Insolvency and Bankruptcy Code, 2016 Concepts and Procedure

Contents at a glance About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii PART I PRELIMINARY Chapter 1

Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS

Chapter 1

Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2

Corporate insolvency resolution process . . . . . . . . . . . . . . . . . . . . 31

Chapter 3

Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Chapter 4

Fast track corporate insolvency resolution process. . . . . . . . . . . . 99

Chapter 5

Voluntary liquidation of corporate persons. . . . . . . . . . . . . . . . . 103

Chapter 6

Adjudicating authority for corporate persons . . . . . . . . . . . . . . . 109

Chapter 7

Offences and penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 PART III INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Chapter 1

Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Chapter 2

Fresh start process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Chapter 3

Insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Chapter 4

Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Chapter 5

Administration and distribution of estate of the bankrupt . . . . 191

Chapter 6

Adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

Chapter 7

Offences and penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

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PART IV REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITY Chapter 1

Insolvency and Bankruptcy Board of India . . . . . . . . . . . . . . . . . 219

Chapter 2

Powers and functions of board. . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Chapter 3

Insolvency professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . . 241

Chapter 4

Insolvency professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249

Chapter 5

Information utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255

Chapter 6

Inspection and investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263

Chapter 7

Finance, accounts and audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 PART V MISCELLANEOUS

Chapter 1

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 ANNEXURES

Annexure I The Insolvency and Bankruptcy Code, 2016. . . . . . . . . . . . . . . . . 287 Annexure II Rules and regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457 Annexure III Relevant notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615 Annexure IV Relevant orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 Annexure V Press releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629

xii

Table of contents About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi PART I PRELIMINARY Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Chapter 1 1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Objective of Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 Extent and applicability of the Code (Sections 1 and 2). . . . . . . . . . . . . 4 Short title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.1 1.3.2 Extent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.3 Commencement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3.4 Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.4 General definitions (Section 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.4.1 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.4.2 Bench. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4.3 Bye-laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4.4 Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4.5 Chairperson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1.4.6 Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Corporate person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.4.7 1.4.8 Corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Core services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.4.9 1.4.10 Creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 1.4.11 Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4.12 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4.13 Financial information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.4.14 Financial institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 1.4.15 Financial product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.16 Financial service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 1.4.17 Financial service provider. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.18 Financial sector regulator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.19 Insolvency professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 1.4.20 Insolvency professional agency . . . . . . . . . . . . . . . . . . . . . . . . 12 xiii

Insolvency and Bankruptcy Code, 2016

1.4.21 Information utility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 1.4.22 Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.4.23 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.4.24 Person resident in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.4.25 Person resident outside India. . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.4.26 Prescribed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.4.27 Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 1.4.28 Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.29 Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.30 Secured creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.31 Security interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.32 Specified. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.33 Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.34 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 1.4.35 Transfer of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1.4.36 Workman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 PART II INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS Chapter 1

Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.2 Applicability of Part II of the Code (Section 4). . . . . . . . . . . . . . . . . . . . 17 1.3 Key definitions (Section 5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.3.1 1.3.2 Auditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 1.3.3 Chapter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Constitutional document. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.3.4 1.3.5 Corporate applicant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.3.6 Dispute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 1.3.7 Financial creditor and financial debt. . . . . . . . . . . . . . . . . . . . 22 Financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.3.8 1.3.9 Information memorandum. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.3.10 Initiation date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.3.11 Insolvency commencement date. . . . . . . . . . . . . . . . . . . . . . . . 23 1.3.12 Insolvency resolution process costs. . . . . . . . . . . . . . . . . . . . . 23 1.3.13 Insolvency resolution process period . . . . . . . . . . . . . . . . . . . 24 1.3.14 Interim finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.3.16 Liquidation cost and liquidation commencement date. . . . . 25 1.3.16 Liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 xiv

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1.3.17 Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.3.18 Operational creditor and operational debt. . . . . . . . . . . . . . . 25 1.3.19 Personal guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1.3.20 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.3.21 Related party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 1.3.22 Resolution applicant and resolution plant . . . . . . . . . . . . . . . 29 1.3.23 Resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 1.3.24 Voting share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Chapter 2

2.1

2.2

2.3

2.4 2.5

2.6

Corporate insolvency resolution process . . . . . . . . . . . . . . . . . . . 31

Initiation of corporate insolvency resolution process by financial creditors (Section 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Financial debt default of the corporate debtor. . . . . . . . . . . . 31 2.1.1 Application by financial creditor . . . . . . . . . . . . . . . . . . . . . . . 32 2.1.2 2.1.3 Existence of default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Admission/rejection of the application of the financial 2.1.4 creditor for initiating the corporate insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 2.1.5 Withdrawal of application for initiating the corporate insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . 35 Key events in the corporate insolvency resolution 2.1.6 process (CIRP) (Initiated by a financial creditor). . . . . . . . . . 36 Initiation of corporate insolvency resolution process by operational creditors (Section 8 and 9). . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Default in payment of operational debt (Section 8). . . . . . . . 36 2.2.1 Application by the operational creditor (Section 9). . . . . . . . 38 2.2.2 2.2.3 Admission/rejection of the application of the operational creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Key events in the corporate insolvency resolution 2.2.5 process (CIRP) (Initiated by an operational creditor). . . . . . 40 Initiation of corporate insolvency resolution process by the corporate applicant (Section 10). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Key events in the corporate insolvency resolution 2.3.1 process (CIRP) (Initiated by the corporate applicant). . . . . . 42 Interim arrangement under NCLT rules. . . . . . . . . . . . . . . . . . . . . . . . . 42 Persons not entitled to initiate the corporate insolvency resolution process (Section 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 2.5.1 Persons entitled to initiate the corporate insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Time limit for completion of the corporate insolvency resolution process (Section 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 xv

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2.7 2.8 2.9 2.10 2.11

2.12 2.13 2.14 2.15 2.16 2.17 2.18

xvi

Moratorium, public statement and appointment of interim resolution professional (Section 13). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Moratorium (Section 14). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Public announcement (Section 15). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Appointment of interim resolution professional (Section 16) . . . . . . . 47 Powers and duties of the interim resolution professional . . . . . . . . . . 48 2.11.1 Management of the affairs of the corporate debtor by the interim resolution professional (Section 17). . . . . . . . . . . 48 2.11.2 Duties of the interim resolution professional (Section 18). . 50 2.11.2.1 Collection of information. . . . . . . . . . . . . . . . . . . . . . 50 2.11.2.2 Collation of all claims against the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 2.11.2.3 Constitution of the committee of creditors. . . . . . . 52 2.11.2.4 Monitor assets, manage operations, and file information in relation to the coroporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 2.11.2.5 Take control and custody of assets of the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 2.11.3 Personnel of corporate debtor to extend cooperation to the interim resolution professional in managing the affairs of the corporate debtor (Section 19). . . . . . . . . . . . 54 2.11.4 Management of operations of the corporate debtor (Section 20). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 2.11.5 Committee of creditors (Section 21). . . . . . . . . . . . . . . . . . . . . 55 2.11.5.1 Financial creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 2.11.5.2 Operational creditors. . . . . . . . . . . . . . . . . . . . . . . . . 56 Appointment of insolvency resolution professional (Section 22) . . . . 57 Resolution professional to conduct corporate insolvency resolution process (Section 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Meeting of the committee of creditors (Section 24). . . . . . . . . . . . . . . . 58 2.14.1 Notice of meeting and participation . . . . . . . . . . . . . . . . . . . . 58 2.14.2 Voting share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Duties of the resolution professional (Section 25) . . . . . . . . . . . . . . . . . 61 Avoidence of transactions not to affect corporate insolvency resolution process (Section 26) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Right to replace resolution professional (Section 27). . . . . . . . . . . . . . . 62 Resolution professional to act with the approval of the committee of creditors (Section 28). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 2.18.1 Prior approval of the committee of creditors. . . . . . . . . . . . . 63

Table of contents

2.18.2

2.19 2.20

2.21

2.22

Actions of the resolution professional without approval of the committee of creditors are void. . . . . . . . . . . . . . . . . . . . . 64 Preparation of information memorandum (Section 29) . . . . . . . . . . . . 64 Resolution plan (Section 30) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2.20.1 What is a resolution plan?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2.20.2 Who can submit a resolution plan? . . . . . . . . . . . . . . . . . . . . . 66 2.20.3 Mandatory requirements of every resolution plan. . . . . . . . 67 2.20.4. Measures for implementation of resolution plan. . . . . . . . . . 67 2.20.5 Approval of committee of creditors. . . . . . . . . . . . . . . . . . . . . 68 2.20.6 Resolution applicant may be present at meeting of committee of creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Approval of resolution plan (Section 31). . . . . . . . . . . . . . . . . . . . . . . . . 69 2.21.1 Conditions for approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2.21.2 Approval of the NCLT is binding. . . . . . . . . . . . . . . . . . . . . . . 69 2.21.3 Moratorium shall terminate upon approval of resolution plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 2.21.4 Record of proceedings to be filed with the Board. . . . . . . . . 69 Rejection and appeal (Section 32). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Chapter 3

3.1

3.2

3.3

Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Initiation of liquidation (Section 33). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Who can initiate the liquidation process?. . . . . . . . . . . . . . . . 71 3.1.1 When can the liquidation process be initiated?. . . . . . . . . . . 71 3.1.2 Order of liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 3.1.3 3.1.4 Public accouncement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Moratorium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 3.1.5 Discharge of officers, employees and workmen of the 3.1.6 corporate debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Appointment of official liquidator (Section 34) . . . . . . . . . . . . . . . . . . . 73 3.2.1 When the resolution professional is to be appointed as liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 3.2.2 When a different insolvency professional is to replace the resolution professional as the liquidator. . . . . . . . . . . . . . . . . 73 3.2.3 Liquidator to be vested with powers of the board of directors and key managerial personnel of the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Fees of the liquidator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 3.2.4 Powers and duties of the liquidator (Section 35). . . . . . . . . . . . . . . . . . 75 3.3.1 Powers and functions subject to the directions of the NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

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3.3.2

3.4

3.5

3.6

3.7 3.8 3.9 3.10 3.11

3.12

3.13

3.14 3.15

xviii

Power to consult stakeholders entitled to a distribution of the assets of the corporate debtor. . . . . . . . . . . . . . . . . . . . .77 Liquidation estate (Section 36) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3.4.1 What is liquidation estate?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Composition of the liquidation estate. . . . . . . . . . . . . . . . . . . 78 3.4.2 3.4.3 Assets that do not form part of the liquidation estate. . . . . . 79 Access to information (Section 37). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Liquidator’s powers to seek information . . . . . . . . . . . . . . . . 80 3.5.1 Sources of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 3.5.2 Creditors’s right to seek information. . . . . . . . . . . . . . . . . . . . 81 3.5.3 Consolidation of claims (Section 38) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Time period for consolidation of claims. . . . . . . . . . . . . . . . . 82 3.6.1 Right of creditors to submit claims. . . . . . . . . . . . . . . . . . . . . . 82 3.6.2 Withdrawal/modification of claim . . . . . . . . . . . . . . . . . . . . . 83 3.6.3 Verification of claims (Section 39). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Admission and rejection of claims (Section 40) . . . . . . . . . . . . . . . . . . . 84 Valuation of claims (Section 41) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Appeal against rejection of claims by the liquidator (Section 42) . . . . 84 Preferential transactions (Section 43). . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 3.11.1 Application for avoidance of preferential transactions. . . . . 84 3.11.2 What are preferential transactions?. . . . . . . . . . . . . . . . . . . . . 84 3.11.3 What are not preferential transactions?. . . . . . . . . . . . . . . . . . 85 3.11.4 Relevant time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Powers of the NCLT in relation to prefential transactions (Section 44). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.12.1 What orders can the NCLT pass in relation to preferential transactions? . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.12.2 Protection of preferential transactions in good faith and for value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 3.12.3 Presumptions relating to transactions in good faith and for value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Avoidance of undervalued transactions (Section 45) . . . . . . . . . . . . . . 87 3.13.1 What is an undervalued transaction? . . . . . . . . . . . . . . . . . . . 87 3.13.2 Duty to report/reverse undervalued transactions. . . . . . . . .87 3.13.3 Expert assessment of value of transactions. . . . . . . . . . . . . . . 88 3.13.4 No duty to determine undervalued transactions. . . . . . . . . . 88 Relevant period for undervalued transactions (Section 46). . . . . . . . . 88 Right of creditors and the corporate debtor to report undervalued transactions (Section 47). . . . . . . . . . . . . . . . . . . . . . . . . . . 88 3.15.1 Right to report undervalued transactions. . . . . . . . . . . . . . . . 88

Table of contents

3.15.2

3.16 3.17

3.18

3.19 3.20

3.21

3.22

Orders the NCLT may pass in relation to the transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 3.15.3 Orders the NCLT may pass against the liquidator/ resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Orders of the nclt against undervalued transactions (Section 48). . . . 89 Undervalued transactions to defraud creditors (Section 49) . . . . . . . . 90 3.17.1 Fraudulent undervalued transaction. . . . . . . . . . . . . . . . . . . . 90 3.17.2 Orders of the NCLT in relation to undervalued transactions to defraud creditors. . . . . . . . . . . . . . . . . . . . . . . 90 Avoidance of extortionate credit transactions (Section 50). . . . . . . . . . 91 3.18.1 What are extortionate credit transactions?. . . . . . . . . . . . . . . 91 3.18.2 Application for avoidance of extortionate credit transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Orders of the nclt in respect of extortionate transaction (Section 51). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Right of secured creditors in relation to security interest (Section 52). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 3.20.1 Right to relinquish security interest. . . . . . . . . . . . . . . . . . . . . 93 3.20.2 Right to realise security interest. . . . . . . . . . . . . . . . . . . . . . . . 93 3.20.3 Verification of security interest by the liquidator . . . . . . . . . 93 3.20.4 Realisation of security interest as per applicable laws . . . . . 94 3.20.5 Assistance of NCLT in relation to realising security interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 3.20.6 Treatment of proceeds from realisation of security interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3.20.7 Insolvency resolution process costs of the secured creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Distribution of assets (Section 53). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3.21.1 Liquidation waterfall. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 3.21.2 Contractual arrangements between recipients during distribution of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 3.21.3 Deduction of fees of the liquidator. . . . . . . . . . . . . . . . . . . . . . 96 3.21.4 Distribution when liquidation assets are insufficient to pay debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Dissolution of the corporate debtor (Section 54) . . . . . . . . . . . . . . . . . . 97

Chapter 4

4.1 4.2

Fast track corporate insolvency resolution process. . . . . . . . . . . 99 Against whom can you initiate the fast track corporate insolvency resolution process? (Section 55) . . . . . . . . . . . . . . . . . . . . . . 99 Time period for completion of the fast track process (Section 56). . . 100

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4.3 4.4

Who can initiate the fast track corporate insolvency resolution process? (Section 57) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Applicability of provisions of the corporate insolvency resolution process to the fast track process (Section 58). . . . . . . . . . . 101

Chapter 5

Voluntary liquidation of corporate persons. . . . . . . . . . . . . . . . 103

Chapter 6

Adjudicating authority for corporate persons. . . . . . . . . . . . . . 109

5.1

6.1

6.2

6.3 6.4 6.5 xx

Voluntary liquidation of corporate persons (Section 59) . . . . . . . . . . 103 Who can initiate voluntary liquidation?. . . . . . . . . . . . . . . . 103 5.1.1 5.1.2 Procedural requirements and conditions as specified by the Insolvency and Bankruptcy Board of India . . . . . . . 103 Essential conditions for companies in voluntary 5.1.3 liquidation proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.1.3.1 Declaration from directors verified by affidavit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.1.3.2 Supporting documents for declaration of directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 5.1.3.3 Resolution of the members of the company. . . . . 104 5.1.3.4 Approval of creditors on resolution of the company for voluntary liquidation. . . . . . . . . . . . 105 Commencement of voluntary winding up. . . . . . . . . . . . . . 105 5.1.4 Provisions applicable to voluntary liquidation . . . . . . . . . . 105 5.1.5 5.1.6 Dissolution of the corporate person. . . . . . . . . . . . . . . . . . . . 105 Single adjudicating authority for all corporate persons (Section 60). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Territorial jurisdiction of the NCLT. . . . . . . . . . . . . . . . . . . . 109 6.1.1 6.1.2 Subject-matter jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 6.1.3 Personal guarantors of the corporate debtor are also subject to the jurisdiction of the NCLT . . . . . . . . . . . . . . . . . 111 Exclusion of moratorium period for computation of 6.1.4 limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Appeals and appellate authority (Section 61). . . . . . . . . . . . . . . . . . . . 112 Appellate Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 6.2.1 Limitation period for filing of appeal . . . . . . . . . . . . . . . . . . 113 6.2.2 6.2.3 Grounds of appeal against an order approving a resolution plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 6.2.4 Grounds of appeal against a liquidation order . . . . . . . . . . 114 Appeal to the supreme court (Section 62). . . . . . . . . . . . . . . . . . . . . . . 114 Civil court to have no jurisdiction (Section 63). . . . . . . . . . . . . . . . . . . 114 Expeditious disposal of applications (Section 64) . . . . . . . . . . . . . . . . 114

Table of contents

6.6

6.7

6.8

Penalty for fraudulent or malicious initiation of proceedings (Section 65). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Fraudulent or malicious initiation of insolvency 6.6.1 resolution process of liquidation proceedings. . . . . . . . . . . 115 Fraudulent or malicious initiation of voluntary 6.6.2 liquidation proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Fraudulent conduct of business (Section 66). . . . . . . . . . . . . . . . . . . . . 115 6.7.1 What is fraudulent conduct of business?. . . . . . . . . . . . . . . .115 Penalty for fradulent conduct of business. . . . . . . . . . . . . . . 115 6.7.2 Directors/partners of corporate debtor liable for 6.7.3 penalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Further directions that the NCLT may issue (Section 67). . . . . . . . . . 116 Further actions in relation to any person . . . . . . . . . . . . . . . 116 6.8.1 Further action in relation to creditors . . . . . . . . . . . . . . . . . . 117 6.8.2

Chapter 7

7.1

7.2

7.3

Offences and penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Punishment for concealment of property (Section 68) . . . . . . . . . . . . 119 Concealment of property during the period of twelve 7.1.1 months prior to insolvency commencement date . . . . . . . . 119 Concealment of property at any time after the 7.1.2 insolvency commencement date. . . . . . . . . . . . . . . . . . . . . . . 119 Punishment for fraudulent concealment. . . . . . . . . . . . . . . . 120 7.1.3 Punishment not applicable in the absence of intent to 7.1.4 defraud or conceal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 Punishment for defrauding transactions (Section 69). . . . . . . . . . . . . 120 Transations defrauding creditors. . . . . . . . . . . . . . . . . . . . . . 120 7.2.1 Punishment for defrauding transactions. . . . . . . . . . . . . . . . 121 7.2.2 7.2.3 Punishment not applicable to certain offences committed five years before insolvency commencement date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Punishment not applicable to certain offences 7.2.4 committed with no intent to defraud creditors . . . . . . . . . . 121 Punishment for misconduct in the course of the corporate insolvency resolution processs (Section 70) . . . . . . . . . . . . . . . . . . . . . 121 Misconduct during corporate insolvency process. . . . . . . . 121 7.3.1 7.3.2 Punishment for misconduct during the corporate insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . 122 7.3.3 Punishment not applicable if there is no intent. . . . . . . . . . 122 7.3.4 Punishment for insolvency professional for contravention of Part II of the Code. . . . . . . . . . . . . . . . . . . . 123

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7.4

Punishment for destruction or falsification of books of the corporate debtor (Section 71). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 What constitutes the offence of destruction or 7.4.1 falsification of books of the corporate debtor?. . . . . . . . . . . 123 Punishment for the offence of destruction or 7.4.2 falsification of books of the corporate debtor. . . . . . . . . . . . 123 7.5 Punishment for wilful and material omissions from statements relating to the affairs of the corporate debtor (Section 72). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 7.6 Punishment for false representation to creditors (Section 73). . . . . . 124 7.7 Punishment for contravention of moratorium or resolution plan (Section 74) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Contravention of moratorium by the corporate 7.7.1 debtor or an officer thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 Contravention of moratorium by a creditor. . . . . . . . . . . . . 125 7.7.2 7.7.3 Wilful contravention of resolution plan . . . . . . . . . . . . . . . . 125 7.8 Punishment for false information in application (Section 75) . . . . . . 125 7.9 Punishment for non-disclosure of dispute or repayment of debt to an operational creditor (Section 76) . . . . . . . . . . . . . . . . . . . . . 126 Wilful concealment by an operational creditor . . . . . . . . . . 126 7.9.1 Authorisation of wilful concealment by an operational 7.9.2 creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 False in material particulars . . . . . . . . . . . . . . . . . . . . . . . . . . 126 7.9.3 7.10 Punishment for providing false information in an application filed by the corporate debtor (Section 77). . . . . . . . . . . . . . . . . . . . . . . 127 7.10.1 Furnishing information of false information by the corporate debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 7.10.2 Authorisation of the providing of false information by the corporate debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 7.10.3 False in material particulars . . . . . . . . . . . . . . . . . . . . . . . . . . 127 PART III INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS Chapter 1

Preliminary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 1.2 Applicability of Part III of the Code (Section 78). . . . . . . . . . . . . . . . . 129 1.3 Key definitions (Section 79). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 1.3.1 Adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 xxii

Table of contents

1.3.2 Associate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 1.3.3 Bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 1.3.4 Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 1.3.5 Bankruptcy debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Bankruptcy commencement date. . . . . . . . . . . . . . . . . . . . . . 146 1.3.6 1.3.7 Bankruptcy order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Bankruptcy process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 1.3.8 1.3.9 Bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 1.3.10 Chapter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 1.3.11 Committee of creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 1.3.12 Debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147 1.3.13 Discharge order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 1.3.14 Excluded assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 1.3.15 Excluded debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 1.3.16 Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 1.3.17 Immediate family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1.3.18 Partnership debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1.3.19 Qualifying debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1.3.20 Repayment plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1.3.21 Resolution professional. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 1.3.22 Undischarged bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Chapter 2

2.1 2.2 2.3 2.4 2.5

2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13

Fresh start process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Fresh start process – eligibility for making an application before DRT (Section 80) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Requirement under application by debtor for fresh start order (Section 81). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152 Interim- moratorium period (Section 81). . . . . . . . . . . . . . . . . . . . . . . . 153 Appointment of resolution professional (Section 82) . . . . . . . . . . . . . 153 Examination of the application by resolution professional (Section 83). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Admission/rejection of the application for fresh start (Section 84). . . 155 Effect of admission of application (Section 85). . . . . . . . . . . . . . . . . . . 155 Objections by creditor (Section 86). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Challenge to the decision of resolution professional (Section 87). . . 159 General duties of the debtor (Section 88). . . . . . . . . . . . . . . . . . . . . . . . 159 Replacement of resolution professional (Section 89). . . . . . . . . . . . . . 160 Application to drt seeking directions for compliances and revocation of admission order (Sections 90 and 91). . . . . . . . . . . . . . . 160 Discharge order (Section 92). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 xxiii

Insolvency and Bankruptcy Code, 2016

Chapter 3

Insolvency resolution process. . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Initiation of insolvency resolution process by debtor (Section 94). . . . 163 Application by the debtor. . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 3.1.1 3.1.2 Eligibility of the debtor to make application . . . . . . . . . . . . 163 3.2 Initiation of insolvency resolution process by creditors (Section 95). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 3.2.1 Application by the creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Details and documents to be submitted along with 3.2.2 the application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 3.3 Interim moratorium (Section 96). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 3.4 Appointment and replacement of resolution professional (Sections 97 and 98). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Appointment of resolution professional. . . . . . . . . . . . . . . . 166 3.4.1 3.4.2 Replacement of resolution professional. . . . . . . . . . . . . . . . .167 3.5 Report by the resolution professional (Section 99). . . . . . . . . . . . . . . . 168 3.6 Admission/rejection of the application (Section 100). . . . . . . . . . . . . 169 3.7 Moratorium, public announcement and claims of the creditors (Sections 101 to 104). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 3.7.1 Moratorium. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 Public announcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 3.7.2 3.7.3 Registration of claim by creditors. . . . . . . . . . . . . . . . . . . . . . 170 3.8 Repayment plan (Sections 105 and 106). . . . . . . . . . . . . . . . . . . . . . . . . 170 Preparation of the repayment plan . . . . . . . . . . . . . . . . . . . . 170 3.8.1 Report of the resolution professional. . . . . . . . . . . . . . . . . . . 171 3.8.2 3.9 Meeting of the creditors, approval of repayment plan and report of the meeting (Sections 107 to 113). . . . . . . . . . . . . . . . . . . . . . 171 Summoning and conduct of the meeting of creditors. . . . . 171 3.9.1 3.9.2 Voting rights of creditors and approval of repayment plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 3.9.3 Rights of secured creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 Report of creditor’s meeting on repayment plan 3.9.4 and notice of decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 3.10 Passing of order on repayment plan by the DRT, its effect, implementation of repayment plan, its completion or premature termination and discharge order (Sections 114 to 119). . . . 174 3.10.1 DRT’s order and its effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174 3.10.2 Implementation and supervision of repayment plan. . . . . 175 3.10.3 Completion of repayment plan. . . . . . . . . . . . . . . . . . . . . . . . 175 3.10.4 Premature end of repayment plan. . . . . . . . . . . . . . . . . . . . . 175 3.10.5 Discharge order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

3.1

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Chapter 4

4.1

4.2 4.3

4.4

4.5

4.6

4.7

Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 Application for bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 When can the bankruptcy process be initiated?

4.1.1 (Section 121). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 4.1.2 Who can file an application for bankruptcy?. . . . . . . . . . . . 177 Application by debtor (Section 122). . . . . . . . . . . . . . . . . . . . 177 4.1.3 4.1.4 Application by creditor (Section 123). . . . . . . . . . . . . . . . . . . 178 Effect of application- interim moratorium (Section 124). . . . . . . . . . . 179 Bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 4.3.1 Appointment of bankruptcy trustee (Section 125). . . . . . . . 179 Standard of conduct and fee of the bankruptcy trustee 4.3.2 (Sections 143 and 144). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179 Replacement of the bankruptcy trustee (Section 145). . . . . 180 4.3.3 4.3.4 Resignation of the bankruptcy trustee (Section 146). . . . . . 180 Vacancy in the office of the bankruptcy trustee 4.3.5 (Section 147). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 Duty of the earlier/outgoing bankruptcy trustee . . . . . . . . 181 4.3.6 4.3.7 Release of the bankruptcy trustee (Section 148). . . . . . . . . . 182 Bankruptcy order, its validity and effect. . . . . . . . . . . . . . . . . . . . . . . . 182 Bankruptcy order (Section 126). . . . . . . . . . . . . . . . . . . . . . . . 182 4.4.1 Effect of bankruptcy order (Section 128). . . . . . . . . . . . . . . . 182 4.4.2 4.4.3 Submission of financial statement by the bankrupt (Section 129). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Modification or recall of bankruptcy order 4.4.4 (Section 142). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183 Public notice, registration of claims and preparation of list of creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Notice to creditors (Section 130). . . . . . . . . . . . . . . . . . . . . . . 184 4.5.1 4.5.2 Registration of claims and preparation of list of creditors (Sections 131 and 132) . . . . . . . . . . . . . . . . . . . . . . . 184 Meeting of creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Summoning of the meeting of creditors (Section 133). . . . . 185 4.6.1 4.6.2 Conduct of the meeting of creditors (Sections 134 and 135). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Discharge of the bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 Completion of administration and report of the 4.7.1 bankruptcy trustee thereof (Section 137). . . . . . . . . . . . . . . . 186 4.7.2 Discharge order and effect thereof (Sections 138 and 139). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

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4.8

Disqualification and restriction on the bankrupt. . . . . . . . . . . . . . . . . 186 4.8.1 Disqualifications of bankrupt (Section 140) . . . . . . . . . . . . . 186 Restrictions on the bankrupt (Section 141). . . . . . . . . . . . . . 187 4.8.2

Chapter 5

5.1

5.2

5.3 5.4

5.5

5.6 5.7 5.8

5.9

xxvi

Administration and distribution of estate of the bankrupt. . . 191 Estate of the bankrupt (Section 155). . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 What is estate of bankrupt?. . . . . . . . . . . . . . . . . . . . . . . . . . . 191 5.1.1 5.1.2 Composition of the estate of bankrupt . . . . . . . . . . . . . . . . . 191 Assets that do not form part of the estate of the 5.1.3 bankrupt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Functions, duties, rights and powers the bankruptcy trustee (Section 149 to 152). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Functions of bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . 192 5.2.1 Rights of bankruptcy trustee. . . . . . . . . . . . . . . . . . . . . . . . . . 192 5.2.2 General powers of the bankruptcy trustee. . . . . . . . . . . . . . 192 5.2.3 Other powers of the bankruptcy trustee. . . . . . . . . . . . . . . . 193 5.2.4 5.2.5 Power of the bankruptcy trustee to acquire control . . . . . . 194 Restrictions on disposal of property by the bankrupt. . . . . . . . . . . . . 194 After acquired property of the bankrupt (Section 159). . . . . . . . . . . . 195 5.4.1 What is an after acquired property?. . . . . . . . . . . . . . . . . . . . 195 Claim of the bankruptcy trustee on ‘after acquired 5.4.2 property’ and procedure thereof . . . . . . . . . . . . . . . . . . . . . . 195 Onerous property of bankrupt (Section 160) . . . . . . . . . . . . . . . . . . . . 196 5.5.1 What is an onerous property?. . . . . . . . . . . . . . . . . . . . . . . . . 196 Notice of disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 5.5.2 Effect of notice of disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . 197 5.5.3 Disclaimer of leaseholds (Section 162). . . . . . . . . . . . . . . . . . . . . . . . . . 197 Challenge against disclaimed property (Section 163). . . . . . . . . . . . . 198 5.7.1 Who can make the challenge. . . . . . . . . . . . . . . . . . . . . . . . . . 198 Order(s) passed of the DRT and effect thereof. . . . . . . . . . . 198 5.7.2 Avoidance of undervalued transactions (Section 164) . . . . . . . . . . . . 199 What is an undervalued transaction? . . . . . . . . . . . . . . . . . . 199 5.8.1 5.8.2 Relevant period for undervalued transactions. . . . . . . . . . . 199 Application to DRT by bankruptcy trustee. . . . . . . . . . . . . . 199 5.8.3 5.8.4 Orders of the DRT against undervalued transactions. . . . . 199 Preference transactions (Section 165). . . . . . . . . . . . . . . . . . . . . . . . . . . 200 5.9.1 What are preference transactions?. . . . . . . . . . . . . . . . . . . . . 200 5.9.2 Relevant period for preference transactions. . . . . . . . . . . . . 200 5.9.3 Application to DRT by bankruptcy trustee. . . . . . . . . . . . . . 200 5.9.4 Orders of the DRT against preference transactions. . . . . . . 201

Table of contents

5.10 Effect of orders passed under sections 164 AND 165 (Section 166). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 5.11 Avoidance of extortionate credit transactions (Section 167). . . . . . . . 202 5.11.1 What are extortionate credit transactions?. . . . . . . . . . . . . . 202 5.11.2 Application to DRT for extortionate credit transactions. . . 202 5.11.3 Orders of the DRT in respect of extortionate transaction. . . 202 5.12 Obligations under the contract (Section 168) . . . . . . . . . . . . . . . . . . . . 203 5.13 Provisions in relation to deceased bankrupt (Sections 169 and 170). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 5.14 Proof of debts (Sections 171 to 173) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 5.14.1 Submission of proof of debt by a creditor. . . . . . . . . . . . . . . 204 5.14.2 Submission of proof of debt by a secured creditor . . . . . . . 205 5.14.3 Value of the bankruptcy debt. . . . . . . . . . . . . . . . . . . . . . . . . 205 5.14.4 Mutual credit and set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 5.15 Distribution of assets (Sections 174 to 178). . . . . . . . . . . . . . . . . . . . . . 206 5.15.1 Distribution of interim dividend . . . . . . . . . . . . . . . . . . . . . . 206 5.15.2 Distribution of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 3.15.3 Distribution of interim dividend . . . . . . . . . . . . . . . . . . . . . . 207 3.15.4 Claims of creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 3.15.5 Priority of payment of debts. . . . . . . . . . . . . . . . . . . . . . . . . . 208 3.15.6 Situations where an advantage shall be given to a creditor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 3.15.7 Distribution of surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Chapter 6

6.1

6.2 6.3

Adjudicating authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211

Adjudicating authority for individuals and partnership firms and its territorial jurisdiction (Section 179). . . . . . . . . . . . . . . . . . . . . . 211 DRT’s Jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6.1.1 Computation of limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 6.1.2 No jurisdiction of civil courts, tribunals or authority (Section 180). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 Appeals and expeditious disposal of applications (Sections 181 and 182). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 Appeal to DRAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212 6.3.1 6.3.2 Appeal to the Supreme Court. . . . . . . . . . . . . . . . . . . . . . . . . 212 Expeditious disposal by DRT and DRAT. . . . . . . . . . . . . . . 213 6.3.3

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Chapter 7

7.1

7.2 7.3

Offences and penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 Punishment for false information (Section 184). . . . . . . . . . . . . . . . . . 215 7.1.1 Punishment against the debtor and creditor both. . . . . . . . 215 7.1.2 Punishment against the creditor for promise of vote dishonestly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 7.1.3 Punishment against the insolvency professional. . . . . . . . . 216 Punishment against the bankrupt (Section 186). . . . . . . . . . . . . . . . . . 216 Punishment against the bankruptcy trustee (Section 187) . . . . . . . . . 217 PART IV REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITY

Chapter 1 Insolvency and Bankruptcy Board of India. . . . . . . . . . . . . . . . 219 1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 1.2 Establishment and incorporation of the board (Section 188). . . . . . . 219 1.3 Constitution of the board (Section 189). . . . . . . . . . . . . . . . . . . . . . . . . 221 Appointment of the members. . . . . . . . . . . . . . . . . . . . . . . . . 222 1.3.1 1.3.1.1 Ex officio members of the board. . . . . . . . . . . . . . . 222 1.3.1.2 Members appointed through a selection committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223 Qualifications of a board member . . . . . . . . . . . . . . . . . . . . . 223 1.3.2 1.4 Removal of members (Section 190). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 1.5 Power of the chairperson (Section 191). . . . . . . . . . . . . . . . . . . . . . . . . 225 1.6 Meetings of the board (Section 192). . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 1.7 Members not to participate in meetings in certain cases (Section 193). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 1.8 Vacancies etc (Section 194). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 1.9 Power to designate financial sector regulator (Section 195). . . . . . . . 228 Chapter 2

Powers and functions of board. . . . . . . . . . . . . . . . . . . . . . . . . . . 231

2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 2.2 Powers and functions of the board vis-à-vis insolvency professional agencies, insolvency professionals and information utilities (Section 196). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 2.2.1 Administrative Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 2.2.2 General Regulatory Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 232 2.2.3 Power to regulate the internal operations of Insolvency Professional Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 2.2.4 General powers of the board. . . . . . . . . . . . . . . . . . . . . . . . . . 235 xxviii

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2.2.4.1

2.3 2.4

Powers pertaining to record keeping, public disclosure of information and public participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 2.2.4.2 Powers pertaining to research and statistical functions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 2.2.4.3 Other powers of the board . . . . . . . . . . . . . . . . . . . 237 Quasi-judicial powers of the board . . . . . . . . . . . . . . . . . . . . 238 2.2.5 Power to constitute advisory, executive or any other committee (Section 197). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 Power to get delay condoned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Chapter 3

Insolvency professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . 241

3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 3.2 Registration of insolvency professional agencies (Section 199 to 201). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 Principles governing registration of insolvency 3.2.1 professional agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 Process and procedure for the registration of 3.2.2 insolvency professional agencies. . . . . . . . . . . . . . . . . . . . . . 243 3.3 Appeal against order of the board (Section 202) . . . . . . . . . . . . . . . . . 244 3.4 Governing board for insolvency professional agency (Section 203). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 3.5 Functions of the insolvency professional agency (Section 204). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245 Chapter 4

Insolvency professionals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249 4.2 Enrollment and registration of insolvency professionals (Section 206 and 207). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .250 4.3 Functions and obligations of insolvency professionals (Section 208). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Functions of insolvency professionals. . . . . . . . . . . . . . . . . . 251 4.3.1 4.3.2 Code of conduct of an Insolvency Professional. . . . . . . . . . 252 Chapter 5

Information utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 5.2 Registration of information utilities (Section 209 and 210). . . . . . . . . 255 5.3 Governing board for information utilities (Section 212). . . . . . . . . . . 257 5.4 Services provided by an information utility (Section 213). . . . . . . . . 258 5.5 Obligations of information utility (Section 214). . . . . . . . . . . . . . . . . . 258 5.6 Financial information management (Section 215 and 216). . . . . . . . . 259 xxix

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5.6.1 5.6.2

Procedure for submission and access of information. . . . . 259 Rights and obligations of persons submitting financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260

Chapter 6

6.1 6.2 6.3 6.4

Inspection and investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Complaints and investigation against insolvency professional agency, its member or information utility (Section 217). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Investigation and appointment of investigating authority by the board (Section 218). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 Powers of the Investigating Authority . . . . . . . . . . . . . . . . . 264 6.2.1 Show cause notice (Section 219). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 Disciplinary committee –constitution and powers (Section 220). . . . 265 6.4.1 Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265 Powers of the board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 6.4.2

Chapter 7

7.1 7.2 7.3

Finance, accounts and audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 Grants by central government (Section 221). . . . . . . . . . . . . . . . . . . . . 267 Board’s fund (Section 222). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 Accounts and audit (Section 223). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 PART V MISCELLANEOUS

Chapter 1

1.1 1.2 1.3

1.4

xxx

Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Constitution of the insolvency and bankruptcy fund (Section 224). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 Board to be bound by directions of the central government (Section 225). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Power of the central government to supersede the board (Section 226). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 Circumstances under which the Board can be 1.3.1 superseded by central government . . . . . . . . . . . . . . . . . . . . 270 Members of the Board to vacate their posts upon 1.3.2 supersession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 1.3.3 Reconstitution of the board. . . . . . . . . . . . . . . . . . . . . . . . . . . 271 1.3.4 Central government to lay notification before the house . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 Power of the central government to extend operation of the Code to financial service providers (Section 227) . . . . . . . . . . . . . 271

Table of contents

1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20

Budget (Section 228). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 Annual report of the board (Section 229). . . . . . . . . . . . . . . . . . . . . . . .272 Delegation of power by the board (Section 230). . . . . . . . . . . . . . . . . . 272 Exclusion of jurisdiction of civil courts (Section 231) . . . . . . . . . . . . . 272 Members of the board to be considered public servants (Sections 232 and 233). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 Agreements with foreign countries and letter of request (Sections 234 and 235). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 1.10.1 Letter of request to reciprocating countries . . . . . . . . . . . . . 273 Trial of offences by special courts (Section 236). . . . . . . . . . . . . . . . . . 274 1.11.1 Provisions of the Cr.P.C. to Apply. . . . . . . . . . . . . . . . . . . . . 274 1.11.2 Presence of Authorized Person not required. . . . . . . . . . . . 275 Powers of the high court (Section 237). . . . . . . . . . . . . . . . . . . . . . . . . . 275 Code to have overriding effect (Section 238). . . . . . . . . . . . . . . . . . . . .275 Power to make rules (Section 239) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 Power to make regulations (Section 240). . . . . . . . . . . . . . . . . . . . . . . . 278 Rules and regulations to be laid before parliament (Section 241) . . . . 283 Power to remove difficulties (Section 242) . . . . . . . . . . . . . . . . . . . . . . 283 Repeal of certain enactments and savings (Section 243). . . . . . . . . . . 284 Transitional provisions (Section 244). . . . . . . . . . . . . . . . . . . . . . . . . . . 285 Amendments of Acts (Sections 245 to 255). . . . . . . . . . . . . . . . . . . . . . 285 ANNEXURES

Annexure I The Insolvency and Bankruptcy Code, 2016. . . . . . . . . . . . . . . .

Annexure II Rules and regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(A) Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016. . . .

(B) Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 . .

(C) Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(D) Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(E) Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 . . . . . . . . . . . . . . . . . . . . .

(F) Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(G) Companies (Transfer of Pending Proceedings) Rules, 2016. . . . . . . . . . . . . .

(H) Insolvency and Bankruptcy Board of India (Liquidation process) Regulations, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

287 457 457 463 477 489 509 541 563 567 xxxi

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Annexure III Relevant notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 615 Annexure IV Relevant orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625 Annexure V Press releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 629

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INTRODUCTION

An effective and efficient insolvency regime is the foundation of a strong economy.

As per the United Nations Commission on International Trade Law (UNCITRAL) Legislative Guide on Insolvency Law, an efficient and effective legal framework should strike a balance between the need to address the debtor’s financial difficulty quickly and efficiently and the interest of various stakeholders principally including creditors as well as the public policy. Insolvency includes both, liquidation and reorganization. As mentioned in the UNCITRAL Legislative Guide on Insolvency Law, an effective and efficient insolvency regime should aim at achieving the following key objectives: 

Certainty in the market to promote economic stability and growth;



Maximization of value of assets;



Striking a balance between liquidation and reorganization;



Ensuring equitable treatment of similarly situated creditors;



Provision for timely, efficient and impartial resolution of insolvency;



Preservation of the insolvency estate to allow equitable distribution to creditors;



Ensuring a transparent and predicable insolvency law that contains incentives for gathering and dispensing information;



Recognition of existing creditor rights and establishment of clear rules of ranking of priority claims; and



Establishment of framework for cross- border insolvency.

Before the enactment of the Insolvency and Bankruptcy Code, 2016, there was no single legal framework in India that dealt with insolvency and bankruptcy. The provisions relating to insolvency and bankruptcy were scattered over many legislations viz: (i)

For companies (a) Sick Industrial Companies (Special Provisions) Act, 1985 (dealing with sick industrial companies), (b) The Recovery of Debt Due to Banks and Financial Institutions Act,

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1993, (c) The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and (d) The Companies Act, 2013 (ii)

For individuals (a) The Presidency Towns Insolvency Act, 1909 and (b) The Provincial Insolvency Act, 1920.

Liquidation of companies was handled by the High Courts and Bankruptcy and Insolvency proceedings were filed before District Courts or High Courts as the case may be. This vast number of legislations and judicial forums, and the complex interplay between the various legislations has made recovery of debts an agonising affair in India for all creditors alike.

Due to multiplicity of laws, the Bankruptcy Law Reform Committee (the Committee) was set up by the Department of Economic Affairs, Ministry of Finance, under the Chairmanship of Mr. T.K. Vishwanathan (former Secretary General, Lok Sabha and former Union Law Secretary) by an office order dated, be removed. The mandate of the Committee was to study the “corporate bankruptcy legal frameworks in India” and submit a report to the government for reforming the system.

The Committee gave its recommendations in two phases(i)

To examine the existing legal framework for corporate insolvency and suggest immediate reforms, for which the Committee submitted an interim report in February 2015; and

(ii)

To develop an “Insolvency Code” for India covering all the aspects of personal and business insolvency, for which the Committee submitted its reports in November 2015 in two volumes – (a) Volume I: Rationale and Design and; (b) Volume II: Draft Code.

The Insolvency and Bankruptcy Code, 2015 was introduced in Lok Sabha on 21 December 2015 and was then referred to a Joint Committee of both houses of Parliament. The Insolvency and Bankruptcy Code, 2016 was moved in the Lok Sabha on 23 December 2015 and was passed in the Lok Sabha on 5 May 2016. The upper house of Parliament (i.e. the Rajya Sabha) passed the Code on 11 May 2016 and the President’s assent was granted on 28 May 2016.

1.2

OBJECTIVE OF CODE

The objective of the Code is: “to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and 2

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individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India and for matters connected therewith or incidental thereto”.

As per the World Bank’s ‘Doing Business’ rankings 1, India’s overall rank in 2017 is 130 out of a total 190 countries. India’s consistently poor ranking is widely attributed to the inefficient mechanism in the areas of ‘enforcing contracts’ and ‘resolving insolvency’, in which India is ranked at 172 and 136, respectively. A compelling factor for India’s poor ranking in the categories of ‘enforcing contracts’ and ‘resolving insolvency’ is the legal framework for resolving contractual disputes and for recovery of monies by creditors and investors in insolvency proceedings. The Insolvency and Bankruptcy Code, 2016 is widely regarded as a giant leap forward in improving India’s rankings on the World Bank’s indices by streamlining the scattered insolvency laws of India into a single legislation which governs bankruptcy and insolvency laws for all debtor entities including companies, limited liability partnerships (LLP) and individuals.

The Insolvency and Bankruptcy Code, 2016 is a consolidated piece of legislation dealing with insolvency resolution process and liquidation or bankruptcy, has been enacted with an objective to dealing with the matters relating to insolvency and bankruptcy for all the debtors in a time bound and efficient manner to protect the value of assets of the insolvent/bankrupt for the benefit of the creditors. At the same time, the Code blends well with the “ease of doing business in India” narrative of the Government.

Divided into various chapters, the Code aims to deal with different aspects of insolvency and bankruptcy proceedings and processes of different types of debtors in each chapter.

The Code aims to promote entrepreneurship by ensuring stricter timeframe for insolvency resolution as well as liquidation. The Code has changed the waterfall mechanism to priority of claims of various stakeholders with government dues/crown debt been given least priority as against creditors, workers and employees. Insolvency and Bankruptcy Board of India, a regulator to bring transparency and efficiency in the insolvency process has been established under

1

http://www.doingbusiness.org/data/exploreeconomies/india/

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the Code and is being entrusted with various legislative, executive as well as quasijudicial powers for the same.

1.3

EXTENT AND APPLICABILITY OF THE CODE (SECTIONS 1 AND 2)

1.3.1

Short title

This Code has been enacted by parliament in the Sixty-seventh year of the Republic of India as “The Insolvency and Bankruptcy Code, 2016”.

1.3.2

Extent

Section 1(2) provides that, the Code shall extend to whole of India provided that Part III of the Code (which deals with insolvency resolution process and bankruptcy of individuals and partnership firm) shall not extend to the State of Jammu and Kashmir.

1.3.3

Commencement

As per sec 1(3) of the Code, the commencement date of different provisions of the Code and the date on which the said provisions shall come into effect shall be as per the gazette notification of the central government in this regard and thus, the same can be different for different provisions. Hence, any reference in any such provision to the commencement of the Code shall be construed as a reference to the commencement of that provision.

1.3.4

Applicability

As per sec 2, the provisions of the Code shall apply to all companies, unlimited liability partnerships, limited liability partnerships (LLPs), individuals and other entities (as and when notified by the central government) in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy. Companies include those incorporated under the Companies Act, 2013 or any other previous company law as well as any other company governed by any special Act for the time being in force, to the extent that the provisions of such Act are consistent with the said provisions. The provisions of the Code also apply to LLPs incorporated under the Limited Liability Partnerships Act, 2008, any other such body incorporated under any law for the time being in force, as may be specified by the Central Government by notification in addition to partnership firms and individuals. Therefore, the Code offers a uniform and comprehensive regime governing insolvency and bankruptcy for all debtors.

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Comment The Bankruptcy Law Reforms Committee in its report dated November 2015 envisaged categories of entities for whom these provisions would be applicable, which are as follows: (a) Sole proprietorships where the legal personality of the proprietorship is not different from the individual who owns it; (b) Personal guarantors; (c) Consumer finance borrowers; (d) Student loan borrowers; (e) Credit card borrowers; (f) Farmers; (g) Micro-finance borrowers; and (h) Partnership firms.

A significant feature of this Code is the applicability of the insolvency provisions to individuals regulating the process by which individuals can seek relief under the Code. Prior to this Code, individuals were governed by geographically applicable Acts, namely the Presidency Towns Insolvency Act, 1909 for Calcutta, Bombay and Madras and the Provincial Insolvency Act, 1920 for the rest of India, respectively, which have been repealed by the Code. Further, Committee recognized the need to include non-financial creditors within the ambit of this Code to create a thorough insolvency resolution regime and even creditors residing outside of India are included within the definition of a creditor in the Code.

1.4

GENERAL DEFINITIONS (SECTION 3)

The definition clause of the Code opens with the expression “unless the clause otherwise requires”. This qualification is to be borne in mind with respect to all definitions given in this section. The expression means that the definitions have to be read in the context in which it was used, and the purposive construction of the definition is to be given effect to. Hence, the definitions under sec 3 of the Code are not conclusive and have to be read in light of the context and scheme of the Code.

1.4.1

Board

“Board” is defined under sec 3(1) as the Insolvency and Bankruptcy Board of India established under sec 188(1) of this Code. As per sec 188, the Board is a body corporate having perpetual succession and a common seal established by the central government by notification.

The Board has been established to regulate the functioning of the different entities in the new regime having legislative, executive as well as quasi-judicial powers.

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Chapter 1 of Part IV of the Code deals with the establishment and constitution of the Board while Chapter II of Part IV deals with its powers and functions. The Ministry of Corporate Affairs on 29 August 2016 notified Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016, which governs the salary, allowances and other terms and conditions of the members of the Board including the Chairperson.

1.4.2

Bench

“Bench” under sec 3(2) refers to the bench of the Adjudicating Authority. As per sec 5(1) of the Code, the National Company Law Tribunal (“NCLT”) constituted under sec 408 of the Companies Act, 2013 will be the adjudicating authority for corporate persons and as per sec 79(1) of the Code, the Debt Recovery Tribunal (“DRT”) constituted under sec 3(1-A) of the Recovery of Debts and Bankruptcy Act, 1993 will be the adjudicating authority for individuals and partnership firms.

1.4.3

Bye-laws

1.4.4

Charge

As per sec 3(3), “bye laws” means the bye-laws made by the Insolvency Professional Agencies under sec 205 of the Code. Section 205 provides that every Insolvency Professional Agency is empowered to make bye-laws to govern its internal regulation after obtaining the approval of the Board. These bye-laws have to be consistent with the model bye-laws specified by the Board under sec 196(2).

Accordingly, in exercise of powers conferred by sections 196, 203 and 205 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India on 22 November 2016 notified Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations 2016.

“Charge” is defined under sec 3(4) as an interest or lien created on the property or assets of any person, or any of its undertakings or both. This interest or lien is created by making such asset or property or undertaking a security for payment.

The provision expressly includes a mortgage within the definition of a charge.

1.4.5

Chairperson

“Chairperson” is defined under sec 3(5) as the Chairperson of the Insolvency and Bankruptcy Board of India established under sec 188(1) of the Code.

1.4.6

Claim

As per sec 3(6), “claim” has been given a very wide definition and it means a right to payment whether the said right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured. The definition of claim also includes a right to 6

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remedy for breach of contract under any law for the time being in force giving rise to such right to payment, regardless of whether such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured.

1.4.7

Corporate person

As per sec 3(7), “corporate person” means any person incorporated with limited liability under any law for the time being in force, other than a financial service provider. This definition includes a company incorporated under the Companies Act, 2013 or under any previous company law as defined under sec 2(20) of the Companies Act, 2013 and a partnership formed and registered under the Limited Liability Partnership Act, 2008, that is, a limited liability partnership as defined in sec 2(1)(n) of the same Act. It is pertinent to note that “financial service provider” has been defined under sec 3(17) of the Code.

1.4.8

Corporate debtor

“Corporate debtor” under sec 3(8) is defined as a corporate person, who owes a debt to any person. Corporate debtor under the Code would include the corporate persons including companies, limited liability partnerships and any other persons as notified by the government, time to time.

1.4.9

Core services

As per sec 3(9), “core services” are defined as services rendered by an information utility for: 

accepting electronic submission of financial information in such form and manner as may be specified;



safe and accurate recording of financial information;



authenticating and verifying the financial information submitted by a person; and



providing access to information stored with the information utility of persons as may be specified.

An information utility have been introduced by this Code to facilitate an efficient bankruptcy and insolvency regime by providing an infrastructure for easy access to information and has been defined under sec 3(21).

1.4.10 Creditor “Creditor” is defined under sec 3(10) as any person to whom a debt is owed. This definition is comprehensive and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder.

“Financial creditor” has been defined under sec 5(7) and the “operational creditor” 7

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is being defined under sec 5(20) of the Code. While the unsecured creditor and decree holder has not been defined under the Code, definition of secured creditor is at sec 3(30) of the Code.

1.4.11 Debt As per sec 3(11), “debt” means a liability or obligation in respect of a claim which is due from any person. This term encompasses a financial debt and an operational debt.

Section 5(7) provides a suggestive list of the types of financial debt and sec 5(21) gives suggestive list of operational debt.

1.4.12 Default As per sec 3(12), “default” is defined as non-payment of a debt by a debtor or a corporate debtor.

“Corporate debtor” as defined under sec 3(7) means a corporate person who owes debt, while “debtor” has been defined under sec 79(12) which provides that a debtor includes a judgment- debtor.

Such default may either be of whole of the debt or a part thereof, that is, when any part or instalment of the amount of the debt has become due and payable and has not been repaid by the debtor or corporate debtor.

1.4.13 Financial information As per sec 3(13), “Financial information” in relation to a “person” (defined under sec 3(23) of the Code) is any one or more of the following categories: 

records of the debt of the person;



records of liabilities when the person is solvent;



records of assets of person over which security interest has been created;



records, if any, of instances of default by the person against any debt;



records of the balance sheet and cash-flow statements of the person;



and such other information as may be specified.

Under the Code, financial information of a corporate debtor or debtor is a key driver of the entire insolvency resolution, liquidation or bankruptcy process, as the case may be. The Corporate debtor or debtor, as the case may be is required to furnish the financial information, when sought for by the Adjudicating Authority or by the Insolvency professional acting as Interim Insolvency resolution professional, Insolvency resolution professional, liquidator or bankruptcy trustee. This obligation on the corporate debtor or debtor is in addition to the financial information available on the Information Utility, when established.

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1.4.14 Financial institution As per sec 3(14), a “financial” institution is defined as: (1) a scheduled bank which is a bank included in the second schedule of the Reserve Bank of India Act, 1934; (2) financial institution under sec 45-I of the Reserve Bank of India Act, 1934 2; (3) public financial institution as defined in sec 2(72) of the Companies Act, 2013 3; 2

3

45-I(c)- financial institution’’ means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:– (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own: (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature: (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972: (iv) the carrying on of any class of insurance business; (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto; (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,– (a) agricultural operations; or (aa) industrial activity; or] (b) the purchase or sale of any goods (other than securities) or the providing of any services; or (c) the purchase, construction or sale of immovable property, so however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons; Explanation.– For the purposes of this clause, ‘‘industrial activity’’ means any activity specified in sub-clauses (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964; 2 (72) “public financial institution” means— (i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956; (ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of subsection (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; (iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India: Provided that no institution shall be so notified unless— (A) it has been established or constituted by or under any Central or State Act; or

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(4) any other such institution as may be notified by the Central Government as a financial institution.

1.4.15 Financial product “Financial product”, according to sec 3(15) means any of the following financial instruments: 

securities;



contracts of insurance;



deposits;



credit arrangements including loans and advances by banks and financial institutions;



retirement benefit plans;



small savings instruments;



foreign currency contracts other than contracts to exchange one currency (whether Indian or not) for another which are to be settled immediately; or



any other such instrument as may be prescribed.

1.4.16 Financial service As per sec 3(16), “financial service” includes any of the services, mentioned below: 

accepting of deposits;



safeguarding and administering assets consisting of financial products belonging to another person or agreeing to do so;



effecting contracts of insurance;



offering, managing or agreeing to manage assets consisting of financial products belonging to another person;



rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of 

buying, selling, or subscribing to a financial product;



availing a financial service; or



exercising any right associated with a financial product or financial service;



establishing or operating an investment scheme;



maintaining or transferring records of ownership of a financial product; (B)

10

not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments

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

underwriting the issuance or subscription of a financial product; or



selling, providing, or issuing stored value or payment instruments or providing payment services.

1.4.17 Financial service provider A “financial service provider” has been defined under sec 3(17) of the Code as a person engaged in the business of providing financial services in terms of authorization issued or registration granted by a financial sector regulator as defined under sec 3(18).

1.4.18 Financial sector regulator Section 3(18) provides for the definition of a “financial sector regulator”. It is defined as an authority or a body constituted under any law for the time being in force for the purpose of regulating services or transactions of the financial sector.

This definition includes: 

the Reserve Bank of India;



the Securities and Exchange Board of India;



the Insurance Regulatory and Development Authority of India;



the Pension Fund Regulatory Authority; and



such other regulatory authorities as may be notified by the Central Government.

The Insolvency and Bankruptcy Board of India established and incorporated under sec 188 of the Code is a regulator under the Code.

1.4.19 Insolvency professional As per sec 3(19), an “Insolvency Professional” is defined as a person enrolled as a member of an insolvency professional agency under sec 206 of this Code and registered with the Insolvency and Bankruptcy Board of India under sec 207 as an Insolvency Professional. Sections 206 and 207 are provided within Chapter IV of Part IV of the Code, which delineates the specific provisions for enrolment of Insolvency Professionals and their functions and obligations respectively.

This sec introduces a new entity called an Insolvency Professional who plays a major role in the management and administration of the entire insolvency resolution, liquidation and bankruptcy process. On initiation of proceedings by a creditor, adjudicating authorities appoint an insolvency professional who plays a crucial role in the entire insolvency resolution, liquidation and bankruptcy process.

The Code envisages the creation of a class of such highly skilled and licensed professionals who have been given substantial powers to manage the insolvency and bankruptcy resolution process. The report of the Bankruptcy Law Reforms Committee provides for a broad list of the roles of an Insolvency Professional.

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These are, Resolution professional (RP) to resolve insolvency for a firm or an individual; Bankruptcy Trustee in an individual bankruptcy process; and Liquidator in a firm liquidation process. Therefore, the role played by an Insolvency Professional is far more diverse than that by an official liquidator in the erstwhile regime, given that an Insolvency Professional is engaged in the process much before the stage of liquidation or bankruptcy.

By notification reference no. IBBI/2016-17/GN/REG003 dated 23 November 2016, the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 have been notified by the Board and the same have come in to effect from 29 November 2016.

1.4.20 Insolvency professional agency An “Insolvency Professional Agency” is defined in sec 3(20) as any person registered with the Insolvency and Bankruptcy Board of India under sec 201 as an Insolvency Professional Agency. Section 201 of the Code lays down the procedure for the registration of an Insolvency Professional Agency.

Insolvency Professional Agencies have been introduced by this Code and these agencies perform the role of specialized intermediaries having defined tasks with whom Insolvency Professionals are enrolled. They are private professional agencies registered with the Insolvency and Bankruptcy Board of India who facilitate the process of insolvency resolution, liquidation and bankruptcy by overseeing the conduct of the Insolvency Professionals. The Bankruptcy Law Reforms Committee recommended a new model of “regulated self-regulation” for Insolvency Professionals by creating a two-tier structure, wherein the Insolvency Professional Agencies will regulate the working of the Insolvency Professionals who are enrolled with them. These agencies have been given wide powers under this Code and can frame bye-laws establishing rules and standards for their members. The Board supervises and regulates the functioning of the Insolvency Professional Agencies. By notification reference no. IBBI/2016-17/GN/REG002 dated 21 November 2016, the Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016 have come into force. The said regulations provides for the eligibility criteria for registration with the Board and process of registration and surrender of certificate of registration amongst other things.

1.4.21 Information utility Section 3(21) of the Code introduces the new entity, an “Information Utility”. The term “Information Utility” has been defined in this sec as a person registered with the Insolvency and Bankruptcy Board as an Information Utility under sec 210.

Section 210 provides for the registration of information utilities. The provisions for registration of Information Utilities and the guidelines governing their working are provided in Chapter V of Part IV of this Code.

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Information Utilities have been created to regulate and manage the flow of critical information in the insolvency and bankruptcy regime. Such utilities serve to collect information which are necessary for the efficient resolution of the insolvency and bankruptcy process, as well as convey information as and when requested. The Board licenses and regulates the functioning of the Information Utilities. The Bankruptcy Law Reforms Committee envisioned a regime which facilitates the development of a competitive industry of Information Utilities employing a tariff based arrangement allowing for easy access of information in the course of resolving insolvency and bankruptcy. The Committee sought to make a comprehensive information dissemination system, which would include the existing systems such as the Registrar of Companies, by allowing for their registration under the uniform title “Information Utilities” with the Board.

1.4.22 Notification Section 3(22) defines “notification” as a notification published in the Official Gazette. The terms ‘notified’ and ‘notify’ have to be construed according to this definition.

1.4.23 Person A “person” as defined under sec 3(23) includes: 

an individual;



a Hindu Undivided Family;



a company;



a trust;



a partnership;



a limited liability person; and



any other entity established under a statute.

A person resident outside India is also included within the ambit of this definition.

Therefore the Code includes both natural and legal persons within the definition of “person”. The Code therefore seeks to establish a single unified framework governing bankruptcy and insolvency in relation to all persons other than financial firms. It is pertinent to note that by including persons resident outside India, the Code addresses the issues in international settlement of claims, if either the defaulting party or the aggrieved party are not based in India.

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1.4.24 Person resident in India As per sec 3(24),”’person resident in India” is accorded the same meaning as the meaning assigned to such term under sec 2(v) of the Foreign Exchange Management Act, 1999 4.

1.4.25 Person resident outside India Section 3(25) defines “a person resident outside India” as a person other than a person resident in India.

1.4.26 Prescribed As per sec 3(26), “prescribed” is defined as prescribed by rules made by the Central Government.

1.4.27 Property Section 3(27) provides for a suggestive list of the types of property included within the ambit of this Code It is a wide-ranging definition including every kind of property such as: 

Money;



Goods;



actionable claims;



land and every description of property situated in India or outside India; and



every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property.

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2(v) “person resident in India” means(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include(A) a person who has gone out of India or who stays outside India, in either case(a) for or on taking up employment outside India, or (b) for carrying on outside India a business or vocation outside India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period; (B) a person who has come to or stays in India, in either case, otherwise than(a) for or on taking up employment in India, or (b) for carrying on in India a business or vocation in India, or (c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period; (ii) any person or body corporate registered or incorporated in India, (iii) an office, branch or agency in India owned or controlled by a person resident outside India, (iv) an office, branch or agency outside India owned or controlled by a person resident in India;

Preliminary

Part I (§ 3)

1.4.28 Regulations Section 3(28) defines “regulations” within the meaning of this Code as the regulations made by the Insolvency and Bankruptcy Board of India,

1.4.29 Schedule “Schedule”, according to sec 3(29), is a schedule annexed to this Code.

1.4.30 Secured creditor Section 3(30) defines a “secured creditor” as a creditor who has a security interest in its favour.

1.4.31 Security interest Section 3(31) defines a security interest as a right, title or interest or a claim to property which has been created in favour of a secured creditor or has been provided for a secured creditor. This interest is created by a transaction which secures payment or performance of an obligation. This definition includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person. It is pertinent to note that the definition of a security interest specifically excludes a performance guarantee.

1.4.32 Specified In sec 3(32), the term “specified” is being defined as specified by the regulations made by the Insolvency and Bankruptcy Board under this Code. The term “specify” is to be construed in accordance with this definition.

1.4.33 Transaction A “transaction” as per sec 3(33) includes an agreement or arrangement in writing entered into by a corporate debtor for the transfer of assets, or funds, goods or services, either from or to the corporate debtor.

1.4.34 Transfer The meaning of the term transfer has been provided in section, sec 3(34). It includes: 

Sale;



Purchase;



exchange;



mortgage;



pledge;

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Part I (§ 3)

Insolvency and Bankruptcy Code, 2016



gift;



loan; or



any other form of transfer of right, title, possession or lien.

1.4.35 Transfer of property “Transfer of property” is being defined under sec 3(35) as the transfer of any property. This definition includes the transfer of any interest in the property and the creation of any charge upon such property. As per sec 3(4), a charge is created on a property by the creation of an interest or lien on such property, including mortgage by virtue of it being made a security for payment.

1.4.36 Workman Workman, as defined under sec 3(36), shall have the same meaning as assigned to it in sec 2(s) of the Industrial Disputes Act, 1947 5.

Section 3(37) is a residuary clause which provides that the definition of all the terms and expressions used but not defined in this Code but defined under the Indian Contract Act, 1872, the Indian Partnership Act, 1932, the Securities Contact (Regulation) Act, 1956, the Securities Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013, shall be assigned to the terms within the meaning of this Code.

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2(s) “workman” means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, dischasrge or retrenchment has led to that dispute, but does not include any such person-(i) who is subject to the Air Force Act, 1950 (45 of 1950 ), or the Army Act, 1950 (46 of 1950 ), or the Navy Act, 1957 (62 of 1957 ); or (ii) who is employed in the police service or as an officer or other employee of a prison; or (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature.