PROJECT REPORT

ON

INSOLVENCY AND
BANKRUPTCY CODE, 2016

Prepared by:
Group C
292ND MSOP

S. No. MSOP Name Registration No.

S. No.
1. 3 MUNISHA GUPTA 240178788/01/2014
2. 13 MILI SAXENA 240248475/05/2014
3. 23 HARSH BHATIA 240211389/02/2014
4. 33 PALAK MANGLA 240391974/03/2015
5. 43 IPSA ARUN 221172203/08/2011

PREFACE
The Insolvency and Bankruptcy Code, 2016(“IBC” or “Code”) is a breather in
recent times as it makes both the individual and corporate insolvency process
comprehensive yet simple. IBC is the bankruptcy law of India which seeks to
consolidate the existing framework by creating a single law for Insolvency and
Bankruptcy. It was framed with the intention to expedite & simplify the process of
Insolvency and Bankruptcy proceedings in India, ensuring fair negotiations
between Debtor and Creditor by removing the asymmetry of debt and default
information. It is one of the most effective reforms brought in with the potential of
transparently and expeditiously resolving India’s overwhelming non-performing
assets (NPAs) conundrum. A maxim by Dave Ramsey rightly states that- “There
are no shortcuts when it comes to getting out of debt” and hence it is important for
the businesses and individuals to adopt the structured Code rather than looking for
other shortcut means of getting out of debt.

The Insolvency and Bankruptcy Code is a one-step solution for resolving

insolvencies which at present is a long process and does not offer an economically
viable arrangement. A strong insolvency framework where the cost and the time
incurred is minimized in attaining liquidation has been long overdue in India. The
code will be able to protect the interests of small investors and make the process of
doing business a less cumbersome process.

INDEX
S. NO. TOPIC PAGE NO.
1. Introduction 01
2. Difference between Insolvency, Bankruptcy & Liquidation 02
3. Governance prior to the enactment of the Insolvency and 02
Bankruptcy Code, 2016
4. Applicability and Features of the Code 04
5. Pillars of Insolvency and Bankruptcy Code, 2016 06
6. Structures of the Code 06
7. Definitions 07
Applicability of the Act 15
9. Authorities involved under the Code 17
10. Who can Invoke Insolvency 19
11. Persons not entitled to make Application under the Code 19
12. Corporate Insolvency Resolution Process 20
13. Moratorium 23
14. Liquidation 24
15. Corporate Liquidation Process 26
16. Who can become IRP/RP 26
17. Duties of Interim Resolution Professional 27
18. Opportunities for Company Secretary under IBC, 2016 28
19. Impact of the Insolvency and Bankruptcy Code on Banks 29
20. Fast Track Corporate Insolvency Resolution Process 31
21. Voluntary Liquidation of Corporate Persons 32
22. Major Amendments in IBC, 2016 37
23. Applicability of the Limitation act under the Insolvency and 40
Bankruptcy code, 2016
24. The Guarantor Conundrum- Moratorium and applicability to 42
Guarantors
Some major judgments passed under the Code 43
25. Conclusion 46
26. Bibliography 47
 THE INSOLVENCY AND BANKRUPTCY
CODE, 2016

INTRODUCTION:
Enactment of the Insolvency and Bankruptcy Code, 2016 is a landmark reform in the direction
of ease of doing business. 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 maximization of value of assets of such persons to
promote availability of credit and balance in the interests of the stakeholders.

Bill on the Insolvency and Bankruptcy Code, 2016 was passed by the House of the People (Lok
Sabha) on 05th May 2016 and passed by the Council of States (Rajya Sabha) on 11th May 2016.

Thereafter it received assent from the President of India and notified in the Official Gazette of
India on 28th May 2016 as the Insolvency and Bankruptcy Code, 2016.

The Code puts emphasis on insolvency processes for Individuals, Companies and Partnership
firms. Under the Insolvency and Bankruptcy Code, 2016both debtor and creditor can start
insolvency proceedings.

It extends to whole of India, provided that Part III of this Code shall not extend to State of
Jammu and Kashmir.

WHY IS IT A CODE NOT AN ACT?

“Code” is usually known as a collection or compendium of laws. The code refers to the
collection of various laws, rules and regulations that are consolidated and classified according to
a particular subject matter.

INSOLVENCY, BANKRUPTCY AND LIQUIDATION:

 Insolvency: Insolvency is the inability of a person or corporation to pay their bills as and
when they become due and payable.

 Bankruptcy: Bankruptcy is when a person is legally declared incapable of paying their

due and payable bills.

Page 1 of 47
  Liquidation: Liquidation is the process of winding up a corporation or incorporated
entity.

DIFFERENCE BETWEENINSOLVENCY & BANKRUPTCY:

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

A person facing insolvency needs to take corrective actions to rectify its situation to avoid
possible bankruptcy. This can be done in many ways like generating surplus cash or by
minimizing the overhead cost. This can also be done by negotiating the repayment terms with
your lenders.

Whereas bankruptcy refers to when an individual is unable to pay off his liabilities and debts.
It is a court order that decides how an insolvent debtor will deal with unpaid obligations. It
usually involves selling assets to pay the creditors and erasing debts that can’t be paid.
Bankruptcy can severely damage a debtor’s credit rating and ability to borrow for years.

An individual or company can be insolvent without being bankrupt — especially if the

insolvency is temporary and correctable — but not the opposite.

In a nutshell, often an entity facing state of insolvency can be declared bankrupt however the
opposite is not true.

Bankruptcy is a legal procedure which could be one of the ways to solve insolvency. Also,
insolvency could be temporary and can be fixed with time. Often people may just ask for some
legal protection from its creditors for said period to allow him pay off its debts easily. In other
words, all insolvent entities might not be declared bankrupt however all bankrupt’s entities are
said to be insolvent.

GOVERNANCE PRIOR TO THE ENACTMENT OF THE INSOLVENCY

AND BANKRUPTCY CODE, 2016:

Page 2 of 47
Earlier to the implementation of the Insolvency and Bankruptcy code there were multiple laws
which govern the Insolvency like the Presidency Insolvency Act, 1909 (presidency towns)
and The Provincial Insolvency Act, 1920, these laws were based on the English laws of lines.
The major object for enactment of Act 1909 and 1920 was justify to safeguard debtor from
arrest or detention of any debt as per any statute and secondly to give relief to debtor from any
pressure of creditor.

Sick Industrial Companies (Special Provisions) Act, 1985: The Sick Industrial Companies
(Special provisions) Act, 1985 defined the concept of the ‘sick company’ and a ‘potentially sick
company’. The provisions under the Act defined the company as sick when there was a
complete net worth erosion. The Act defined the sick company as any company that existed for
at least five years and the accumulated losses exceeded or equaled net worth of any financial
year.

The SICA failed due to its backward approach in dealing with the bankruptcy issues. There
was a balance sheet approach to detect a sick unit rather than the prospective cash flow
approach. It took a fairly long time for the net worth to erode, and the grave liquidity issues
were never addressed.

The Companies (Second Amendment), Act 2002

The Companies second Amendment Act, 2002 bought about amendments which directed to
replace BIFR and AAIFR with NCLT and the NCLAT as the adjudicating authorities. Section
424A and 424L were introduced in the Indian Companies Act, 1956 to deal with revival,
however they were never enforced.

Sick Industrial Companies (Special provisions) Repeal Act of 2003

The sick Industrial Companies (Special provisions) Repeal Act of 2003 dissolved the appellate
authority and the Board established under The Sick Industrial Companies (Special provisions)
Act, 1985 i.e. The BIFR and the AAIFR. However due to the delay in the constitution of the
NCLT, SICA repeal Act was never notified.

The Recovery of Debts due to Banks and Financial Institutions Act, 1993(“RDDBFI Act”)

Page 3 of 47
The objective of this act was solving the problem of recovery by the Banks and the Financial
Institutions, proposed establishment of the specialized Tribunals, called the Debt Recovery
Tribunals and the Debt Recovery Appellate Tribunals who would assist in unlocking the huge
amount of public money and to move towards proper utilization of the funds for the
development of the country.

The provisions of this Act did not apply to those Banks and Financial Institutions where the
amount due is less than ten lakh rupees.

The SARFAESI Act, 2002

The Securitization and Reconstruction of Financial Assets and enforcement of the Security
Interest Act, 2002 was established with the purpose of the enforcement of the security interest
created in favour of only the secured creditor, in accordance with the provisions of the Act.
Section 13 of the SARFAESI Act, 2002 deals with the enforcement of Security Interest by the
secured creditor after giving due notice to the parties for the discharge of their liabilities within
sixty days of the date of notice failing which the secured creditor can take actions as stipulated
under Section 13(4) of the Act.

The Major problem of this act was that it does not provide any relief to the unsecured
Creditors.
IBC AN HOLISTIC APPROACH

The Insolvency and Bankruptcy code enacted in May, 2016 was a more holistic approach to
dealing with the stressed assets. The code is a unified force that clubs the relevant provisions on
all the laws that deal with the bankruptcy. The code is more creditor friendly, while it seeks to
promote the interests of all the stakeholders of the Corporate Debtor. It has been designed in
such a way that it unites the provisions of the SARFAESI, The RDDBFI, the Code of the Civil
Procedure etc.

APPLICABILITY OF THE CODE:

The provisions of the Code shall apply to:

 Any Company incorporated under the Companies Act, 2013 or under any previous
company law;

Page 4 of 47
  Any other Company governed by any special Act;
 Any Limited Liability Partnerships incorporated under the LLP Act, 2008;
 Any other body incorporated under any law as notified by Central Government;
 Personal Guarantors to Corporate Debtors;
 Partnership Firms and Proprietorship Firms; and
 Individuals

FEATURES OF THE CODE:

The salient features of the Insolvency and Bankruptcy Code, 2016 are as follows:

 Clear, coherent and speedy process for early identification of financial distress and
resolution of companies and limited liability entities if the underlying business is found to
be viable.

 Applicable to both corporate and non-corporate persons.

 Establishes time-bound moratorium on acceleration and enforcement of debts against the

company.

 Two distinct processes for resolution of individuals, namely – “Fresh Start” and
“Insolvency Resolution”.

 Debt Recovery Tribunal (‘DRT’) and National Company Law Tribunal (‘NCLT’) to act as
Adjudicating Authority and deal with the cases related to insolvency, liquidation and
bankruptcy process in respect of individuals and unlimited partnership firms and in respect
of companies and limited liabilities entities respectively.

 Establishment of an Insolvency and Bankruptcy Board of India to exercise regulatory

oversight over insolvency professionals, insolvency professional agencies and information
utilities.

 Insolvency professional is an independent individual who looks after the procedural aspect
of the insolvency resolution process. They administer and disseminate the day to day
operations of the Corporate Debtor.

 Information utilities would collect, collate, authenticate and disseminate financial

information to be used in insolvency, liquidation and bankruptcy proceedings.

 Enabling provisions to deal with cross border insolvency.

Page 5 of 47
PILLARS OF INSOLVENCY AND BANKRUPTCY CODE, 2016:

Insol ven cyand

oardnk ofrup Indiatcy
B
In solven cy
In form
atU
il iony pr ofesiag naecy l

rofeInsl vensiolut cynal

P

STRUCTURE OF THE CODE:

In entirely, the code has 255 sections which are divided into5 parts as mentioned below:

Part II – Part III –

Part I – Insolvency Resolution Insolvency Resolution and
Preliminary(Definitions) and Liquidation for Bankruptcy for individuals
Corporate Persons and Partnership Firms

Part IV –
Part V –
Regulation of Insolvency
Miscellaneous
Professionals, Agencies
and Information Utilities Page 6 of 47
DEFINITIONS:
Section 3 of the Code deals with the definition parts. It says “In this Code, unless the context
otherwise requires

(1)"Board" means the Insolvency and Bankruptcy Board of India established under sub-
section (1) of section 188;

(2)"Bench" means a bench of the Adjudicating Authority;

(3)"Bye-laws" mean the bye-laws made by the insolvency professional agency under section
205;

(4)"Charge" means an interest or lien created on the property or assets of any person or any of
its undertakings or both, as the case may be, as security and includes a mortgage;

(5)"Claim" means—

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed,
undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such
breach gives rise to a right to payment, whether or not such right is reduced to judgment,
fixed, matured, unmatured, disputed, undisputed, secured or unsecured;

(6)"Corporate person" means a company as defined in clause (20) of section 2 of the

Companies Act, 2013, a limited liability partnership, as defined in clause (n) of sub-section
(1) of section 2 of the Limited Liability Partnership Act, 2008, 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;

(7)"Corporate Debtor" means a corporate person who owes a debt to any person;

(8)"Core services" means services rendered by an information utility for—

Page 7 of 47
 (a) accepting electronic submission of financial information in such form and manner as may
be specified;

(b) safe and accurate recording of financial information;

(c) authenticating and verifying the financial information submitted by a person; and

(d) providing access to information stored with the information utility to persons as may be
specified;

(9)"Default" means non-payment of debt when whole or any part or installment of the amount
of debt has become due and payable and is not repaid by the debtor or the Corporate
Debtor, as the case may be;

(10)"Financial institution" means—

(a) a scheduled bank;

(b)financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934;

(c) public financial institution as defined in clause (72) of section 2 of the Companies Act,
2013; and

(d) such other institution as the Central Government may by notification specify as a
financial institution;

(11)"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 than contracts to
exchange one currency (whether Indian or not) for another which are to be settled
immediately, or any other instrument as may be prescribed;

(12)"financial service" includes any of the following services, namely:—

(a) accepting of deposits;

(b) safeguarding and administering assets consisting of financial products, belonging to

another person, or agreeing to do so;

Page 8 of 47
 (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; or

(i) selling, providing, or issuing stored value or payment instruments or providing payment
services;

(13) "insolvency professional" means a person enrolled under section 206 with an
insolvency professional agency as its member and registered with the Board as an insolvency
professional under section 207;

(14) "insolvency professional agency" means any person registered with the Board under
section 201 as an insolvency professional agency;

(15) "information utility" means a person who is registered with the Board as an
information utility under section 210;

(16) "person" includes—

(a) an individual;

(b) a Hindu Undivided Family;

(c) a company;

Page 9 of 47
 (d) a trust;

(e) a partnership;

(f) a limited liability partnership; and

(g) any other entity established under a statute, and includes a person resident outside
India;

(17) "prescribed" means prescribed by rules made by the Central Government;

(18) "property" includes 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;

(19) "secured creditor" means a creditor in favour of whom security interest is created;

(20) "security interest" means right, title or interest or a claim to property, created in favour
of, or provided for a secured creditor by a transaction which secures payment or performance of
an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or
any other agreement or arrangement securing payment or performance of any obligation of any
person: Provided that security interest shall not include a performance guarantee;

(21) "transfer of property" means transfer of any property and includes a transfer of any
interest in the property and creation of any charge upon such property;

Some of the terminologies are also defined in Part – II (Section 5) of the code which are
reproduced hereunder:

Section 5.In this Part, unless the context otherwise requires,-

(1) "Adjudicating Authority", for the purposes of this Part, means National Company Law
Tribunal constituted under section 408 of the Companies Act, 2013;

(2) "auditor" means a chartered accountant certified to practice as such by the Institute of
Chartered Accountants of India under section 6 of the Chartered Accountants Act, 1949;

Page 10 of 47
(3)"constitutional document", in relation to a corporate person, includes articles of
association, memorandum of association of a company and incorporation document of a Limited
Liability Partnership;

(4) "corporate applicant" means—

(a) Corporate Debtor; or

(b) a member or partner of the Corporate Debtor who is authorised to make an application
for the corporate insolvency resolution process under the constitutional document of the
Corporate Debtor; or

(c) an individual who is in charge of managing the operations and resources of the
Corporate Debtor; or (d) a person who has the control and supervision over the financial
affairs of the Corporate Debtor;

(5) "dispute" includes a suit or arbitration proceedings relating to—

(a) the existence of the amount of debt;

(b) the quality of goods or service; or

(c) the breach of a representation or warranty;

(6) "financial creditor" means any person to whom a financial debt is owed and includes a
person to whom such debt has been legally assigned or transferred to;

(7) "financial debt" means a debt alongwith interest, if any, which is disbursed against the
consideration for the time value of money and includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit facility or its de-
materialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes,
debentures, loan stock or any similar instrument;

Page 11 of 47
 (d) the amount of any liability in respect of any lease or hire purchase contract which is
deemed as a finance or capital lease under the Indian Accounting Standards or such other
accounting standards as may be prescribed;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis;

(f) any amount raised under any other transaction, including any forward sale or purchase
agreement, having the commercial effect of a borrowing;

(g) any derivative transaction entered into in connection with protection against or benefit
from fluctuation in any rate or price and for calculating the value of any derivative
transaction, only the market value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond,

documentary letter of credit or any other instrument issued by a bank or financial
institution;

(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the
items referred to in sub-clauses (a) to (h) of this clause;

(8) "information memorandum" means a memorandum prepared by resolution

professional under sub-section (1) of section 29;

(9) "initiation date" means the date on which a financial creditor, corporate applicant or
operational creditor, as the case may be, makes an application to the Adjudicating Authority
for initiating corporate insolvency resolution process;

(10) "insolvency commencement date" means the date of admission of an application for
initiating corporate insolvency resolution process by the Adjudicating Authority under
sections 7, 9 or section 10, as the case may be;

(11) "insolvency resolution process costs" means—

(a) the amount of any interim finance and the costs incurred in raising such finance;

(b) the fees payable to any person acting as a resolution professional;

(c) any costs incurred by the resolution professional in running the business of the
Corporate Debtor as a going concern;

Page 12 of 47
 (d) any costs incurred at the expense of the Government to facilitate the insolvency
resolution process; and

(e) any other costs as may be specified by the Board;

(12) "insolvency resolution process period" means the period of one hundred and
eighty days beginning from the insolvency commencement date and ending on one hundred
and eightieth day;

(13) "interim finance" means any financial debt raised by the resolution professional during
the insolvency resolution process period;

(14) "liquidation cost" means any cost incurred by the liquidator during the period of
liquidation subject to such regulations, as may be specified by the Board;

(15) "liquidation commencement date" means the date on which proceedings for
liquidation commence in accordance with section 33 or section 59, as the case may be;

(16) "liquidator" means an insolvency professional appointed as a liquidator in accordance

with the provisions of Chapter III or Chapter V of this Part, as the case may be;

(17) "officer" for the purposes of Chapter VII of this Part, means an officer who is in default,
as defined in clause (60) of section 2 of the Companies Act, 2013 or a designated partner as
defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, as the case
may be;

(18) "operational creditor" means a person to whom an operational debt is owed and
includes any person to whom such debt has been legally assigned or transferred;

(19) "operational debt" means a claim in respect of the provision of goods or services
including employment or a debt in respect of the repayment of dues arising under any law
for the time being in force and payable to the Central Government, any State Government or
any local authority;

(20) "personal guarantor" means an individual who is the surety in a contract of guarantee
to a Corporate Debtor;(23) "personnel" includes the directors, managers, key managerial
personnel, designated partners and employees, if any, of the Corporate Debtor;

(21) "related party", in relation to a Corporate Debtor, means—

Page 13 of 47
(a) a director or partner of the Corporate Debtor or a relative of a director or partner of the
Corporate Debtor;

(b) a key managerial personnel of the Corporate Debtor or a relative of a key managerial
personnel of the Corporate Debtor;

(c) a limited liability partnership or a partnership firm in which a director, partner, or

manager of the Corporate Debtor or his relative is a partner;

(d) a private company in which a director, partner or manager of the Corporate Debtor is a
director and holds along with his relatives, more than two per cent. of its share capital;

(e) a public company in which a director, partner or manager of the Corporate Debtor is a
director and holds along with relatives, more than two per cent. of its paid-up share capital;

(f) anybody corporate whose board of directors, managing director or manager, in the
ordinary course of business, acts on the advice, directions or instructions of a director,
partner or manager of the Corporate Debtor;

(g) any limited liability partnership or a partnership firm whose partners or employees in the
ordinary course of business, acts on the advice, directions or instructions of a director,
partner or manager of the Corporate Debtor;

(h) any person on whose advice, directions or instructions, a director, partner or manager of
the Corporate Debtor is accustomed to act;

(i) a body corporate which is a holding, subsidiary or an associate company of the Corporate
Debtor, or a subsidiary of a holding company to which the Corporate Debtor is a subsidiary;

(j) any person who controls more than twenty per cent. of voting rights in the Corporate
Debtor on account of ownership or a voting agreement;

(k) any person in whom the Corporate Debtor controls more than twenty per cent. of voting
rights on account of ownership or a voting agreement;

(l) any person who can control the composition of the board of directors or corresponding
governing body of the Corporate Debtor;

(m) any person who is associated with the Corporate Debtor on account of—

Page 14 of 47
 (i) participation in policy making processes of the Corporate Debtor; or

(ii) having more than two directors in common between the Corporate Debtor and
such person; or

(iii) interchange of managerial personnel between the Corporate Debtor and such
person; or

(iv) provision of essential technical information to, or from, the Corporate Debtor;

(22) "resolution applicant" means any person who submits a resolution plan to the
resolution professional;

(23) "resolution plan" means a plan proposed by any person for insolvency resolution of the
Corporate Debtor as a going concern in accordance with Part II;

(24) "resolution professional", for the purposes of this Part, means an insolvency
professional appointed to conduct the corporate insolvency resolution process and includes an
interim resolution professional

APPLICABILITY OF THE ACT:

Corporate Debtor - As per IBC, 2016, A Company is said to be insolvent when:

 There is a minimum default of Rs. 1,00,000 (Rupees One Lakh)
 The Central Government however has the power to increase this threshold to any value but
not greater than Rs. 1 Crore.

Page 15 of 47
IN CASE OF INSOLVENCY AND BANKRUPTCY OF COMPANY

Default in
Payment

INSOLVENCY

Minimum
Rs. 1 Lakh

INDIVIDUALS AND PARTNERSHIP FIRMS As per IBC, 2016 an individual and

Partnership Firm is said to be insolvent when:
Page 16 of 47
 There is a minimum default of Rs. 1,000 (Rupees One Thousand)

 The Central Government however has the power to increase this threshold to any value but
not greater than Rs. 1 Lac

AUTHORITIES INVOLVED UNDER THE CODE:

For CORPORATE PERSONS: In relation to Insolvency Resolution and Liquidation for
Corporate Debtors and personal guarantors, the “Adjudicating Authority” shall be the Hon’ble
National Company Law Tribunal having territorial jurisdiction over the place where the
registered office of the corporate person is located.

For INDIVIDUALS AND PARTNERSHIP FIRMS: The Matters relating to Insolvency and
Bankruptcy of Individuals and Partnership Firms the “Adjudicating Authority” means the
Debt Recovery Tribunal constituted under sub-section (1) of section 3 of the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993. Not effected till date.

National company law Tribunal has following 12 benches all over India

Appellant Authorities:

Page 17 of 47
All appeal against the order of National Company Law Tribunal will be lied to National
Company Law Appellant Tribunal.

All appeals against the order of NCLAT will be heard by the Hon’ble Supreme Court.

Page 18 of 47
WHO CAN INVOKE:

Financial Operational Corporate

Creditor u/s 7
any person to whom a
financial debt is owed &
includes a person to whom
such debt legally assigned
or transferred
Creditor u/s 9 Debtor u/s 10
any person to whom an a corporate person who
operational debt is owed owes a debt to any person.
&
includes any person to
whom such debt legally
assigned or transferred

PERSONS NOT ENTITLED TO MAKE AN APPLICATION (Section 11):

The following persons shall not be entitled to make an application to initiate corporate
insolvency resolution process, namely:

 a Corporate Debtor undergoing a corporate insolvency resolution process; or

 a Corporate Debtor having completed corporate insolvency resolution process twelve

months preceding the date of making of the application; or

 a Corporate Debtor or a financial creditor who has violated any of the terms of
resolution plan which was approved twelve months before the date of making of an
application under this Chapter; or

 a Corporate Debtor in respect of whom a liquidation order has been made.

Page 19 of 47
CORPORATE INSOLVENCY RESOLUTION PROCESS:

The Corporate Insolvency Resolution Process can be initiated where minimum amount of
default is one lakh rupees. The Central Government may prescribe higher value for minimum
amount of default which shall not be more than one crore rupees.

The Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) can be

initiated by making an application to the National Company Law Tribunal (NCLT) by
the Financial Creditors under Section 7 of IBC, 2016, by Operational Creditors under Section 9
of the IBC, 2016 and by the Corporate Debtor himself under Section 10 of the IBC, 2016. The
basic departure from the old law and fundamental rule under this new codified law is that a
company which has gone insolvent cannot start the Liquidation process at the primary stage
until and unless it has gone through the process of Corporate Insolvency Resolution Process
(CIRP), under the said resolution process options for revival of the company is looked into and
if the said resolution process fails then only the company goes into liquidation.

STAGE-WISE PROCESS FOR INSOLVENCY:-

In case a Corporate Debtor makes a default in repayment of dues of the creditors, the financial
creditor/s, an operational creditor or a Corporate Debtor through corporate applicant or any
authorised member, a person who has the controlling capacity over the financial affairs of the
Corporate Debtor has the power to start the insolvency resolution process. In order to initiate the
resolution process, an application has to be made to National Company Law Tribunal (NCLT)
under (Section 10, IBC, 2016 in case of Corporate Debtor, Section 7 and 9 of IBC, 2016 in case
of Financial Creditors and Operational Creditors).

A ten days demand notice under (Section 8(2) of IBC, 2016 in case of Operational Creditors)
has to be given to the Corporate Debtor by the Operational Creditors before he approaches the
NCLT under Section 9 of IBC, 2016. However, an operational creditor can directly approach the
NCLT if the Corporate Debtor does not repay the outstanding dues or fails to show any existing
difference.

The new code states that the insolvency process of a Corporate Debtor must be concluded within
180 days from the date of initiation in the NCLT (Section 12, IBC of 2016). The claims of the

Page 20 of 47
Creditors shall be frozen for a period of six months on admission of application by NCLT.
During this time, the NCLT shall listen to the options to revive and decide the future course of
action. It is further clarified that unless a resolution plan is made or liquidation process is
initiated, no legal claim shall be sought against the Corporate Debtor in any other forum or
Court (Section 14 of IBC, 2016).

When the application for insolvency is accepted under Section 7/9/10 of IBC, 2016 the NCLT
within fourteen days appoints an Insolvency Resolution Professional (IRP) on receiving a
confirmation from Board of Insolvency and Bankruptcy.The appointed IP then takes up the
responsibility of the debtor’s properties and functioning. He also collects all the information that
is relevant with regard to the financial condition of the debtor from information utilities. IP is
appointed for a term of thirty days only within which he does all the necessary scrutinization
(Section 18, IBC, 2016).

The next step is to make a public announcement about the commencement of corporate
insolvency process so that claims from any other creditors can also come forward, if any. A
creditor’s committee is constituted by the IRP post receiving any claims by public
announcement (Section 13 of IBC, 2016). In the event any financial creditor is a related party of
the defaulting debtor, such a creditor will not have the right to represent, participate or vote in
the committee of creditors so constituted by the IP. In order to be a part of the Creditor’s
Committee, the average dues of the operational creditors must be at least ten percent of the debt.
The Committee of Creditors shall first seven days of its incorporation decide through sixty six
percent votes whether the interim IRP should be used as a Resolution Professional or should be
replaced with someone else.

After the Committee finalizes the Resolution Professional he is appointed by the NCLT (Section
16 of IBC, 2016). The Resolution Professional so appointed can be replaced anytime by the
Creditor’s Committee with a majority of sixty six percentvotes. In the event majority (66%) of
the financial creditors are of the view that the case is very complex and more time extension is
required, the NCLT may grant a one-time extension of up to a maximum of 90 days over and
above the pre decided tenure of 180 days. It shall be the sole responsibility of the Resolution
Professional to manage and conduct the corporate insolvency resolution procedure during such a
term (Section 18 of IBC, 2016).

To enable the resolution applicant for preparing a resolution plan, the Resolution Professional
shall compile a statistics note. A resolution applicant can be defined as an individual who has the
duty and responsibility to submit a resolution plan to the Resolution Professional. The Creditor’s
Committee further receives the plan from the Resolution Professional for its approval.

Page 21 of 47
On the resolution being approved, the next step by the Creditor’s Committee is to come up with
options on restructuring which can be either coming up with a modified repayment plan or to
simply liquidate the properties of the company in order to recover dues. If the Creditor’s
Committee fails to take any binding decision with regard to the repayment by the debtor, the
debtor’s assets are liquidated in order to pay back the creditors. If there is a plan prepared for
resolution, the same shall be sent to NCLT for approval and implementation.

INSOLVENCY RESOLUTION PROCESS BY FINANCIAL CREDITOR

With minimum amount

of default is Rs 1Lacs
Intimation of CIRP by
which can be extended
financial Creditor
to Rs 1 Cr. by central
Govt.

NCLT shall with 14 days of receipt

of application, by order:

Application to NCLT Admit the application if it is complete

Reject the application if it is incomplete
Direct for Rectification

Page 22 of 47
 If the Application is If the Application is
admitted rejected

The Insolvency process starts from the date of NCLT shall before rejecting an application
admission of the application which is called give notice to applicant to rectify the defects
"Insolvency commencement date" within 7 days of receipt of such notice.

Intimation shall be given by NCLT within 7 Intimation shall be given by NCLT within 7
days of admission to the financial creditor days of rejection to the financial creditor
and corporate debtor. and the corporate debtor

TIME LIMIT FOR COMPLETION OF INSOLVENCY RESOLUTION

PROCESS (SECTION 12):

 Corporate Insolvency resolution process must be completed within 180 days of its
commencement i.e. from the date of admission of the application.

 NCLT may by order extend the duration not exceeding 90 days.

 Extension shall not be granted more than once.

MORATORIUM (SECTION 14):

The moratorium in terms of Insolvency and Bankruptcy Code, 2016 ('IBC') means a period
wherein no judicial proceedings for recovery, enforcement of security interest, sale or transfer of
assets, or termination of essential contracts can be instituted or continued against the Corporate
Debtor.

The Adjudicating Authority shall by order declare moratorium for prohibiting the following,
namely:

Page 23 of 47
  the 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;
 transferring, encumbering, alienating or disposing of by the Corporate Debtor any of its
assets or any legal right or beneficial interest therein;
 any action under the SARFAESI Act, 2002;
 the recovery of any property by an owner or lessor where such property is occupied by or
in the possession of the Corporate Debtor.

Moratorium shall cease to be in effect:

 on completion of CIRP; or
 when resolution plan is approved by NCLT during the CIRP period; or
 where liquidation order is passed

LIQUIDATION:

Liquidation is a process through which a company which is running is shut down and its
existence comes to an end. This often happens when the companies are unable to pay its
creditors and hence need to sell off its assets to pay of them. Though in another version this
could be a voluntary act as well where law ensures that all the debts of a company into existence
is paid before it is closed or shut down.

The liquidation process commences only if:

 The Creditors Committee fails to submit the resolution plan with the provided time frame
to the NCLT.
 The Resolution Plan is rejected because of non-adherence to the Code.
 The Creditor’s Committee takes a decision for liquidating the assets by a majority vote.
 The resolution plan is flouted by the debtor.

As mentioned above, no suit can be instituted by or against the Corporate Debtor during
liquidation process (Section 14 of IBC, 2016). The only exception, in this case, can be through
the liquidator representing the Corporate Debtor based on the permission of the NCLT. The
liquidator shall be the same person as the Resolution Professional lest replaced. The liquidator

Page 24 of 47
so appointed shall constitute the liquidation estate which shall comprise of all the properties,
whether financial or immovable, of the Corporate Debtor. The claims of the creditors may be
received, verified, admitted or rejected based on the final decision of the liquidator within a
prearranged time. In order to appeal to the adjudicator, the creditor gets a total of fourteen days.

Based on the priority, a security creditor may receive the proceeds from sale of assets or realize
the security interest by enforcing or dealing with the secured asset as per the applicable laws
related to him. He may either relinquish his security interest or realize it based on his intent. Any
supplementary sum so realized shall be submitted to the liquidator. Although the security
creditors will be paid by the liquidator on priority basis out of the Corporate Debtor’s assets, his
claim shall be considered subordinate to the unsecured creditors to the extent of deficit. The
distribution shall be in manner laid down in the Code. All those persons who have any sort of
individual rights over the assets of the debtor shall also form a part of the liquidation procedure.
There are certain funds which cannot be attached to the estate of the debtor for recovery of
debts. Such funds are provident fund, gratuity fund and the pension fund because this amount
belongs to the employees and workmen and hence they are given the priority with regard to
these funds. Once all the assets of the Corporate Debtor are liquidated, the NCLT passes an
order to finally liquefy the Corporate Debtor.

Page 25 of 47
CORPORATE LIQUIDATION PROCESS:

WHO CAN BECOME IRP/RP:

An individual shall be eligible for registration, if he

Page 26 of 47
  has passed the Limited Insolvency Examination within twelve months before the date of
his application for enrolment with the insolvency professional agency;

 has completed a pre-registration educational course, as may be required by the Board,

from an insolvency professional agency after his enrollment as a professional member;
and

 has:

 successfully completed the National insolvency programmeas may be approved by

the Board;

 successfully completed the Graduate insolvency programmeas may be approved by

the Board;

 Fifteenyears of experience in management, after receiving a Bachelor’s degree from

a university established orrecognized by law; or

 Ten years of experience as-

i) Chartered Accountant registered as a member of the Institute of Chartered

Accountants of India.

ii) Company Secretary registered as a member of the Institute of Company

Secretaries of India.

iii) Cost Accountant registered as a member of the Institute of Cost Accountants

of India, or

iv) An Advocate enrolled with the Bar Council.

DUTIES OF INTERIM RESOLUTION PROFESSIONAL:

Section 18 of the Code prescribes duties of Interim Resolution Professional as under:

 The IRP shall have to collect all information relating to the assets, finances and operations
of the Corporate Debtor for determining the financial position of the Corporate Debtor,
including information relating to:
i) business operations for the previous two years;
ii) financial and operational payments for the previous two years;

Page 27 of 47
 iii) list of assets and liabilities as on the initiation date; and
iv) such other matters as may be specified;

 The IRP shall receive and collate all the claims submitted by creditors to him pursuant to
the public announcement made;
 IRP shall constitute a committee of creditors;
 Further, the IRP shall monitor the assets of the Corporate Debtor and manage its
operations until a resolution professional is appointed by the committee of creditors;
  The IRP shall file the information collected with the information utility, if necessary; and
 The IRP shall take control and custody of any asset over which the Corporate Debtor has
ownership rights as recorded in the balance sheet of the Corporate Debtor, or with
information utility or the depository of securities or any other registry that records the
ownership of assets including:

i) assets over which the Corporate Debtor has ownership rights which may be
located in a foreign country;
ii) assets that may or may not be in possession of the Corporate Debtor;
iii) tangible assets, whether movable or immovable;
iv) intangible assets including intellectual property;
v) securities including shares held in any subsidiary of the Corporate Debtor,
financial instruments, insurance policies;
vi) assets subject to the determination of ownership by a court or authority;
 It is obligatory on party of IRP to perform such other duties as may be specified by the
Board.

OPPORTUNITIES FOR COMPANY SECRETARY UNDER IBC, 2016:

Winding up of companies has for long been a matter of concern in India. The Companies Act,
1956 governs the provisions of winding up of companies but as experience would reiterate, it is
a long and cumbersome process with little expertise available on the subject. Many company
secretaries do not venture into the field. As is often jokingly said, topics of winding up are left
for ‘option’ during student days, since who would remain ever with a company that is being
wound up!

But time has come when company secretaries – more specifically those in practice – need to
prepare for the immense opportunities being opened up. The Insolvency and Bankruptcy Code,
2016 (Code) was introduced in India recently to bring all matters relating to insolvency,
liquidation, voluntary liquidation or bankruptcy of companies, LLPs, partnership firms and
individuals under a single legislation.

The Code does not specify which persons can act as insolvency professionals. However, it does
say that the Board may specify the categories of professionals or persons possessing such

Page 28 of 47
qualifications and experience in the field of finance, law, management, insolvency or such other
field, as it deems fit. Company secretaries have experience in the field of law, and management.

There are many company secretaries who currently act as liquidators in voluntary winding up.
The scope has now been widened manifold under the Code.

Company Secretaries can act as:

 Interim resolution professional;

 Resolution Professional;

 To Represent
o Financial Creditor;
o Operational creditor;
o Corporate Debtor

Before NCLT and NCLAT

 To represent the Winding up cases before the Tribunal

 To prepare the scheme & seek approval from Tribunal for Revival & Rehabilitation of
sick cos.

Thus, Insolvency and Bankruptcy code provide the opportunity for Company Secretary to act as
Insolvency professionals for all types of winding up, insolvency, bankruptcy – be it for
corporates, individuals or firms. Further, since the adjudicating authority except for individuals
and firms is the NCLT, company secretaries can appear before such authority and represent their
clients. This will open new avenues of practice for professionals who would like to work with
financial institutions on debt restructuring projects, one time settlements and the like. It will also
give a chance to work for the society by helping the poor and marginalized sections.

IMPACT OF THE INSOLVENCY AND BANKRUPTCY CODE ON

BANKS:

Insolvency & Bankruptcy Code is likely to play an important role in addressing the non-
performing assets (NPA) of the banking sector. The banking sector is facing issues due to the
bad loans on its books, which have created a risk of capital erosion. NPAs have also constrained
the banks' ability to lend. Credit is an important ingredient of economic growth and the lack of
credit could lead to economic contraction. It's not just public sector banks that are staring a
mountain of NPAs - private sector banks are also taking a hit.

Page 29 of 47
The Reserve Bank of India has advised banks to file for insolvency proceedings on their own
rather than waiting for its instructions. The regulator has said that prompt action by lenders will
help realize best value of these stressed assets. The RBI in its report on trends and progress in
the banking industry has also said that lenders should use the insolvency and bankruptcy code to
mend the quality of their books. 

“Banks can take advantage of the IBC to clean up their balance sheets a and improve
performance on a sustained basis to remain competitive,” the regulator said. “Instead of waiting
for regulatory directions, banks can file for insolvency proceedings on their own to realize
promptly the best value for their assets.”

The banking regulator also said that lenders need to strengthen their due diligence, credit
appraisal and loan monitoring systems to minimize the risks of such events occurring again.

In May, 2017 the RBI was empowered through an ordinance to issue directions to banks to
initiate insolvency proceedings against borrowers for resolution of stressed assets. Shortly after
that, in June the regulator shortlisted 12 companies that would undergo the bankruptcy process
having a total debt of over Rs 2 lakh crore. Then in august it sent a second list of 28 defaulters to
creditors to initiate debt resolution before December 13, failing which these cases have to be
sent to NCLT before December 31.

Banks say they are already taking voluntary action to push stressed cases towards NCLT for
better resolution. “We are voluntarily taking action in some cases, infact monitoring of the SMA
accounts have been intensified where we have put early warning systems to find resolutions at
an early stage, “said B Sriram, MD, SBI in an interview with ET earlier this month. “If the stress
does become more serious we have various schemes of the RBI but we expect that the cases that
are before the NCLT today will give us a guidance in terms of how to resolve under a judicial
system faster.”

Almost a year since the NCLT started adjudicating corporate insolvency cases the pace of cases
admitted to the IBC has picked up with operational creditors being the most aggressive in the
initiation of insolvency proceedings. RBI data shows that number of corporates undergoing
resolution under IBC increased to 353 during July to September 2017 against 151 during April
June 2017 and 36 between January - March. But resolutions on these cases have been negligible
in the past six months.

“The overall risks to the banking sector arising from asset quality concerns continue to persist,”
said NS Vishwanathan, Deputy Governor, RBI. “The ongoing asset impairment in the banking
sector and risks on this front has important regulatory implications.” 

Page 30 of 47
The RBI’s insistence that banks pursue the IBC route is also because bad loan recovery through
other routes has been dismal. Data shows that between 2015-17, the average recovery ratio of
Indian banks was 26.4 per cent. Private sector banks performed much better than their state-run
peers with a recovery ratio of 41 per cent and 25 percent respectively. During this period, the
average amount recovered through all existing legal channels including SARFAESI, DRT and
Lokadalats was a paltry 10.8 per cent of the total amount involved. What is striking is that in the
last eight years’ recovery of bad loans has declined to 20.8 per cent by March 2017 from 61.8
per cent in 2009.

FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS:

There is a provision for Fast Track Corporate Insolvency Resolution Process under Section 55
of the Insolvency and Bankruptcy Code, 2016 and is applicable to following class of Corporate
Debtors:

 a small company, as defined under clause (85) of section 2 of the Companies Act, 2013; or

 a Startup (other than the partnership firm), as defined in the notification dated 23 rdMay,
2017 of the Ministry of Commerce and Industry; or

 an unlisted company with total assets, as reported in the financial statement of the
immediately preceding financial year, not exceeding Rs.1 crore.

The fast track Corporate Insolvency Resolution Process shall be completed within 90 days of its
commencement however could be extended further by 45 days as per the decision of
Adjudicating Authority. More than this, the extension of an Insolvency Resolution case is not
allowed if it is being judged under fast track Corporate Insolvency Resolution Process.

An application for fast track process can be filed by a creditor or Corporate Debtor himself. He
can submit the application accompanied with the proof of him not being a defaulter in means as
specified by the IBBI and the proof of him being eligible for fast track insolvency resolution
process as defined in section 57 of the Insolvency and Bankruptcy Code, 2016.

The resolution plan for fast track corporate insolvency resolution shall contain the details of
resolution applicants and other stakeholders who would enable the committee to assess the
credibility of the resolution applicant as per Regulation 37(3) of IBBI which again became part
of IBC Code 2016 as per IBBI (Insolvency Professionals) (Amendment) Regulations, 2018.

Page 31 of 47
The resolution professional will submit all the resolution plans which comply with requirement
as mention in the Insolvency and Bankruptcy Code, 2016. He shall also submit the details of all
the transactions like preferential transaction as defined under section 43 of IBC Code 2016,
under value transactions as defined under Section 45 and extortionate credit transactions as
defined under section 50 of IBC Code 2016 and fraudulent transactions. He also must submit the
copies of order of Adjudicating Authority in respect to these transactions as mentioned in
Regulation 38(2) of IBBI of Fast Track Insolvency Resolution Process. 

The process for conducting the corporate insolvency process is as defined under Chapter II of
Part II of the Insolvency and Bankruptcy Code, 2016 and provisions related to offences and
penalties applicable are as defined under Chapter VII of Part II of the Insolvency and
Bankruptcy Code, 2016. 

The procedure for Fast Track Insolvency Resolution Process is defined in IBBI Regulations
2017. As per this procedure the company shall appoint an insolvency resolution professional and
a public announcement shall be made as per specified form A. Proof of claims shall be obtained
and committee of creditors shall be formed. The meeting of these creditors shall be organized by
Insolvency Professional who will then conduct the fast track process as per process defined in
Fast Track Insolvency Resolution for Corporate Persons Regulation, 2017 which came into
effect from05thOctober 2017.

VOLUNTARY LIQUIDATION OF CORPORATE PERSONS:

The Central Government on March 30, 2017, inter alia notified, Section 59 of the Insolvency
and Bankruptcy Code, 2016 which deals with voluntary liquidation of corporate entities.
Subsequently on March 31, 2017 the Insolvency and Bankruptcy Board of India (IBBI) notified
the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations,
2017 (the “Regulations”). The provisions of voluntary liquidation and the Regulations were
made effective from April 1, 2017.

 Erstwhile provisions for voluntary liquidation:

Preceding to the aforesaid provisions, voluntary liquidation process was governed by the
provisions of the Companies Act, 1956, more specifically Section 482 to Section 530. Until then
the provisions contained in the Act of 2013 had not been enforced. Subsequently by virtue of
notification of the Eleventh Schedule of the Code with effect from November 15, 2016, various
winding up provisions contained in the Act of 2013 had been amended and voluntary winding
up sections under the Act of 2013 were omitted and the provisions of the Act of 1956 continued

Page 32 of 47
to apply in relation to voluntary winding up proceedings before various High Courts in the
Country

 Jurisdiction over proceedings of Voluntary Liquidation of Companies:

Period Prior to April 1, 2017 Post April 1, 2017

Authority on which power Jurisdictional National
Jurisdictional High Court
has been vested to deal Company Law Tribunal
The applicable provisions of the Section 59 of the Code
Legislative application
Companies Act, 1956 read with the Regulations.

 Invoking Voluntary Liquidation process

In terms of the Code, a Corporate Person may initiate a Voluntary Liquidation process if it

satisfies the following conditions:

 the Corporate Person should not have committed any default;

 majority of the directors or designated partners of the Corporate Person make a

declarationverified by an affidavit stating that each of the directors have made full
enquiry into the affairs of the company, basis which they have formed an opinion that:

i) the Corporate Person has no debt or it will be able to pay its debts in full out of
the sale proceeds of its assets under the proposed liquidation; and

ii) liquidation is not initiated to defraud any person;

 the Corporate Person shall within a period of 4 weeks from the date of declaration pass a
special resolution, approving the proposed Voluntary Liquidation;

 Where the Corporate Person owes any debt to any person, creditors representing two-
thirds in value of the debt shall consent to the ContributoriesResolution within 7 (seven)
days of its passage (Creditors’ Approval).

 Liquidation Commencement Date

The Voluntary Liquidation process shall be deemed to have commenced from the date of
passing of special resolution approving the proposed Liquidation and subsequent approval of the
creditors (if required).

Page 33 of 47
 Effect of Liquidation form Liquidation Commencement Date

The Corporate Person shall from the Liquidation Commencement Date cease to carry on its
business except to the extent as required for the purposes of winding up its business. However,
the Corporate Person shall continue to exist unit the Adjudicating Authoritypasses an Order
giving effect to the Liquidation.

 Appointment and remuneration of Liquidator

The Liquidator so appointed shall be independent of the Corporate Person. A person shall be
considered independent of the Corporate Person, if he-

 is eligible to appointed as an independent director on the board of the Corporate

Person under section 149 of the Act of 2013, where the Corporate Person is a
Company ;
 is not a related party within the meaning of Section 188 of the Act of 2013;
 has not been an employee or proprietor or a partner- (i) of a firm of auditors or
company secretaries or cost accountants or cost auditors of the Corporate Person; (ii)
of a legal or consulting firm that has or has had any transactions with the Corporate
Person contributing ten per cent or more of the gross turnover of the firm.

Additionally, remuneration payable to the Liquidator shall form a part of the Liquidation
process.

 Public announcement of Liquidator

Liquidator shall make public announcement in ‘Form A’ of Schedule I within 5 days of his
appointment inviting stakeholders to submit their claims due to the Company within 30 days
from the date of his appointment.

 Claims by stakeholders

Every stakeholder shall submit their Statement of Claims to the liquidator within 30 days from
the commencement of Liquidation.

By operational Shall include a person to whom a corporate debt is owed. In In form B

creditors terms of Section 5 (21) -operational debt means a claim in
respect of the provision of goods or services
including employment or a debt in respect of the

Page 34 of 47
 repayment of dues arising under any law for the time being
in force and payable to the Central Government, any State
Government or any local authority.

Shall include a person to whom a financial    debt is owed.

In terms of Section 5(8), financial   debt means a debt along
By financial
with interest, if any,     which is disbursed against the In Form C*
creditors
consideration for the time valueof   money   and   includes  
items referred  to  in  sub-clauses  (a) to (i) of Section 5(8).

In Form
By workmen Shall include any person claiming to be a workman or
D/E as the
and employees employee of the Corporate Person
case may be

Shall include any person other than a operational creditor,

By other
financial creditor, or workman/ employee claiming to be a In Form F
stakeholders
stakeholder of the Corporate Person

* For the Financial Creditors in a Class the respective form shall be Form CA.

On receipt of claims, the Liquidator would verify the claims within a period of thirty days’ from
the last day of receipt of claims and may either accept or reject the claims, in whole or in part.
The reasons for acceptance or rejection of the claim shall be writing and shall be communicated
to the Corporate Person within seven days.

Realization of assets, Proceeds of Liquidation and distribution of proceeds

Realization of Assets by the The Liquidator shall value and sell all assets of the
Liquidator Corporate Person in such manner and mode as the
Corporate Person may require. Moreover, the
Liquidator shall endeavor to recover and realize all
  assets of and dues to the Corporate Person in time-
bound manner.
A separate bank account in the name of the Corporate
Person followed by the words ‘in voluntary
All monies to be put in a separate
liquidation’, in a scheduled bank for receipt and
bank account
distribution of all money in furtherance of the
Voluntary Liquidation process shall be opened.
Distribution Proceeds from realization to be distributed within six
months from the date of receipt to the stakeholders.

Page 35 of 47
  

Completion of Voluntary Liquidation process and preparation of final report

Liquidator shall endeavour to complete the liquidation process within 12 months from the date
of commencement of liquidation process. Upon completion of the liquidation process, the
liquidator shall prepare the Final Report consisting of

a) audited accounts of liquidation, showing receipts and payments pertaining to liquidation

since its commencement;
b) statement demonstrating that assets of the corporate person are disposed off, debts are
satisfied and no litigation is pending against the corporate person; and
c) a sale statement in respect of all assets realized.

Adjudicating Authority to effectuate Liquidation process

Upon completion of the Liquidation process and subsequent preparation of the final report, the
Liquidator shall make an application to the NCLT in form NCLT-1 for dissolution of the
Corporate Person. The Adjudicating Authority shall then fix a date for the hearing of the
petition/ application. Where the NCLT is satisfied with the application, it shall pass an order that
the Corporate Person be dissolved from the date of that order.

Limited liability of the Directors of the Corporate Person

The liabilities of the Directors of the Corporate Person shall not continue to post its dissolution,
except in such cases where the Liquidator and/ or the Adjudicating Authority have opined that
the dissolution process was initiated to fraud and deceive any person and/ or the creditors.

Allied risks and liabilities

Any person who initiates the voluntary liquidation proceedings with the intent to defraud any
person shall be punishable with a minimum penalty of one lakh rupees which may extend to
one crore rupees. It is a well-founded principle of law that a fraud vitiates all underlying
transactions. Where the Adjudicating Authority is of the view that the directors of the company
who have initiated the voluntary liquidation proceeding with the intention to defraud any person,
the entire liquidation process would be suspended/ rendered void.

Page 36 of 47
Further, where during the liquidation process, the Liquidator is of the view that the business of
the Corporate Person has been carried out with the intent to defraud the creditors of the
Corporate Person, or for any other fraudulent purpose, the Liquidator may make an application
in terms of the NCLT Rules to the Adjudicating Authority, upon which the Adjudicating
Authority may pass an order that such persons who were knowingly parties to the carrying out
of the business in such fraudulent manner shall be liable to make such contributions to the assets
of the corporate person as it may deem fit.

Moreover, Where the Liquidator is of the opinion that the Corporate Person will not be able to
pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation, he may
make an application to the Adjudicating Authority to suspend the process of voluntary
liquidation and pass any such orders as it deems fit.

Appeal provisions
The Code allows flexibility to the Company to prefer an appeal against the order of the
Adjudicatory Authority by filling an appeal memorandum to National Company Law Appellate
Tribunal (“NCLAT”). Sub-section (2) of Section 61 says, “Every appeal shall be filed
within thirty days before the NCLAT”. In addition to the same an appeal may also be preferred
to the Hon’ble Supreme Court of India against the order of the NCLAT within 45 days from the
receipt of such order.

MAJOR AMENDMENTS IN IBC, 2016

The Insolvency & Bankruptcy Code has been amended twice in the year 2018 by the Insolvency
and Bankruptcy Code (Amendment)Act, 2018 and the Insolvency and Bankruptcy Code
(Second Amendment)Act, 2018.

The Insolvency and Bankruptcy Code (Amendment) Act, 2018 has been notified in official
gazette on 18th January, 2018 and shall be deemed to have come into force on h

The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 has been notified in
official gazette on 17th August, 2018 and shall be deemed to have come into force on the 06thday
of June 2018.

Some of the Major Amendments brought into effect are:

Homebuyers as Financial Creditors:

Page 37 of 47
 In 2016, when the Code and regulations framed thereunder were brought into force, the
insolvency resolution framework provided that any 'financial creditor' (i.e. any person to
whom a financial debt being a debt for borrowed money is owed), 'operational creditor' (i.e.
any person to whom an operational debt such as a trade debt is owed) or a Corporate Debtor
itself could initiate an insolvency resolution process.

The question whether advances paid by homebuyers to the real estate developers should be
categorized as a financial oroperational debt (or instead, a separate category of debt),
assumed significance in a spate of insolvency petitions againstfailing real estate projects. It
was apparent that the Code did not provide a suitable framework for the protection
ofhomebuyers who had advanced significantly larger amounts to the company as compared
to the banks who hadconstituted the committee of creditors and were steering resolution
processes.

In August 2017, the regulations under the Code were amended to classify homebuyers as
'other creditors' who wouldhave the right to file claims before the liquidator, but the
amendment did not elaborate on other rights available to them(i.e., whether 'other creditors'
could initiate insolvency proceedings or participate in the committee of creditors,
whethertheir claims would be protected under the resolution plan approved by the committee
of creditors etc.). The amendment hasnow definitively resolved this ambiguity by classifying
any 'amounts raised from an allottee under a real estate project' asfinancial debt.

Eligibility of Resolution Applicants:

Under the recently introduced section 29A of the Code, related parties of the Corporate
Debtor and other entities or theirpromoters whose loans have been non-performing assets
(NPAs) for a period of 1 year, were disqualified from beingresolution applicants. The
underlying intent of the amendment was to prevent persons who had contributed to the
failureof the debtor from getting back their assets at significant discounts.

There was however broad consensus among stakeholders in the industry that the extension of
the disqualification topersons acting jointly or in concert had led to unintended consequences
of multiple layers of persons being disqualified(even if remotely connected to the
disqualified person).

The amendment now clarifies that the following persons will not be disqualified from
participating in the resolution process:

Page 38 of 47
 i) financial entities (defined to include asset reconstruction companies, alternate
investment funds, scheduled banks, overseas financial institutions, investment
vehicles, registered foreign portfolio investors and foreign venture capital investors),
who are not affiliated to the Corporate Debtor; and

ii) entities who hold an NPA account pursuant to the acquisition of a Corporate Debtor
under an earlier insolvency resolution process this exemption is available for a period
of three years from the date of approval of the prior resolutionplan.

iii) regulated financial creditors who are affiliated to the debtor solely because of their
equity holdings pursuant to a debtrestructuring scheme implemented prior to the
initiation of insolvency proceedings.

iv) guarantors of a Corporate Debtor, unless the guarantee has been enforced and
remains unpaid in full or part by theguarantor.

CoC voting threshold reduced:

Voting threshold reduced from 75% to 66% for major decisions such as:
(i) Applying for an extension for the CIRP period from 180 to 270 days
(ii) Appointment and replacement of a resolution professional
(iii) Approving a resolution plan
(iv) Certain actions requiring approval of CoC; and
(v) Passing a resolution for liquidation

Section 12A: Voting threshold reduced to 51% for routine decisions.

• This would result in quick decision making.
• Improves prospects for approval of viable resolution plan.

Shareholder approval for Initiation of Corporate Insolvency by the Corporate Debtor:

The amendment requires shareholders or individuals/persons in management or control of
the Corporate Debtor to pass aspecial resolution of at least three-fourth of the total number
of shareholders or partners (in case of a LLP), beforeinitiation of corporate insolvency
resolution process by the Corporate Debtor.

Initiating IBC proceedings where winding-up proceedings are pending:

Page 39 of 47
 The leave of the High Court or National Company Law tribunal (NCLT) must be obtained
for initiating insolvencyproceedings under the Code, if any petition for winding up is
pending in any High Court or NCLT against the Corporate Debtor under the Companies Act.

Benefits to MSMEs (Micro, Small and Medium Enterprises):

Section 240A Promoters of micro, small and medium sized enterprises (MSMEs) be
permitted to bid under the IBC process unless they are willful defaulter or any
disqualifications related to default.Section 240A(2) empowers the government to exempt the
MSME from any other provisions of the Code by notification which would in a time bound
manner be ratified by the Parliament. This would improve opportunities of resolution for
MSMEs under CIRP.Recognizes the importance of MSMEs in the Indian economy and
helps in protecting jobs for a large number of people employed in MSME sector

Application of Limitation Act, 1963:

Prior to the amendment, there was ambiguity regarding the applicability of the Limitation
Act, 1963 to the Code. Specifically,the issue regarding the revival of the right of creditors
holding time-barred debts to file for insolvency resolution and rightof claimants to file time-
barred claims with the insolvency resolution professional were considered by the NCLAT
invarious matters. The NCLAT ruled that the limitation period (3 years) for initiating
insolvency proceedings for all claimsexisting prior to the Code would begin from the date of
its coming into effect, i.e., 01stDecember 2016. This gave anopportunity to the creditors to
initiate fresh insolvency proceedings for debts which otherwise were not recoverable due
tothe expiry of the limitation period.

The amendment act now expressly clarifiesthis position, by providing that the Limitation Act
would apply to proceedings under the Code.

APPLICABILITY OF THE LIMITATION ACT UNDER THE

INSOLVENCY AND BANKRUPTCY CODE, 2016:

The Insolvency & Bankruptcy Code was enacted in the year 2016. Since then there have
been divergent views regarding the application of the Limitation Act, 1963 to the
proceedings under the Insolvency & Bankruptcy Code, 2016 (Code).

Page 40 of 47
 The provisions of the Code are used by the financial creditors as a tool to claim their debts.
The creditors invoke the provisions of Code by filing application to initiate Corporate
Insolvency Resolution Process (CIRP), even if the claims are more than three years old i.e.
after the period of limitation has elapsed to recover the said debt by approaching a Civil
Court. The Code did not provide (prior to 6.6.2018) that the provisions of the Limitation
Act will be applicable on the proceedings under the Insolvency & Bankruptcy Code.

Different Benches of the Hon’ble National Company Law Tribunal (NCLT) have divergent
views on the issue of applicability of the Limitation Act to the proceedings under the Code.
There was a lot of confusion on applicability of the Limitation Act, 1963 to the proceedings
under the insolvency and Bankruptcy Code, 2016.

Judgments of the Hon’ble National Company Law Tribunal and Hon’ble National Company
Law Appellate Tribunal which questions the applicability of the Limitation Act, 1963.

 Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Trustees
Limited

The appellate tribunal held that the Limitation Act, 1963 is not applicable to the
Corporate Insolvency Resolution Process after considering the provisions of the
Limitation Act and the Code, held that in the absence of any specific provisions in the
Code, the Limitation Act would not be applicable to initiate Corporate Insolvency
Resolution Process. The Appellate Tribunal was of the view that the object of the Code
is related to commencement of Corporate Insolvency Resolution Process and not for
recovery of money. Thus, the judgment passed by the Appellate Tribunal in Neelkanth
Township case (supra), allows a party to commence Corporate Insolvency Resolution
Process based on even time-barred debts which could not have been recovered due to
expiry of stipulated period of limitation.

 M/s. Speculum PlastPvt. Ltd. Vs. PTC Techno Pvt. Ltd

The Hon’ble National Company Law Appellate Tribunal was pleased to hold that
Limitation Act is not applicable for initiation of Corporate Insolvency Resolution
Process. The Appellate Tribunal held that the doctrine of limitation and prescription is
necessary to be looked into for determining the question whether the application under
Section 7 or Section 9 of the Code can be entertained after long delays amounting to
latches and thereby the person forfeited his claim. The Appellate Tribunal held that if an
application under Section 7 or Section 9 of the Code has been filed after long delay, the
Adjudicating Authority may give opportunity to the applicant to explain the delay to find
out whether there are latches on the part of the applicant.

Page 41 of 47
 However, in the matter of B.K EDUCATIONAL SERVICES PVT LTD Vs. PARAG
GUPTA AND ASSOCIATES(C.A. No.-023988 - 2017) the said judgment had been
stayed by the Hon'ble Supreme Court.

Due to confusion with regard to the applicability of Limitation Act, Insolvency Law
Committee, deliberated on the above issue and agreed that the intent of the Code is not to
give a time barred debt a new lease of life and recommended that a particular provision
should be inserted in the Code about the application of Limitation Act to the Code.
Thereafter, to rest the controversy, Section 238-A was inserted by the Insolvency &
Bankruptcy Code (Second Amendment) Act, 2018, with effect from 06 th June, 2018
which reads as hereunder:

“238-A. Limitation – The provisions of the Limitation Act, 1963 (36 of 1963) shall, as
far as may be, apply to the provisions or appeals before the Adjudicating Authority, the
National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be.”

THE GUARANTOR CONUNDRUM- MORATORIUM AND

APPLICABILITY TO GUARANTORS

Similar issue arose in, Schweitzer Systemtek India Pvt. Ltd. vs. Phoenix ARC Pvt. Ltd.
&Ors, wherein the Appellate Tribunal after considering the expression “its” under
Section 14(1) (c) of the code and Section 60 of the code which deals with adjudicating
authority for corporate persons provides that if a Financial Creditor intends to proceed
against the Personal Guarantor of the corporate debtor then he may file an application
relating to ‘bankruptcy’ before the same adjudicating authority.

 The Appellate Tribunal held that, the application of Moratorium under the code was
limited to the properties of the corporate debtor only and did not extend to the properties
of the personal guarantor.

 However, in State Bank of India vs. Mr. V. Ramakrishnan, the Appellate Tribunal on the
similar issue took a view in direct contradiction to the earlier view in the case of Alpha
& Omega Diagnostics (India) ltd. Vs. Asset Reconstruction Company of India &Ors,
and Schweitzer Systemtek India Pvt. Ltd. vs. Phoenix ARC Pvt. Ltd. &Ors .

 NCLAT has on the same issue recently in State Bank of India vs. D.S. Rajendra Kumar,
reaffirmed its view taken in State Bank of India vs. Mr. V. Ramakrishnan, wherein it
held that the order of Moratorium’ will be applicable against the ‘Corporate Debtor’ and
also the ‘Personal Guarantor’. But the Appellate Tribunal entered into a caveat by stating

Page 42 of 47
 that the order of moratorium will be applicable only to the proceedings against the
corporate debtor and personal guarantor, if pending before any court of law/Tribunal or
authority.

 The issue of applicability of Moratorium on surety in a contract of guarantee to a

corporate debtor is settled through “The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018”, which provides that the provisions of Section 14 of the code i.e.
Moratorium under the code are not applicable on surety in a contract of guarantee to a
corporate debtor. Therefore, the financial or the operational creditor can proceed against
the surety/ guarantor of the corporate debtor, even during the Moratorium under the
code.

SOME MAJOR JUDGMENTS PASSED UNDER THE CODE:

 Macquarie Bank Limited v. Shilpi Cable Technologies Ltd.

(C.A. No.-015135 / 2017)

The two issues that were raised in this Case pertained to Insolvency and Bankruptcy Code, 2016
(Code).  Firstly, whether, in relation to an operational debt, the provision contained in Section
9(3) (c) of the Code is mandatory and secondly, whether a demand notice of an unpaid
operational debt can be issued by a lawyer on behalf of the operational creditor.

The Supreme Court allowed the appeals of Macquarie Bank against the judgment of the
National Company Law Appellate Tribunal (Appellate Tribunal) in Shilpi Cable Technologies
v. Macquarie Bank dated 1 August 2017 and in Macquarie Bank v. Uttam Galva Mettalics
Limited dated 17 July 2017.

Palogix Infrastructure Pvt Ltd. V. ICICI Bank Limited Appellate Tribunal held that in case if
general authorisation is made by the operational creditor in favour of its officers to do needful in
legal proceedings by and against the Operational creditor, mere use of word ‘Power of Attorney’
while delegating such power will not take away the authority of such officer and ‘for all
purposes it is to be treated as ‘authorization’ by the Operational creditor in favour of its officer,
which can be delegated even by designation. In such case, officer delegated with power can
claim to be the ‘Authorized Representative’ for the Purpose of filing any application u/s 9.

Judgement passed: An authorized agent or a lawyer acting on behalf of his client can issue a
demand notice.

 Uttam Galva Steels Limited vs. DF Deutsche Forfait AG &Anr.

Page 43 of 47
The Question raised in this case was whether two or more operational creditors can file a
joint application under section 9 of the Code?

NCLAT, upon perusal of definition of section 9 and section 7 of the Code, came to the
conclusion that since the language used in section 9 of the Code is different from section 7 of the
Code, two or more operational creditors cannot file a joint application under section 9 of Code.
NCLAT noted that in section 7 of Code, it is specifically written that a Financial Creditor can
file application either by ‘itself or jointly with other financial creditors’, whereas, such phrase is
not used in section 9 of Code.

Judgement passed: Two or more operational creditors cannot file a joint application for
initiation of CIRP under section 9 of the Code.

 Soma Enterprises Limited

The question raised in this matter was what are the consequences of not replying to the demand
letters issued by the financial Creditors?

The judgement passed in the matter was that by not replying to the demand letters issued by the
financial creditors and by not filing an affidavit in reply to this petition for contesting its
liability, the Corporate Debtor has admitted its liability.

 Swiss Ribbons Private Limited &Anr. v. Union of India

Under this case various questions were raised on the validity of various aspects of the IBC, 2016
like the constitution of NCLT and NCLAT that these are not based on the judgment passed in
the matter of Madras High Court further earlier the high court was the appellate tribunal and it
was located state wise but now NCLAT is situated in New Delhi only therefore it would be
difficult for the applicant from Karnataka, Chennai etc to file an appeal before the New Delhi
Bench.

Further an issue was also raised that NCLT and NCLAT should be governed by Ministry of Law
and Justice but at present date these bodies are governed by the Ministry of Corporate Affairs.

Further also there is no intelligible differentia having relation to the objects sought to be

achieved by the Code between financial and operational creditors; indeed, nowhere in the world
has this distinction been made; and therefore, it was alleged to be discriminatory in effect.

The court held that IBC, 2016 is perfectly constitutionally valid.

 Shivam Water Treaters Pvt. Ltd.

Page 44 of 47
The question raised in this case was whether Municipal Authorities have authority to seal the
property of the Corporate Debtor after moratorium order has been passed?

The judgment passed in this matter was as once the CIRP is initiated a moratorium period under
section 14 of the IBC, 2016 is declared whereby period any action to foreclose, recover or
enforce any security interest created by the Corporate Debtor in respect of its property including
any action under the Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 and further the recovery of any property by an owner or lessor where
such property is occupied by or in possession of the Corporate Debtor is stayed by the
moratorium order only the supply of essential goods and services is not prohibited during this
period.

During this period Municipality authority sealed the registered office of the Corporate Debtor.
The judgment passed in this matter was as Section 238 of the IBC, 2016 talks about the
overriding effect of the code over the other existing laws. Therefore, Municipality authority
doesn’t have any right to seal the premises of the Corporate Debtor.

 Suzlon Energy Ltd

The question raised under this case was whether the Adjudicating Authority be treated as
Recovery Court?

It is a settles legal position that the I.B proceedings ought not to be invoked for recovery of its
dues nor it can it be the theme of the Code; which is meant to bring revival plan for a weak
company which is unable to pay its debts, which may not necessarily be a defaulter company
and a going concern, for the purpose of replacing its management and by constituting of
Committee of Creditors, comprising of its financial creditors, because the remedy being sought
for in the present I.B petition is a remedy in rem; hence even such petition is admitted and a
moratorium is declared under section 14 of the Code. The petitioner cannot get preference for
recovery of debts defaulted. It requires to be verified first by the RP and by the CoC for bringing
a resolution plan or recommending for the liquidation and not otherwise.

Hence, this Adjudicating Authority, under the I.B Code cannot be termed as recovery court.”

Page 45 of 47
CONCLUSION:
Insolvency and Bankruptcy Code, 2016, is a progressive legislation that is intended to improve
the efficiency of insolvency and bankruptcy proceedings in India. The code aims at repayment to
the creditors without harming the Corporate Debtor, the code serves to provide the secure and
effective means to recover the debts and to remove the financial distress of the Corporate Debtor
in a time bound manner.The Insolvency professionals serves to be an important part of the
Corporate Insolvency Resolution Process.

Insolvency and Bankruptcy Code brought quite a few changes in the big business scenario in
the country. Brought forward to reduce the time it takes to deal with the issue of bankruptcy, the
code has morphed into something that is driving this country towards a new age of economy.

However, many details on the IBC's implementation need to be worked out in the regulations,
and its success will depend to a large extent on how quickly a highquality cadre of insolvency
resolution professionals will emerge. The best we can do is making sure that our finances are in
order and we never go insolvent.

Page 46 of 47
BIBLIOGRAPHY:

The content for this project report has been taken from the following sources:

 IBBI Website (www.ibbi.gov.in)

 IBC, 2016 (Bare Act)

 www.ca2013.com

 NCLT Website (www.nclt.gov.in)

 Supreme Court Website (www.sci.gov.in)

 Articles from:

 https://corporate.cyrilamarchandblogs.com/2018/07/2018-ibc-ordinance-impact-changes/

 https://economictimes.indiatimes.com/news/economy/policy/why-ibc-panels-new-
recommendations-may-defeat-the-very-purpose-of-the-law/articleshow/63994517.cms

Page 47 of 47