Insolvency and Bankruptcy Code

IBC

Dr. V.K. Unni

Professor
IIM Calcutta
E-mail: unniv@iimcal.ac.in

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 Insolvency and Bankruptcy Code
• In every company there exists a contract between equity and debt
• As long as debt obligations are met, equity owners can have complete control, and
creditors will have no say in how the business is run.
• However the moment a debt is not paid , control is supposed to transfer to the creditors;
and thereafter equity owners will have no say
• Unfortunately for many decades, companies in India did not work on this principle and
creditors had limited power when faced with default.
• Promoters stayed in control of the company even after default.
• The only aspect of a bankruptcy framework that had been put into place, to a limited
extent, was the ability of banks to repossess fixed assets which were pledged with them

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 IBC
• While the existing framework for secured credit has given rights to banks, it should
be noted that the most important lenders in society are not banks.
• They are the dispersed mass of households and financial institutions who buy
corporate bonds.
• The lack of power in the hands of a bondholder has been a major reason why the
corporate bond market has not worked.
• This also has far reaching ramifications like the difficulties of infrastructure
financing
• Under these conditions, the recovery rates obtained in India are among the lowest in
the world
• When creditors know that they have limited rights resulting in a low recovery rate,
they will be hesitant to lend

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 IBC
• The Insolvency and Bankruptcy IBC (IBC) is one of the most effective reforms brought
in with the potential of transparently and expeditiously resolving India’s overwhelming
nonperforming assets (NPAs) conundrum.
• With a strict 330 days ‘resolve-or liquidate’ rule , the IBC has received commendation,
from the global fraternity, including The World Bank and IMF, and the law has been
instrumental in India’s Rank of 63 in the ‘Ease of Doing Business’ ranking for the year
2022, in the year 2016 India’s rank was 130
• IBC enforces the concept of ‘creditor in control’ instead of ‘debtor in possession’, and
maximizes value recovery potential of the corporate debtors.
• Once the resolution process starts, the Director Board of the debtor cedes control of the
company, and insolvency professionals, with the help of professional advisors, start
managing the company.
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 IBC
• The insolvency resolution process in India has in the past involved the simultaneous operation
of several laws
• They include the Sick Industrial Companies Act 1985, the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act 2002, the Recovery of Debt Due
to Banks and Financial Institutions Act 1993, and the Companies Act 2013
• Quite understandably a plethora of legislation dealing with insolvency and liquidation led to
immense confusion in the legal system, and there was a grave necessity to overhaul the
insolvency regime
• The IBC is intended to comprehensively reform the fragmented regime of corporate
insolvency framework,
• This will enable credit to flow more freely in India and instilling faith in investors for speedy
disposal of their claims
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• The IBC provides creditors with a mechanism to initiate an insolvency resolution process in the
event a debtor is unable to pay its debts.
• The IBC makes a distinction between Operational Creditors and Financial Creditors
• Financial Creditor is one whose relationship with the debtor is a pure financial contract, where an
amount has been provided to the debtor against the consideration of time value of money
• An amendment to IBC made in 2018 conferred the status of Financial Creditor to home buyers and
Supreme Court upheld this in the famous case of Pioneer Urban (2019), but there should be at
least 10% of home-buyers in a project or 100 of the total allottees (whichever is less) for initiating
insolvency proceedings against the real estate developer.
• An Operational Creditor is a creditor who has provided goods or services to the debtor, including
employees, central or state governments
• A debtor company can also, by itself, take recourse to the IBC if it wants to avail of the
mechanism of revival or liquidation.
• In the event of inability to pay creditors, a company may choose to go for voluntary insolvency
resolution process –under which the company can itself approach the NCLT for the purpose of
revival or liquidation. 6
 Institutional Framework
• The IBC proposes the creation of several new institutions, all of which have specialized roles in the
insolvency resolution process.
• The IBC has created a regulatory and supervisory body, the Insolvency and Bankruptcy Board of India
(IBBI), which has the overall responsibility to educate, effectively implement and operationalize the
Bankruptcy IBC
• The IBC envisages the creation of a cadre of professional insolvency practitioners, known as
Insolvency Professionals/Resolution Professionals (RP), who will be overseeing various aspects of the
resolution of insolvency
• The IBC also sets up Insolvency Professional Agencies, which are professional bodies that will
regulate the practice of insolvency professionals
• Individual practitioners are required to be enrolled with insolvency professional agencies which are
empowered to certify professionals, conduct examinations, and lay out a IBC of conduct
• Initially only individuals were allowed to act as Insolvency Professionals/Resolution Professionals but
in 2022 the rules were changed to allow Insolvency Professional Entities (IPEs), to also register as
IP/RPs (IPEs can be registered partnerships, Companies or Limited Liability Partnerships-LLPs )
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 Information Utilities
• The IBC envisages the establishment of Information Utilities, which are tasked with the
collection, collation, maintenance, provision and supply of financial data to businesses,
financial institutions, adjudicating authorities, insolvency professionals and other relevant
stakeholders,
• They will serve as a comprehensive repository of information on corporate debtors that are of a
financial nature.
• It is optional for operational creditors to provide financial information to the information utility.
• This information, including records of liabilities, defaults, and overall debt, is to be sourced
from creditors by the utility service
• All security interests created on assets are to be reported to the Utilities by financial creditors.
• The records with the utilities has evidentiary value in the initiation of insolvency resolution
procedure, and can assist various stakeholders in arriving at an ideal resolution at distressed
companies
• National e-Governance Services Ltd. (NeSL), a government entity, has become the first
Information Utility after receiving the required approvals from the IBBI.
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 Framework of the IBC
• All proceedings under the IBC in respect of corporate insolvency are to be adjudicated by the
National Company Law Tribunal (NCLT) which has been designed as the special one window
forum which can tackle all aspects of insolvency resolution.
• The NCLT is referred to as the Adjudicatory Authority in relation to insolvency of corporate
persons under the IBC.
• No other court or tribunal can grant a stay against an action initiated before the NCLT.
• Appeals from the orders of the NCLT lie before the National Company Law Appellate Tribunal
(NCLAT).
• All appeals from orders of the NCLAT lie to the Supreme Court of India.
• The jurisdiction of civil courts is explicitly ousted by the IBC with regard to matters addressed
by the IBC.
• Additionally, it is now established that the Limitation Act, 1963 shall be applicable to
proceedings under the IBC, thus, time-barred claims are outside the purview of insolvency
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 IBC
• When resolution/restructuring of debts is not viable, the NCLT may direct for dissolution
of the company.
• The IBC envisages a two stage process, first revival and second liquidation
1. Corporate Insolvency Resolution Process (Insolvency Resolution Process)
2. Fast Track Corporate Insolvency Resolution Process (“Fast Track Resolution Process”)
3. Liquidation
• Insolvency Resolution Process and Fast Track Resolution Process are measures to help
revive a company.
• The IBC attempts to first examine possibilities of a revival of a corporate debtor failing
which, the entity will be liquidated.

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 Insolvency Resolution Process
Initiation by a Financial Creditor
• A Financial Creditor may by itself or jointly with other financial creditors or any other person
on behalf of the financial creditor, seek to initiate Insolvency Resolution Process by filing an
application before the NCLT, once a default has occurred.
• Interestingly, under the IBC, the adjudication process in respect of a Financial Creditor does
not require a notice to be served on the debtor.
• However, the Supreme Court has in its judgement (Innoventive Industries v IDBI Bank, 2017)
made it mandatory for a notice to be served on the debtor, as well as to provide the debtor
with the right to be heard
• The IBC provides that within fourteen days of an application having been filed, NCLT shall
ascertain the existence of the debt and default and either admit or reject the application, after
which consequences under the IBC would follow
• The IBC does not mention the degree of proof required for the NCLT to ascertain’ default in
respect of a debt owed by a debtor 11
 IBC
• However, decisions of the Supreme Court establish that NCLT has to only ascertain the
existence of an outstanding debt in respect of which there has been a default and not deliberate
into its extent or composition
Initiation by an Operational Creditor
• The IBC envisages a two-step process for the initiation of insolvency proceedings by an
Operational Creditor
• An Operational Creditor would upon the occurrence of a default have to demand payment of
the unpaid debt
• The Corporate Debtor may within 10 days of receipt of the demand either dispute the debt or
pay the unpaid debt
• In the event the corporate debtor does not reply or repay the debt, an application could be filed
by the Operational Creditor before the NCLT to initiate Insolvency Resolution Process
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 IBC
• However, the existence of a dispute can act as a barrier to such application.
• The term 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
• There are Supreme Court decisions which had held that operational creditors cannot use IBC
either prematurely or for extraneous considerations or as a substitute for debt enforcement
procedures
What is a Dispute ? (Mobilox v Kirusa, Supreme Court, 2017)
1. The term dispute must be interpreted in a wide an inclusive manner to mean any proceeding
which had been initiated by the debtor before any competent court of law or authority
2. The dispute should be in respect of (a) existence of the amount of debt; or (b) quality of
goods and services; or (c) breach of representation and warranty;
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 IBC
3. The dispute should be raised prior to the issuance of a demand notice by the Operational
Creditor
4. The debtor would have to particularize and prove the dispute in respect of the existence of the
debt and the default
5. The dispute cannot be a mala fide, defense raised to defeat the insolvency proceedings.
• After this judgement the definition of dispute has been expanded to cover even
correspondences between parties showing a dispute and the existence of dispute need not be in
the form of pendency of suit or arbitration proceedings only
• The corporate debtor shall bring to the notice of the operational creditor, existence of a dispute
or record of the pendency of the suit or arbitration proceedings
• This provided much-needed relief and clarity to corporate debtors who may have a genuine
dispute regarding the debt under consideration, but may not have yet initiated legal
proceedings.
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 IBC
Initiation by a Corporate Applicant
• In case of default by the corporate debtor, the corporate applicant may file an application for
initiation of insolvency proceedings.
• The applicant must furnish information relating to the books of account and the RP to be
appointed
• Additionally, a special resolution must be passed by the shareholders of the corporate debtor
or a resolution by at least three-fourth of the total number of partners must be passed
approving the filing of the insolvency resolution application (for LLPs)
• In February 2019, Reliance Communication Ltd. on its own filed for insolvency
proceedings under the IBC
• In May 2023 Go Air filed for voluntary insolvency proceedings under the IBC before NCLT

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 IBC
Insolvency Resolution Process
• Upon admission of the application preferred by a Financial Creditor/Operational Creditor, a
moratorium is declared on the continuation and initiation of all legal proceedings against the
corporate debtor
• Thereafter an interim resolution professional (IRP) is appointed by the NCLT within fourteen
days from the insolvency commencement date
• The moratorium continues to be in operation till the completion of the Insolvency Resolution
Process which is ordinarily required to be completed within 330 days from the date of
commencement of insolvency resolution proceedings
• However the moratorium is not applicable to bank guarantees and personal guarantees, the
benefit of moratorium under IBC is applicable only to the corporate debtor.
• Once an IRP is appointed, the Director Board is suspended and management vests with the
IRP.
• IRP’s are required to conduct the insolvency resolution process, take over the assets and
management of a company, assist creditors in collecting information and manage the
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Insolvency Resolution Process.
 IBC
• The term of the IRP is to continue until an RP is appointed , earlier IRPs term was fixed for 30
days but now it is until the date of appointment of the RP by the Committee of Creditors
• The first step for the IRP is to determine the actual financial position of the debtor by collecting
information on assets, finances and operations.
• Information that may be obtained at this stage include data relating to operations, payments, list of
assets and liabilities.
• The IRP would also have to receive and collate claims submitted by creditors
• In order to have a more workable valuation of stressed assets and bring in transparency in the
bidding process, IBBI amended its regulations with respect to the Corporate Insolvency Resolution
Process in 2018
• The regulations initially required determination of the liquidation value of the insolvent company
• As per the amendment a fair value, along with the liquidation value, has to be determined

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• This amendment is beneficial for the insolvent company, because widespread dissemination of
liquidation value prompted resolution applicants to submit bids which tended to linger near the
liquidation value mark which was significantly lower than the market value
• Fair value means the realisable value of assets of the insolvent company, if they were to be
sold between a willing buyer and seller as on the date on which insolvency application has
been admitted, on an arm’s length basis, after proper marketing
• The amended regulation seeks to ensure a maximization of the value of the assets so that the
insolvent company fetches an economically sustainable amount for its creditors.
• The RP shall provide an evaluation matrix to prospective applicants before they submit their
resolution plans
• The evaluation matrix refers to a set of parameters and the manner in which these parameters
are to be applied while considering a resolution plan
• The CoC evaluates various resolution plans submitted for an insolvent company and, based on
their evaluation, determine the appropriate resolution plan.
• However there is no provision in IBC under which the bid of any resolution applicant has to
match or better the liquidation value
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 IBC
• Bhushan Power and Steel Ltd. (BPSL) which has completed resolution had a
liquidation value of around Rs. 9500 crores and its fair value is around Rs.
24000 crores
• In March 2021, JSW Steel closed the Rs 19,350-crore transaction with lenders
to acquire BPSL ending a resolution process that has stretched over three-and-
a-half years.
• The lenders, would stand to realize about 41 % on claims of Rs 47,157.99 crore
and the top lenders are SBI, PNB, Canara Bank etc
• The deal would provide for about 48% of Rs 733.76 crore claims of operational
creditors.
• The other bidders for BPSL were Tata Steel and Liberty House

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Committee of Creditors (CoC)
IBC
• The IRP appointed by the NCLT would constitute a Committee of Creditors (CoC) comprising of
all the Financial Creditors of the corporate debtor
• This would incentivize a creditor to favour a collective approach towards insolvency resolution
rather than proceeding individually
• The CoC in its first meeting will appoint the RP with a resolution supported by at least 66% voting
share (votes based on value of loan advanced) and in most cases the IRP may be appointed as the
RP , but the IBC gives the power to CoC to appoint a new person as RP, thus IRP need not be
continued as RP
• In Go Air insolvency the CoC changed the IRP appointed by NCLT and appointed another person
as RP
• A decision of the CoC would require to be approved by a minimum of 51% of voting share of the
Financial Creditors.
• For certain key decisions of the Committee of Creditors, including: (i) appointment of the
resolution professional, (ii) approval of the resolution plan, and (iii) increasing the time limit for
the insolvency resolution process, the voting threshold is fixed at 66% of voting share of the
Financial Creditors.
• Under the IBC, NCLT can allow withdrawal of applications admitted for insolvency resolution
subject to an approval of 90% of the voting share of the CoC.
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 IBC
• To ensure that there are no conflicts of interest, a related party of the Corporate Debtor to
whom a financial debt is owed is not given any representation, participation or voting rights
in the CoC
• The IBC at this stage of the Insolvency Resolution Process, provides preferential treatment to
Financial Creditors since Operational Creditors do not have the right to be a part of the CoC
• In case Financial Debts as well as Operational Debts are owed to a person, such person would
constitute a Financial Creditor to the extent of the Financial Debt owed
• Similarly, if the right to recover an Operational Debt is transferred or assigned to a Financial
Creditor, such transferee or assignee would be an Operational Creditor to the extent of such
debt

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 IBC
• In case of consortium based lending, every Financial Creditor is eligible to be a part CoC
• The voting is such a situation would be based share of the financial debts owed to such
Financial Creditors.
• Similarly, in case a trustee has been appointed under a consortium/syndicated lending
agreement- the lenders may elect to be represented by a trustee or may represent themselves.
• The CoC may also replace the RP at any point of time
• When the resolution process is on, the RP would have to seek prior approval of the CoC by
convening a meeting prior to taking actions such as raising any interim finance, creation of
any security interest, amendment of rights of creditors etc
• A primary objective of the enactment of the IBC is to aid a debtor in resolving an insolvency
situation without approaching liquidation, by finalizing an Insolvency Resolution Plan
(Resolution Plan).
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 IBC
• In an ideal scenario, a properly structured Resolution Plan would provide a strategy for
repayment of the debts of the debtor after an evaluation of the debtor’s net worth, while
allowing for the survival of the debtor as a going concern.
• Specifically, the Resolution Plan must provide for repayment of the debt of operational
creditors in a manner such that it shall not be lesser than the amounts that would be due
should the debtor be liquidated.
• Additionally, it should identify the manner of repayment of insolvency resolution costs, the
implementation and supervision of the strategy, and it should be in compliance with the law
• If the terms under the Resolution Plan are approved by the CoC and subsequently by the
NCLT, the Resolution Plan would be implemented, and the debtor may emerge from the debt
crisis with a fresh chance for business and less liabilities.

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 IBC
• Initially, under the IBC, the Resolution Plan could be presented before the committee of
creditors by any person, without any restrictions or stipulations on eligibility of the
Resolution Applicant
• However, an amendment to the IBC in December 2017 inserted certain eligibility criteria to
be satisfied for a person to qualify as a Resolution Applicant.
• Specifically, the amendment introduced Section 29A of the IBC, whereby certain categories
of persons were ineligible to submit a Resolution Plan
• Apart from categories such as undischarged insolvents, willful defaulters, persons convicted
of offences, etc., it also extended to persons who controlled an account classified as non-
performing assets, persons who were promoters of a corporate debtor in which a preferential
or fraudulent transaction has taken place, persons who have executed an enforceable
guarantee in favour of a creditor of the debtor, etc.
• This amendment was necessitated because when the resolution proceedings of Essar Steel
was on, son of Essar Steel’s promoter set up a company called Numetal to bid for Essar Steel
through the IBC process
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 IBC
• The subjectivity in the criteria led to widespread debates on who could be an eligible
Resolution Applicant, subsequently landing several debtors and bidders in litigation to
determine the bidders’ eligibility and delaying the insolvency resolution
• Considering the possible adverse impact of the eligibility criteria, the legislature introduced an
Amendment in 2018, further amending Section 29A in an attempt to bring about clarity in the
confusion.
• For instance, the erstwhile Section 29A made ineligible those persons who were ‘connected
persons’ to applicants who failed to satisfy the eligibility criteria prescribed therein,
consequently including banks and financial institutions within its ambit.
• The 2018 Amendment has tried to remedy this by providing a wide and all-encompassing
definition of financial institutions who are provided crucial exemptions for compliance with
these eligibility norms
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 IBC
• Similarly financial institutions have been exempted from being considered ineligible because
of holding equity in the corporate debtor undergoing insolvency if the equity has been
obtained through conversion of a debt instrument
• Once a person meets all the eligibility criteria and submits a Resolution Plan, in the event the
same is not approved by the committee of creditors or by the NCLT, the NCLT may direct the
debtor to be liquidated.
• The request inviting resolution plans would require a Resolution Applicant to provide a
performance security in case its resolution plan is approved by the CoC
• If the Resolution Applicant either doesn’t implement the plan or contributes towards the
failure of the implementation of that plan the performance security will be forfeited
• Once a resolution plan is approved by the CoC it cannot be withdrawn or modified by anyone
(Ebix v. Educomp -Supreme Court)
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 Fast Track Resolution
• The criterion for invoking Fast Track Resolution depends on the corporate debtor’s assets,
income and nature of creditors or quantum of debt.
• The standards/ thresholds for invoking Fast Track Resolution have been provided in the
Regulations
• The entire process is completed within 90 days. However, the NCLT may, if satisfied, extend
the period of 90 days by another 45 days.
• A creditor or a debtor may file an application, along with the proof of existence of default, to
the NCLT for initiating Fast Track Resolution
Fast Track Resolution shall be applicable to the following categories
• small company under the Companies Act 2013 or
• startup (other than the partnership firm), as defined in the 2017 notification 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 27
 Liquidation
• Under the IBC, the liquidator shall create an estate, i.e. a corpus, of all assets of the corporate
debtor which can be utilized and distributed subsequent to liquidation.
• The liquidator is then required to receive or collect all claims from the creditors within a period
of thirty days from the date of commencement of the liquidation process
• The liquidator has been empowered to adopt a new methodology for the realization of assets,
namely, “to sell the corporate debtor as a going concern
• If the creditors committee does not get a resolution plan approved, then liquidation of the
company’s assets will have to be undertaken in order to satisfying outstanding debts.

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 Liquidation
• The IBC establishes an order of priority among creditors, which will determine the
sequence in which outstanding debts will be repaid
1. Full amount incurred in Insolvency Resolution Process
2. Workmen’s dues for 24 months prior to the start of insolvency resolution proceedings
& Secured creditors
3. Employee dues (other than workmen) for 12 months prior to start of insolvency
proceedings
4. Financial debts owed to unsecured creditors
5. Statutory dues for 24 months prior to start of insolvency proceedings & secured
creditors (part of claim is pending even after partial realization under category 2)
6. Remaining debts and dues
7. Preference Shareholders
8. Equity Shares
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 Liquidation
• Once the creditors committee chooses to liquidate the company’s assets, there are two paths
available to the secured creditor
• they may choose to opt out of the resolution process and enforce their security to recover
debts owed to them; or
• they may participate in the resolution process, thereby giving up all rights over the collateral
• The latter option will prioritise the secured creditor ahead of all except the dues owed to
workmen
• Another unique feature of the IBC is the low priority accorded to government dues, unlike
the Companies Act, 2013 where they are paid alongside employees and unsecured financial
creditors.
• Now, they are paid after secured creditors, unsecured creditors, employees, and workmen

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 Liquidation
• This undoubtedly signals the business-first principle that is guiding the IBC, where the
government is viewed only as a facilitator and regulator, and not an active participant in the
affairs of commercial entities
• After an order for liquidation has been passed, suits/ legal proceeding cannot be instituted by/
against the corporate debtor.
• For the purpose of liquidation, the liquidator ordinarily sells the assets of a corporate debtor
by way of an auction
• However, such sale may be by way of a private sale, in cases where
• (i) the asset is perishable;
• (ii) the asset is capable of deterioration of value if not sold immediately;
• (iii) the asset is sold at a higher price than the reserve price of a failed auction as well as;
• (iv) when prior permission of the Adjudicating Authority for a private sale has been obtained.
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 IBC
Name of the Corporate Debtor Percentage of the amounts realized by Realization by Financial Creditors as a
Financial Creditors vis a vis the amounts percentage of the liquidation value
claimed
Electrosteel Steels Limited 40.38 183.45

Successful applicant
Vedanta

Bhushan Steel Limited 63.5 252.88

Successful applicant
Tata Steel

Monnet Ispat & Energy Limited 26.26 123.35

Successful applicant
JSW Steel -AION
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 IBC
• It is imperative that we have more examples of efficient resolution (which includes successful
implementation of the resolution plans) such as the resolution of Essar Steel By Arcelor
Mittal, Bhushan Steel by Tata Steel, since the time value of money is an important
consideration to ensure the efficacy of the IBC framework
• Whilst steep haircuts still remain an important issue, a strong market for the growing investor
appetite in the corporate resolution space should help in lowering the haircuts that the lenders
are currently bearing
• An important example would be the case of Binani Cements (which saw a stiff competition
between Ultratech and the Dalmia Group with the winning bid providing for a 100% recovery
for the creditors)

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 IBC
• Until December 2019, IBC applied only against companies and LLPs
• Even though IBC contained provisions in respect of individual insolvency,
these provisions have not been notified and consequently they are not in
force
• However in December 2019, IBC provisions applicable to Personal
Guarantors of a Corporate Debtor have been notified
• In May 2021, Supreme Court upheld provisions of IBC which will allow
lenders to pursue insolvency proceedings against promoter guarantors of
companies facing Insolvency Resolution Process (Lalit Kumar Jain v. Union
of India)
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 IBC
• Initially when the IBC became operational Financial Service Providers (FSP) were excluded
from being subjected to Corporate Insolvency Resolution Process (CIRP)
• As per the IBC Government of India (GoI) in consultation with the concerned regulator has
the power to make the provisions of the IBC applicable to financial service providers or
certain categories of financial service providers
• Following the crisis in Dewan Housing Finance Ltd. (DHFL) and IL&FS , GoI notified the
Rules for FSPs and made the IBC applicable to them in November 2019
• However only the concerned regulator can refer a non-bank lender or housing financier to
NCLT unlike in the case of companies that can approach NCLT on their own or its financial or
operational creditors can file a case against a corporate debtor in NCLT
• DHFL became the first FSP which was subjected toa CIRP and the final resolution plan
submitted by Piramal Capital for about Rs. 34000 crores has been approved by NCLT in June
2021, however the IBC is still not applicable to banks
• For providing relief to MSME sector IBC was amended in April 2021, to introduce pre-
packaged insolvency/pre-packs through which the promoters of a stressed company propose a
resolution plan to the creditors before the company goes for CIRP 35
 Pre-Packs
• A pre-pack is currently limited to LLPs/companies from the field of MSME and here the
resolution of the debt of a distressed company is done through an agreement between secured
creditors and investors instead of a public bidding process
• In case of pre-pack, only the Corporate Debtor is empowered to file the Application and Base
Resolution Plan (BRP) .
• The entire process of pre-pack is to be completed in maximum 120 days unlike CIRP which can
go up to 330 days or beyond
• NCLT after admitting the application by CD declares a moratorium, appoint RP
• RP to present Base Resolution Plan (BRP) to CoC in 90 days from Commencement Date of pre-
pack
• CoC shall approve or reject the BRP ( 66% voting by value of Financial Debt) or go for process
of improvement (Swiss Challenge)
The amount to trigger pre pack application is a default of Rs. 10 lakhs or more

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 IBC
• The minimum threshold to initiate a proceeding against a debtor
under the IBC was kept at Rs one lakh
• With the onset of first wave of Covid-19 in March 2020, the
Government of India (GoI) had revised it to Rs one crore through
an executive order.
• During this time GoI had suspended the insolvency law for a
year.
• Though the suspension came to an end on March 2021, Rs. One
crore threshold continues till date
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 Cross Border Insolvency – Jet Airways 2019
• CIRP Proceedings were initiated against Jet Airways, the Corporate Debtor by SBI, before
NCLT Mumbai in June 2019 and this case demonstrates the shortcomings of IBC with
respect to cross border insolvency proceedings
• During the hearing, the NCLT Bench was informed that insolvency proceedings against
Jet Airways had already begun a month prior in the District Court of Netherlands
• Sections 234 and 235 of IBC provide for recognising the orders of a foreign jurisdiction, if
India had reciprocal arrangements with a foreign country
• But this was not applicable in the case of Jet Airways as there were no reciprocal
arrangements with the Dutch authorities on insolvency matters
• Furthermore NCLT noted that the registered office of Jet Airways and its principal assets
were located in India and vide its order in June 2019 set aside the proceedings of the
Dutch Court and declared it as null and void

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 Cross Border Insolvency – Jet Airways
• The NCLT order was challenged before the NCLAT by the Dutch Trustee
• The NCLAT considered the appeal and directed the RP to consider the feasibility of having a joint
CIRP in coordination with the Dutch Trustee
• Dutch authorities were permitted by NCLAT to participate in the creditors’ committee, but they did
not have voting rights
• RP along with the Dutch trustee thereafter reached an agreement for facilitating the resolution
process through a Proposed Cooperation model.
• NCLAT approved an agreement between a Dutch court and the RP
• Under the agreement, the Dutch authority has been allowed to initiate liquidation of Jet assets in
the Netherlands; however, the administration appointed by the Dutch court shall seek inputs, notify
and consult the RP
• The Dutch trustee will also be mindful of the Indian proceedings prior to any material decision
being taken in the Dutch proceedings
• The Resolution Plan submitted by Jalan Kalrock Consortium, was approved by the Committee of
Creditors as well as the NCLT in June 2021, unfortunately even after 3 years Jet Airways could
not be re-started 39
 IBC

Dr. V.K. Unni

Professor
IIM Calcutta
E-mail: unniv@iimcal.ac.in

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