Changes to Insolvency &

Bankruptcy Act – COVID-19

Insolvency and Bankruptcy Bill was passed in the Lok Sabha in 2016 bringing into
effect the Insolvency and Bankruptcy Code, 2016 [hereinafter referred as “The
Code”]. The insolvency and bankruptcy mechanism which prevailed prior to the
formation of The Code was scattered, unorganized and uncodified. The resolution of
bankruptcy matters was largely contingent to the precedents set by the judiciary.

The Code lays down the following characteristics highlighted herewith:

 The Code provides for a framework for a course of action for insolvency and
liquidation for companies, individuals as well as partnerships.
 There is a limitation prescribed in the ambit of which the insolvency process is
required to be concluded.
 The financial creditors, operational creditors as well as the corporate debtors
themselves retain the right to file an insolvency petition before the
adjudication authority.
 All the proceedings pertaining to insolvency and bankruptcy would remain
under the supervision of the Insolvency and Bankruptcy Board of India (IBBI).
 A licensed insolvency resolution professional would be appointed to collate
data and ensure operations of the corporate debtor as a going concern.
 The insolvency process would be heard before an adjudicating authority. In
case of corporates the National Company Law Tribunal and in case of
individuals and partnerships, the Debt Recovery Tribunal would be the
adjudicating authority.
 The Code specifies a list of individuals prohibited from furnishing the resolution
plan for instance, directors who have been effectively disqualified.
 The process and timeline for the insolvency petition has been detailed in The
Code systematically. Table 1 explains the insolvency process.

In terms of the timeline, The Code binds the adjudicating authority to ascertain
conclusion of the entire process in 330 days.

The appointment of the licensed Resolution Professional must be confirmed within 30

days of the formation of the Committee of Creditors (COC) and the process leading up
to the resolution plan must be completed in 180 days with an extension of 90 days
only under exceptional circumstances.

The resolution plans provided by the bidders would be scrutinized and voted upon by
the Committee of Creditors. The plan that receives an approval of over or equivalent
to 75% in the committee would be presented before the NCLT. Should the NCLT
approve the plan, the same would be implemented and should the tribunal reject the
plan, then a liquidation process is put in motion.
In the present circumstances, taking into account the outbreak of COVID-19 and the
lockdown, implementation of The Code on the insolvency process has been affected.
The law is silent on the repercussions of execution of The Code in times of a
pandemic; however, it empowers the Executive to take necessary measures in order
to protect the stakeholders.

In order to curtail the damage that has been caused to the implementation of The
Code due to COVID-19, the government has introduced measures and policies in the
system:

Increase in the threshold of the minimum amount of default: The Ministry of

Corporate Affairs published a notification on 24.03.2020 [1], exercising powers as
conferred by the proviso of Section 4 of The Code, increasing the minimum threshold
amount for filing a petition for insolvency to INR 1 Cr. The amount as per section 4 of
The Code was INR 1 lakh.

This was introduced to potentially reduce the number of fresh petitions before the
tribunals amid COVID-19. However, the notification is unclear about the applicability
of the increased amount in post lockdown scenario.

National Company Law Tribunal (NCLT) notification regarding COVID-19: On

22.03.2020, the NCLT issued a notification announcing shutdown of the tribunal amid
COVID-19 [2]. The NCLT shut operations from 23.03.2020 until 31.03.2020, which was
before the nationwide lockdown was implemented, and remains closed to date.

The notification prescribed the course of action for unavoidable urgent matters. It also
recorded that matters pertaining to The Code in terms of approval of resolution plan,
extension of time and liquidation would not be construed as urgent matters. Thus, in
the pendency of the lockdown, the said matters would remain stagnant and would be
considered once the tribunal resumed active functioning. It also put a halt on filing of
any new matters pertaining to The Code.

Insertion of Regulation 40C: adjournment of activities during lockdown: The

Insolvency and Bankruptcy Board of India (IBBI) issued a notification on 29.03.2020
[3], instituting a fresh regulation to Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) (Third Amendment)
Regulations, 2020. The provision has been formulated under Regulation 40C which
states that any activity that could not be accomplished due to the ongoing lockdown,
would not be counted as a contributing factor towards the timeline for corporate
insolvency resolution process.

The provision essentially implies that any meetings of COC, preparation of a

resolution plan and other activities that could not materialize pertaining to the
insolvency process for the duration of the entire lockdown, would waive off any
liability from the person(s) concerned.
This means that the duration of the lockdown would not be included in the 330 days
of timeline. Also, the parties involved would not be considered to have defaulted in
adhering to the timeline.

Insertion of Regulation 47A: adjournment of activities during lockdown: The

Insolvency and Bankruptcy Board of India (IBBI) issued another notification on
17.04.2020 [4] in which it introduced another regulation to Insolvency and Bankruptcy
Board of India (Liquidation Process) (Second Amendment) Regulations, 2020. This
regulation is similar to Regulation 40C waiving off any liability for non-completion of
any activity amid lockdown for the liquidation process. The notification states that the
lockdown period would not be counted towards the timeline for the liquidation
process.

The ongoing pandemic has affected all aspects of the insolvency process and in
reference to the analysis made above, it can be concluded that even though no one
would be deemed at fault because of the delay, there is, in fact, an inevitable delay in
the process. The delay, by extension, defeats one of the crucial and salient features of
the Insolvency and Bankruptcy Code, 2016. However, it was critical for the measures
to supervene in order to resume ordinary functioning of law and order at the earliest.

How to Become an Insolvency

Professional
To improve the process for insolvency resolution, the Insolvency and Bankruptcy
Board of India was established on October 1, 2016 in accordance with the provisions
of The Insolvency and Bankruptcy Code, 2016. The Insolvency and Bankruptcy
Board of India is tasked with providing an smooth and time bound insolvency
resolution process for companies, LLPs, partnership firms and individuals. In this
article, we look at the process for becoming an Insolvency Professional as per the
rules and regulations laid out by the Insolvency and Bankruptcy Board of India.

Insolvency Resolution
Insolvency resolution is an important part of the credit market required to maintain a
vibrant credit market. Insolvency resolution thus involves maximization of the value
of assets of an insolvent person and ensure availability of credit and balance to the
interests of all the stakeholders. The entire insolvency resolution process is managed
by an Insolvency Professional, who has been appointed or designated by the
Insolvency and Bankruptcy Board of India as an Insolvency Professional. Persons who
qualify under the following eligibility criteria are eligible to become an insolvency
professional.
Eligibility Criteria for Becoming
Insolvency Professional
The following are some of the basic eligibility criteria for becoming an insolvency
professional:

 The Insolvency Professional must be a major, over the years of 18.

 The Insolvency Professional must be a resident of India.
 The Insolvency Professional must not have been convicted by any competent
court for an offence punishable with imprisonment for a term exceeding six
months or for an offence involving moral turpitude, and a period of five years
has not elapsed from the date of expiry of the sentence.
 Any person who has been convicted of any offence and sentenced to
imprisonment for a period of seven years or more, is not eligible to be
registered as an Insolvency Professional.
 The Insolvency Professional must not have been an undischarged insolvent, or
has applied to be adjudicated as an insolvent.
 The Insolvency Professional must be of sound mind and a fit and proper
person. To judge if a person is fit and proper, the following criteria’s are
considered:
o Integrity, reputation and character.
o Absence of convictions and restraint orders.
o Competence, including financial solvency and net worth.

Qualification and Experience Required

for Becoming an Insolvency Professional
The following four routes are available for becoming an Insolvency Professional:
Becoming an Insolvency Professional

Passing the National Insolvency Examination

To become an Insolvency Professional, the eligible person must have passed the
National Insolvency Examination. The National Insolvency Examination will be held
from time to time by the Insolvency and Bankruptcy Board of India.

Passing the Limited Insolvency Examination +

Bachelors Degree + 15 Years Experience
Also, any person who is eligible can become an Insolvency Professional by passing
the Limited Insolvency Examination, if he/she has fifteen years of experience in
management and a Bachelor’s degree from a university established or recognized by
law.
Passing the Limited Insolvency Examination +
Professional Qualification
A eligible person can become an Insolvency Professional by passing the Limited
Insolvency Examination having 10 years experience as:

 A Chartered Accountant enrolled as a member of the Institute of

Chartered Accountants of India.
 A Company Secretary enrolled as a member of the Institute of Company
Secretaries of India.
 Cost Accountant enrolled as a member of the Institute of Cost Accountants of
India, or
 An advocate enrolled with a Bar Council.

Registration for a Limited Period

For a limited period, an eligible person can be appointed as an insolvency professional
if he/she has been in practice for 15 years as:

 A Chartered Accountant enrolled as a member of the Institute of Chartered

Accountants of India.
 A Company Secretary enrolled as a member of the Institute of Company
Secretaries of India.
 Cost Accountant enrolled as a member of the Institute of Cost Accountants of
India, or
 An advocate enrolled with a Bar Council.

Registration as Insolvency Professional

For a limited time, any person who is a qualified Chartered Accountant, Company
Secretary, Cost Accountant or Advocate with over 15 years of practice can become an
Insolvency Professional without taking the Insolvency Examination. To be registered,
eligible Professionals can submit an application with a non-refundable application fee
of Rs.5000.

Individuals appointed under this scheme would be registered for a limited period and
cannot take any assignment as an insolvency professional after the expiry of
Insolvency Professional registration.
 Corporate Insolvency
Resolution Process
Insolvency of corporate persons deals with the insolvency of a corporate bodies like
a private limited company or limited company. This section deals with insolvency
resolution process of a corporate debtor is known as the corporate insolvency
resolution process (CIRP). Licensed insolvency professionals would execute the
process for insolvency resolution under the supervision of adjudicating authority. In
this article, we look at the corporate insolvency resolution process in detail.

Corporate Insolvency
A company is declared insolvent if the company is inefficient to settle its debts to the
creditors. There are two ways to evaluate the corporate insolvency:

 The cash-flow test is the company currently or in the future, be unable to pay
its debts when they fall due for payment.
 The balance sheet test is the value of the company’s assets less than the
number of its liabilities, taking into account future liabilities.

Corporate Insolvency Resolution Process

(CIRP)
Corporate Insolvency Resolution Process is a recovery mechanism for creditors. If a
corporate becomes insolvent, a financial creditor, an operational creditor, or the
corporate itself may initiate CIRP.

After making an application then CIRP is initiated. CIRP is the process through which it
is determined whether the person who has defaulted is capable of repayment or not
(IRPs will evaluate the assets and liabilities to determine the repayment capability).
If a person is not capable of repaying the debt the company is restructured or
liquidated.

Financial Creditor
Financial creditor refers to any person to whom a business debt is owned or a person
to whom such amount is legally assigned or transmitted. Banks or other financial
institutions are examples of financial creditors.
Operational Creditor
Operational creditor refers to a person to whom an operational debt is owed and
includes any person to whom such amount has been legally assigned or transferred
for goods or services done by them. Vendors and suppliers, employees, government
etc. are examples of operational creditors.

Documents Required for Financial

Creditor
The prescribed documents are to be submitted along with the application form.

 A record of the default recorded with the information utility or such other
document or evidence of default.
 The name of the resolution professional proposed to act as an interim
resolution professional.
 Any other information as may be specified by the board.

Documents Required for Operational

Creditor
The following documents are to be furnished at the time of making the application
form.

 A copy of invoice demanding payment or demand notice delivered by the

operational creditor to the corporate debtor.
 An affidavit stating that there is no notice given by the corporate debtor
describing to a dispute of the outstanding operational debt.
 A copy of the certification from the financial institutions maintaining accounts
of the operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor, if available.
 A copy of any report with information utility confirming that there is no
payment of an unpaid operational debt by the corporate debtor, if available.
 Any other proof is confirming that there is no payment of an unpaid operational
debt by the corporate debtor or such additional information, as may be
prescribed by the central government.
Documents Required for Corporate
Debtor
The following documents are to be furnished at the time of making the application
form.

 The information is representing its books of account and such other documents
for such period as may be specified by the Board.
 The information representing the resolution professional proposed to appointed
as an interim resolution professional.
 The special resolution is given by shareholders of the corporate debtor or the
resolution adopted by at least three-fourths of the total number of partners of
the corporate debtor, as the case may be, approving the filing of the
application.

How to Apply for CIRP?

The following is the processes for resolution or liquidation of corporate which are as
follows :

Step 1: Application To The NCLT

A creditor of a corporate (financial or operational), or the company, can request to the
NCLT (National Company Law Tribunal). It is used to admit that the company enters
the CIRP (Corporate Insolvency Resolution Process). For this, creditors must show the
failure of payment of a debt which is more than one Lakh rupees, and the NCLT has to
pass an order either admitting or denying the application within 14 days.

The financial and an operational creditor have to satisfy separate requirements when
making their requests before the NCLT. A financial creditor needs to furnish the report
of the default. The IBC(Insolvency and Bankruptcy Code, 2016) creates a new
class of record keepers known as Information Utilities.

Then the operational creditor needs first to make a demand for his unpaid debt. By an
ongoing dispute, it is open to the corporate debtor to defend the claim.

Step 2: Appointment of Interim insolvency

Resolution Professional
When a corporate debtor is accepted into the CIRP (Corporate Insolvency Resolution
Process), it checks the board of directors. Further, the management is placed under
an independent “interim resolution professional”. From this and till the end of the
CIRP (Corporate Insolvency Resolution Process), the management ceases to have any
control over the activities of the company.

Step 3: Moratorium
Moreover, a moratorium takes part which prohibits the following:

 Continuing or beginning of any legal matters on the corporate debtor

 Transfer of its assets
 Execution of security interest
 Recovery of property as an owner
 Discontinuing or termination of the supply of basic goods and services, the
moratorium lasts till the corporate debtor is in CIRP process.

Step 4: Verification and analysis of claims

Now, the interim resolution professional will summon, verify claims made by the
corporate debtor’s creditors also, list them. After that, in 30 days of the acceptance
into CIRP (Corporate Insolvency Resolution Process), from the COC (Committee of
Creditors), comprising all the financial creditors of the corporate debtor.

Step 5: Appointment of the resolution professional

The COC (Committee of Creditors) appoints an independent person to operate as the
“resolution professional” for the remainder of the CIRP (Corporate Insolvency
Resolution Process). The resolution professional will be the same person or the same
person as the interim resolution professional depending upon COC.

Step 6: Acceptance of the Resolution Plan

A resolution plan for the restructuring of the corporate must be approved within 180
days from the commencement of CIRP by creditors.

All person, management, the creditors, or a third party can propose such a resolution
plan. It is the duly of resolution professional to check that the plan satisfies the
criteria set up in the IBC(Insolvency and Bankruptcy Code, 2016).

If a plan is accepted within this period and is sanctioned by the NCLT

The approval of the resolution plan when it meets the conditions binding on the
corporate debtor and its employees, members, creditors, guarantors and other
stakeholder involved in the resolution plan. The resolution professional is required to
obtain necessary approvals required under any law for the time being n force within
one-year from the date of approval by adjudicating authority.
If no resolution plan is accepted in this period

If the resolution plan is claimed, then NCLT is obliged to order the liquidation of the
corporate debtor. Upon approval of liquidation, COC appoints the liquidator to sell the
assets of the corporate debtor and share them among the stakeholders.

Stages of Corporate
Insolvency Process
A glance into the comprehensive mechanism of the IBC, 2016.
Indian legal system incorporated legislation distinctly dealing with insolvency and
bankruptcy in 2016. Up until then, matters pertaining to insolvency and bankruptcy
were largely covered in varying codifications laying down laws corresponding to the
specified code’s requirement. For instance, inter alia, Companies Act, 2013, laid down
provisions pertaining to winding up of companies, SARFAESI Act, 2002, provided
for discharge of liability by the bank towards a secured creditor for their secured
interest regarding the failure of payment[1] and Banks and Financial Institutions Act,
1993, presented rules for financial debt recovery.

In light of the losses sustained by the creditors, in consequence to the non-payment

of debt in due course of time because of non-existence of a legally binding procedure,
the parliament introduced the Insolvency and Bankruptcy Bill in 2015 which passed in
2016 (hereinafter referred to as “The Code” [2]). The losses borne by the creditors
were by extension affecting the financial stability of the creditors as well as the
economy [3].

The Indian Insolvency & Bankruptcy Code provides for legally binding and
sustainable modus operandi for the insolvency process of corporates, partnerships
and individuals. This guide deals specifically with the Corporate Insolvency Resolution
Process (hereinafter referred to as “CIRP”). Section 6 under Chapter II of The Code
defines CIRP as a process initiated by a financial creditor, operational debtor or the
corporate debtor [4] itself when a payment by the corporate debtor has defaulted.

Corporate Insolvency Resolution Process

CIRP is fundamentally concluded in six stages, keeping variable factors constant. The
stages are as follows:

Stage 1 – Petition to the NCLT: When a company defaults in furnishing payments

to its creditors, as discussed above, the creditors hold a right to bring forward a CIRP
petition before the Adjudicating Authority. Instances wherein a company is the
corporate debtor, the appropriate Adjudicating Authority is the National Company Law
Tribunal (hereinafter referred to as “NCLT”).

Once filed, the NCLT reviews the merits of the petition considering whether the
petition holds a locus standi before the tribunal or not. If the tribunal does not find
merits in the petition, like for instance, the defaulted amount does not meet the
minimum threshold of INR One lakh as per Section 4 of The Code (which is now INR
One Crore [5]), then it will reject the petition. However, if the tribunal finds practicable
merits in the petition, then it admits the same (u/s 7, 9 or 10 of The Code) prompting
the process to commence. The NCLT is required to call for a hearing within 14 days of
the filing of the petition.

Stage 2 – Appointment of Interim Resolution Professional (hereinafter

referred to as “IRP”): Resolution professional (hereinafter referred to as “RP”) [6],
defined u/s 27 of The Code, is a licensed insolvency professional appointed and
nominated by the Committee of Creditors. Until then, the NCLT appoints the IRP.

The second stage towards the process is for the IRP to enterprise between carrying
out the remainder of the insolvency process and ensuring that the operations of the
corporate debtor are a going concern.

Stage 3 – Moratorium: Moratorium period commences once the tribunal admits the
petition. As per Section 14 of The Code, on declaration of this period, the tribunal
prohibits;

1.
1. Institution of fresh suits or continuation of pending suits (in terms of
financial debt) against the corporate debtor;
2. Defenestration of the corporate debtor from any operational, financial,
legal or managerial obligation;
3. Any additional foreclosure or recovery of debt against the corporate
debtor under the SARFAESI Act, 2002; and
4. Recovery from the corporate debtor of any property that he possesses
at the time of the insolvency process.

Moratorium period remains in subsistence till the time the CIRP process is concluded.
The upper limit of continuance of this period is 180 days with a possible extension of
90 days under exceptional circumstances.

Stage 4 – Collation and analysis of facts: The IRP is responsible for categorizing
the claims made in the petition by the petitioner systematically, and making an
analysis of the same as per Section 18 (b) of The Code. In case the IRP requires an
exposition of a claim made by the petitioner, then The Code authorizes the IRP to call
a meeting with the petitioner concerning the same for the clarification required.
The IRP is also required to constitute a Committee of Creditors (COC) by the virtue of
Section 18 (c) of The Code within 30 days of the commencement of the CIRP. Once
the COC is formed, the committee then appoints an RP. The IRP can potentially retain
the position or a fresh appointment can be made depending on the decision of the
committee.

Stage 5 – Resolution Plan: Once the IRP/RP collates and verifies the claims made
by the petitioner, the same has to be followed by a public announcement by the COC.
The announcement is indicative of the insolvency by declaring that the corporate
debtor is undergoing an insolvency process and all interested candidates or bidders
are invited to submit a resolution plan that could potentially be implemented. These
bidders could be prospective investors, creditors etc.

Depending on the number of resolution plans proposed, the COC peruses the same.
The plan that gathers an approval of over 75 per cent of the COC, is secured to be
presented before the NCLT.

Stage 6 – Decision: The resolution plan approved upon by the COC is presented
before the NCLT. If the NCLT sanctions the approved resolution plan, then the same is
executed and becomes binding on the corporate debtor and all the stakeholders.

However, if the NCLT does not sanction the resolution plan or, the COC is unable to
finalize a resolution plan in the designated period, then the tribunal orders the
liquidation of the corporate debtor and the same has to be concluded within one year
of such order.

The Code has been successful in stabilizing and providing a structure to the
insolvency process in pursuance of the abovementioned steps. The non-existence of a
system was a key lacuna in the implementation of insolvency before the legislation
was brought into the light. At present, in the wake of enforcement of The Code, the
insolvency process is streamlined and has an established timeline to conclude the
progression.

Insolvency and Bankruptcy

Code, 2016
With the multiple overlapping laws and adjudicating forums that dealt with financial
failure and insolvency of companies, individuals, partnerships and other entities in the
country, the legal and institutional framework did not support lenders effectively nor
on time to recover or restructure the defaulted assets and thereby, causing undue
strain on the Credit System in India. This existing framework was renovated with the
passing of The Insolvency and Bankruptcy Code by the Parliament in 2016. This Code
paves the way for essential reforms while staying focused on creditor driven
insolvency resolutions. This article talks about the key features and the provisions of
The Insolvency and Bankruptcy Code of 2016.
Insolvency vs Bankruptcy
Insolvency and bankruptcy are two very different terms and with distinct meanings.
Insolvency refers to a situation where a person is going to financial misery due to lack
of funds. Bankruptcy is a court directive that outlines exactly how an insolvent
borrower would manage his/her responsibilities and/or have resources settled to pay
off the creditors. Hence, the Insolvency and Bankruptcy Code, aims to provide
comprehensive relief for all stakeholders who are involved in the financial matters of
an insolvent person or entity.

The Code
The Government of India introduced and implemented TheInsolvency and Bankruptcy
Code, 2016 by passing the bill in the November of 2015 after it was recognised that
essential reforms were required in the bankruptcy and insolvency regime and to
improve the business environment and alleviate distressed credit markets. After the
general consultation process and recommendations obtained from a joint committee
of the Parliament, the Code was passed by both the houses of the Parliament. The
effect of this Code shall be seen in due course of time when the formation of
institutional infrastructure and implementing rules as envisioned in the Code.

The Insolvency & Bankruptcy Code provides a uniform and comprehensive insolvency
legislation that applies to all companies, individuals and partnerships with an
exception to financial firms. The Government has been drafting a proposal for a
separate framework for bankruptcy resolution in failing banks and financial sector
entities.

One of the primary features of the Code is that it permits creditors to assess the
viability of an individual debtor for a business decision and finalise a plan for its
efficient revival or a quick liquidation. A new institutional that comprises for a
regulator, information utilities, insolvency professionals and adjudicatory mechanisms
was created by the implementation of the Code that would facilitate a formal and
time-bound liquidation and insolvency resolution process.

Purpose of the Act

The Act strives to fulfill the following purposes:

 Combine and modify the laws involving restructuring and insolvency resolution
of corporate persons, partnership firms, and individuals, in a manner which is
time-bound.
 For expanding the value of the asset of such persons.
 To encourage entrepreneurship.
 Obtainability of credit.
  Poise the interests of all stakeholders including an amendment in a priority
order of payment of Government dues.
 To effectively Launch Insolvency and Bankruptcy Board of India.

Key Highlights
Insolvency for Corporate Debtors
There are primarily two stages in the process for Corporate Debtors.

 Insolvency Resolution Process: During this process, the financial creditors

assess if the debtor’s business is viable enough to continue its business and
other options for its revival and rescue.
 Liquidation: This is inititated when the insolvency resolution process does no
help and eventually fails or when the financial creditors decide that winding
down and distributing the assets of the debtor is the best choice forward.

Insolvency Resolution Process (IRP)

The Insolvency Resolution Process offers a collective mechanism to various lenders to
deal an overall distressed position of a certain corporate debtor. This is a major
change from the exisiting legal framework under which the primary onum to initiate a
reorganisation process lies with the debtor, and where lenders may choose to pursue
distinct actions for the recovery, security enforcement and debt restructuring.

The Insolvency and Bankruptcy Code states the following steps to execute IRP.

 Commencement of the Insolvency Resolution Process

An operational creditor (for an unpaid operational debt) or a financial creditor (for a

defaulted financial debt) may inititae an Insolvency Resolution Process against a
corporate debtor at the NCLT or the National Company Law Tribunal. The corporate
debtor who defaulted, its employees and shareholders may also initate a voluntary
insolvency proceedings.

 Moratorium

The National Company Law Tribunal has ordered a moratorium on a debtor’s

operations for the period of the Insolvency Resolution Process. This generally means a
calm period during which there would be no judicial proceedings for recovery, sale or
transfer of assets, enforcement of security interest, or the termination of essential
contracts that can be inititated against the debtor.

 Appointment of a Resolution Professional

The National Company Law Tribunal would appoint an insolvency professional or a
resolution professional to administer the Insolvency Resolution Process. The
professional’s primary function is to take over the power to manage the corporate
borrower and to opearte its business as a going concern under the directions of a
committee of creditors. This is very similar to the process of the UK insolvency laws,
but varies from the “debtor in possession” where the debtor’s management retains
control over the business while the bankruptcy professional has the power to oversee
the business to prevent any asset stripping on the part of its promoters.

Therefore, the Code sllows a shift of control from a defaulting debtor’s management
to the control of its creditors. Here, the creditors drive the business of the defaulter
debtor where the Resolution Professional acts as their agent.

 Creditors Committee and Revival Plans

A Resolution Professional would identify the financial creditors and forms a creditors
committee. Any operation creditor who are above a certain threshhold would be
allowed to attend the meetings of the committee although, they would not be given
the power to vote. Every decision taken by the creditors committee would require a
75 percentage of majority vote. The corporate debtor and all its creditors would be
bound by the decisions taken by the creditors committee.

The proposals for the rescue and revival of the defaulting debtor would be considered
by the creditors. The committee would eventually choose an option to proceed with
the revival plan or the liquidation of the entity within a period of 180 days. A one-time
extension of 90 days of the time period could be granted. Any individual may submit
a proposal to revive, although it must provide for the payment of the operational
debts to the extent of the liquidation waterfall necessarily.

The Code does not go in detail about the types of revival plans that may be adopted.
Revival plans may include fresh finance, the sale of assets or change of management
and so on.

Liquidation
Under the Insolvency and Bankruptcy Code, a corporate debtor may be put to
liquidation for the following circumstances.

1. When 75 per cent of the committee of the creditor finalises to liquidate the
corporate debtor at any given time during the during the insolvency resolution
process.
2. When the committee of the creditor does not approve a resolution plan within
the given time period of 180 days or within the extended time period of 90
days.
3. When the NCLT does not agree with the resolution plan that was submitted and
rejects it on technical grounds.
 4. When the debtor contravens the resolution plan that was initially agreed upon
and an affected individual makes an application before the NCLT to liquidate
the corporate debtor.

Once the National Company Law Tribunal sanctions and passes an order of liquidation
of the corporate debtor, a moratorium is imposed on the legal proceedings that are
pending against the corporate debtor, The assets of the corporate debtor including
the proceeds of the liquidation vests in the liquidation estate.

Priority of Claims

The Code brings significant changes to the priority waterfall for the distribution of
liquidation proceeds.

Secured debt along with the workmen dues for the preceding 24 months would be
ranked the highest in priority after the costs of the insolvency resolution which
includes any interim finance. The Central and State Government dues are considered
a priority after the claims of the secured creditors, employee dues, workmen dues
and other unsecured financial creditors. The Government dues were in priority
immediately under the claims of the secured creditors and workmen under the earlier
regime.

A secured creditor has the option to choose to realise his security and obtain
proceeds from the sale of the secured assets in first priority upon liquidation. The
secured creditors must contribute any excess proceeds to the liquidation trust if he
enforces his claims outside the liquidation. Furthermore, the secured creditor will be a
junior to unsecured creditors, in the case of a shortfall in recovery, to the extent of
the shortfall.

Insolvency Resolution Process for Individuals/

Unlimited Partnerships
The Code is applicable to all the cases where a minimum default amount is INR 1000
and above for individuals and unlimited partnerships. The Government may choose to
revise the default minimum amount to a higher threshold. The Code provides the
provision for two disticnt processes in the case of insolvencies. They are an Automatic
Fresh Start or an Insolvency Resolution.

 Automatic Fresh Start: Under this process, debtors, who are eligible based
of gross income, can apply to the Debt Recovery Tribunal or the DRT for
discharge from particular debts that do not exceed a specified threshold and
thereby, allowing them to a fresh start.
 Insolvency Resolution: This process comprises of a preparation of a
repayment plan for the approval of the creditors by the debtor. Once the plan is
approved, the DRT would pass an order that binds the debtor and the creditors
 to the proposed repayment plan. If the plan is rejected, the creditors or the
debtor may apply for a bankruptcy order.

Insolvency Resolution Process for Institutional

Infrastructure
The following are the steps for Insolvency Resolution Process for Insititutional
Infrastructure.

The Insolvency Regulator

The Insolvency and Bankruptcy Code of 2016 orovides for the constitution of the new
insolvency regulator that is the Insolvency and Bankruptcy Board of India (Board). The
following are the primary roles of the Board.

1. To oversee the funtioning of the insolvency professionals and other insolvency

intermediaries such as the insolvency professional agencies and information
utilities.
2. To regulate the process of insolvency.

Insolvency Resolution Professionals

The Code has the provision for insolvency professionals who act as intermediaries.
These professionals would play a essential role in the effecient functioning of the
bankruptcy process. The Code envisions insolvency professionals as a class of private
and regulated professionals who have a minimum standards of ethical and
professional conduct.

In the process of resolution, the insolvency expert verifies the claims made by the
creditors. The professional also constitutes a creditors committee, runs the business
of the debtor during the period of moratorium and helps the creditors to reach a
consensus for a effective revival plan. The insolvency professional acts as a liquidator
and as a bankruptcy trustee.

Information Trustee
A key feature of the Code is the creation of the information utilities to collect, collate,
authenticate and dissenminate various financial information of the debtors in a
centralised electronic database. The financial information of the debtors is to be
provided by the creditors to multiple utilities on an ongoing basis as a requirement of
the Code. Such information would be available for access to other creditors, resolution
professionals, liquidators and other stakeholders in the insolvency and bankruptcy
proceeding. The main purpose of implementing this is to remove any information
asymmetry and the dependency on the management of a debtor for crucial
information that is required to resolve the insolvency swifty.
Adjudicatory Authorities
The National Company Law Tribunal is the adjudicating authority for corporate
insolvency and liquidation. Appeals that are submitted before the NCLT would be
presented before the National Company Law Appellate Tribunal for a decision and
later, to the Supreme Court of India. The adjudicating authority is the Debt Recovery
Tribunal where the appeals would lie before the Debt Recovery Appellate Tribunal and
later, to the Supreme Court of India.

To keep with the broad philosophy that an insolvency resolution must be

professionally and commercially driven than being court-driven, the adjudicating
authorities are limited to ensuring due process instead of adjudicating on the merits
of an insolvency resolution.

Insolvency and Bankruptcy Board of

India (IBBI)
Insolvency and Bankruptcy Board of India (IBBI) has been established to regulate all
aspects of Insolvency and Bankruptcy of corporate persons, firms, and individuals.
The Insolvency and Bankruptcy Board of India (IBBI) is a unique regulator in that it
has powers to regulate the profession of Insolvency Professionals as well as
insolvency transactions. The objective of the IBBI is to maximize the value of assets of
an insolvent person, to promote entrepreneurship, availability of credit and balance
the interests of all the stakeholders.

Conclusion
Currently, India ranks at 136 out of the 189 countries in the index of the World Bank
in terms of the ease in resolving insolvencies. Some of the reasons for such a ranking
is its weak insolvency regime, its significant inefficiencies and the abuse of the
system. These add to the distressed state of credit markets in India as of today. With
the implementation of The Insolvency and Bankruptcy Code, the hope of bringing
about far-fetched reforms with a thrust on creditor driven insolvency resolution is
seen. It also aims to identify financial failure at an earlier stage and maximises the
asset value of the insolvent firms. The Code has the provision to adress cross border
insolvencies through bilateral agreements and reciprocal arrangements with other
nations.

The Code would eventually improve the debt recovery rates and revitalisation of the
ailing Indian corporate bond markets through the unified regime with the vision of a
structured and time-bound process for insolvency resolution and liquidation.

SARFAESI Act – Merged

The Securitisation and Reconstruction of Financial Assets and Enforcement of
Securities Interest (SARFAESI) Act, 2002, is an Indian regulation which was enforced in
the year 2004. SARFAESI was created to allow banks and financial institutions to
auction properties (residential and commercial) if the borrowers fail to repay the
loans. Also, it enables banks to recover their Non-Performing Assets (NPAs) without
the intervention of courts. In this article, we look at the SARFAESI Act in detail.

SARFAESI – an Overview
The SARFAESI Act, 2002 grants the powers of ‘seizure’ to banks. Under these
provisions, the banks may issue notices in writing to the defaulting borrower insisting
the discharge of its liabilities after 90 days of default. (Increased more than 90 days
due to Coronavirus and Economic Slowdown) If the borrower fails to respond to such
notice, the concerned bank may:

 Take possession of the security in lieu of the loan.

 Sell, lease or assign the right over the security.

Applicability of the Act

The provisions of this Act apply to outstanding loans (above Rs. 1 lakh), which are
classified as Non-Performing Assets(NPA). NPA loan accounts amounting to less than
20% of the principal and interest are not covered under this Act.

The SARFAESI Act isn’t applicable for:

 Money or security issued under the Indian Contract Act or the Sale of Goods
Act, 1930.
 Any conditional sale, hire-purchase, lease or any other contract in which no
security interest has been created.
 Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.
 Any properties are not liable to attachment or sale under Section 60 of
the Code of Civil Procedure, 1908.

Rights of Borrowers
The following rights are endowed to the borrowers with respect to this provision:

 The borrowers can at any time remit the dues and avoid losing the security
before the sale is concluded.
 Where any unhealthy or illegal act is done by the Authorised Officer, he/she will
be subject to penal consequences.
 The borrowers will be allowed to get compensation for the defaults of an
Officer.
 For rectifying the grievances, the borrowers can approach the DRT.
Methods of Recovery under the Act
The Act makes provisions for three methods of recovery of the NPAs, which includes:

 Securitisation
 Asset Reconstruction
 Enforcement of security without the interruption of the court

Securitisation
Securitisation is the process of issue of marketable securities backed by a pool of
existing assets such as auto or home loans. After an asset is converted into a
marketable security, it is sold. A securitisation company or reconstruction company
can raise funds from only the QIB (Qualified Institutional Buyers) by forming schemes
for acquiring financial assets.

Asset Reconstruction
Asset Reconstruction empowers the asset reconstruction companies in India. It can be
performed by means of managing the borrower’s business by acquiring it, by selling a
partial or whole of the business or by the rescheduling of payments of debt payable
by the borrower by the provisions of the Act.

Enforcement of security without the intervention

of the court
It also empowers banks and financial institutions to:

 Issue notices to any individual who has obtained any of the secured assets
from the borrower to surrender the due amount to the bank.
 Claim any debtor of the borrower to pay any sum due to the borrower.

Register of Transactions
A register (Central Register) is maintained both in electronic and non-electronic form
at the head office of the Central Registry for holding the particulars of the
transactions including the creation and payment of security interest relating to
securitisation and reconstruction of financial assets.
Proposed Amendments to the Act
The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill,
provides for the amendment of two Acts, namely the Recovery of Debts Due to Banks
and Financial Institutions and SARFAESI Act. The Amendment states the following:

 The banks and Asset Reconstruction Companies (ARCs) are granted with
powers to transfer any part of the debt of the defaulting company into equity.
Such a translation would indicate that lenders or ARCs would become an equity
holder, instead of the creditor of the company.
 Banks may now request for any immovable property set out for auction by
themselves if they do not receive any request during the auction. In such a
case, banks will be capable of adjusting the debt with the amount paid for this
property. It allows the bank to secure the asset in partial fulfilment of the
defaulted loan amount.
 Banks can also sell this property to a new person by asking him/her to remit
these debts entirely over a period of time.

Insolvency and Bankruptcy

Board of India (Voluntary
Liquidation Process)
Amendment Regulations
2022
The Insolvency and Bankruptcy Board (IBBI) vide notification dated 5th April 2022 has
notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process)
Amendment Regulations 2022. This new law was introduced to provide a mechanism
for the voluntary liquidation of solvent corporate persons. The key highlights of the
IBBI (Voluntary Liquidation Process) Amendment Regulations 2022 are summarized in
this article.

For more details on the Insolvency and Bankruptcy Code, 2016, click
here

The gist of IBBI (Voluntary Liquidation

Process) Amendment Regulations 2022
The Budget 2022 had laid down the intent to fast track the voluntary liquidation
process to provide greater flexibility to entities that desire to exit the business. In
pursuance of that, the Insolvency and Bankruptcy Board of India released a discussion
paper along with draft regulations for public comments in February 2022. After that,
IBBI has now notified the Insolvency and Bankruptcy Board of India (Voluntary
Liquidation Process) Amendment Regulations 2022.

Voluntary Liquidation Process

Voluntary Liquidation or Voluntary Winding up of a company in India is administered
under the Insolvency and Bankruptcy Code, 2016 applies to ‘a corporate person’.
Voluntary Liquidation is the process of liquidating a company with the approval of its
members. A company usually goes for a voluntary liquidation when its members
decide not to continue its business operations. The main objective is to discontinue
the operations and distribute its assets while also paying its debts.

For more details on Voluntary Liquidation of Corporate Persons, click here

Key highlights of the IBBI (Voluntary

Liquidation Process) Amendment
Regulations 2022
There has been a substantial delay in the completion of the voluntary liquidation
process, though the process, in general, involves nil or negligible claims of creditors,
fewer assets, if any, to be realized and few litigations, if any, to be concluded.

To curtail such delay and ensure faster exit for firms, the Amendment Regulations
modify timelines for some stipulated activities undertaken during the process.

Modified timelines for some stipulated activities undertaken during the Process are as
follows:

 Intimation of appointment of liquidator to IBBI

 Timeline for preparation of stakeholders list reduced
 Timeline for distribution of proceeds to stakeholders reduced
 Completion of voluntary liquidation
 Submission of compliance certificate along with the final report by Liquidator

Liquidation of Corporate Debtors Under Insolvency and Bankruptcy Code, click here
Intimation of appointment of liquidator
to IBBI
The liquidator is required to intimate his appointment to IBBI within seven days from
the date of his appointment compared to an earlier three-day timeline.

Timeline for preparation of stakeholders

list reduced
A proviso to sub-regulation (2) of regulation 30 is added in Insolvency and
Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 under
which if no claims are received till the last day of submission of a claim, the

The liquidator must prepare the list of stakeholders within 15 days (against the
previously stipulated forty-five days) from the last date for receipt of claims.

Timeline for distribution of proceeds to

stakeholders reduced
Also, the liquidator must distribute the proceeds from realization within 30 days
(against the previously stipulated six months) from the receipt of the amount to the
stakeholders.4

Completion of voluntary liquidation

Timeline for completion of voluntary liquidation revised as follows:

 The new Amendment Regulations 2022 prescribe 270 day limit for completion
of a corporate liquidation, in cases where creditor approval has been received
for the commencement of liquidation;
 The liquidator shall endeavor to complete liquidation within 90 days from
commencement in all other cases.
Submission of compliance certificate
along with the final report by Liquidator
To provide a summary of actions taken by the liquidator during the voluntary
liquidation process, the new Regulations 2022 specify a compliance certificate which
is required to be submitted along with an application under section 59(7) to the
Adjudicating Authority, by the liquidator.

Compliance certificate in Form H

The liquidator is now required to furnish a compliance certificate in Form H along with
the final report in an application to the Tribunal.

The compliance certificate in Form H is reproduced below for reference:

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The compliance certificate contains a summary of the voluntary liquidation process,

including the time taken for various actions by the liquidator (against the prescribed
time limit), details of receipts and payment during the process, etc. A compliance
certificate shall facilitate the Adjudicating Authority to adjudicate dissolution
applications expeditiously.

Voluntary Liquidation of
Corporate Persons
Voluntary Liquidation of a Company in India is administered under Section 59 of
Chapter V of Insolvency and Bankruptcy Code, 2016 and it applies to a corporate
person. The voluntary liquidation process applies when the directors and shareholders
decide to cease trading their solvent limited company. The present article briefs the
Procedure for Voluntary Liquidation of Corporate Persons.

Get in Touch with the IndiaFilings to Liquidate A Company – Fast & Easy – Online
Process
Governing Law – Voluntary Liquidation
of Corporate Persons
Section 59 of the IBC Code read with section 431(1)(c) and section 465 of
the Companies Act 2013 and Rule 4 provides that all fresh proceedings for voluntary
liquidation of corporate persons shall be governed under the provisions of the IBC
Code and regulations made thereunder and shall be instituted before National
Company Law Tribunal (NCLT).

Section 59 of Chapter V of the

Insolvency and Bankruptcy Code
Section 59 of Chapter V of Insolvency and Bankruptcy Code, 2016, talks about the
Voluntary Liquidation of Corporate Persons. This chapter states the procedure for
Voluntary Liquidation of Corporate Persons initiation and effect of Liquidation, power,
and duties of Liquidator, and completion of Liquidation.

 Section 59(1) states that if a corporate person intends to liquidate it voluntarily

and proves that it has not committed any default, shall initiate proceedings of
the Voluntary Liquidation process as described under the provisions of chapter
V of Insolvency and Bankruptcy Code, 2016.
 Under sub-section (1) of 59, it is stated that Voluntary Liquidation of Corporate
Persons shall meet all the conditions or procedural requirements as prescribed
by the Insolvency and Bankruptcy Board.

Who can apply for Voluntary

Liquidation?
A corporate person, be it a Company or a Limited Liability Partnership or any other
person incorporated with limited liability under any law, who intends to liquidate itself
voluntarily, may initiate liquidation proceedings under the provisions of Section 59 of
Chapter V of Insolvency and Bankruptcy Code.

Essential Pre-conditions for Voluntary

liquidation
Section 59(3) states that Voluntary Liquidation of Corporate Persons shall have to
follow certain conditions or essential pre-conditions as stated by the Insolvency and
Bankruptcy Board.
Insolvency and Bankruptcy Code provided that only those corporate persons can
make an application that has not committed any default and has not defaulted in
payment and have a full capacity to repay debt are eligible for making an application
for voluntary liquidation.

Procedure for Voluntary Liquidation of

Corporate Persons
The procedure for Voluntary Liquidation of Corporate Persons is explained in detail
below:

Declaration of Solvency by Director / Designated

Partner
The Directors of the Company have to make a Declaration of Solvency in form of an
Affidavit confirming the following:

 The company has not committed any default of repayment of debt and
 The company is solvent and it will be able to pay its debts in full from the
proceeds of assets to be sold in the voluntary liquidation; and
 The company is not being liquidated to defraud any person.

Documents Required
The declaration shall list each debt of the corporate person as on that date along with
the following documents that need to be attached for Declaration of Solvency by
Director / Designated Partner:

 Audited financial statements for the previous two years or for the period when
the Company is incorporated or established as the Company
 The record of business operations of the Company for the previous two years
or the period since its incorporation
 The Company is bound to give the valuation of the Company’s assets if there is
any which the registered Valuer prepares. ( Valuation report of the assets of the
company by a Registered Valuer)

The declaration of solvency should be filed in Form GNL-2 with the Registrar of
Companies:
Appointment of Liquidator
The Company’s members have to identify an Insolvency Professional, who is
registered with the Insolvency and Bankruptcy Board of India (IBBI) to act as a
Liquidator to conduct the voluntary liquidation process.

Communication to ROC & IBBI

After obtaining approval from members and creditors for undergoing voluntary
liquidation, the company shall intimate about the resolutions to liquidate the
corporate person to ROC and IBBI within seven days of receiving approval from
members and creditors.

Convene Board Meeting

The company has to call a board meeting and pass a resolution for the proposal of
voluntary liquidation of the company. Directors will have to decide the following:

 Voluntary liquidation of the company

 Appointing an Insolvency Professional as the Liquidator of the Company
 Fixing the day, date, and time for the general meeting of the company and
Issuing notice of the EGM containing the proposed resolution along with the
explanatory statement.

Convene General Meeting of Shareholders

Convene a General Meeting of shareholders within 4 weeks of the Declaration of
Solvency and pass the following resolutions:

 Special Resolution in general meeting for liquidating the company voluntarily

or an ordinary resolution for liquidating as a result of the expiry of any fixed
period of its existence in articles
 Resolution appointing Liquidator of the company

Note: In case the company has creditors, a resolution should also be passed by the
creditors holding 2/3rd of the debt within 7 days of the member’s resolution.

Commencement of liquidation proceedings

The liquidation proceedings in respect of a corporate person shall be deemed to have
commenced from the date on which special resolution is passed by the members
along with the approval of creditors.
Public Announcement
The liquidator shall make a public announcement within 5 days from his appointment
calling stakeholders to submit their claims within 30 days from the liquidation
commencement date.

It should be published in English and Regional language newspapers having wide

circulation where the registered office is situated and also on the website of the
company. The liquidator shall verify the claims within 30 days from the last date of
receipt of claims and either accept or reject the claims.

The liquidator shall prepare a list of stakeholders within 45 days from the last date for
receipt of claims based on proof of claims received with:

 The amounts of claim admitted, if applicable,

 The extent to which the debts or dues are secured or unsecured, if applicable,
 The details of the stakeholders, and
 The proofs are admitted or rejected in part, and the proofs wholly rejected.

Submission of claims
Once the public announcement is made by the liquidator, all persons who claim to be
stakeholders of the corporate person shall submit and prove their claim for debts or
dues to him, including interest, if any, within the provided time limit.

Verification of claims
On receipt of claims, the liquidator shall verify the claims received within 30 days to
be computed from the last date for receipt of claims.

Depending upon the documents of evidence submitted by the claimant for

substantiating the whole or part of its claim the liquidator may either accept or reject
the received claims.

Realization of Assets
The liquidator shall recover and realize the assets of the company in a time-bound
manner maximizing the value of the stakeholders. The money realized shall be
deposited in the bank account opened for this purpose.

Distribution
The money realized from the proceeds shall be distributed to the stakeholders within
6 months from the receipt of the amount after deducting the liquidation cost. If any
asset cannot be realized due to its nature or other circumstances, the liquidator may
distribute it as such with approval from the company.

The period for completing the liquidation

The liquidator shall complete the liquidation process of the corporate person within 12
months from the liquidation commencement date. Or else hold a meeting of the
contributory within 15 days at the end of every succeeding twelve months till the
dissolution of the corporate person.

Final Report
Once the Liquidation process is completed, the liquidator has to prepare the Final
Report containing:

 Audited accounts of the liquidation

 A statement showing the assets are disposed of, debts are discharged and no
litigation is pending
 A sale statement of assets showing realized value, its cost, manner, and mode
of sale, any shortfall, to whom it is sold, etc

Filing of Report to ROC & NCLT

Once the report is prepared by the liquidator, it shall be sent to the concerned
registrar of companies, NCLT, and the Insolvency and bankruptcy board as well S

The NCLT shall then pass an order that the company shall stand dissolved from the
date of the order.

Filing of Order
The copy of the NCLT order shall then be forwarded to the registrar where the
company is registered.

Preservation of records
The liquidator has to preserve the reports, registers, and books of accounts for at
least 8 years after the dissolution of the company.
 Pre-packaged Insolvency
Resolution Process (PPIRP)
The Insolvency and Bankruptcy Board of India (IBBI) notified the rules for the recently
announced pre-packaged insolvency resolution process. Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2021 has been introduced to provide
a pre-packaged insolvency resolution process (PPIRP) for MSMEs. In
line with this notification, IBBI now introduced the “Insolvency and Bankruptcy
(prepackaged insolvency resolution process) Rules, 2021” to enable the
operationalisation of PPIRP. This new rule provides the Procedure for Filing of
Application for PPIRP and the current article provides the details on the same.

Insolvency and Bankruptcy

(prepackaged insolvency resolution
process) Rules, 2021
As per the new rules the corporate applicant, need to file an application for initiating
pre-packaged insolvency resolution process under subsection (1) of section 54C of the
Insolvency and Bankruptcy Code, in Form 1, accompanied with an affidavit,
documents, in electronic form, along with a fee of rupees fifteen thousand:

Pre-packaged Insolvency Resolution

Process (PPIRP) Regulation
A pre-packaged insolvency process is an informal plan worked out by the creditor and
debtor for debt resolution. The PPIRP Regulations detail the Forms that stakeholders
are required to use, and the manner of carrying out various tasks by them as part of
the PPIRP. These provide details and manner relating to the following.

 Eligibility to act as resolution professional, and his terms of appointment

 Eligibility of registered valuers and other professionals
 Identification and selection of authorised representative
 Public announcement and claims of stakeholders
 Information memorandum
 Meetings of the creditors and committee of creditors
 Invitation for resolution plans
 Competition between the base resolution plan and the best resolution plan
 Evaluation and consideration of resolution plans
 Vesting management of corporate debtor with resolution professional;
 Termination of PPIRP.
Note: The PPIRP Regulations has come into force from 9th April 2021

Fee for Filing of Application for

Prepackaged Insolvency Resolution
Process
A corporate applicant needs to furnish a fee of rupees fifteen thousand (Rs.150000) to
apply to initiate the Pre-packaged Insolvency Resolution Process.

Documents Required for Filing of

Application for PPIRP
The documents required for filing an application for PPIRP is as follows:

 In case of financial debt, a record of default obtained through the information

utility or all documents to prove the existence of financial/operational debt and
the amount in default
 In case of operational debt: Copy of invoice/demand notice served by an
operational creditor on the corporate debtor and Record of default obtained
through the information utility
 Approval of creditors under section 54A(2)(e) of the Insolvency and
Bankruptcy Code, 2016 for appointment of the proposed resolution
professional
 Written consent by the proposed resolution professional
 Declaration of the majority of the directors or partners of the corporate debtor
 Copy of the special resolution or resolution of the members or partners of the
corporate debtor
 Approval of creditors under section 54A(3)‍ of the Insolvency and Bankruptcy
Code, 2016 for filing application for initiating prepackaged insolvency
resolution process
 Report of the insolvency professional proposed to be appointed as the
resolution professional as referred to in section 54B (1)(a) of the Insolvency
and Bankruptcy Code, 2016
 Declaration regarding the existence of any transactions of the corporate
debtor, as referred to in section 54C(3)(c) of the Insolvency and Bankruptcy
Code
 Affidavit stating that the corporate debtor is eligible under section 29A of the
Code to submit a resolution plan in the pre-packaged insolvency resolution
process of the corporate debtor
 Copy of the relevant books of accounts of the corporate debtor evidencing the
default to the creditor
 Copies of audited financial statements of the corporate debtor for the last two
financial years and the provisional financial statements for the current financial
 year made up to a date not earlier than fourteen days from the date of the
application.
 A copy of the relevant extract of any constitutional document or shareholders’
agreement that records the authority of the corporate applicant to make this
application, where the corporate applicant is a member or partner of the
corporate debtor
 A copy of the relevant extract of an employment agreement, constitutional
document or fillings made to the Registrar of Companies confirming the
authority of the corporate applicant to make this application, where the
corporate applicant is an individual in charge of managing the operations and
resources of the corporate debtor or has control and supervision over the
financial affairs of the corporate debt
 Proof that the specified application fee has been paid
 Proof that a copy of the application has been served to the Board
 A statement of affairs made up to a date not earlier than fourteen days from
the date of application including the following document:
o A list of the corporate debtor’s assets and liabilities, divided into such
categories as are appropriate for easy identification, with estimated
values assigned to each category;
o If any property on which a claim against the corporate debtor is wholly
or partly secured, particulars of the claim and its amount, and of how
and when the security was created
o The names and addresses of the financial creditors and operational
creditors of the corporate debtor, with the amounts due to each of them
o Particulars of any debts owed by or to the corporate debtor to or by
persons connected with it
o Guarantees have been given about the debts of the corporate debtor by
other persons, specifying which, if any, of the guarantors is a related
party to the corporate debtor and the corporate applicant;
o The names and addresses of the members or partners of the corporate
debtor with details of their respective shareholdings

The prescribed format of the forms are as follows:

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Procedure for Filing of Application for

PPIRP
A corporate applicant has to submit an online application for initiating a pre-packaged
insolvency resolution process under subsection (1) of section 54C of the Insolvency
and Bankruptcy Code, 2016 Code in a prescribed format.
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The application should be accompanied by an affidavit, documents or records along

with a fee of rupees fifteen thousand. The applicant needs to provide the following
details in the application form.

 Particulars of the Corporate Applicant and Corporate Debtor

 Particulars of Proposed Resolution Professional
 Particulars of Financial/Operational Debt
 Particulars of Financial Creditors, Not Being Related Parties of the Corporate
Debtor

If the electronic facility is not available for filing such application, the application and
the accompanying documents may be filed in physical form, and wherever the
accompanying documents are bulky, the same may be submitted in scanned portable
document format in a data storage device such as a compact disc or a USB flash drive
acceptable to the Adjudicating Authority.

 The corporate applicant needs to send a copy of the application to the Board
by registered post or speed post or by hand or by electronic means, before
filing it with the Adjudicating Authority.
 The application shall be filed before the Adjudicating Authority by rules 20, 21,
22, 23, 24 and 26 of the National Company Law Tribunal Rules, 2016
 A corporate applicant shall inform the Adjudicating Authority about the filing of
any winding up petition against the corporate debtor after becoming aware of
such filing.

Pre-packaged insolvency
scheme under IBC
Presently, the Insolvency and Bankruptcy Code (from now on referred to as IBC)
provides a time-bound and market-linked resolution framework. Further, the National
Company Law Tribunal (from now on referred to as NCLT) must approve the
insolvency resolution. Such an insolvency resolution process is quite time consuming
and overburdens the NCLT.

In order to introduce the fast track processing of cases, the Government has been
considering introducing a pre-packaged insolvency scheme since the beginning of the
year 2019.

On account of the current outbreak of pandemic COVID-19, the Government has

paused the insolvency resolution. However, implementation of a pre-packaged
insolvency scheme in such critical conditions will allow quick closure of the pending
cases and resultantly boost the economy.
The present article tries to explain the concept of pre-packaged insolvency schemes
under IBC and covers the advantages and disadvantages of the pre-packaged
insolvency scheme.

Understanding the concept of pre-

packaged insolvency scheme under IBC
Basically, the pre-packaged insolvency scheme is an arrangement wherein the main
stakeholders, like shareholders, creditors, and promoters, come together to identify
the probable buyer. Once the likely buyer is identified, the main stakeholders will
negotiate the terms of the resolution plan.

After finalizing the terms of the resolution plan from both the ends, the final resolution
plan is to be submitted to the NCLT for formal approval. It should be noted that until
approval of the NCLT and completion of the sale transaction, the consideration (if any)
received from the probable buyer will be held in an escrow account.

Such a pre-packaged resolution plan, so negotiated with the prospective buyer, would
already be endorsed by the lender and subsequently put forth for the approval of
NCLT. The pre-approval of the lenders would definitely clear much of the requirement
of NCLT, resulting in minimum intervention of NCLT in the insolvency resolution
process.

Concluding thereby, that implementation of the pre-packaged insolvency scheme

would undoubtedly bring more efficiency in the insolvency resolution process and will,
in turn, have a positive effect on the value maximization of the creditors.

Advantages of pre-packaged insolvency

scheme
UK and USA have already adopted the pre-packaged insolvency scheme, while India is
still in the planning stage to implement the same. In the adoption phase, it is
essential to figure out the advantages of the pre-packaged insolvency scheme, which
are emphasized hereunder-

 As compared to the normal insolvency scheme, the value of the assets since
pre-determined would provide more returns to the creditors.
 The company and the creditors already approve the pre-packaged resolution
plan, and hence the court (NCLT) involvement will be hugely reduced to a
greater extent. It would result in quick finalization of the insolvency resolution
plan.
  Under the pre-packaged insolvency scheme, there would be a significant
reduction in unnecessary pleas filed by the stakeholders to NCLT during the
insolvency process.
 The professional expenses involved in the insolvency process would also be
reduced with the implementation of the pre-packaged insolvency scheme.

Disadvantages of pre-packaged
insolvency scheme
The likely disadvantages of pre-packaged insolvency scheme are highlighted
hereunder-

 The pre-packaged insolvency scheme would not have the shield of moratorium
similar to when the case is admitted under section 7 or section 9 of the IBC.
 The pre-packaged scheme is more in favor of secured creditors, whereas the
operational creditors would not be provided much involved in the negotiation
procedure.
 Under the pre-packaged scheme, debtors would be in-charge of the insolvency
process rather than the insolvency resolution professional. However, the same
would against the provisions of section 29A of the Act.

Pre-Packaged Insolvency
Process for MSME
Last updated : August 21st, 2021 10:35 am

The Insolvency and Bankruptcy Board of India (IBBI) on April 04, 2021, has issued the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021. The ordinance will
allow a pre-packaged insolvency resolution process for MSMEs. A pre-
packaged insolvency process is an informal plan worked out by the creditor and
debtor for debt resolution. The Ordinance amends the Insolvency and
Bankruptcy Code 2016 to allow the Government to notify such pre-packaged
process for defaults up to Rupees One Crore.

Synopsis of Insolvency and Bankruptcy

Code (Amendment) Ordinance, 2021
The ordinance introduces a pre-packaged insolvency resolution process (PIRP) for
corporate persons classified as MSMEs under the MSME Development Act, 2006.
  Chapter III-A has been introduced to the Insolvency and Bankruptcy Code, 2016
as part of this amendment.
 The ordinance explains the initiation of the resolution, duties of resolution
professional and eligibilities to take the benefits of pre-packaged insolvency
resolution processes, etc.

The objective of the Ordinance

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 aims to provide
an efficient alternative insolvency resolution process for corporate persons classified
as MSMEs.

 To urgently address the specific requirements of MSME relating to the

resolution of their insolvency, due to the unique nature of the businesses and
simpler corporate structures
 To provide an efficient alternative insolvency resolution process for MSME,
ensuring quicker, cost-effective and value maximising outcomes for all the
stakeholders, in a manner which is least disruptive to the continuity of their
businesses and which preserves jobs;

Benefit to MSME
The ordinance allows the corporate debtor to submit a “base resolution plan” to the
resolution professional. However, the debtor should have the plan ready before
approaching the creditors to initiate PIRP. If the committee of creditors did not
approve the plan, then the resolution professional shall invite applicants to submit
different plans.

Pre-packaged insolvency process for

MSME
As mentioned above, a pre-packaged insolvency process is an informal plan worked
out by the creditor and debtor for debt resolution. The Insolvency and Bankruptcy
Code (Amendment) Ordinance, 2021 allows the approval of such informal plans by the
National Company Law Tribunals. A separate chapter, Chapter IIIA, has been inserted
in the Insolvency and Bankruptcy Code 2016 to deal with the pre-packaged
insolvency resolution process.

Applicability of PIRP
 The pre-pack framework will be applicable for MSMEs with a maximum default
value of Rs 1 crore only. It can be filed under a newly inserted Section 54C of
 the IBC. For defaults of more than Rs 1 crore, IBC or other resolution
mechanisms can continue to be used.
 A pre-packaged insolvency resolution process or PIRP cannot run in parallel to
another corporate insolvency resolution process (CIRP) and must have a three-
year cooling-off period from the closure of any other pre-pack or CIRP, as per
the rules notified.
 If a pre-pack application is filed within 14 days of the filing of any application
under section 7 or section 9 or section 10 which is pending, then the
Adjudicating Authority would have to first dispose of the application under
section 54C of IBC. If more than 14 days have passed since an IBC plea was
filed under Sections 7, 9, or 10, then the court would have to give the existing
plea a preference. Sections 7, 9 and 10 deals with the initiation of the
corporate insolvency resolution process by financial creditors, operational
creditors and the corporate debtor himself respectively.

Filing of Application for PIRP

An application for initiating a pre-packaged insolvency resolution process may be
made in respect of a corporate debtor, subject to the following condition:

Condition for Applying PIRP

 The corporate has not undergone a pre-packaged insolvency resolution process
or completed corporate insolvency resolution process during the period of
three years preceding the initiation date
 MSME is not undergoing a corporate insolvency resolution process
 No order requiring it to be liquidated is passed under section 33 of the
Insolvency and Bankruptcy Code 2016
 The corporate is eligible to submit a resolution plan under section 29A of the
Insolvency and Bankruptcy Code 2016

Appointment of Resolution Professional

for PIRP
 The financial creditors of the corporate debtor, not being its related parties,
representing such number and such manner have proposed the name of the
insolvency professional to be appointed as the resolution professional for
conducting the pre-packaged insolvency resolution process of the corporate
debtor
 The financial creditors of the corporate debtor, not being its related parties,
representing not less than sixty-six per cent
In case the corporate debtor does not have any financial creditors, not being its
related parties, the proposal and approval under this clause shall be provided
by such person
Time-limit for completion of the pre-
packaged insolvency resolution process
The entire pre-packaged insolvency resolution process would have to be completed
within 120 days from the commencement date. The resolution professional is
expected to submit the resolution plan, as approved by the committee of creditors, to
the Adjudicating Authority within 90 days of the commencement date. If the plan is
not approved by the committee of creditors (CoC) within the time period, the PIRP
would be terminated.

Prerequisite for PIRP

 The declaration, special resolution or resolution and the approval of financial
creditors for initiating pre-packaged insolvency resolution process in terms of
section 54A
 The name and written consent of the insolvency professional proposed to be
appointed as resolution professional
 A declaration regarding the existence of any transactions of the corporate
debtor that may be within the scope of provisions in respect of avoidance of
transactions
 Information relating to books of account of the corporate debtor and such other
documents relating to such period

Declaration by Directors or Partners of MSME

The majority of the directors or partners of the corporate debtor have made a
declaration, in such form as may be specified

 The corporate debtor shall apply for initiating a pre-packaged insolvency

process within a definite time period not exceeding ninety days
 The pre-packaged insolvency resolution process is not being initiated to
defraud any person
 The name of the insolvency professional proposed and approved to be
appointed as resolution professional under clause

Approval from Members for Filing PIRP

The members of the corporate debtor have passed a special resolution, or at least
three-fourths of the total number of partners of the corporate debtor has passed a
resolution, approving the filing of an application for initiating the pre-packaged
insolvency resolution process.
Approval from financial creditors for Filing PIRP
The corporate debtor shall obtain approval from its financial creditors, not being its
related parties, representing not less than sixty-six per cent in value of the financial
debt due to such creditors, for the filing of an application for initiating pre-packaged
insolvency resolution process, in such form as may be specified

Declaration of the moratorium and a

public announcement during PIRP
The Adjudicating Authority shall, on the pre-packaged insolvency commencement
date, along with the order of admission under section 54C declare a moratorium and
appoint a resolution professional.

A public announcement of the initiation of the pre-packaged insolvency resolution

process to be made by the resolution professional immediately after his appointment.

The order of moratorium shall affect the date of such order till the date on which the
prepackaged insolvency resolution process period comes to an end.

Completion of PIRP
 The pre-packaged insolvency resolution process shall be completed within a
period of one hundred and twenty days from the pre-packaged insolvency
commencement date.
 The moratorium shall be available from the pre-pack commencement date till
the closure of the process, whether by approval of the resolution plan or
otherwise

Control of company during PIRP

Unlike the IBC, under the pre-pack framework, the management of the affairs of the
corporate debtor will continue to vest in the Board of Directors or the partners of the
corporate debtor. If the Committee of Creditors at any time during the process feels
the company’s affairs are not being run in a transparent, or there is a fraud, it can
vote by 66 per cent majority to transfer the management powers to the resolution
professional instead.
Pre-pack insolvency resolution
framework vs normal IBC process
Criteria Pre-Packaged Insolvency Resolution Corporate Insolvency Resolution
Process (PIRP)
Process (CIRP)

Eligibility Only MSMEs All corporate debtors

Default threshold Up to Rs 1 crore Over Rs 1 crore

Initiation by Only Corporate Debtor (CD), post- Financial Creditor/Operational

approval by shareholders &
Creditor/Corporate Debtor
unrelated Fin Creditors

Timeline 90 days to submit a resolution plan to 180 days extendable upto max 330 days
adjudicating authority,

120 days for the entire process. No

extension

Management Corporate Debtor-in-Possession with Creditor in control

Control Creditor-in-Control

Resolution plan CD to submit Base Resolution Plan. If EOIs invited from all prospective
CoC rejects, or if Operational Creditors
resolution applicants.
not paid in full, competing bids can be
invited.

Section 29A Section 29A applicable Section 29A applicable

applicability

Consequence of Termination of PIRP or Liquidation or

failure
Initiation of CIRP (2nd Coloumn)

Liquidation
Moratorium Moratorium protection from the date of Moratorium protection from the date of
commencement
filing of the plea

Termination Can terminate the process with min 66% Section 12A to withdraw from CIRP with
Committee of Creditors votes
90% vote of Committee of Creditors

What are the stages of the

insolvency process?
1. Initiation of Insolvency Process:
- Application: The process typically begins with a creditor
filing an application for insolvency against a debtor to the
National Company Law Tribunal (NCLT) or the Debt
Recovery Tribunal (DRT), depending on the type of debtor
(i.e., corporate or individual).
- Admission or Rejection: The tribunal reviews the
application and decides whether to admit it for further
proceedings. If the application meets the necessary criteria,
the tribunal admits it, initiating the insolvency process.
Otherwise, it may be rejected.
2. Appointment of Interim Resolution Professional
(IRP):
- Upon admission of the application, the tribunal appoints an
IRP to manage the affairs of the debtor during the
insolvency resolution process.
- The IRP takes control of the debtor's assets and
operations, suspending the powers of the debtor's board of
directors.
3. Declaration of Moratorium:
- A moratorium is declared upon initiation of the insolvency
process, which prohibits creditors from enforcing any claims
against the debtor.
- This period provides breathing space for the debtor and
prevents any further depletion of its assets while the
resolution process is underway.
4. Public Announcement:
- The IRP makes a public announcement of the initiation of
insolvency proceedings, inviting claims from creditors
against the debtor.
- Creditors are required to submit their claims within a
specified period to be included in the resolution process.
5. Formation of Committee of Creditors (CoC):
- The CoC comprises financial creditors of the debtor and is
formed once claims are received and verified.
- It plays a crucial role in the insolvency resolution process,
including the approval of resolution plans.
6. Insolvency Resolution Process:
- The IRP conducts a thorough assessment of the debtor's
financial position, operations, and assets to formulate a
resolution plan.
- Potential resolution applicants submit their bids, outlining
how they propose to revive the debtor's business and repay
creditors.
7. Approval of Resolution Plan:
- The CoC evaluates the submitted resolution plans and
votes on the most viable one.
- If a plan receives the requisite majority vote from the CoC
and is approved by the tribunal, it becomes binding on all
stakeholders.
8. Implementation of Resolution Plan:
- Once approved, the resolution plan is implemented under
the supervision of the IRP or a resolution professional (RP)
appointed by the tribunal.
- The successful implementation of the plan aims to revive
the debtor's business and ensure repayment to creditors as
per the agreed terms.

9. Conclusion of Insolvency Process:

- The insolvency process concludes upon the successful
implementation of the resolution plan, leading to the revival
of the debtor's business.
- Alternatively, if a resolution plan is not approved or fails to
be implemented within the specified time frame, the debtor
may face liquidation.
Direct answer: The stages of the insolvency process in India
include initiation of insolvency process, appointment of
interim resolution professional, declaration of moratorium,
public announcement, formation of committee of creditors,
insolvency resolution process, approval of resolution plan,
implementation of resolution plan, and conclusion of
insolvency process.

5 Stages Of Bankruptcy – Step By Step From Start To Finish

There are five main stages involved in the bankruptcy process,
with several questions that may arise at each stage:
1. Meet with a Licensed Insolvency Trustee
2. The trustee prepares the legal documents
3. The trustee files the documents with the government
4. The bankrupt person fulfills their obligations
5. The person is discharged from bankruptcy, and their debts
are eliminated
The first three stages lead up to the filing then, once the filing is
complete, you are in a state of bankruptcy until you fulfil all the
obligations and receive an official discharge. We will look at what
happens during each stage and help answer common questions.

1. Meeting with a Licensed Insolvency Trustee

The first meeting with a Licensed Insolvency Trustee is a free
consultation where they will review your situation and show you
what options are available. There is no risk involved and no
obligation to return. The trustee will help you make sense of
everything and make sure you have a clear understanding of the
potential solutions. They will explain the process in more detail
and calculate the costs, including their fees.
Once you choose to move forward with a Licensed Insolvency
Trustee a deposit (or retainer) for their services may be required.
How Is The Trustee Paid?
 The trustee’s fee is paid from the funds that they manage as
part of the bankruptcy estate.
Can I file for Bankruptcy by myself?
 No, Licensed Insolvency Trustees are the only people who can
submit and administer a bankruptcy filing.

2. Document Preparation
In order to file for bankruptcy in Alberta, the Licensed Insolvency
Trustee will need full details of your situation including your name,
address and birthdate. They will also need a detailed list of your
creditors (everyone you owe money to) and your assets (cash in
the bank, home equity, vehicles, etc.). With these details, the
trustee will begin to prepare the official forms required by the
government. When the forms are ready, you and the Trustee will
meet again to review and sign the documents. This is a good time
to ask the trustee any questions. The trustee will be able to
explain the process and give you the information you need to feel
at ease. They will go through each document with you to ensure
that the information is correct.
There are four main statutory documents. The Assessment
Certificate confirms that you have met with a Licensed
Insolvency Trustee and that you were made aware of and
understand all your options and are choosing to move forward with
bankruptcy. The Monthly Income and Expense
Statement (Form 65) includes a monthly budget for you and your
family unit. There is a Statement of Affairs (Form 79) which lists
all your assets and liabilities. The final document declares your
insolvency and assigns your property to the Trustee. It is called
an Assignment for the General Benefit of Creditors.
There are additional documents required by the Trustee to help
them effectively administer the bankruptcy. With all of these
documents in place, your bankruptcy officially starts.
Can I review the documents in detail prior to meeting
with the trustee to sign them?
  Your Trustee will explain each document to you at the
meeting, but you are welcome to review them beforehand.

3. Document Filing
After the Trustee witnesses your signature on the documents, they
are ready to be sent to the government. In Canada, all Licensed
Insolvency Trustees have access to and work with the same
electronic filing system. The trustee uploads your documents
through the system and waits for an electronic Certificate of
Appointment. The Certificate of Appointment confirms that your
bankruptcy is filed and is official. At this point, there is a “Stay of
Proceedings,” meaning that your creditors are no longer able to
take legal action to recover your debts. At this point, any wage
garnishment will stop, and interest will stop accumulating.
Collection agencies will no longer be able to contact you.
With the Certificate of Appointment, the Trustee will begin
contacting your creditors to notify them of the bankruptcy.

4. Duties of the Bankrupt

A person cannot be discharged from bankruptcy until they fulfil all
their duties. Your debts are only eliminated when you are
discharged, so it is important to stay in touch with your trustee
and fulfill all of the obligations. The first step is surrendering to the
Trustee any assets that are not exempt in Alberta. The Trustee will
supervise the sale of any assets, and all the proceeds will be
added to the bankruptcy estate. You will also have to surrender all
your credit cards to the Trustee for cancellation. The only
exception to the credit card rule is if the credit card was issued to
a third party and they authorize you to use it (i.e. an employer,
spouse, parent or friend).
The Bankruptcy and Insolvency Act of Canada specifies that
anyone filing for bankruptcy must attend two credit counselling
sessions. These sessions are meant to help you learn how to
manage your money and avoid problems with debt and insolvency
in the future. Your Trustee will schedule these appointments for
you. After declaring bankruptcy, you have 60 days to complete the
first session and 210 days to complete the second.
During bankruptcy, you are required to submit monthly
statements of your income and expenses to your Trustee. They
will use the statements to calculate any surplus income which will
you will have to pay, which will be added to the bankruptcy estate.
You are also required to provide all the necessary information for
the Trustee to file your tax returns. Any tax refunds up to the year
of your bankruptcy filing will be sent directly to the Trustee and
added to the estate.
Finally, you are required to make a monthly base payment to your
estate. All your contributions and any money received as part of
your estate are managed by the Licensed Insolvency Trustee. They
will distribute the funds to your creditors.
What if I cannot make the payments or fulfil some
other obligation?
 You will not be discharged until you fulfill all of your
obligations. There is a process called mediation. We will work
with you as much as possible. There is an ability to grant
additional time to meet these obligations.
Can I declare bankruptcy twice?
 If you have been discharged from the first bankruptcy, you
are able to declare bankruptcy a second time. There are
some differences when you declare bankruptcy a second
time, including longer terms. Talk to a Licensed Insolvency
Trustee to see if there are any other options available first.
 If you have not completed the first bankruptcy, then you
must fulfill all remaining duties until you can be discharged
prior to filing a second time.

5. Discharge from Bankruptcy

Discharge from bankruptcy is the legal process of being released
from bankruptcy and having your debts eliminated. In most cases,
you will get an automatic discharge after nine months if it is your
first bankruptcy and no “surplus income” payments are required.
To qualify for the automatic discharge, you must have completed
your duties, and the discharge must not be opposed by your
trustee or your creditors. If it is your second bankruptcy, you may
qualify for an automatic discharge after 24 months.
If you do not qualify for an automatic discharge, your Trustee will
apply to the courts for your discharge. In this case, there is a
discharge hearing, which you will attend, where your Trustee will
present the facts of your bankruptcy and your creditors may be
present to object. After the hearing, you may be discharged by the
court, or there may be additional steps required, and you may
have to apply a second time to the Registrar in Bankruptcy.
Credit Bureaus will continue to report your bankruptcy for up to six
years following your discharge if it is your first bankruptcy, but
you can begin to rebuild good credit right away. Your former debts
are eliminated, and you have a fresh start!
What does IRP (Insolvency Resolution Process)
mean?
IRP, or Corporate Insolvency Resolution Process, is a procedure established under
the Insolvency and Bankruptcy Code, 2016 (WEB). The IBC serves as the bankruptcy
legislation in India.

If a corporate debtor defaults in repayment of the creditors' dues, the financial

creditor/s has the power to start the insolvency resolution process. In order to initiate
the resolution process, an application has to be made to the National Company Law
Tribunal (NCLT). The claims of the creditors (i.e., company assets) shall be frozen for
a period of six months upon admission of application by NCLT. During this time, the
NCLT shall listen to the options to revive and decide the future course of action, either
debt resolution, corporate restructuring or liquidation. This process happens in stages.

Holdings of IRP stage 1 and above stocks can only be sold on the 1st trading day of
the week, i.e., Monday (Tuesday, if Monday is a trading holiday). These stocks are
visible in Kite holdings only on the 1st trading day of the week. However, they will be
visible on Console on all trading days.

Additional surveillance mechanism (WEB) by the exchanges will be applicable on

such stocks. See the list of stocks under Insolvency Resolution
Process (DOC). Intraday trading and BTST will not be allowed, and 100% margins will
be applicable.

Steps For Corporate Insolvency

Resolution Process
Perturbed & Distressed By Bad Debt?
It is a known fact that bad debts are an adverse factor and if not
recovered, it becomes detrimental to the financial health of the Creditor,
be it an individual or a corporate.

In pursuing the recovery of your debt, many a time, the debtor evades or
dodges, making it obvious that he is not interested or capable of repaying
the debt.

Effective Way & Means To Recover Debt

As a creditor, you should be aware of your rights in order to recover bad
debt from a corporate debtor in various ways. Insolvency and Bankruptcy
Code, 2016, is a very effective instrument if the amount owed to you is one
lakh or more. The Code is an amalgam of different earlier codes & provides
a single window clearance system.

Be Acquainted Of Corporate Insolvency Resolution Process

In case of initiation of the insolvency process, there are certain eligibility
criteria laid down by the Insolvency and Bankruptcy Code, 2016.

 If a default has occurred.

 The Creditor should owe the debt.
 The debt should be legally assigned to the debtor and transferred.

There are two different Sections in the Code that caters to the Financial
and Operational creditors respectively.

Factors:-
Section of I & B Code, 2016, applicable!

 People who can avail

 Claim Amount
  Time Frame

Financial Creditors:-
Section 7!

 Financial Institutions, Banks, homebuyers, etc

 One lakh or more
 Six months (approximately)

Operational Creditors:-
Section 9!

 Traders, manufacturers, Employees, etc.

 One lakh or more
 Six months (approximately)

Decode The Code: Step-By-Step

Step 1. Issuance of Notice: A Notice shall be served by the creditor to
the corporate debtor, granting him 10 days and requesting to pay the
dues.

Step 2. Initiation of Insolvency Resolution Process: In case of failure

of any positive response by the debtor, the creditor can file an application
in NCLT against the corporate debtor and initiate insolvency.

Step 3. Admittance of the Application: Within 14 days of submitting

the duly filled application, it shall be accepted and the corporate
insolvency process shall begin from the date.

Step 4. In Case of Rejection of Application: In case of rejection, the

applicant shall have to remove the errors pointed out by the authority,
within 7 days.

Step 5. Name of Proposed Resolution Professional: The name of

the resolution professional has to be proposed along with the
application.

Once the application is accepted, the adjudicating authority proceeds with

the process of insolvency in full earnestness.
On average, it takes around six months for this process to be completed.

Can You Do It Independently?

Frankly, if you are a layman, it is an arduous task to accomplish. There are
many legalities that have to be followed and if any discrepancy remains,
your application shall be rejected.

Only a professional sound company, firm or individual can help you in

successfully recovering your dues legally and in a stipulated time.

There are extensive paperwork and a prompt follow up that needs to be

taken up, after the initiation of the insolvency process.

Where To Seek Help?

Obviously, your best bet would be to select a firm that has an exemplary
track record in this field, that which hires the best of professionals and has
successfully closed many deals.

You would surely not want to increase your anxiety by relying on someone
who is novice and inexperienced, for the simple reason that your problem
might not be solved and your debt may keep hanging.

The intricacies of such legal matters as insolvency can be best tackled by

professional firms who possess the infrastructure, resources, and tons of
experience.

“Take MUDS advantage which will be with you, from

the initiation to the closure of the matter, saving your
time, energy and money.”
-Shweta Gupta, Founder, and CEO, MUDS

Insolvency Resolution Process for

Individuals & Partnership Firms
The Corporate Insolvency Resolution Process (CIRP) must be accomplished
within 330 days of the insolvency commencement date, along with any
extension of the time frame of the corporate insolvency resolution process
approved under Section 12 of the Insolvency Code and the time taken in
legal proceedings in relation to such resolution process of the corporate
debtor – second proviso to Section 12 of the Insolvency Code.

The Insolvency and Bankruptcy Code 2016 recently completed its second
anniversary successfully. In these two years, the harvests through the IBC
process proved to be extremely satisfactory. The entire scenario of the
debtor-creditor relationship changed after the implementation of the Code.

After the enforcement of the Code, the creditors are not required to chase
the debtor but it’s the debtor who chases the creditors. After the entry of
the code, the NCLT has become a trusted forum with high credibility.

With the coming of Code into execution, numerous cases commenced to

be filed before NCLT due to NCLT became overcrowded and therefore
seeing an alarming situation the capacity of NCLT was further enhanced
within due time, and matters under this legislation were disposed off
expeditiously in a time-bound manner.

The sparkling statistics of the two successful years themselves portray the
future of the Code. To highlight the success story as of now 1,322 cases
have been admitted by NCLT. Around 4,452 cases have been disposed off
at the pre-admission stage and 66 cases have been resolved after
adjudication of these cases.

Of the 66 cases that were resolved after adjudication the realisation

achieved was 80,000 crore. By having a glance at the NCLT database, of
the 4,452 cases that were disposed off at the pre-admission stage, the
amount successfully settled was around 2,02 lakh crores.

The success story does not end here. Some of the big cases like Bhushan
Power and Steel Limited; Essar Steel India Limited are under progressing
stages and are likely to be resolved in this financial year with hopeful
realization of approx. 70,000 crore.

The IBC has a very clear demarcation in respect of the audience it seeks to
cover within its umbrella. According to the code has aligned separate
Adjudicating authorities to take and resolve matters that fall within their
ambit. On this note, the adjudicating authority empowered to handle and
resolve cases related to defaults by individuals and partnership firms is the
Debt Recovery Tribunal (DRT).

The Code contains provisions for Insolvency & Bankruptcy of individuals

and partnership firms in Part III. The provisions and process are designed
keeping into account the need of the hour thereby providing a remedy in a
time-bound manner. Even though provisions have been drafted for the
same but they are not being looked up to but other remedial measures are
resorted to for seeking remedy against individuals and partnership firms.

In light of the above, the process flow along with the relevant provisions
related to the insolvency of individuals and partnership firms are enshrined
in chapter III of part III of the Code. The provisions of the insolvency
resolution process for individuals & partnerships are similar to that of the
corporate insolvency resolution process for corporate persons.

The major point of difference between the insolvency proceedings of

corporate persons and individuals & partnership firm is that the application
by corporate persons is filed with NCLT whereas application by individuals
& partnership firms is filed with DRT.

Another point of difference is that corporate insolvency creditors are

bifurcated under two categories i.e. financial creditors and operational
creditors whereas there is no bifurcation of creditors in the case of
insolvency for individuals & partnership firms.

The application for insolvency resolution may be filed by the creditor or the
concerned debtor himself. Once an application is filed with DRT for
initiating insolvency proceedings a Resolution professional shall be
appointed to carry forward and supervise the entire process as prescribed
in this chapter.

The resolution professional after being duly appointed shall verify the
application as submitted by the debtor or creditor for initiating the
insolvency process. Once the resolution professional is through with the
examination of the submitted application he shall thereafter compile a
report suggesting the admission or rejection of the application as
submitted to the adjudicating authority.

The Adjudicating Authority shall on the basis of the received report decide
whether to admit or reject the application as was initially submitted to it by
the debtor or creditor. Once insolvency proceedings are ordered to be
initiated by the DRT, a moratorium period shall commence and thereafter
seize to be in effect at the end of one hundred and eighth day.

The resolution professional shall play a crucial and significant role in

driving and carrying forward the insolvency professional on behalf of the
individual or partnership firm. On this note the resolution professional shall
in the execution of this process invite claims from the creditors via public
notice; after receipt of claims compile a list of creditors; chalk out the
repayment plan; submit report on the received repayment plan, and
thereafter obtaining approval by creditors and confirmation from DRT on
the same.

The resolution professional shall also play an active role in implementing

and monitoring the repayment plan thereby ensuring completion of the
adopted repayment plan. The resolution professional is the sole
commander and controller of the insolvency process.

Having gained a brief insight into the insolvency resolution process for
individuals & partnership firms now let’s head toward gaining a detailed
glance of the insolvency resolution process as prescribed for individuals
and partnership firms.

Who can file an application

An application for initiating insolvency proceeding in respect to individuals
and partnership firms may be made by the creditor in an individual
capacity, in consortium with other creditors, or via resolution professional.
The concerned debtor may also opt for initiating insolvency proceedings in
favor of himself by filling an application personally or via the resolution
professional.

Debtor
The concerned debtor may by invoking Section 94 of the Code file an
application for initiating insolvency proceedings in respect of himself. The
application may either be submitted personally by the concerned debtor or
through the resolution professional.

In the scenario where the debtor is a partner of a firm then in such a

situation, the concerned debtor may make an application for initiating
insolvency proceedings with the approval of all or majority partners. While
making an application for initiating insolvency proceedings, the concerned
debtor is required to comply with the perquisites thereafter he becomes
eligible for making an application for initiating the insolvency proceedings.
The prerequisites that need to be compiled prior to making an application
are as follows:

1. The debtor should not be an undischarged bankrupt;

 2. The debtor should be undergoing a fresh start process in relation to his
debts;
3. No insolvency resolution proceedings should be in process in relation to the
debts against the debtor;
4. The debtor should not be undergoing bankruptcy proceedings
5. No insolvency resolution proceedings should have been admitted during
the preceding twelve months to be counted from the date on which a fresh
application is filed for invoking the insolvency resolution process.

Once the above-mentioned prerequisites are satisfied, the debtor becomes

eligible to file an application for initiating insolvency proceedings.

By Creditor
A creditor for initiating insolvency resolution process in respect of
individuals & partnership firm may make an application for the same either
by himself, through a consortium with other creditors, or through a
resolution professional. In the scenario where the debtor is a partnership
firm then the creditor can make an application against either of the
partners of the firm.

The application as made by the creditor(s) shall contain the required

attachments as are prescribed in the Code. The creditor shall also furnish a
copy of the application as filed to the debtor for hid reference. The creditor
shall while making the application ensure that the application is in the
appropriate format as prescribed in the Code.

Interim Moratorium
On an application being filed by either of the aforesaid, an interim
moratorium shall come into force from the date on which application for
initiating insolvency proceedings is made and thereafter shall cease to
have an effect on the date of admission of the application by DRT.

During the period of interim moratorium neither any legal action nor
pending proceedings shall be in execution nor can the creditor initiate any
fresh legal action against the debtor. In the scenario where the debtor is a
partnership firm then in such a situation, the interim moratorium shall be
applicable against all the partners of the firm.

Appointment of Resolution Professional

The Resolution professional is the key person in the insolvency resolution
process. He may be said to be the driver of the entire proceedings that fall
within the ambit of the insolvency resolution process. the resolution
professional may be appointed by undergoing either of the following.

Pre-existing Resolution Professional

There may be scenarios where an application for initiating insolvency
resolution process is filed by the Resolution Professional on behalf of the
debtor or creditor as the case may be. Under this state the adjudicating
authority i.e. DRT shall direct the board (IBBI) to verify that as of date there
is no disciplinary proceeding pending against the proposed resolution
professional. The verification shall be directed to be conducted by the
board within a period of seven days from the date of receipt of the
application. The board shall on receipt of direction report its decision i.e.
recommending appointment or rejection of resolution professional to the
directing adjudicating authority within seven days of receipt of direction.

Fresh Appointment
In the cases where an application for initiating insolvency proceedings is
filed by the debtor or creditor without the involvement of a resolution
professional then in such a situation, the adjudicating authority shall direct
the board to nominate a resolution professional who can drive forward the
initiated insolvency resolution process. On receipt of the aforesaid
direction, the board shall nominate a suitable resolution professional within
a period of ten days. The board while nominating the resolution
professional shall verify that no disciplinary proceedings are currently
pending against the proposed resolution professional.

The adjudicating authority shall via order appoint the resolution

professional as recommended or nominated above to drive forward the
insolvency proceedings. The appointed resolution professional shall be
provided a copy of the insolvency resolution process application as
received by the adjudicating authority from the debtor or creditor.

Submission of Report by Resolution Professional

On receipt of the application as filed initiating for insolvency resolution
process, the appointed resolution professional shall examine the
application as submitted by the debtor or creditor within a span of ten days
to be counted from the date of his appointment. Once the submitted
application has been examined the resolution professional shall then
prepare a report thereby recommending his decision as to whether the
submitted application should be admitted or rejected.
The resolution professional may for arriving at decision ask the debtor to
prove repayment of the debts that are being claimed to be unpaid by the
creditors. The report as compiled by the resolution professional shall
clearly highlight the reasons based on which the decision related to
admission or rejection of the submitted application is undertaken. The
resolution professional shall furnish a copy of his report to the concerned
debtor or creditor as well.

Decision of Adjudicating Authority

Once the adjudicating authority receives the report as submitted by the
resolution professional, it shall thereafter within a period of fourteen days
pass an order either admitting the application or rejecting the same as, as
it feels appropriate. In the scenario where application, as submitted for
initiating insolvency resolution process, is admitted by the adjudicating
authority, then the adjudicating authority may vide instructions conduct
negotiations between the debtor and creditors to finalize a repayment
plan.

The adjudicating authority shall furnish a copy of its order admitting or

rejecting the application; report of resolution professional as submitted to
the adjudicating authority and application as initially submitted for
initiating insolvency resolution process to the creditor within a period of
seven days from the date of passing the aforesaid order.

Moratorium Period
On the application for insolvency resolution process being admitted by the
adjudicating authority, a moratorium period shall come into force and
thereafter it shall terminate at the end of one hundred and eighty-day
commencing from the date on which application for insolvency resolution
process is admitted by the adjudicating authority or the date on which
order is passed by adjudicating authority on a repayment plan. A similar
situation as that of interim moratorium shall prevail during the moratorium
period in relation to the debtor as well as his pending legal actions and
debts.

Public Notice and Inviting Claim from Creditors

The adjudicating authority shall after admitting the application for initiating
the insolvency resolution process issue a general public notice within a
period of seven days from the date of passing order for the sake of inviting
claims from all the creditors’ within a period of twenty-one days from the
date of public notice.
The aforesaid notice shall be published in one English and one vernacular
language newspaper. The notice shall also be affixed in the premises of
adjudicating authority and shall also be displayed on the website of the
adjudicating authority.

Registration of Claims of Creditors

The resolution professional is the sole authority where the claims are
required to be registered by the creditors. Forgetting the claim registered
the creditors may use the following medium of communication: electronic
communication; courier; speed post or registered post.

Preparation of List of Creditors

After the invitation and registration of claims received from creditors, the
resolution professional shall collate a list of creditors based on the
information received from the application as filed by the debtor for
initiating the fresh start process and claims received from creditors. The
resolution professional shall make best efforts to draft the said list within
thirty days from the date of the notice.

Repayment Plan
The debtor shall in collaboration with the resolution professional draft a
layout of the repayment plan which shall contain a proposal to creditors to
restructure their debts. The repayment plan shall also authorize or grant
the resolution professional various powers like carrying on business off
debtor on his behalf; realization of assets of debtor and administration or
disposal of assets of the debtor.

Resolution Professional’s Report on Repayment Plan

The resolution professional shall after successful drafting of repayment
plan submit the same along with the report to the adjudicating authority
within a period of twenty-one days to be counted from the last date of
submission of the claims.

The report as drafted by the resolution professional shall also highlight the
date; time and place of the meeting if there appears a need to summon a
meeting of creditors. While fixing the date of the meeting it should be
noted that the date of the meeting should not be less than fourteen days
and at the same time not more than twenty-eight days to be counted from
the date of submission of a report. Also while booking a calendar for
convening meetings, the convenience, and availability of creditors shall
also be taken into consideration.

Calling Meeting of Committee of Creditors

The resolution professional shall after preparation of his report on
repayment plan call a meeting of the committee of creditors by issuing a
prior notice in this regard at least fourteen days in advance of the finalized
date of the meeting.

The notice of the aforesaid meeting shall be provided to all the creditors
mentioned in the list of creditors as chalked out by the resolution
professional. The notice of the meeting shall incorporate within it the
address of adjudicating authority to whom the repayment plan along with
the report of resolution professional on repayment plan was served
supported by required annexures.

Convening Meeting of Committee of Creditors

The meeting once called shall be conducted in accordance with the
procedures and provisions as are highlighted in the Code. During the
course of the convened meeting, the creditors may vide their decision
approve, modify or reject the repayment plan as drafted by the resolution
professional.

In the convened meetings creditors shall be eligible to vote in proportion to

the voting share as assigned to them. The proportion of voting share shall
be determined by the resolution professional. The secured creditors shall
also be eligible to participate and vote in the convened meeting.

Seeking Approval of Creditors on Repayment Plan

The approval of creditors is a must requirement for carrying on any
business on behalf of the debtor. In this regard approval of a majority of
creditors representing three fourth in value of the creditors that were
present in person or via proxy at the convened meeting of the committee
of creditors is a mandatory requirement for seeking approval of repayment
plan or any subsequent modification in the repayment plan therein.

Report of Convened Meeting of Creditors

Once the meeting of creditors has been duly convened for seeking
approval of the creditor(s), it shall the duty of the resolution professional to
compile a report of the duly convened meeting of the creditors. The report
as compiled above shall include the minute-to-minute details of all
decisions and discussions that were made during the convened meeting.

Decision of Adjudicating Authority on Repayment Plan

On receipt of the report of the duly convened meeting of creditors, the
adjudicating authority shall thereafter vide its decision either approve or
reject the repayment plan. The adjudicating authority shall form its
decision on the basis of the report of the convened meeting of creditors as
received by it from the resolution professional.

The decision of the adjudicating authority as passed shall also contain the
directions for implementing the approved resolution plan. In the scenario
where the repayment plan is approved by the adjudicating authority then
the approved repayment plan shall be in effect as if it was proposed by the
debtor and thereafter the plan shall be binding on the creditors as
mentioned in the repayment plan and also on the debtor.

Implementation of Repayment Plan

The repayment plan once approved by the committee of creditors and
adjudicating authority shall come into force and thereafter commence to
be in implementation. On coming of the repayment plan into execution it
shall be the sole responsibility of the resolution professional to monitor the
implementation and execution of the approved repayment plan.

If any hindrances arise in the smooth execution of the repayment plan then
the resolution professional is free to approach the adjudicating authority
for seeking the required directions that will enable the smooth execution of
the approved repayment plan. On being satisfied by the plea as raised by
the resolution professional the adjudicating authority shall pass the
necessary directions in this regard.

Completion of Repayment Plan

The resolution professional shall make his best endeavours to complete the
execution of the repayment plan within the prescribed time limits in a
time-bound manner. In this connection, the resolution professional shall
after the successful completion of the repayment plan furnish the
prescribed documents to the persons who are covered under the horizon of
the repayment plan and to the adjudicating authority as well.
The resolution professional shall ensure that the documents are furnished
within the duration of fourteen days from the completion of the repayment
plan. If the resolution professional is unable to furnish the same within the
due time then in such a scenario he may approach the adjudicating
authority for seeking an extension in the time limit for furnishing the same.
Once the adjudicating authority is satisfied then it shall grant an extension
of not more than seven days to comply with the requirement.

Discharge Order
On time-bound and successful implementation of the approved repayment
plan, the resolution professional shall approach the concerned adjudicating
authority for seeking a discharge order for debts as are mentioned in the
repayment plan.

The resolution professional may approach the adjudicating authority for

seeking discharge orders only if the approved repayment plan provides for
early discharge or discharge on completion of the repayment plan. The
discharge order as granted by the adjudicating authority shall also be
furnished to the board for its record.

The insolvency resolution process is the initial step that can be taken
against the defaulting individual & partnership firms. On successful
completion of the insolvency resolution process or during the course of the
insolvency resolution process an application can be made for a bankruptcy
order.

During the course of the insolvency resolution process, all persons are it
debtor or creditor shall cooperate with the appointed resolution
professional so that he may efficiently execute the process of insolvency
resolution and thereby seek discharge order.

NCLT And NCLAT Allow Withdrawal Of Applications Under Section 12A Of

IBC Deviating From Regulation 30A, A Better Chance At A Settlement
Between Parties Given More Importance

I &B Code 2016 allows a creditor (financial/operational) of a Company

under Section 7 and 9 of IBC and the Company ("Corporate Debtor") itself
under Section 10 of IBC to file an application before the National Company
Law Tribunal ("NCLT") to initiate Corporate Insolvency Resolution Process
("CIRP") against the Corporate Debtor in case of default, that is non-
payment of debt, of INR 1 Lakh (Rupees One Lakh Only) or above. In case
of failure of submission of a viable Resolution Plan as approved by 66%
majority of the Committee of Creditors ("COC") to revive or restructure the
Corporate Debtor, an order of Liquidation of the Corporate Debtor, as a last
resort may be passed by the Ld' Adjudicating Authority i.e. Ld' NCLT.

Since the enactment of IBC, a numerous application has been filed under I
& B Code 2016 to initiate CIRP against the Corporate Debtors. IBC has been
amended time and again in order to simplify the process, remove any
fallacies and promote ease of doing business.

However, I&B Code 2016 for the longest time did not contain any
provisions that allowed withdrawal of the application from the NCLT for
initiation of CIRP. The only provision that was available was under Rule 8 of
The Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016,
wherein the NCLT could allow withdrawal of application on a request made
by the applicant before its admission. Since the scope of these provisions is
limited till the stage of acceptance of the application, hence it did not
prove to be beneficial in this aspect.

Lokhandwala Kataria Construction Private Limited v. Nisus Finance and

Investment Managers LLP (Civil Appeal No. 9279 of 2017) was first of its
kind matter, in which the Hon'ble Supreme Court allowed a settlement
between the corporate debtor and the creditors using its inherent powers
under Article 142 of the Constitution of India, which states that the
Supreme Court in the exercise of its jurisdiction may pass such decree or
make such order as is necessary for doing complete justice in any cause or
matter pending before it. The Apex court set aside the order of the Ld'
NCLAT, whereby the Appellate Authority refused to exercise its inherent
powers under Rule 11 of the National Company Law Appellate Tribunal
Rules, 2016 that provides 'inherent powers' to the Tribunals to make such
orders or give such directions as may be necessary for meeting the ends of
justice or to prevent abuse of process of the Tribunal. The same stand was
subsequently taken by the Hon'ble Supreme Court in the matters
of Mothers Pride Dairy India Private Limited v. Portrait Advertising and
Marketing Private Limited (Civil Appeal No. 9286/2017) and thereafter
in Uttara Foods and Feeds Private Limited v. Mona Pharmachem (Civil
Appeal No. 18520/2017), wherein the Apex Court held,

"We are of the view that instead of all such orders coming to the Supreme
Court as only the Supreme Court may utilize its powers under Article 142 of
the Constitution of India, the relevant Rules be amended by the competent
authority to include such inherent powers. This will obviate unnecessary
appeals being filed before this Court in matters where such agreement has
been reached."

The Court also ordered a copy of the order to be sent to the Ministry of Law
& Justice.
Needless to say, the Promoters of a Corporate Debtor would not want to
lose control over the affairs of the company, as it would have an
immensely adversarial effect on their interests. In addition to this, keeping
in mind that if a settlement may be reached amongst all creditors and the
debtor, for the purpose of a withdrawal to be granted and not just the
applicant creditor and the debtor, the Insolvency Law Committee
unanimously agreed that the relevant rules may be amended to provide for
withdrawal post-admission if the CoC approves of such action by a voting
share of ninety percent.

In view of the above, Section 12A was inserted w.e.f 06.06.2018.

The Report of the Insolvency Law Committee, published in March 2018,

dealing with the issue of 'Withdrawal of CIRP Proceedings Pursuant to
Settlement.' The ILC Report observed as follows:

"Under rule 8 of the CIRP Rules, the NCLT may permit withdrawal of the
application on a request by the applicant before its admission. However,
there is no provision in the Code or the CIRP Rules in relation to the
permissibility of withdrawal post admission of a CIRP application. It was
observed by the Committee that there have been instances where on
account of settlement between the applicant creditor and the corporate
debtor, judicial permission for withdrawal of CIRP was granted. This
practice was deliberated in light of the objective of the Code as
encapsulated in the BLRC Report, that the design of the Code is based on
ensuring that "all key stakeholders will participate to collectively assess
viability. The law must ensure that all creditors who have the capability
and the willingness to restructure their liabilities must be part of the
negotiation process. The liabilities of all creditors who are not part of the
negotiation process must also be met in any negotiated solution."

Thus, it was agreed that once the CIRP is initiated, it is no longer a

proceeding only between the applicant creditor and the corporate debtor
but is envisaged to be a proceeding involving all creditors of the debtor.
The intent of the Code is to discourage individual actions for enforcement
and settlement to the exclusion of the general benefit of all creditors.

On a review of the multiple NCLT and NCLAT judgments in this regard, the
consistent pattern that emerged was that a settlement may be reached
amongst all creditors and the debtor, for the purpose of a withdrawal to be
granted, and not only the applicant creditor and the debtor. On this basis
read with the intent of the Code, the Committee unanimously agreed that
the relevant rules may be amended to provide for withdrawal post-
admission if the CoC approves of such action by a voting share of ninety
percent..."
Section 12A reads as follows:

"The Adjudicating Authority may allow the withdrawal of application

admitted under section 7 or section 9 or section 10, on an application
made by the applicant with the approval of ninety percent. voting share of
the committee of creditors, in such manner, as may be specified."

Section 12A was to be read with Regulation 30A of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 which provided that an application for
withdrawal under section 12A shall be submitted to the interim resolution
professional or the resolution professional before issue of invitation for
expression of interest under regulation 36A.

Hence, on a plain reading of the above provisions, it was evident that an

application filed under Section 7,9, and 10 of IBC could only be withdrawn
before the issue of invitation for expression of interest.

Can withdrawal application be made after expression of interest or receipt

of Resolution Plan

In the matter of Navaneetha Krishnan v Central Bank of India, Coimbatore

& Another [Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018], the
Hon'ble National Company Law Appellate Tribunal vide its order dated
09.08.2018, held:

Taking into consideration the fact that the 'resolution plan' was submitted
on 178th day and on the next day i.e. 179th day the 'Committee of
Creditors' decided to go for liquidation as 180th day was to be completed
and order under Section 31 of the Insolvency and Bankruptcy Code, 2016
(hereinafter referred to as the 'I&B Code') was required to be passed and in
absence of any good reason for extension of time, we are not inclined to
grant any relief.

However, in view of Section 12A even during the liquidation period if any
person, not barred under Section 29A, satisfy the demand of 'Committee of
Creditors' then such person may move before the Adjudicating Authority by
giving offer which may be considered by the 'Committee of Creditors', and
if by 90% voting share of the 'committee of creditors', accept the offer and
decide for withdrawal of the application under Section 7 of the I&B Code,
the observation as made above or the order of liquidation passed by the
Adjudicating Authority will not come in the way of Adjudicating Authority to
pass appropriate order.
Similarly, in Satyanarayan Malu v. SBM Paper Mills Ltd. [M.A. 1396/2018,
827/2018, 1142/2018, & 828/2018 in C.P. (IB)-1362(MB)/2017], NCLT
Mumbai allowed withdrawal of CIRP application, when resolution plan was
pending approval of the Ld' NCLT, after acceptance by CoC. Ld' NCLT
allowed the one-time settlement made by the corporate debtor to the
financial creditor, which was more economical than the resolution plan.

However, it has been seen that the Adjudicating and the Appellate
Authorities allowed the withdrawal of such applications even after issuing
of invitation for expression of interest in various instances.

In the matter of Mr. Vimal Chandrunwal v. Brilliant Alloys Private Limited

[MA/536/2018 in CP/582/IB/ CB/2017], NCLT, Chennai vide its order dated
01.11.2018, refused to admit the application filed by the RP for withdrawal
of the application filed after the issue of invitation for EOI, stating that
Regulation 30A envisages that an application for withdrawal under Section
12A shall be submitted to the RP before the issue of invitation for EOI
under Regulation 36A. In view of the aforesaid, Ld' NCLT dismissed the
application.

However, in this regard, the Hon'ble Supreme Court vide its order dated
14.12.2018 in Brilliant Alloys Pvt. Ltd. v. Mr. S. Rajagopal & Ors., SLP [Civil
No. 31557/2018] allowed a settlement and set aside the order of NCLT,
Chennai stating that,

"...Regulation 30A must be read along with the main provision of Section
12A which contains no such stipulation. Accordingly, this stipulation can
only be construed as directory depending on the facts of each case."

In addition, the celebrated judgment of Swiss Ribbons & Anr. v Union of

India v Ors, given by the Hon'ble Supreme Court, the Apex Court while
dealing with the question, "Whether Section 12A is violative of Article 14",
referred the above order in Brilliant Alloys and reiterated the above
position, stating that the Regulation 30A(1) is not mandatory but is
directory for the simple reason that on the facts of a given case, an
application for withdrawal may be allowed in exceptional cases even after
issue of invitation for expression of interest under Regulation 36A.

In view of the above rulings, Regulation 30A was substituted vide

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) (Second Amendment) Regulations, 2019
("Regulation 30A") w.e.f 25.07.2019, which inter alia provided:

"An application for withdrawal under section 12A shall be submitted to the
interim resolution professional or the resolution professional, as the case
may be, in Form FA of the Schedule before the issue of invitation for
expression of interest under regulation 36A."

The amendments made to Regulation 30A specified the process for

withdrawal of applications before the constitution of CoC, after the
constitution of CoC but before the issue of invitation for expression of
interest, and after the issue of invitation for expression of interest, stating
the reasons justifying withdrawal after the issue of such invitation.

Section 29A of the Code is not applicable while deciding on the withdrawal
of application under Section 12A of the I&B Code 2016.

In Andhra Bank v. Sterling Biotech & Ors (08.05.2019 - NCLT - Mumbai), the
Promoters approached the members of COC with an OTS. On discussion, it
was decided that the COC shall put to vote the OTS and if it did not receive
enough votes (90%), then a resolution plan submitted by ACG Associated
Capsules Pvt. Ltd. would be put to vote and if it also did not receive enough
votes, then a resolution for liquidation will be put forth. However, neither
plan received requisite votes. Thereafter, a fresh OTS proposal was put to
vote which received 90% votes, pursuant to which an application under
Section 12A was filed. The application under Section 12A was rejected by
Ld' NCLT on the grounds that, (i) the Promoter was ineligible under Section
29A to present a resolution plan and (ii) the OTS is also a type of resolution
plan, which implied that the promoters were ineligible to present an OTS
and file application under 12A. Hence, the NCLT ordered liquidation.

In an appeal filed before Hon'ble NCLAT against the aforesaid Ld' NCLT
order in Shweta Vishwanath Shirke & Ors V The Committee of Creditors &
Anr. [Company Appeal (AT) (Insolvency) No. 601 of 2019], passed on
28.08.2019, it was observed that Section 29A of the Code is not applicable
for entertaining/ considering an application under Section 12A of the Code
as the Applicants are not entitled to file application under Section 29A as
'resolution applicant'. Hon'ble NCLAT set aside the order of 'Liquidation'
passed by the Adjudicating Authority and allowed the Appellant (who filed
the application of Section 7 – 'Andhra Bank') to withdraw the application.
As a result, the 'Corporate Insolvency Resolution Process' initiated against
the 'Corporate Debtor' namely— 'M/s. Sterling Biotech Ltd.' was set aside
subject to the payment of the amount as payable by the
Promoters/Shareholders to all the stakeholders/financial creditors'
operational creditors in terms of Section 12A of the Code as approved with
90% voting share of the 'Committee of Creditors'. Similarly, recently in the
matter of Café D Lake Private Limited [IA No. 1113 of 2019 in CP (IB) No.
202/07/HDB/2018] passed on 10.01.2020 by NCLT Hyderabad, the
resolution plans were received and rejected by the COC (consisting of the
sole financial creditor), which then passed a resolution for withdrawal of
CIRP and accept the OTS offered by the Corporate Debtor, and the
application of withdrawal was allowed by the Adjudicating Authority.

What is pertinent to note here is that even though Section 29A of the Code
restricts certain persons from submitting a resolution plan for the
Corporate Debtor, however, in case of withdrawal of application under
Section 12A, the applicability of Section 29A is nullified. Meaning thereby,
when the COC approves the withdrawal of the application and accepts the
settlement offered by the corporate debtor by 90% votes, in such a case
the provision of section 29A restricting the old management to regain the
control of the corporate debtor does not apply and the control and
approval of COC trump the provisions of section 29A.

In the matter of Shaji Purushottaman V. Union Bank of India [Company

Appeal (AT) (Insolvency)No. 921 of 2019] passed on 06.09.2019, the
Corporate Debtor was willing to settle its claims with the Union Bank of
India (Financial Creditor under Section 7 of IBC). Hon'ble NCLAT stated that
the order of admission cannot be set aside, except where an application
u/s 12A is filed, by settling the matter with all the Creditors with approval
of 90% of the voting share of the 'Committee of Creditors' subject to filing
of an application by 'Union Bank of India' for withdrawal of application u/s 7
of IBC. The Counsel appearing on behalf of the Union Bank of India
submitted that the 'Resolution Plan' had already been approved by the
'Committee of Creditors' after taking into consideration the claim of the
'M/s. Edelweiss Asset Reconstruction Company Ltd(in whose favor
guarantee was given by the 'Corporate Debtor').'

However, Hon'ble NCLAT allowed the Appellant to move an application u/s

12A for settling the claims of all the Creditors including the guarantors. In
this regard, the Appellate Authority held,

"If an application u/s 12A is filed by the Appellant, the 'Committee of

Creditors' may decide as to whether the proposal given by the Appellant
for settlement in terms of Section 12A is better than the 'Resolution Plan'
as approved by it, and may pass appropriate order. However, as such a
decision is required to be taken by the 'Committee of Creditors', we are not
expressing any opinion on the same."

Further, in Jai Kishan Gupta v. Green Edge Buildtech LLP and Ors.
[Company Appeal (AT) (Ins) Nos. 969-970 of 2019], decided on 06.12.2019,
the Hon'ble NCLAT referred to the judgment of Swiss Ribbons to hold that,

"...the Hon'ble Supreme Court has in the above para - 82 left discretion
with the Adjudicating Authority to allow or disallow an Application for
withdrawal or settlement. The last sentence of the paragraph states that
"this will be decided after hearing of the parties concerned and considering
all relevant factors on the facts of each case." Thus, the Adjudicating
Authority has to consider all relevant factors on the facts of each case and
to make a decision. Para - 83 of the Judgement in the matter of "Swiss
Ribbons" has dealt with a decision being taken by COC under Section 12A
and left the door open that if COC arbitrarily rejects a just settlement
and/or withdrawal claim the NCLT, and thereafter NCLAT can set aside such
decisions under Section 60 of the Code."

In view of the above, what can be seen and concluded is that the
Adjudicating Authorities are allowing withdrawal of applications filed under
IBC, not only after issuing an invitation of EOI but in some cases, even after
receiving resolution plans. It is without a doubt, evident that such a
withdrawal is being allowed for the maximization of assets of the corporate
debtor. The Courts of law have, over time, distinctly upheld the importance
of protecting the interests, not only of the creditors but also of the
corporate debtor, wherever possible. It has been one of the most
prominent opinions of the Courts that ordering Liquidation of a corporate
debtor is to be treated as a last resort and should be avoided to the
maximum extent possible.

A few persons possessing knowledge in this arena have raised questions in

this regard, stating that such actions of allowing withdrawal results in
waste of time and effort that has been invested during the whole CIRP
period. However, it is pertinent to note here, that such flexibility may go a
long way in protecting the value of the assets of the corporates and
various stakeholders. The original promoters with vested interests in the
companies are better aware of the nitty-gritty involved in managing their
company and these provisions further uphold the notion with which IBC
was enacted, that is, protection of interests of the stakeholders and
maximization of the value of the assets of the corporate debtor.

What happens to homebuyers when NCLT appoints an IRP for a

real estate project?

Homebuyers are part of the committee of creditors. They are entitled to a
voting share, but there is a separate dispensation for them
When a real еstatе project is sent to the National Company Law Tribunal
(NCLT) with an Interim Resolution Professional (IRP), numerous major
issues for homeowners arise. The Insolvency and Bankruptcy Code (IBC) is
extremely important in this procedure.
When an application for initiation of corporate insolvency resolution is
admitted against a real estate company/project (Corporate Debtor) with an
appointed IRP, a moratorium is declared in terms of Section 14 of the
Insolvency and Bankruptcy Code, 2016 (Code), pursuant to which there is a
moratorium declared against, among other things, any suits and
proceedings against the Corporate Debtor, any action to recovery or
enforce security interest against the real estate company/project and
transferring, encumbering, alienating or disposing of any of its assets or
any legal right or beneficial interest by the Corporate Debtor.