The document outlines the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, detailing the role and responsibilities of the Resolution Professional (RP), including the management of operations, preparation of information memorandums, and submission of resolution plans. It also discusses restrictions on related party transactions, eligibility criteria for resolution applicants, and the legal framework governing these processes, supported by relevant case law. Key sections of the code are referenced to highlight the procedural and regulatory requirements for effective insolvency resolution.
The document outlines the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, detailing the role and responsibilities of the Resolution Professional (RP), including the management of operations, preparation of information memorandums, and submission of resolution plans. It also discusses restrictions on related party transactions, eligibility criteria for resolution applicants, and the legal framework governing these processes, supported by relevant case law. Key sections of the code are referenced to highlight the procedural and regulatory requirements for effective insolvency resolution.
The document outlines the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, detailing the role and responsibilities of the Resolution Professional (RP), including the management of operations, preparation of information memorandums, and submission of resolution plans. It also discusses restrictions on related party transactions, eligibility criteria for resolution applicants, and the legal framework governing these processes, supported by relevant case law. Key sections of the code are referenced to highlight the procedural and regulatory requirements for effective insolvency resolution.
The document outlines the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016, detailing the role and responsibilities of the Resolution Professional (RP), including the management of operations, preparation of information memorandums, and submission of resolution plans. It also discusses restrictions on related party transactions, eligibility criteria for resolution applicants, and the legal framework governing these processes, supported by relevant case law. Key sections of the code are referenced to highlight the procedural and regulatory requirements for effective insolvency resolution.
Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016: The resolution plan must include:
Details regarding the payment to operational creditors, which should not
be less than what they would receive in liquidation under Section 53.
A statement regarding any past failures to implement any other
resolution plans by the applicant or related parties.
What is the role of the Resolution Professional (RP) in the
Corporate Insolvency Resolution Process (CIRP)? The Resolution Professional (RP) plays a crucial role in the Corporate Insolvency Resolution Process (CIRP) as outlined in the Insolvency and Bankruptcy Code, 2016 (IBC).
Section 22: Appointment of Resolution Professional: This section details
the process for appointing a resolution professional by the Committee of Creditors (CoC) during the first meeting, which must occur within seven
Research on CIRP 1 days of the CoC's constitution. The CoC can either confirm the interim resolution professional or appoint a new one by a majority vote of not less than 66% of the voting share of financial creditors
Section 23: Powers of Resolution Professional: This section empowers the
RP to conduct the CIRP effectively. It emphasizes that the RP is responsible for managing operations as a going concern until a resolution plan is executed or liquidation occurs
Section 25: Duties of Resolution Professional: This section outlines the
duties of the RP, which include:
Preserving and protecting the assets of the corporate debtor.
Taking custody and control of all assets, including business records.
Raising interim finances with CoC approval.
Preparing an information memorandum to assist resolution applicants.
Presenting resolution plans at CoC meetings.
Section 29: Information Memorandum: The RP is required to prepare an
information memorandum containing relevant financial and operational details about the corporate debtor, which is essential for prospective resolution applicants to formulate their plans
Section 30: Submission of Resolution Plans: This section mandates that
the RP must present all submitted resolution plans to the CoC for approval, ensuring that they meet legal requirements before being voted on
Section 31: Approval of Resolution Plan: Once a resolution plan is
approved by the CoC, it becomes binding on all stakeholders, including the corporate debtor and its creditors. The RP plays a critical role in facilitating this process and ensuring compliance with legal stipulations
In Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P) Ltd., (CIVIL APPEAL NOS. 7976 OF 2019) the Supreme Court ruled on asset prioritization during liquidation, indirectly affirming the RP's role in managing creditor claims during CIRP3. Additionally, a recent ruling clarified that statutory set-offs do not apply within CIRP proceedings, reinforcing the need for RPs to navigate complex legal frameworks effectively
Research on CIRP 2 What can an RP do in terms of related party transactions? Section 28(1)(f): Restrictions on Related Party Transactions: This section prohibits the RP from undertaking any related party transactions without prior approval from the Committee of Creditors (CoC). It ensures that any dealings with related parties are scrutinized and approved to prevent conflicts of interest and protect creditor interests.
Section 43: Preferential Transactions: Section 43 empowers the RP to
identify and challenge preferential transactions that may have occurred within the lookback period of two years preceding the commencement of CIRP. If a transaction is deemed preferential, the RP must file an application with the adjudicating authority to have it declared void, thereby protecting the interests of creditors.
Section 44: Transactions Defrauding Creditors: This section allows the RP
to investigate transactions that may have been carried out with the intent to defraud creditors. If such transactions are identified, the RP can seek orders from the NCLT to reverse these transactions, ensuring that assets are preserved for equitable distribution among creditors.
Phoenix Arc Pvt Ltd vs. Spade Financial Services Limited & Ors. (2021) 3 SCC 475: In this landmark case, the Supreme Court clarified the definition of "related party" under Section 5(24) of the IBC, emphasizing that the definition is exhaustive and captures various inter-relationships between financial creditors and corporate debtors. The court ruled that transactions involving related parties must be scrutinized closely to prevent any undue advantage to related parties at the expense of legitimate creditors. This case underscores the importance of RPs in identifying and managing related party transactions during CIRP.
What types of Interlocutory Applications (IAs) can be filed
during CIRP? Section 60(5): This application seeks interim orders from the National Company Law Tribunal (NCLT) to protect stakeholders’ interests during the CIRP. Interested parties may file an IA to intervene in ongoing proceedings, particularly if they have a stake in the outcome. This IA may also seek to set aside any orders passed by the NCLT that adversely affect a party's interests during CIRP.
Research on CIRP 3 Applications filed under Regulation 35A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to challenge preferential or other transactions (covered under Sections 43, 45, 50, or 66 of the Insolvency and Bankruptcy Code) count as Interlocutory Applications (IAs). These applications seek relief from the Adjudicating Authority regarding transactions that could unfairly benefit certain parties or harm the interests of the creditors.
Section 12(2): An IA to seek an extension of the CIRP period beyond the
statutory limit, typically 180 days, extendable by another 90 days.
Section 30: To seek approval for a proposed resolution plan submitted by
the resolution applicant.
Section 16: To appoint an interim RP if the existing RP cannot continue.
What are the eligibility criteria and mandatory requirements for
a resolution applicant to successfully submit and have a resolution plan approved under CIRP? Section 25(2)(h): The Resolution Professional (RP) shall invite resolution applicants who fulfill the eligibility criteria approved by the Committee of Creditors (CoC). This includes having regard to the complexity and scale of operations of the corporate debtor
Disqualification Criteria Under Section 29A
1. Undischarged Insolvent: A resolution applicant who is an undischarged
insolvent is ineligible to submit a resolution plan.
2. Wilful Defaulter: If a resolution applicant is classified as a wilful
defaulter under the guidelines issued by the Reserve Bank of India, they are disqualified.
3. Non-Performing Asset (NPA): A resolution applicant whose account
has been classified as an NPA is ineligible unless the classification has lapsed for more than one year.
4. Criminal Conviction: Individuals convicted of any offence punishable
with imprisonment for two years or more are disqualified.
5. Director Disqualification: Any person disqualified to act as a director
under the Companies Act, 2013, cannot be a resolution applicant.
Research on CIRP 4 6. Prohibition by SEBI: If a person is prohibited by the Securities and Exchange Board of India (SEBI) from accessing the securities markets, they are ineligible.
7. Promoter or Management Role in Fraudulent Transactions: Individuals
who have been promoters or part of the management of a corporate debtor involved in fraudulent transactions cannot submit a resolution plan.
8. Guarantee for Corporate Debtor in Insolvency: If a person has
executed an enforceable guarantee in favor of a creditor against whom an application for insolvency resolution has been admitted, they are disqualified
Section 30(1): A resolution applicant must submit a resolution plan
prepared based on the information memorandum provided by the RP. The resolution applicant must submit an affidavit stating that they are eligible under Section 29A when submitting their resolution plan.
Section 30(4): The resolution plan must be approved by at least 66% of the voting share of the CoC for it to be considered valid.
Swiss Ribbon Pvt. Ltd. vs. Union of India (2020): This landmark judgment by the Supreme Court clarified the interpretation of Section 29A concerning the eligibility of resolution applicants. The court emphasized that any person who is disqualified under this section cannot submit a resolution plan, reinforcing the need for strict adherence to eligibility criteria.
State Bank of India vs. M/s. Ruchi Soya Industries Limited (2021) This case involved scrutiny over related party transactions during CIRP and addressed eligibility concerns under Section 29A. The NCLT ruled that any transaction entered into by a corporate debtor with its related parties within two years before the commencement of insolvency proceedings is subject to review for preferential treatment, thereby impacting the eligibility of those involved in such transactions.
M Suresh Kumar Reddy vs. Canara Bank (2023): The Supreme Court provided clarity on the powers of NCLT in relation to admission criteria under Section 7(5) and how it relates to disqualifications under Section 29A. The court emphasized that if a financial creditor can prove that there is a debt and default, then the NCLT must admit the application, but it must also ensure that the applicant meets all eligibility requirements.
