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Chapter 6 - Insolvency Bankruptcy Code, 2016
Chapter 6 - Insolvency Bankruptcy Code, 2016
Chapter 6 - Insolvency Bankruptcy Code, 2016
With Shubham Singhal (AIR 4) Summary Notes Applicable for Dec 2021 Attempt!
Introduction of IBC amended 11 existing Acts including Cos. Act and SARFAESI
Purpose of the code:
An Act 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 entrepreneurship, availability of credit and
balance interests of all stakeholders including alteration in order of priority of payment of Govt. dues and
to establish an Insolvency and Bankruptcy Board of India (IBBI), and
for matters connected therewith or incidental thereto.
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Provided that - CG may, by notification, specify min. amount of default of higher value (not > Rs. 1 crore) for
matters relating to “PPIRP” of CD under Chapter III-A
Section 5: Definitions applicable only to Part II – Read Later
Financial Creditor
Application (presc. Form)
(itself or Jointly with other Adjudication Authority (NCLT)
Against CD for initiating CIRP
FCs/Person notified by CG)
Following person are notified by CG and may file an application on behalf of FC:
executor or administrator of trustee including person duly authorized by
Guardian
an estate of FC debenture trustee BOD of a company
• Default includes a default in respect of a FD owed not only to the applicant FC but to any other FC of the
CD.
• Documents to be enclosed:
• Record or evidence of default with IU or others
• Name of proposed IRP
• Other info as may be specified by Board
• AA to ascertain default within 14 days (otherwise record reason) based on record / evidence
• Admit application if: No pending disciplinary proc. Against
Default has occurred Application complete proposed IRP
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• AA shall within 14 days admit the application and communicate it to OC/CD if:
• Invoice or demand notice was delivered to CD
• No payment of unpaid OD
• No notice of dispute and no record of payment in IU
• Application is complete
• No disciplinary proceeding
• Otherwise reject and communicate to OC. However, give 7 days to rectify
• CIRP to commence on date of admission
Concept Clarity Check - CA can file on behalf of CD but subject to SR/Resoln of partners approving such filing.
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Note: No application shall ever be filed for initiation of CIRP of CD for said default occurring during said
period.
Explanation - Nothing in this section shall prevent a CD referred above from initiating CIRP against another CD.
Note: CIRP to be mandatorily completed within 330 days of ICD including extension and time taken in legal
proceedings
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Summary of Withdrawal of Applications [Sec 12A of Code, Rule 8 and Regulation 30A]
Stage at which appln is withdrawn Process
Before admission by AA (AA has to AA may permit such withdrawal on application for withdrawal
admit or reject in 14 days)
Application admitted but CoC not AA may permit on application made through IRP. IRP to apply within 3
formed days of receipt from applicant
After constitution of CoC but before Withdrawal application to be first approved by CoC by 90% voting shares
invitation for EOI within 7 days of such withdrawal appln and then IRP/RP to submit
application to AA within 3 days of approval from CoC
After invitation of EOI Same as above with only difference that applicant to state reasons
justifying such withdrawal
Section 13 – Declaration of Moratorium and Public announcement:
Where an application u/s 7,9 or 10 is admitted, AA shall make an order (on ICD) w.r.t:
(a) Appointment of IRP as per sec 16
(b) Cause a public announcement of initiation of CIRP and call for submission of claims u/s 15 (after appt of
IRP)
(c) Declare moratorium for the purpose referred to in sec 14
Section 14 –Moratorium
On the ICD, AA shall by order declare moratorium prohibiting [RAIES]:
Institution of Recovery of any Transferring, Supply of Essential
Enforcement of
Suits, Continuation property by any encumbering or goods and services
security Interest
of pending suits, owner or lessor disposing off any not to be terminated,
as per SARFAESI,
Execution of which is in Asset of CD by suspended or
2002
order of any court possession of CD CD interrupted
Note: A license, permit, registration, quota, concession, clearance or a similar grant or right given by CG, SG,
local authority, sectoral regulator, etc., shall not be suspended/terminated on grounds of insolvency, provide
that there is no default in payment of current dues arising for use of such license or grant during moratorium
period
Example: Jet airways slots allocated by DGCA.
Section 15– Public announcement of CIRP: [As per FAQs - within 3 days of ICD]
AA shall cause public announcement of CIRP containing following info [RAPID2]:
Name of Details of IRP vested with Last date Penalties for Last date of CIRP (i.e.
Name and
authority under power of mgt. & of false and 180th day from
Address
which CD is responsible for receiving submission misleading admission of appln. u/s
of CD
incorp./ Regt. claims of claims claim 7,9,10
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*No prior consent of such crs shall be required where value of such property is > amt. = 2x amount of
debt.
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Additional Points:
Claims to be submitted with proof on or before last date mentioned in PA u/s 15
IRP shall verify claim within 7 days from last date of receipt of claim
Within 2 days of such verification – File report to AA certifying constitution of CoC
A person who fails to file claim can file claim with IRP/RP on/before 90th date from ICD.
Provided that - FC who is a related party of CD will not have any right of representation,
participation or voting in CoC meeting
Provided further that, above proviso shall be N.A to FC regulated by financial sector regulator,
if it is a related party of CD solely on account of conversion of debt to equity prior to ICD
Consortium Each FC shall be part of CoC and voting share based on FD owed to them
If consortium agreement provides for a single trustee/agent for all FC, each FC may:
• Authorize that agent/trustee to act on his behalf, or
• Represent himself
• Appoint an IP (other than RP) at his own cost to represent him
• Exercise his right to vote with one or more FC jointly or severally
Person is FC Will be considered as both FC and OC and included in CoC with voting share proportionate to the
and OC both FD owed to such creditor
If OC assigns Assignee to be considered as OC to the extent of such assignment
his OD to FC
Rights of AR shall attend the meeting of CoC and vote on behalf of FC where a financial debt is:
Authorised In form of securities or deposits and terms of such FD provide for appointment of
Representativ trustees/agents, such trustee/agents shall act on behalf of FC
e of FC Is owed to a class of creditors exceeding numbers as may be specified – IRP make
application to AA the list of creditors along with the name of IP for the AA to appoint
Represented by a guardian, executor, etc, such person shall act as AR for FC
Decision of Except as otherwise provided in this code, all decisions of CoC shall be taken by CoC by a vote of
CoC not less than 51% of voting share of FC
RP to furnish CoC may require RP to furnish any financial information related to CD any time during CIRP. RP
info. to furnish within 7 days
Quorum of A meeting of CoC shall quorate if members representing >= 33% of the voting rights are
CoC present either in person or by video/audio means.
If no quorum – Automatic adjournment to same time and same place – Next day
Section 22 – Appointment of RP
Step 1 - CoC to be constituted by IRP
Step 2 - First meeting of CoC to be held for within 7 days of constitution [As per FAQ - Not later than 30 days of
ICD]
Step 3 - By majority vote of >66% of FC resolve to either appoint IRP as RP or to replace the IRP by another
RP
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If CoC resolves to appoint IRP as RP – Subject to written consent from IRP, CoC to communicate decision to
IRP, AA and CD
If CoC resolves to replace IRP:
1 AA
CoC to file an application
(+Name and written consent of proposed RP) 2
Board
If Board confirms – Proceed
No response within 10 days, IRP to 3
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Maintain updated list of claims Such other actions as may be specified by Board
Section 27– Replacement of RP by CoC
At any time during CIRP, if CoC is of the opinion that RP is to be replaced
CoC may by vote of >66% of voting shares, make an appln to AA containing name of proposed RP for
appointment
Written consent of proposed RP required
AA to forward the same to Board for confirmation and RP shall be then appointed as per manner laid u/s
16
If any disciplinary proceeding is pending, existing RP to continue till another RP appointed
Section 28 – Approval of CoC for certain actions (RP can’t do without approval) [FIT2S(CCD) MCD T2]
Raise any interim finance in Instruction to FI for debit Create any security Disposal of shares of any
excess of amount decided Transaction > Amt. decided interest over assets shareholder
A person shall not be eligible to submit a resolution plan if such person is [GIFT A CCD 164 SEBI]:
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wilful Defaulter – As per At the time of such submission – Has an account OR is the promoter or in charge of
undischarged management or control of a CD who has an account which is classified as NPA AND > = 1
Guidelines of RBI issued under
Insolvent
Banking Regulation Act, 1949 year has lapsed from date of such classification till date of ICD*
Has been convicted of an offence punishable with imprisonment – Had executed Guarantee in favor of a creditor in
(Eligible after completion of 2 years from expiry of tenure of imprisonment) respect of CD undergoing CIRP and the creditor
For >= 2 years under any Act specified in the 12th Schedule invoked such guarantee and it remains unpaid in full
For >= 7 years under any other law for the time being in force or part.
*Can submit if paid all overdue and interest thereon before submission.
*Moreover, this Clause N.A. if applicant is Financial entity + Not a Related Party
(3) RP to present to CoC for its approval such resolution plan which confirm to Sec 30(2)
(4) CoC to approve the plan by vote >=66% voting share after considering
• feasibility and viability,
• the manner of distribution proposed
• such other requirements as may be specified by the Board
(5) CoC shall not approve the resolution plan submitted by a resolution applicant ineligible u/s 29A.
However, if RA not eligible under clause (c) of Sec 29A (NPA Account), CoC may allow such RA a period not
exceeding 30 days to clear dues (This ext. will not impact time limit u/s 12 i.e., complete CIRP in 180 days )
(6) Right of RA to attend the meeting of CoC in which the plan is considered. But no right to vote unless RA is
FC.
Can RA vote on his own plan if he is a FC?
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Note: Nowhere during the consideration (and even implementation) of the resolution plan is the approval of
SH of CD required. Any approval reqd. for implementation is deemed to have been given on approval of plan
by AA.
3. Consequences of approval:
Moratorium u/s 14 ceases to have effect
RP to forward to the Board all records related to CIRP and resolution plan to be recorded in its database
4. RA to obtain necessary approval within 1 year of approval of plan by AA (If CCI approval needed, obtain
prior to approval of AA)
Section 32 – Appeal
Appeal against order approving Resolution plan shall be as per Provision of Sec 61(3) [Cant’s appeal if plan
rejected]
As per Section 61(3), appeal against above order can be made on following grounds: (similar to COMILO)
a) the approved R. plan is in contravention of the provisions of any law
b) there has been material irregularity in exercise of the powers by the RP during the CIRP;
c) the payment to OD have not been provided for in R. plan in the manner specified by the Board
d) IRP costs have not been provided for repayment in priority to all other debts
e) R. Plan doesn’t comply with any other specified criteria
Provided that if prosecution had been instituted during the CIRP against such CD, it shall stand discharged
from the date of approval of the R. plan subject to requirements of this sub-section having fulfilled.
Provided further that Designated Partner (DP) or an OID, or any person was in any manner in-charge of the CD
for the conduct of its business and who was involved in the commission of such offence as per the report of
IA, shall continue to be liable to be prosecuted and punished for such an offence committed.
No action shall be taken against the property of the CD w.r.t an offence committed prior to the ICD, where
such property is covered under a R. Plan approved u/s 31, which results in the change in control of the CD to a
person, or sale of liquidation assets to a person, who was
a) not a promoter or in the management or control of the CD or a related party of such a person; or
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b) not a person w.r.t whom the relevant investigating authority (IA) has, on the basis of material in its
possession, RTB that he had conspired for the commission of the offence and has submitted report to the
relevant authority.
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Credit IS under any Any agency of CG,SG, Local govt including Database maintained Sources specified by
law registration authorities by Board Board
Any creditor may require Liquidator to provide financial info and Liquidator shall within 7 days provide such
info. or provide reasons for not providing such info.
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Submission of claim by OC – Such manner and such supporting documents as may be specified by Board
Partly FC & partly OC – To the extent of FD in the manner specified above. And for OD, manner specified
above
Creditor may vary or withdraw his claims within 14 days of submission of such claim
Section 41 - Valuation of Claims - Liquidator shall determine value of claims admitted u/s 40 in specified
manner
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Order shall
1. Affect intt. in prop. acquired in good faith and for value
not be passed
2. Require a person to pay any sum if such benefit was received in good faith or for value.
if:
Where the person to whom preference is given,:
a. Had sufficient info. of commencement of CIRP or
Presumption b. Is a related party,
it shall be presumed that intt. was acquired otherwise than in good faith.
A person shall be deemed to have sufficient info. if a PA u/s 13 has been made
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a. affect any intt. in property acquired in good faith, for value and without notice of the relevant
circumstances
b. require a person who received a benefit from such in good faith, for value and without notice to pay any sum
unless he was a party to the transaction.
Amt. of CIRP cost shall be recovered from proceeds of any realization by SC & it shall be included in LEA.
Where SC is facing resistance from CD or any person connected therewith, in taking possession/selling/disposing
the secured asset It shall make an application to AA to facilitate realization of Security interest.
On receipt of such application – AA to pass necessary order.
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Contractual arrangements between recipients of equal ranking, if disrupting the order of priority, shall be
disregarded by the Liq..
Fees payable to liquidator to be deduced proportionately from the proceeds payable to each class of
recipients and the proceed shall be distributed after such deduction
Certain definitions:
“Base Resolution Plan (BRP)” means a resolution plan provided by the CD u/s 54A(4)(c);
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Application may be made w.r.t., MSME CD, who commits default referred to in Sec 4, subj to following
conditions:
a. it has not undergone PPIRP or completed CIRP during 3 years preceding the initiation date;
b. it is not undergoing a CIRP;
c. no order requiring it to be liquidated is passed u/s 33;
d. it is eligible to submit a resolution plan u/s 29A;
e. the FC of CD, not being its related parties have proposed the name of the IP to be appointed as RP for
conducting the PPIRP, and FC representing > = 66% in value, have approved such proposal.
If no FC – Such person as may be specified
f. majority of directors or partners of CD, have made a declaration, stating, inter alia,
that CD shall file an application for initiating PPIRP within a definite time period not > 90 days;
that PPIRP is not being initiated to defraud any person; and
the name of the IP proposed and approved to be appointed as RP under clause (e);
g. the members of the CD have passed a SR, or at least ¾ of the total number of partners, as the case
may be, have passed a resolution, approving the filing of an application for initiating PPIRP
The CD shall obtain an approval from its FC (>66%) for the filing of an application for initiating PPIRP.
Provided that if no FC, such person as may be specified.
Prior to seeking approval from FC above, the CD shall provide such FC with:
(a) the declaration referred to in clause (f) of sub- section (2) [declaration by directors/partners];
(b) the special resolution or resolution passed by members/partners
(c) a base resolution plan which conforms to the requirements referred to in section 54K, and
(d) such other information and documents as may be specified.
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a. prepare report confirming whether CD meets requirements u/s 54A, and BRP conforms requirement u/s
54A;
b. file such reports and other docs, with the Board, as may be specified; and
c. perform such other duties as may be specified.
(3) Fees payable to RP shall be determined and borne in manner specified and shall form part of PPIRP costs, if
application is admitted.
(4) The PPIRP shall commence from the date of admission of the application (PPICD).
2. The order of moratorium shall have effect from date of such order till date on which PPIRP comes to an
end.
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confirm list of claims inform creditors maintain an updated list monitor mgt. of affairs
submitted by CD u/s 54G regarding their claims of claims of CD
file applications for avoidance of transactions under Chapter III such other duties as may be
or fraudulent or wrongful trading under Chapter VI specified
4. Financial inst. maintaining A/Cs of CD shall furnish info. w.r.t, CD available with them to RP, as required by
him.
5. All personnel of CD, its promoters and other person associated with its mgt. shall extend all assistance and
cooperation to RP to perform his duties and exercise powers, and Sec 19(2) and (3) shall, mutatis mutandis
apply.
6. Fees of RP and any expenses incurred by him for PPIRP shall be determined in such manner as may be
specified:
Provided that the CoC may impose limits and conditions on such fees and expenses:
Moreover, the fees and expenses for period prior to constitution of CoC shall be subject to ratification by
it.
7. The fees and expenses referred to in sub-section (6) shall be borne in such manner as may be specified.
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4. Subject to section 54E, such person, who sustained any loss /damage shall also be entitled to move a court
having jurisdiction for seeking compensation for such loss or damage.
Section 54H: Management of affairs of CD:
During the PPIRP period:
(a) the management of affairs of the CD shall continue to vest in the BOD/partners of CD (Wait, what?)
(b) the BOD/Partners shall protect & preserve value of property and manage its ops as going concern; and
(c) the promoters, members, personnel and partners, as the case may be, of the CD, shall exercise and
discharge their contractual or statutory rights and obligations in relation to the CD, subject to prov. of
this Chapter
2. The first meeting of the CoC shall be held within 7 days of its constitution.
3. Provisions of section 21, except sub-section (1) thereof, shall, mutatis mutandis apply, w.r.t, CoC in this
Chapter.
For this sub-section, references to “RP” u/s 21 (9) and (10) shall be construed as references to “CD or RP”.
3. Notwithstanding anything to the contrary contained in this Chapter, the provisions of following section shall
apply mutatis mutandis to proceedings under this chapter:
14(2) 14(2A) 17 18 (e to g) 19 20 25(1) 25(2) 28
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8. The RP shall present to CoC, for its evaluation, R. plans which conform to the requirements u/s 30(2).
9. The CoC shall evaluate the R. Plans presented and select a R. plan from amongst them.
10. Where, on the basis of criteria laid down by it, the CoC decides that the R. plan selected u/ss (9) is
significantly better than the BRP, such R. plan may be selected for approval u/ss (12)
Provided that the criteria laid down by CoC shall be subject to conditions as may be specified.
11. Where the R. plan selected u/ss (9) is not considered for approval or does not fulfil the requirements
u/ss(10), it shall compete with BRP, in specified manner, and one of them shall be selected for approval
u/ss(12).
12. The resolution plan selected for approval u/ss (10) or (11, may be approved by CoC for submission to AA.
In case where the R. plan selected for approval u/ss (11) is not approved by CoC, the RP to file for
termination of PPIRP in manner specified
13. The approval of R. plan u/ss (4) or (12), by CoC, shall be by a vote of >=66% of the voting shares, after
considering its feasibility and viability, the manner of distribution proposed, taking into account order of
priority u/s 53(1)
14. While considering the feasibility and viability of a R. plan, where the R. plan submitted by CD provides for
impairment of any claims owed by the CD, the CoC may require the promoters of CD to dilute their
shareholding or voting or control rights in CD.
Provided that where the R. plan does not provide for such dilution, the CoC shall, prior to the approval of
such R. plan record reasons for its approval.
15. The RP shall submit the R. plan as approved by the CoC to the AA.
It is hereby clarified that, CD being a RA u/s 5(25), may submit BRP either individually or jointly with other
person.
For the purposes of subsections (4) and (14), claims shall be considered to be impaired where the R. plan does
not provide for the full payment of the confirmed claims as per the updated list of claims maintained by the
RP.
2. The approval order shall have such effect u/s 31(1),(3) and (4), which shall, mutatis mutandis apply
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3. Where AA is satisfied that the R. plan does not conform to requirements u/ss (1), it may, within 30 days of
the receipt of R. plan, by an order, reject the R. plan and pass an order u/s 54N.
4. Notwithstanding anything to the contrary contained in this section, where the AA has passed an order u/s
54J(2) and the resolution plan approved by the CoC u/s 54K, does not result in the change in management or
control of the CD to a person who was not a promoter or in management or control of the CD, the AA shall
pass an order:
a. rejecting such R. plan;
b. terminating the PPIRP and passing a liquidation order as per section 33; and
c. declaring that PPIRP costs, shall be included as part of liquidation costs for purposes of liquidation of
CD.
2. Where the RP, at any time before approval of R. Plan intimates the AA of decision of CoC (66%) to
terminate the PPIPR, the AA shall pass an order under sub-section (1).
3. Where the AA passes an order under sub-section (1), the CD shall bear the PPIRP costs, if any.
4. Notwithstanding anything to the contrary contained in this section, where the AA has passed an order u/s
54J(2) and the PPIRP is required to be terminated, the AA shall pass an order:
a. of liquidation in respect of the CD as per section 33; and
b. declare that the PPIRP costs, if any, shall be included as part of the liquidation costs
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e. in computing relevant time or period for avoidable transactions, the duration of PPIRP shall be
included
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4. The co. shall notify the ROC and the Board about the resolution to liquidate within 7 days of such
resolution or the subsequent approval by the creditors, as the case may be.
5. Subject to approval of the creditors, the voluntary liquidation proceedings in respect of a company shall be
deemed to have commenced from the date of passing of the resolution by the co.
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6. Provisions of sections 35 to 53 of Chapter III and Chapter VII shall apply with necessary modifications.
7. Where the affairs of the CP have been completely wound up, and its assets completely liquidated, the
liquidator shall make an application to the AA for its dissolution.
8. The AA shall on receipt of such application, pass an order that the CD shall be dissolved from the date of
that order and the corporate debtor shall be dissolved accordingly.
9. A copy of an order under sub-section (8) shall within 14 days from the date of such order, be forwarded
to the authority with which the CP is registered.
Important Definitions: [Please cover certain other definitions of IBC from the Study Module as well]
Operational Person to whom an operational debt is owed and includes any person to whom such debt has
Creditors (OC) been legally assigned or transferred
Operational a claim w.r.t., provision of goods/services including employment or a debt w.r.t, the payment of
Debt (OD) dues payable to CG/SG or any local authority
Corporate Company u/s 2(20) Co. Act, 2013, a LLP as per LLP Act, 2008, or any other person
Person (CP) incorporated with limited liability under any law but shall not include any financial service
provider
Corporate CP who owes a debt to any person;
Debtor (CD)
Financial Person to whom an financial debt is owed and includes any person to whom such debt has been
Creditor (FC) legally assigned or transferred
Financial Debt A debt + interest, if any, disbursed against consideration for time value of money and
(FD) includes:
money acceptance any note issue of bonds, notes,
borrowed credit facility purchase facility debentures, loan stock
receivables counter- Amount raised under
lease or hire derivative
sold or indemnity forward sale or
purchase contract transaction purcase agreement
discounted obligation
Initiation Date Date on which application is made by FC or OC or CA to the AA for initiating CIRP
Corporate • CD; or
Applicant (CA) • a member/partner authorized by constitution doc. of CD to make appln for CIRP/PPIRP
• an individual who is in charge of managing the operations and resources of CD [CEO]; or
• a person who has the control, and supervision over financial affairs of the CD [CFO];
Constitutional Includes AoA, MoA in case of co. and incorporation doc. in case of LLP
Doc
Insolvency Date of admission of an application for initiating CIRP by AA u/s 7, 9 or 10
Commencement
Date (ICD)
You are a Rockstar, and you deserve nothing but the best.
All the best to you, Dear Student!
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