP and submission of claims
    • Stay on SARFAESI Action- Stay on recovery of property held by CD on lease and in possession of CD
    • Where application by OC and no proposed IRP is suggested NCLT to make reference to IBBI for recommending an IP to act as an IRP
    • IRP term not to exceed 30 days from the date of appointment
  • Role of Interim Resolution Professional

    • IRP will take over management of CD
    • Powers of Board of Directors of CD shall be suspended
    • Officers/management of CD will report to IRP
    • Banks/FIs maintaining accounts of CD will act as per instructions of IRP
    • Collect all information relating to assets, finance, operations of CD
    • Receive and collate all claims and constitute Committee of Creditors (CC)
    • Manage operations of CD as a Going Concern
    • Take control and custody of any assets over which CD has ownership rights in India or abroad including assets not in possession of the CD
  • Meeting of CC

    • To be convened by IRP within 7 days of constitution of CC
    • IRP to determine voting share he can estimate the value of debt and share of the concerned FC)
    • Decision to be taken by CC by vote of not less than 75% of voting share of FCs
    • CC in first meeting by majority vote of not less than 75% may decide to appoint IRP as RP or to replace him with their proposed RP
    • In case CC decides to replace IRP with their proposed RP the NCLT will forward the name of the proposed RP to IBBI (Board) for confirmation and on confirmation, appoint the proposed RP as the RP. However, if Board does not confirm the name within 10 days, NCLT will direct IRP to continue as RP till further orders.
    • Can replace the RP with another RP
  • Role of RP

    • To conduct the CIRP
    • All powers of IRP to be exercised by RP
    • Can raise interim finance
    • Appoint accountants, legal and other professionals
    • Convene meetings of CC
    • Prepare Information Memorandum
    • Invite Lenders/Investors and other persons to put forward their resolution plan
    • Put resolution plans for consideration/approval of CC
    • File application for avoidance of extortionate credit transactions, transactions for defrauding creditors, undervalued transactions and preferential or avoidable transactions
  • Preparation of Information Memorandum (IM)

    • RP to prepare IM with such relevant information  as may be specified by the board for formulating a resolution plan
  • Submission of Resolution Plan

    RP to recommend the resolution plan based on the following:
    • Payment of Insolvency Resolution Process cost in priority to other debts
    • Repayment of debt of OC in such manner as not to be less than the amount payable to them in the event of liquidation of CD
    • Management of CD after approval of Resolution Plan
    • Implementation and supervision of Resolution Plan
    • Does not contravene any provisions of law
  • Approval of Resolution Plan

  • Where the resolution plan is approved by more than 75% votes in CC and is in compliance with the provisions of law, the NCLT would approve the plan which will be binding on all the stakeholders including CD, Guarantors, employees, creditors, shareholders, etc.

Liquidation

  • Initiation of Liquidation

    • The NCLT will pass a liquidation order in the following circumstances:

      1. In case no resolution plan is received within the stipulated time of 180/270 days
      2. NCLT rejects the Resolution Plan
      3. If RP intimates NCLT that CC with a vote of more than 75% has decided to liquidate the CD
      4. Where Resolution Plan approved by the NCLT has been contravened by CD or any person other than the CD (scheme has failed)
  • Implication of liquidation order

    • RP under CIRP to act as liquidator
    • No suit or other legal proceedings will be instituted by or against the CD, provided that liquidator can, with prior permission of NCLT, institute a suit or legal proceeding
    • Liquidation order is deemed to be a notice of discharge to officers, employees and workers of the CD except when business of CD is continued during the liquidation process.
    • Board of directors suspended and all the powers to vest in the liquidator
    • NCLT can replace the resolution professional in case resolution plan submitted by RP was not as prescribed by the law/rules or if the Board recommends replacement of RP
  • Powers and Duties of Liquidator

    • To receive and verify claims of creditors and admit or reject claims
    • To take into his custody and control all assets, properties and actionable claims of CD
    • To evaluate assets, property of CD
    • Protect and preserve assets, properties of CD
    • Carry on business of CD for its beneficial liquidation
    • File application for avoidance of preferential transactions, undervalued transactions, transactions for defrauding of creditors, extortionate credit transactions (normally one year and two years if it is to related party)
  • Liquidation Estate

    • Liquidator shall form a liquidation estate of assets and properties of the CD
    • Liquidator shall hold liquidation estate as fiduciary for benefit of all creditors
  • Secured creditor in liquidation proceedings

    The secured creditor in liquidation proceedings may:
    • [section 52(1)(a)] relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets as per section 53
    • Realize its security interest in the following manner:

      1. Inform the liquidator of its security interest and identify assets subject to such security interest
      2. Liquidator to verify security interest and permit the secured creditor to realize such security interest, the existence of which is proved by the records of information utility or such other means as specified by the board
      3. Secured creditor can enforce, settle, compromise or deal with secured assets in accordance with law (including SARFAESI or execution proceedings in DRT etc.). In case secured creditor faces resistance from CD or any person connected therewith in taking possession, selling or disposing off assets, the creditor can approach NCLT for directions to facilitate the enforcement/sale etc
      4. Amount of Insolvency Resolution cost due from the secured creditor to be deduced from sale proceeds generated from sale of secured assets
      5. Where money recovered in excess of dues, the secured creditor shall account to liquidator and tender to him the excess funds
      6. Where money received is less than the debt due towards the secured creditor, the secured creditor to approach liquidator for recovery of balance dues in terms of waterfall mechanism as set out in Section 53
  • Distribution of Assets (Waterfall Mechanism) – Section 53

    The sale of the assets of the liquidation estate will be distributed in the manner and in the priority as set out below:
    1. Insolvency Resolution Process costs and Liquidation costs in full
    2. Workers dues for a period of 24 months preceding liquidation commencement date and dues to secured creditor who has relinquished his security interest shall be distributed on pari passu basis
    3. Wages and unpaid dues to employees (other than workman) for 12 months preceding the liquidation commencement date
    4. Financial debt owed to unsecured creditors
    5. Following debts on pari passu basis:


      1. Amount due to Central Government & State Government
      2. Debts due to secured creditor remaining unpaid following the enforcement of Security interest
      1. Any remaining debts or dues
      2. Preference shareholders
      3. Equity shareholders

Effect on Personal Guarantees

The proceedings for Insolvency and Bankruptcy of individuals who are guarantors of the CD shall be conducted under the jurisdiction of NCLT where the Insolvency/Liquidation of the CD is being conducted

TIMELINE-CIRP

DESCRIPTION

DAYS

Filing of Application

(-) 14

Admission of Application/ CIRP commencement date/ Declaration of Moratorium

0 Date

NCLT to appoint interim Resolution Professional (IRP)

14th Day

Public Announcement

16th Day

Appointment of Registered Valuer to calculate Liquidation value

21st Day

Creditors to submit claims

37th Day

IRP to constitute COC & submit Report

44th Day

1st COC Meeting

51th day

Preparation of IM

65th Day

Submission of Resolution Plan

150th Day

COC approval of RP

-

Application for approval by NCLT

-

Initiation of Liquidation Process

180th Day

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Other India Advice Centers
Arbitration, Litigation and Conciliation
Trademarks
More Advice Centers
Significant Recent Cases
Highlights of commercially relevant recent news and events.
Recent judgments and court decisions of interest.
Upcoming Events
Media from our most recent events and conferences.
Tools
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions