UNIVERSITY OF PETROLEUM & ENERGY

STUDIES

SCHOOL OF LAW
B.A LL.B
VI SEMESTER
ACADEMIC YEAR: 2017- 2022

Under the Supervision of: Mrs. Priyanka Choudhary

Subject – Company Law II

By-
Shriya Giriraj -R154217084
Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament.
Insolvency and Bankruptcy Code, 2016 basically consolidates the insolvency laws for various
entities under a single legislation. It is equally applicable to companies, partnership firms, and
limited liability partnership firms. It got Presidential assent in May 2016. The law was
necessitated due to huge pile-up of non-performing loans of banks and delay in debt
resolution. Insolvency resolution in India took 4.3 years on an average against other countries
such as United Kingdom (1 year) and United States of America (1.5 years).This code applies
to companies, partnerships and individuals. It provides for a time-bound process to resolve
insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets
and must take decisions to resolve insolvency. Under IBC debtor and creditor both can start
'recovery' proceedings against each other
The insolvency resolution process (IRP) is a one under the Insolvency and Bankruptcy Code,
2016, where the National Company Law Tribunal (NCLT) initiates a corporate insolvency
resolution process (CIRP) when a company defaults on making payment to creditors. A
financial creditor, operational creditor or corporate itself can file an application before NCLT
for initiating IRP when default has occurred. In case of housing project, after amendment in
the code, a homebuyer can also approach NCLT for initiating IRP if a developer fails to
provide possession of the house or refund the money.
The Code creates various institutions to facilitate resolution of insolvency which includes-
 Insolvency Professionals: A specialised cadre of licensed professionals. These
professionals will administer the resolution process, manage the assets of the debtor,
and provide information for creditors to assist them in decision making.
 Insolvency Professional Agencies: The insolvency professionals will be registered
with insolvency professional agencies. The agencies conduct examinations to certify
the insolvency professionals and enforce a code of conduct for their performance.
 Information Utilities: Creditors will report financial information of the debt owed to
them by the debtor. Such information will include records of debt, liabilities and
defaults.
 Adjudicating authorities: The proceedings of the resolution process will be
adjudicated by the National Companies Law Tribunal (NCLT), for companies; and
the Debt Recovery Tribunal (DRT), for individuals. The duties of the authorities will
include approval to initiate the resolution process, appoint the insolvency
professional, and approve the final decision of creditors.
 Insolvency and Bankruptcy Board: The Board will regulate insolvency professionals,
insolvency professional agencies and information utilities set up under the Code. The
Board will consist of representatives of Reserve Bank of India, and the Ministries of
Finance, Corporate Affairs and Law.
The Code proposes the following steps to resolve insolvency:
 Initiation: When a default occurs, the resolution process may be initiated by the debtor
or creditor. The insolvency professional administers the process. The professional
provides financial information of the debtor from the information utilities to the
 creditor and manage the debtor’s assets. This process lasts for 180 days and any legal
action against the debtor is prohibited during this period.
 Decision to resolve insolvency: A committee consisting of the financial creditors who
lent money to the debtor will be formed by the insolvency professional. The creditors
committee will take a decision regarding the future of the outstanding debt owed to
them. They may choose to revive the debt owed to them by changing the repayment
schedule, or sell (liquidate) the assets of the debtor to repay the debts owed to them.
If a decision is not taken in 180 days, the debtor’s assets go into liquidation.
 Liquidation: If the debtor goes into liquidation, an insolvency professional
administers the liquidation process. Proceeds from the sale of the debtor’s assets are
distributed in the following order of precedence: i) insolvency resolution costs,
including the remuneration to the insolvency professional, ii) secured creditors, whose
loans are backed by collateral, dues to workers, other employees, iii) unsecured
creditors, iv) dues to government, v) priority shareholders and vi) equity shareholders.
While the intention of the amendment seems to avoid conflicting proceedings, it does not
appear to provide a workable solution to the problem per say. The amendment mentions that
a winding up petition can be transferred to NCLT and treated as an IBC petition.
Accordingly, the amendment proceeds on the basis that a winding up petitioner would apply
for a transfer to the IBC regime only where a fresh IBC petition is maintainable, but not
where an IBC petition is already admitted. In the latter situation, another IBC petition would
not be maintainable and any creditor that wants its debt to be covered in the resolution plan,
would need to submit a proof of claim before the RP. Had the amendment clarified that a
pending winding up petition can be withdrawn and used as a basis for submitting a proof of
claim, perhaps the intent would have been clearer.

Winding up procedure in Insolvency & bankruptcy code

A circumstance under which a company could be wind up by the Tribunal are as follows -
• If a special resolution has been passed by the Tribunal for winding up of the company.
• If it is found that company has acted against the sovereignty, integrity, and security of
India's friendly relations with foreign states.
• If Tribunal has found that company have enacted fraudulently or in an unlawful manner.
• If the concerned people of the company especially management are found to be guilty of
fraud or misconduct.
• If the company is found to be a defaulter in filing its financial statements for preceding
financial years with Company Registrar.
•In the case for any reason, Tribunal thinks that a company should be wound up.
• The Section 275 of Winding up of a company under the Companies Act, 2013 for the
appointment of Company Liquidators have been replaced by Insolvency Professionals, who
are appointed and governed by the Tribunal as per Insolvent and Bankruptcy Code 2016.
• The section 304 for Voluntary Winding Up of the companies under Winding up of a
company under the Companies Act, 2013 have been totally omitted in Insolvency and
Bankruptcy Code 2016.

The liquidator is an insolvency professional on whom all the powers of the Board of
Directors, key managerial personnel and the partners, as applicable, of the corporate debtor
are vested by the Adjudicating Authority upon Liquidation order being passed under section
33 of the Insolvency and Bankruptcy Code, 2016. As per Section 34(4) of the Code, the
Adjudicating Authority may order to replace the Liquidator if: –
 The resolution plan submitted by the Resolution Professional under section 30 of the
Code, was rejected for failure to meet the requirements as per Section 30(2).;or,
 The Insolvency and Bankruptcy Board of India (The Board) recommends the
replacement of the Resolution Professional for recorded reasons; or,
 The Resolution professional fails to submit written consent for appointment as
Liquidator.
 For cases where the Resolution Professional is required to be replaced, the
Adjudicating Authority may direct the Board to propose names of Insolvency
Professionals eligible to be appointed as Liquidator along with written consent form
within 10 days of the direction issued, and upon receipt of the proposal, the order of
appointment of Liquidator is passed.
Section 35 of the Code states the powers and duties of the Liquidator which includes the
following:-
 to verify claims of all the creditors and consolidate them;
 to take into his custody or control all the assets, property, effects and actionable
claims of the corporate debtor;
 to evaluate the assets and property of the corporate debtor in the manner and prepare a
report;
 to take such measures to protect and preserve the assets and properties of the
corporate debtor;
 to carry on the business of the corporate debtor for its beneficial liquidation;
 to sell the immovable and movable property and actionable claims of the corporate
debtor in liquidation by public auction or private contract, with power to transfer such
property to any person or body corporate, or to sell the same in parcels, though
transfer are subjected to section 52 and further the liquidator shall not sell the
immovable and movable property or actionable claims to any person who is not
eligible to be a resolution applicant.
 to draw, accept, make and endorse any negotiable instruments on behalf of the
corporate debtor, with the same effect as if such instruments were drawn, accepted,
made or endorsed by or on behalf of the corporate debtor in the ordinary course of its
business;
 to take out, in his official name, letter of administration to any deceased contributory
and to do in his official name any other act necessary for obtaining payment of any
money due and payable from a contributory or his estate which cannot be ordinarily
 done in the name of the corporate debtor, and in all such cases, the money due and
payable shall, for the purpose of enabling the liquidator to take out the letter of
administration or recover the money, be deemed to be due to the liquidator himself;
 to obtain any professional assistance, in the discharge of his duties, obligations and
responsibilities;
 to invite and settle claims of creditors and claimants and distribute proceeds in
accordance with the provisions of this Code;
 to institute or defend any suit, prosecution or other legal proceedings, civil or
criminal, in the name of on behalf of the corporate debtor;
 to investigate the financial affairs of the corporate debtor to determine undervalued or
preferential transactions;
 to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt
document, application, petition, affidavit, bond or instrument and for such purpose to
use the common seal, if any, as may be necessary for liquidation, distribution of assets
and in discharge of his duties and obligations and functions as liquidator;
 to apply to the Adjudicating Authority for such orders or directions as may be
necessary and to report the progress of the liquidation process in a manner as may be
specified by the Board; and
 to perform such other functions as may be specified by the Board.
 To admit and reject claims of creditors,
 Power to access any information system for the purpose of verification of Claims and
identification of assets forming part of Liquidation Estate of the Corporate Debtor
from sources such as, Information Utility, Credit Information Systems, Central and
State Government Agency, database maintained by the Board etc. as specified in
Section 37 of the Code.
 To evaluate preferential transactions, if any done by the Corporate Debtor.
 Avoid undervalued transactions
 Distribute the liquidation proceeds as per Section 53 of the Code.
 Make application for the Dissolution of the Corporate Debtor once all its assets are
duly liquidated.

Voluntary winding up of private limited company procedure was made part of Insolvency
and Bankruptcy Code, 2016 in Chapter 5 of Part II. As per Section 59 of IBC Code 2016, a
person from corporate who has not committed any default could initiate a voluntary winding
up. With the advent of Insolvency and Bankruptcy Code(IBC), 2016, a uniform,
comprehensive code was introduced which encompassed all companies, partnerships, and
individuals (other than financial firms. Its primary goal is to consolidate the Insolvency
resolution process into a fast track for all companies, partnerships and individuals (other than
financial firms).
The Insolvency and Bankruptcy Board of India (IBBI) has notified Section 59 which deals
with Voluntary Liquidation, meanwhile the Voluntary Liquidation process in use before IBC,
was Companies Act 1956 and Companies Act 2013. Voluntary Liquidation is when a
company self imposes upon itself to wind up and dissolve itself after approval of its
shareholders. It generally happens when company turns insolvent and is unable to pay off its
liabilities. Now, the government vide its Notification has repealed the provision of Voluntary
Liquidation under Companies Act 1956 and Companies Act 2013.
In terms of Section 59 of the IBC, a Corporate Person who hasn`t committed any default, is
only eligible for initiating Voluntary liquidation process. Within 4 weeks of the said
declaration being submitted, a special resolution shall be passed by the contributors
(Contributors Resolution) requiring the corporate entity to be liquidated and then they shall
appoint an Insolvency Resolution Professional as a Liquidator. Within 7 days after passage of
the said declaration, creditors who represent 2/3rd value of total debt of Corporate entity,
approve the Contributors Resolution. The Registrar of Companies (ROC) and the Board shall
be notified as per the provision of Section 59(4) for the resolution passed under Section 59(3)
after taking the approval of creditor or to liquidate the company within 7 days.
Under the new amended regulations, the Government has not just simplified the process of
Voluntary Liquidation but has also specified time limits or rather time period for various
compliances. The procedure for the process of Voluntary liquidation as per the amended
regulation is summed up as below specified :-
 A document is to be submitted called Submission of Declaration to Registrar of
Companies, which shall state that the said company shall or should be able to pay off
its debt and it has started the process of voluntary liquidation to not defraud any
person or entity;
 A Special Resolution shall be passed to approve the process of voluntary liquidation
and an insolvency professional shall be appointed as a liquidator (“Approval“), within
a time frame of four weeks after the submission of declaration. An approval of 2/3rd
of the creditors shall also be required if the said corporate person has any unpaid
debts.
 As soon as the approval is granted a public notice is to be announced within 5 days of
such approval in Newspapers as well as on the website (if any) of the Corporate
Person inviting claims or objections of all stakeholders involved.
 An intimation about the grant of approval is to be sent within seven days of such
approval to the Registrar of Companies and the Board;
 The preliminary finding of the authorised capital, approximations of asset and
liabilities, the proposed plan of action etc., is to be made into a Report called
Preliminary Report, which shall and submitted to the corporate person within a period
of Forty-Five days of the said approval;
 Within 30 days from the last day of receipt of claims, verification of such claims shall
be done and within 45 days from the last day of receipt of claims, the list of
stakeholders involved shall be done.
 A bank account on the name of the said Corporate entity which shall be followed by
the words’ involuntary liquidation’, in any of the scheduled banks, for the purpose of
receipt of all amount due to the corporate entity;
 The process of sale of all the assets of the Corporate person and the recovery of
amounts which are due to the corporate person and the realization of capital which are
uncalled or unpaid in nature or are contributions which are unpaid, shall be done;
 The amounts received from the realisation of the Capitals shall be distributed within a
period of six months to all the stakeholders involved;
  A final report is to be submitted by the Insolvency professional appointed as the
Liquidator for the Corporate person`s voluntary liquidation. Registrar of Companies
and the Board shall also submit the final report.
 An application is to be sent to the National Company Law Tribunal for the dissolution
or winding up or voluntary liquidation of the Corporate Person,
 After the application is submitted to the Hon’ble National Company Law Tribunal,
it`s order of dissolution of the Corporate Person shall be submitted within a period of
fourteen days to the Registrar of Companies.
The appointed Liquidator shall attempt to achieve or rather finish the voluntary liquidation
process within a time span of twelve Months from the date of commencement of liquidation.
In case it is found that the accounts of the Corporate Person have been completely wound up,
and its assets completely liquidated, the liquidator shall make an application to the
Adjudicating Authority i.e. National Company Law Tribunal for the liquidation of such
Corporate Person. After an application filed by the Liquidator, The Adjudicating Authority
shall pass an order, ordering the corporate debtor to be dissolved from the date of the order
and the corporate person shall stand dissolved accordingly. A copy of the said order shall be
forwarded to the concerned authority with which the corporate.

IBC Code 2016 or Insolvency and Bankruptcy Code 2016 must amend ended various laws of
Winding up of a company under Companies Act, 2013. As per IBC Code 2016, the definition
of winding up was formatted to be winding up or liquidation under the Insolvency and
Bankruptcy Code 2016. All the laws in section 270 of Winding up of a company under
Companies Act, 2013 which relates to Modes of winding up were deleted and substituted by
Winding up by Tribunal.