INSOL

Glossary of Terms - INDIA International

Standard Insolvency and Related Terms

Adequate Protection There is no specific provision under company or insolvency law. However, the Adjudicating Authority may be
petitioned to ensure compliance with a payment priority by a creditor or any stakeholder to the insolvency
proceeding, which is determined on a case to case basis by the relevant Adjudicating Authority.

Adjudicating Authority Indian laws have established specialised tribunals for company and recovery laws, in addition to civil
and contractual remedies. The Companies Act 2013 established tribunals that have adjudicative powers
under the Insolvency and Bankruptcy Code 2016 in relation to Resolution or Liquidation of a Company or a
Partnership. In cases of Bankruptcy of individuals or unincorporated partnerships, except for individuals
who have extended personal Guarantees to a Company or a Partnership, the tribunals established under
the Recovery of Debts Due to Financial Institutions Act 1993 are the relevant Adjudicating Authority.

Antecedent Transactions that can be avoided or set aside by the Adjudicating Authority at the time of Resolution or
Transactions Liquidation for a debtor. The types of transactions include: (i) Transactions at an Undervalue; (ii) Unfair
Preference Transactions; (iii) transactions defrauding creditors; and (iv) extortionate credit transactions.

Automatic A Moratorium that commences at the admission of an insolvency petition by the relevant Adjudicating
Moratorium Authority under the Insolvency and Bankruptcy Code 2016 is an Automatic Moratorium. The period of the
Automatic Moratorium lasts until the completion of Resolution.

Bankruptcy Bankruptcy is a formal process of the distribution of assets under the Insolvency and Bankruptcy Code
2016 for individuals and unincorporated partnerships who have defaulted on their payment obligations
initiated by a debtor or a creditor. The legal provisions for Bankruptcy are yet to be enforced in India.

Bankruptcy Trustee An Insolvency Practitioner appointed by the Adjudicating Authority for the estate of the bankrupt in
a Bankruptcy.

Charges An interest and/or lien created on the property or assets of a Company or Partnership or an individual as
security, including a mortgage.

Classification Creditors, in general, are classified as Secured Creditors or Unsecured Creditors. The Insolvency and
of Creditors Bankruptcy Code 2016 further classifies creditors as financial creditors (those who have extended
loans with interest such as banks, financial institutions and even recognises intercompany lending
arrangements), operational creditors (such as suppliers and distributors in trade credit contracts) and
decree holders (including arbitral award holders).

Clawback Period There is no predefined legal term for a clawback period in India. However, for assessing Antecedent
Transactions, the Companies Act 2013 and the Insolvency and Bankruptcy Code 2016 provide for a lookback
period based on the type of the transaction.

Company A body corporate incorporated under the Companies Act 2013 or under any other previous company law in
India. A Company is a separate legal entity and has legal personality.

Compulsory An order of Liquidation passed by the Adjudicating Authority, in the event the statutorily prescribed time
Liquidation period for Resolution expires.

Cram Down In a Resolution, a Resolution Plan is voted on and approved by a simple majority of 66% of a Creditors’
Committee and is binding on all stakeholders to the insolvency process. In a Scheme of Arrangement under
the Companies Act 2013, the scheme must be approved by every class of creditor or member. There is no
formal cram down provision but protections for fair and equitable treatment of dissenting or classes of
creditors that do not form a part of the Creditors’ Committee have been in principle incorporated into both
company and insolvency law in India.

Creditors’ A Creditors’ Committee is constituted by the Insolvency Practitioner under the Insolvency and Bankruptcy
Committee Code 2016 to make decisions related to the Resolution or Liquidation of the Company, Partnership or
individual, as applicable. A Creditors’ Committee is constituted with financial creditors of a Company or
Partnership, excluding related parties, as defined under law.

Creditors’ Meeting A Creditors’ Meeting is to be conducted formally by an Insolvency Practitioner to primarily vote on a
Resolution Plan, a Debt Repayment Scheme, Bankruptcy or Liquidation.

Creditors’ Voluntary With the introduction of the Insolvency and Bankruptcy Code 2016, there is no such formal process
Liquidation available in India.

Crystallisation An event in which a Floating Charge becomes fixed over a class of assets. Typically, the event of
Crystallisation will be provided for in the charge instrument. Common situations include the commencement
of an insolvency proceeding.

De Facto Director A person who is not formally appointed to the board of a Company but acts like an Officer of a Company
and has liability under the Companies Act 2013, to be determined on a case-by-case basis by the relevant
Adjudicating Authority.
 INSOL
Glossary of Terms - INDIA International

Standard Insolvency and Related Terms

Debentures A Debenture under the Companies Act 2013 is defined to mean debenture stock, bonds or any other instrument
of a Company evidencing a debt, whether constituting a Charge on the assets of the Company or not.

Debt Repayment Scheme In the insolvency of a Company, a Resolution Plan provides for a repayment or restructuring where creditors are
paid by the Resolution Applicant. In insolvency cases of individuals, a Debt Repayment Scheme is a repayment
plan created by a debtor in consultation with the Insolvency Practitioner as a proposal to the creditors.

Fixed Charge A Charge over assets such as land, plant, machinery that can be ascertained, are definite and capable of
being defined at the time of creating the Charge is a Fixed Charge. Thus, a Fixed Charge is a security in
terms of certain specific property where the Company gives up its right to dispose of that property until the
Charge is satisfied.

Floating Charge A Charge created on property of a fluctuating type, such as stock-in-trade, which is necessarily equitable in
nature. The essence of a Floating Charge is that the security remains dormant until Crystallisation occurs.
In cases of insolvency proceedings and under the Companies Act 2013, there are restrictions on the use,
creation and effect of Floating Charges.

Fraudulent Trading Any business of the Company or a Partnership that has been carried on with intent to defraud creditors
of the Company or a Partnership or for any fraudulent purpose is Fraudulent Trading. Fraudulent Trading
attracts both civil and criminal liability.

General Liquidation Account A Liquidator shall, for an estate of the assets of the Company or a Partnership, create an account where
all receivables in relation to assets or a Security Interest for the purposes of the distribution of assets in
Liquidation will be received.

Guarantee Under the (Indian) Contract Act 1872, a contract of Guarantee is a contract to perform the promise or
discharge the liability of a third person in case of default by a debtor / borrower. The person who gives
the Guarantee is the surety. The person in respect of whose default the Guarantee is given is called the
principal debtor and the person to whom the Guarantee is given is called the creditor.

Individual Voluntary A compromise arrangement between the creditors of a Company and the Company under a Scheme of
Arrangement Arrangement or a Debt Repayment Scheme.

Insolvency Practitioner Typically, a lawyer, chartered accountant, cost accountant or company secretary enrolled with an agency
and registered with the insolvency regulator in India. An Insolvency Practitioner is appointed as a Resolution
Professional, Bankruptcy Trustee or Liquidator based on the appointment by the Adjudicating Authority
and the process being undertaken under the Insolvency and Bankruptcy Code 2016.

Insolvency Set Off This term is not applicable in India. In practice, inter se creditor agreements are possible in a Resolution,
Liquidation, Debt Repayment Scheme, Scheme of Arrangement or Bankruptcy.

Interim Judicial Manager An Insolvency Practitioner is appointed as an officer of the court in the process of Bankruptcy, Liquidation
or Resolution. The term Interim Judicial Manager is not applicable in India.

Ipso Facto Clauses Clauses which are void upon an insolvency event are a common part of commercial transactions. Such
clauses are enforced on a case by case basis by courts.

Judicial Management The term Judicial Management is not applicable in India

Judicial Management Order The term Judicial Management Order is not applicable in India.

Judicial Manager The term Judicial Manager is not applicable in India.

Liquidation The process of distribution of assets through a Members’ Voluntary Liquidation, Voluntary Liquidation or a
Compulsory Liquidation.

Liquidation Special Account A Liquidator creates a separate dividend account under a Winding Up Order.

Liquidator An Insolvency Practitioner appointed as a Liquidator in a Compulsory Liquidation. Under a Winding Up

Order, the relevant Adjudicating Authority appoints a Provisional Liquidator or a Liquidator.

Members’ Voluntary Liquidation The shareholders through resolution can decide to initiate a Voluntary Liquidation of a Company that is
solvent and has not defaulted on its payment obligations.
 INSOL
Glossary of Terms - INDIA International

Standard Insolvency and Related Terms

Moratorium A period imposed by court or Adjudicating Authority order or automatically as per law where: (i) any pending legal
action or proceeding in respect of any debt against the Company or a Partnership shall be deemed to have been
stayed; (ii) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and (iii) the
debtor shall not transfer, alienate, encumber or dispose of any of the assets or legal right or beneficial interest.

Officer An “officer in default” for a Company can be a whole-time director, managers, key managerial personnel,
any person who is charged with the responsibility including maintenance, filing or distribution of records,
or any person who advises the board of directors of a Company. For a Partnership, an officer would be any
designated partner.

Official Receiver This term is not applicable in India.

Partnership A Partnership is body corporate incorporated as a limited liability partnership under the Limited Liability
Partnership Act 2008 and has separate legal personality. Any other type of partnership arrangement is
recognised as an unincorporated partnership of individuals with several liability under the Partnership Act
1932 and is excluded from the definition of Partnership for the purpose of this Glossary. Any provisions
applicable to unincorporated partnerships have been specifically made.

Preferential Creditor An Antecedent Transaction where a Transaction at an Undervalue or an Unfair Preference Transaction has
been made to a creditor qualifies such a creditor as a Preferential Creditor.

Proof of Debt Evidence of an existing debt which is owed by a person to a creditor. The type of the creditor and process
determines the nature of the Proof of Debt. For instance, only certain types of creditors are required to
make a Statutory Demand.

Provisional Liquidator A Liquidator appointed by a Company under a Winding Up Order.

Receiver A Receiver is a person who has been appointed in one of the following ways to receive the assets of another
person, typically a debtor, and to realise those assets:
• under a contract or security instrument;
• under a statutory power; or
• by the court.
For instance, a Provisional Liquidator could be appointed as a Receiver under a Winding Up Order. In cases
of debt recovery and civil suits under recovery and civil laws, Indian courts appoint Receivers in relation to
the protection, possession, realisation and improvement of properties and assets.

Receivership A process under law, contract or by order of the court in which a Receiver acts to protect, possess, realise
and improve properties and assets for distribution.

Registrar of Companies A public official responsible for administering checks and compliances under the Companies Act 2013.

Registration of Charges A list of all Charges is to be maintained by a Company. The Charges are to be registered with the Registrar
of Companies.

Rescue Financing An Insolvency Practitioner can raise interim finance to manage the affairs of the Company or a Partnership
as a going concern with the approval of a Creditors’ Committee or the order of the Adjudicating Authority,
as applicable.

Resolution The process of reorganising or restructuring the debt of a Company or a Partnership by application of a
creditor under the Insolvency and Bankruptcy Code 2016, during an Automatic Moratorium.

Resolution Applicant A third party, who is not a promoter or a related party, who can submit a Debt Repayment Scheme or a
Scheme of Arrangement or another structure of merger or acquisition for the consideration of a Creditors’
Committee in a Resolution.

Resolution Plan A plan proposed by the Resolution Applicant in a Resolution for a Company or a Partnership.

Scheme of Arrangement A compromise or an arrangement between a Company and its creditors or any class of them or between
a Company and its members or any class of them. A Scheme of Arrangement may be applied for under
the Companies Act 2013 in a Winding Up Order or in a Resolution or Liquidation under the Insolvency and
Bankruptcy Code 2016.

Secured Creditor A creditor in favour of whom a Security Interest is created.

 INSOL
Glossary of Terms - INDIA International

Standard Insolvency and Related Terms

Security Interest The right, title, 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. It includes a mortgage, charge,
hypothecation, assignment or encumbrance or any other agreement or arrangement securing payment or
performance of any obligation of any person, excluding a performance Guarantee.

Shadow Director A type of an Officer of a Company on whose directions or instructions the board of directors or any one or
more of the directors or the key managerial personnel are accustomed to act upon. Such an Officer has
liability under Companies Act 2013, to be determined by the relevant Adjudicating Authority or civil courts
on a case by case basis.

Sole Proprietorship A one-person organisation where a single individual owns, manages and controls the business.

Statement of Affairs A Company is required to maintain a statement of assets and liabilities under the Companies Act 2013
in a prescribed format. In Resolution, Bankruptcy and Liquidation under the Insolvency and Bankruptcy
Code 2016, the Statement of Affairs is compiled by the duly appointed Insolvency Practitioner and under
a Winding Up Order, the Statement of Affairs maintained by a Company is to be verified by a Provisional
Liquidator.

Statutory Demand A demand notice that evidence as a Proof of Debt by a creditor.

Transactions at an Undervalue An Antecedent Transaction where the Company or Partnership: (i) makes a gift to a person; (ii) enters into a
transaction with a person which involves the transfer of one or more assets for significantly less value; or (iii)
otherwise, the transaction has not taken place in the ordinary course of business.

Unfair Preference Transactions An Antecedent Transaction where a transfer of property is made for the benefit of a creditor, related party or a
surety under a Guarantee on account of debt or liabilities owed by a Company or a Partnership placing such a
person in a beneficial position than it would have been in Liquidation.

Unsecured Creditor Creditors that do not have a Security Interest.

Voluntary Liquidation A process initiating by a Company or a Partnership that has not defaulted on its payment obligations under the
Insolvency and Bankruptcy Code 2016.

Winding Up Order An order by the relevant Adjudicating Authority to wind up a Company on grounds other than insolvency under
the Companies Act 2013.

Wrongful Trading Typically, the same as and associated with insider trading, Wrongful Trading attracts civil liability.

Insolvency-related Legislation

Companies Act, 2013 CA 2013

Insolvency and Bankruptcy IBC 2016

Code, 2016

Recovery of Debts Due to RDBFI 1993

Financial Institutions Act, 1993

Prepared By: Ishana Tripathi, O.P. Jindal Global University

1
Varun Venkatesan and Shreeja Athotha, alumni of Jindal Global Law School worked as research assistants and assisted in the preparation of this glossary as students.