Taxmann's Insolvency & Bankruptcy Code Ready Reckoner

Chapter-Heads

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Contents

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Acronyms

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Amendments made by Insolvency and Bankruptcy Code (Amendment) Act, 2021 at a glance

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Guide to Insolvency and Bankruptcy Code (Amendment) Act, 2021

I-29

Section Index

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CHAPTER 1 DECLINING STAGE OF AN ORGANISATION

1

CHAPTER 2 INSOLVENCY PROFESSIONAL

40

CHAPTER 3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS

53

CHAPTER 4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS

96

CHAPTER 5 RESOLUTION PLAN BY RESOLUTION APPLICANT

138

CHAPTER 6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

I-5

170

CHAPTER-HEADS

I-6 PAGE

CHAPTER 6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)

172

CHAPTER 6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION

196

CHAPTER 6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP

218

CHAPTER 7 LIQUIDATION OF CORPORATE PERSON

238

CHAPTER 8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR

255

CHAPTER 9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR

267

CHAPTER 10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN

274

CHAPTER 11 VOLUNTARY LIQUIDATION OF COMPANIES

283

CHAPTER 12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

290

CHAPTER 13 CROSS BORDER INSOLVENCY AND BANKRUPTCY

298

CHAPTER 14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY

300

I-7

CHAPTER-HEADS PAGE

CHAPTER 15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

307

CHAPTER 16 FRESH START PROCESS

310

CHAPTER 17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM

316

CHAPTER 18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS

330

CHAPTER 19 BANKRUPTCY TRUSTEE

343

CHAPTER 20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT

354

CHAPTER 21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

358

CHAPTER 22 REGISTERED VALUERS

372

CHAPTER 23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS

379

CHAPTER 24 NCLT AND NCLAT

390

CHAPTER 25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993

402

CHAPTER 26 SARFAESI ACT

424

CHAPTER-HEADS

I-8 PAGE

CHAPTER 27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS SUBJECT INDEX

481 487

Contents PAGE

I-5

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Chapter-heads

u

Acronyms

I-23

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Amendments made by Insolvency and Bankruptcy Code (Amendment) Act, 2021 at a glance

I-27

Guide to Insolvency and Bankruptcy Code (Amendment) Act, 2021

I-29

Section Index

I-49

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1 DECLINING STAGE OF AN ORGANISATION

1.1

Background

1

1.2

Overall scheme of the Insolvency and Bankruptcy Code

9

1.3

Insolvency Code has overriding effect

14

1.4

Limitation Act applies to proceedings before NCLT or NCLAT

16

Provisions in Companies Act, 2013 relating to winding up are applicable to the extent not contrary to Insolvency Code

21

1.6

Insolvency and Bankruptcy Board of India (IBBI)

21

1.7

Adjudicating Authority (AA) and Appellate Authorities

25

1.8

Information Utility (IU)

26

1.9

Insolvency and Bankruptcy Fund

27

1.10

Winding up provisions under Companies Act revamped

28

1.11

Transitory provisions for shifting from winding up proceedings to Insolvency

28

Lenders may apply under SARFAESI and DRT and in addition they can go for Insolvency resolution

30

1.5

1.12

I-9

CONTENTS

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1.13

Transitory provisions as SICA repealed

32

1.14

Income tax provisions for corporate debtors where application for CIRP has been admitted

32

Promoter/director can be Resolution applicant if Corporate Debtors is MSME

34

Special provisions under GST relating to companies under Insolvency Process

37

Institution and/or continuation of proceedings under FTDR against companies against whom proceedings have been instituted under Insolvency Code

39

Role of Government and its agencies in CIRP and Liquidation Process

39

1.15 1.16 1.17

1.18

2 INSOLVENCY PROFESSIONAL

2.1

Background

40

2.2

Insolvency Professional Agency (IPA)

40

2.3

Insolvency Professional (IP)

42

2.4

Panel of Insolvency Professionals to recommend to NCLT as Interim Resolution Professional or Liquidator

50

Insolvency Professional Entities

51

2.5

3 INSOLVENCY RESOLUTION OF CORPORATE PERSONS

3.1

Background

53

3.2

Initiation of corporate insolvency resolution process

53

3.3

Who can initiate insolvency resolution process

62

3.4

Initiation of proceedings by financial creditor

65

3.5

Insolvency proceedings can be initiated against corporate guarantor or personal guarantors

76

3.6

Initiation of insolvency resolution by operational creditor

79

3.7

Initiation of insolvency resolution process by corporate applicant himself

90

Appointment of Interim Resolution Professional

93

3.8

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CONTENTS PAGE

3.9

Further procedure before NCLT

94

3.10

Withdrawal of application after admission with approval of 90% voting by CoC

95

4 CONDUCTING CORPORATE INSOLVENCY RESOLUTION PROCESS

4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9

107 108

Submission of proof of claims to interim resolution professional

112

Committee of Creditors (CoC) Appointment of resolution professional in first meeting of CoC Powers and functions of Committee of Creditors (CoC) Duties of resolution professional

4.10

Prior approval of committee of creditors for certain actions by resolution professional

4.11 4.12

Preparation of information memorandum Protection to insolvency resolution professional in respect of earlier transactions Special Provisions in respect of NBFC with assets of Rs. 500 crore or more

4.13

96 99

Background Moratorium and public announcement Public announcement of corporate insolvency resolution process Appointment and tenure of interim resolution professional

116 123 125 128 131 132 133 133

5 RESOLUTION PLAN BY RESOLUTION APPLICANT

5.1 5.2

Background Ineligible Resolution Applicant

138 139

5.3 5.4

Invitation for expression of interest Submission of resolution plan by resolution applicant to insolvency professional Insolvency resolution process costs Approval of resolution plan by Committee of Creditors

146

5.5 5.6

148 155 157

CONTENTS

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5.7

Submission of plan to Adjudicating Authority

162

5.8

Assistance of district administration in implementing the resolution plan

166

5.9 5.10 5.11 5.12

5.13

Effect if resolution plan rejected by NCLT Appeal against order of adjudicating authority Immunity from prosecution of corporate debtor after approval of CIRP No action against property of corporate debtor in respect of offence committed prior to CIRP if there was change in management or sale of assets

166 166

Preservation of records of CIRP by RP

169

166

168

6 FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

6.1 6.2 6.3

Speedy process for insolvency resolution Application for fast track process Procedure for fast track process

170 170 171

6A PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (PPIRP)

6A.1 Background of the PPIRP (Pre-packaged Insolvency Resolution Process)

172

6A.2 Basic design of pre-packaged insolvency resolution process (PPIRP)

176

6A.3 Application of provisions of CIRP to PPIRP

180

6A.4 Priority to PPIRP over CIRP, except where CIRP proceedings have already commenced

182

6A.5 Eligibility and conditions to apply for PPIRP

184

6A.6 Initiation of PPIRP by Corporate Debtor

186

6A.7 Duties and authorities of Insolvency Professional proposed to be appointed as Resolution Professional

188

6A.8 Procedure prior to application to AA for approval to initiate PPIRP

190

6A.9 Filing of application by Corporate Applicant with Adjudicating Authority

192

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CONTENTS PAGE

6A.10 Admission or rejection of application by Adjudicating Authority (NCLT)

194

6A.11 Moratorium during PPIRP period

195

6B PROCEDURE FOR PPIRP AFTER ADMISSION OF APPLICATION

6B.1 Formal process of PPIRP starts only after admission of application

196

6B.2 Conduct of PPIRP by Resolution Professional

197

6B.3 Powers of Resolution Professional during initial stages of PPIRP

199

6B.4 Filing of Application for avoidance of transactions

200

6B.5 Prior approval of Committee of Creditors (CoC) for certain actions by corporate debtor

202

6B.6 Information to be supplied by financial institutions to Resolution Professional

204

6B.7 Submission of List of claims and its updation in PPIRP

204

6B.8 Conduct of business of Corporate Debtor during PPIRP

207

6B.9 Constitution and functioning of Committee of Creditors in PPIRP

208

6B.10 Meeting of Committee of Creditors in PPIRP

211

6C SUBMISSION AND APPROVAL OF RESOLUTION PLAN UNDER PPIRP

6C.1 What is a resolution plan

218

6C.2 Submission of Base Resolution Plan by RP to CoC

222

6C.3 Invitation to Resolution Applicants if CoC does not approve base resolution plan or operational creditors cannot be satisfied

224

6C.4 Furnishing of information to Resolution Applicants

226

6C.5 Submission of resolution plan by resolution applicant and its evaluation

228

6C.6 Submission of Resolution Plans by Resolution Professional to CoC

229

CONTENTS

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6C.7 Submission of Resolution Plan approved by CoC for approval by AA

232

6C.8 Termination of PPIRP which ultimately results in liquidation of corporate debtor

234

6C.9 CoC may terminate PPIRP if corporate debtor eligible for CIRP

236

7 LIQUIDATION OF CORPORATE PERSON

7.1

Initiation of Liquidation

238

7.2

Appointment of Liquidator and his fees

241

7.3

Powers and duties of Liquidator

244

7.4

Liquidation Estate

248

7.5

Realization of security interest by secured creditor

250

7.6

Distribution of unsold assets

251

7.7

Liabilities of contributory in liquidation

252

8 ADMISSION AND PROOF OF CLAIMS BY LIQUIDATOR

8.1 8.2 8.3

Liquidator has powers to access information Ascertaining claims against corporate debtor Avoidance of preferential transactions by liquidator

255 256 258

8.4

Avoidance of undervalued transactions

262

8.5

Action if corporate debtor had defraud creditors

263

8.6

Protection to corporate debtor against extortionate credit transactions

264

Position of secured creditor in liquidation proceedings

265

8.7

9 REALISATION AND DISTRIBUTION OF ASSETS BY LIQUIDATOR

9.1

Realisation of assets by Liquidator

267

9.2

Mode of sale

267

9.3

All money to be paid into bank account except petty cash

268

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CONTENTS PAGE

9.4

Distribution of assets

268

9.5

Distribution of cash to stakeholders

271

9.6

Completion of liquidation within one year

271

9.7

Final report by Liquidator prior to dissolution

272

9.8

Unclaimed proceeds of liquidation or undistributed assets to be transferred to Corporate Liquidation Account

272

9.9

Dissolution of corporate debtor

273

10 PAYMENT OF DUES TO STAKEHOLDERS AFTER LIQUIDATION OR DURING FORMULATION OF RESOLUTION PLAN

Insolvency Code is complete code in respect of distribution of assets

274

10.2

Money held in trust has priority over all dues

275

10.3

Statutory dues under other laws

276

10.4

Workmen’s portion of Workmen’s dues previous for two years have overriding priority

277

10.5

Provisions relating to secured creditors

279

10.6

Priority of tax dues in winding up over secured creditors

280

10.7

Preferential Payments under Companies Act

282

10.8

Distribution of surplus amount members

282

10.9

Tax liability under Income Tax in respect of distribution of assets to equity shareholders

282

10.1

11 VOLUNTARY LIQUIDATION OF COMPANIES

11.1

Voluntary liquidation by corporates with no default

283

11.2

Procedure for Voluntary Liquidation

283

11.3

Notification to Registrar after resolution

284

11.4

Application to NCLT after assets wound up

284

11.5

Procedure for voluntary liquidation

284

11.6

Claim by various creditors Proof of claim

285

11.7

Realisation of Assets

286

CONTENTS

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11.8

Completion of liquidation

287

11.9

Cases where voluntary liquidation was allowed

289

12 ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons

290

12.2

Appeals and Appellate Authority

292

12.3

Appeal to Supreme Court on question of law

294

12.4

Civil Court not to have jurisdiction where NCLT or IBBI has jurisdiction

294

12.5

Expeditious disposal of applications

295

12.6

Penalty for Fraudulent or malicious initiation of proceedings

295

Penalty of carrying on business fraudulently to defraud traders

295

12.1

12.7

13 CROSS BORDER INSOLVENCY AND BANKRUPTCY

13.1 13.2

Enabling provisions for cross border transactions Agreements with foreign countries

298 298

13.3

Letter of request to a country outside India in respect of assets

298

14 OFFENCES AND PENALTIES IN RELATION TO CORPORATE INSOLVENCY

14.1

Punishments for offences

300

14.2

Punishment for concealment of property

300

14.3

Punishment for transactions defrauding creditors

301

14.4

Punishment for misconduct in course of corporate insolvency resolution process

302

14.5

Offences by insolvency professional

303

14.6

Punishment for falsification of books of corporate debtor

303

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CONTENTS PAGE

14.7

Punishment for wilful and material omissions from statements relating to affairs of corporate debtor

303

14.8

Punishment for false representations to creditors

303

14.9

Punishment for contravention of moratorium or the resolution plan

303

14.10 Punishment for false information furnished in application

304

14.11 Punishment for non-disclosure of (a) dispute or (b) payment of debt by operational creditor

304

14.12 Punishment for providing false information in application made by corporate debtor

304

14.13 Residual punishment of fine for violation of provisions of Insolvency Code

305

14.14 NCLT can ask Government to investigate and Government can file complaint before Special Court

305

14.15 Punishment for providing false information in pre-packaged insolvency resolution process

305

14.16 Punishment for providing false information in pre-packaged insolvency resolution process

306

14.17 When the application shall be deemed to be false in material particulars

306

15 BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

15.1

Background

307

15.2

Adjudicating Authority

308

15.3

Civil Court not to have jurisdiction

309

15.4

Appeal against order of DRT

309

15.5

Appeal to Supreme Court

309

16 FRESH START PROCESS

16.1

Introduction

310

16.2

Interim moratorium

312

16.3

Procedure after receipt of application

312

16.4

Objections by creditor

313

16.5

Discharge order

314

CONTENTS

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17 INSOLVENCY RESOLUTION OF INDIVIDUAL AND FIRM

17.1

What is insolvency resolution?

316

17.2

Creditor can initiate insolvency resolution process

317

17.3

Interim moratorium

318

17.4

Admission or rejection of application by Adjudicating Authority

319

Moratorium if application is admitted by Adjudicating Authority

319

17.6

Registering of claims by creditors after public notice

320

17.7

Repayment plan by debtor in consultation with resolution professional

320

17.8

Summoning of meeting of creditors

321

17.9

Rights of secured creditors in relation to repayment plan

322

17.5

17.10 Approval of repayment plan by creditors by more than 75% voting

323

17.11 Order of Adjudicating Authority on repayment plan

323

17.12 Report of Completion of repayment plan

324

17.13 Discharge order

324

17.14 Special provisions for insolvency resolution for personal guarantors of corporate debtors

325

18 BANKRUPTCY ORDER FOR INDIVIDUALS AND FIRMS

18.1

Bankruptcy if insolvency resolution process fails

330

18.2

Interim moratorium as soon as application is filed

331

18.3

Bankruptcy order by Adjudicating Authority

332

18.4

Statement of financial position by bankrupt

333

18.5

Settlement of claims of creditors

334

18.6

Administration and distribution of estate of bankrupt

335

18.7

Discharge order

335

18.8

Modification or recall of bankruptcy order

336

18.9

Disqualification of bankrupt from bankruptcy commencement date till he is discharged

336

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CONTENTS PAGE

18.10 Bankruptcy process for personal guarantors to Corporate Debtors

337

19 BANKRUPTCY TRUSTEE

19.1

Standard of conduct of bankruptcy trustee

343

19.2

Release of bankruptcy trustee

344

19.3

Administration and distribution of estate of bankrupt by bankruptcy trustee

344

Approval of creditors for certain acts to be done by bankruptcy trustee

346

19.5

Estate of bankrupt

346

19.6

Onerous property of bankrupt can be disowned

348

19.7

Challenge against disclaimed property

349

19.8

Undervalued transactions

350

19.9

Preference transactions

351

19.4

19.10 Extortionate credit transactions

352

19.11 Proceedings continue even if bankrupt dies

352

20 SETTLEMENT OF CLAIMS AGAINST BANKRUPT

20.1

Proof of debt

354

20.2

Distribution of interim dividend

355

20.3

Distribution of property among creditors

355

20.4

Final dividend

355

20.5

Claims of creditors who had not proved their debt

356

20.6

Priority of payment of debts

356

21 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

21.1

Background

358

21.2

Application to NCLT

360

21.3

Sections 230 to 240 is complete code of ‘single window clearance’

362

CONTENTS

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21.4

Merger and Amalgamation

363

21.5

Procedure to be followed

365

21.6

Simplified fast track procedure in case of small companies or holding/subsidiary companies

368

21.7

Cross border mergers

369

21.8

Takeover of another company by purchasing 100% of shares

369

Compromise or arrangement may include takeover

370

21.9

21.10 Compulsory offer to purchase of minority shareholding if acquirer already holds 90% or more equity shares

371

21.11 Power to Central Government to order compulsory amalgamation

371

22 REGISTERED VALUERS

22.1

Background

372

22.2

Qualifications and eligibility and registration as valuer

375

22.3

Methods of valuation

378

22.4

Liability of valuer is as ‘expert’

378

23 REMOVAL OF NAME OF COMPANIES FROM REGISTER OF MEMBERS

23.1

Removal of name - Short cut to winding up

379

23.2

Striking off name of a company

379

23.3

Company may itself request for removal of its name from register of companies

381

NCLT can issue winding up order even if name of struck off the register

383

23.5

Restrictions in applying for removal of name

383

23.6

Effect if company is dissolved by removing name from register

384

Effect if company carries on business even after name is struck off the register

384

23.8

Fraudulent application for removal of name

384

23.9

Appeal before NCLT against removal of name of company

385

23.4

23.7

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CONTENTS PAGE

23.10 When NCLT can restore name of company

386

23.11 Restoration of name of company if application made within 20 years

389

24 NCLT AND NCLAT

24.1

Background

390

24.2

Constitution of Tribunal (NCLT)

393

24.3

National Company Law Appellate Tribunal

394

24.4

Provisions common to NCLT and NCLAT

395

24.5

Procedural aspects of NCLT and NCLAT

397

24.6

Appeal to Supreme Court against order of NCLAT

400

25 RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993

25.1

Background of RDB Act

402

25.2

Debt Recovery Tribunal

409

25.3

General provisions relating to DRT and DRAT

413

25.4

Procedure at Debt Recovery Tribunal

414

25.5

Appeal against order of DRT

418

25.6

Further appeals after order of DRAT

419

25.7

Decree of foreign Court should be executed through DRT only

421

Recovery Powers after issue of certificate

421

25.8

26 SARFAESI ACT

26.1

Overview

424

26.2

Enforcement of Security Interest

427

26.3

How to enforce security interest

435

26.4

How the secured creditor can exercise his right?

441

26.5

Other related provisions

442

CONTENTS

I-22 PAGE

26.6

Procedure for sale of asset

446

26.7

Takeover of management of defaulting borrower

457

26.8

Application, Appeals and Penalty

459

26.9

Securitisation

464

26.10 Asset Reconstruction Companies

467

26.11 Acquiring financial assets by ARC from Bank/FI

472

26.12 Central Registry under SARFAESI Act

476

26.13 Asset Reconstruction

479

27 RBI DIRECTIONS ON RESOLUTION OF STRESSED ASSETS

27.1

Background

481

27.2

RBI Directions on Prudential Framework for Resolution of Stressed Assets

482

Framework for Resolution of Stressed Assets as directed

by RBI

483

Provisioning in case of delayed Implementation of Resolution Plan

485

27.5

Prudential Norms

485

27.6

Supervisory Review by RBI

486

27.7

Disclosures by lenders in financial statements

486

27.8

Exceptions to the directions for stressed assets

486

27.3 27.4

SUBJECT INDEX

487

C

H

A

P

T

E

R

3

Insolvency Resolution of corporate persons 3.1 Background Part II of Insolvency Code, 2016 [sections 4 to 77] deal with Insolvency Resolution and liquidation of corporate persons.

This part is divided into seven chapters. Each chapter dealing with different issues relating to Insolvency Resolution and liquidation of corporate persons.

The Insolvency Code initially made provisions of corporate insolvency resolution process (CIRP). Now, w.e.f. 4-4-2021 separate provisions have been made for pre-packaged insolvency resolution process (PPIRP) of corporate debtor under Chapter III-A of the Insolvency Code, specifically for MSME sector. The provisions relating to PPIRP are discussed separately.

3.2 Initiation of corporate insolvency resolution process Corporate insolvency resolution process (CIRP) can be commenced when a corporate debtor commits a default - section 4(1) of Insolvency Code, 2016.

The default should be minimum Rs one crore - proviso to section 4(1) of Insolvency Code, 2016 [Limit of Rs one lakh increased to Rs one crore vide Notification No. S.O. 1205(E) dated 24-3-2020] - noted and followed in Pankaj Aggrawal v. UOI (2020) 160 SCL 624 = 117 taxmann.com 494 (Del HC).

CIRP cannot be initiated if amount involved is less than Rs one lakh (now Rs one crore) - Deltas Pharma v. Life Essential Personalcare (2018) 148 SCL 234 = 94 taxmann.com 222 (NCLT).

When amount involved exceeds Rs one lakh (now Rs one crore), Adjudicating Authority is not required to determine exact amount defaulted. Discrepancy in calculation can be settled by CoC - Bank of Baroda v. Barnala Steel Industries P Ltd. (2018) 148 SCL 246 = 94 taxmann.com 202 (NCLT) * Standard Chartered Bank v. Woolways India Ltd. [2018] 94 taxmann.com 381 (NCLT).

53

Para 3.2

INSOLVENCY RESOLUTION OF CORPORATE PERSONS

54

Dispute regarding quantum of admitted liability is immaterial at admission stage of CIRP application, once liability is accepted – Apya Capital Services v. Guardian Homes [2021] 129 taxmann.com 393 (NCLAT).

Minimum default for pre-packaged IRP (PPIRP) can be set upto Rupees one crore (presently minimum Rs. 10 lakhs) - The Central Government may, by notification, specify such minimum amount of default of higher value, which shall not be more than one crore rupees, for matters relating to the pre-packaged insolvency resolution process of corporate debtors (PPIRP) under Chapter III-A (Pre-packaged insolvency resolution process) - second proviso to section 4 of Insolvency Code inserted vide IBC (Amendment) Act, 2021 w.r.e.f. 4-4-2021.

Minimum default should be Rupees ten lakhs in case of PPIRP - Minimum default should be Rs. ten lakhs for the matters relating to the pre-packaged insolvency resolution process of corporate debtor under Chapter III-A of the Insolvency Code - Notification No. S.O. 1543(E) dated 9-4-2021. There is no upper limit for maximum default.

Corporate debtor - “Corporate debtor” means a corporate person who owes a debt to any person - section 3(8) of Insolvency Code, 2016 - section 3(8) of Insolvency Code, 2016.

IBC Code applies to Government company also - IBC Code applies to Government company also - Hindustan Paper Corporation Limited Officers’ and Supervisors’ Association v.

Union of India [2021] 130 taxmann.com 153 (Gauhati HC DB).

Proceedings for CIRP is not a ‘suit’, hence partnership firm can apply under Insolvency Code - Application for CIRP is not a ‘suit’. Provisions of section 69(2) of Indian Partnership Act, 1932, applies to ‘suits’ and therefore, same cannot apply to ‘proceedings’ under Code - NN Enterprises v. Relcon Infra Projects Ltd. [2020] 159 SCL 229 = 114 taxmann.com 673 (NCLT) * Shree Dev Chemicals v. Gammon India (2020) 161 SCL 59 = 118 taxmann.com 56 (NCLT) [section 69(2) of Indian Partnership Act bars an unregistered firm from filing a ‘suit’].

Insolvency proceedings before NCLT is not a ‘suit’ - Bimalkumar Manubhai Savalia v. Bank of India [2020] 117 taxmann.com 227 (NCLAT).

Reasons for default are not relevant – If there was debt and there is default, application is required to be admitted. Reasons for default are not relevant – Dr. H N Nagaraj v.

Edelweiss Asset Reconstruction Co Ltd. (2018) 148 SCL 447 = 84 taxmann.com 326 (NCLAT). [In this case, the applicant argued that the restructured loan instalments were to be paid by selling immovable properties. However, these could not be sold as financial creditor had obtained injunction from Court].

Application is for resolution of insolvency and not recovery proceeding - Application to initiate CIRP is for resolution of insolvency or liquidation and not (in effect) for recovery of debt. Such application cannot be admitted - C Shivakumar Reddy v. Dena Bank (2020) 158 SCL 375 = 114 taxmann.com 219 (NCLAT) - relying on Jignesh Shah v. UOI (2019) 109 taxmann.com 486 = 156 SCL 542 = 10 SCC 750 (SC 3 member bench).

NCLT cannot exercise inherent powers to decide any dispute under section 7, 9 or 10 NCLT has to decide issue of ‘dispute’ as per the definition. NCLT cannot exercise inherent powers to decide any dispute under section 7, 9 or 10 (by considering some extraneous matters) – Neha Himatsinghka v. Himatsingka Resorts P Ltd. (2019) 151 SCL 359 = 100 taxmann.com 421 (NCLAT).

55

INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS

Para 3.2

Joint application against two corporate debtors permissible - Joint application against two corporate debtors is permissible if developer and landowner has collaborated i.e. had Joint Development Agreement – Mrs Mamatha v. AMB Infrabuild P Ltd. (2019) 151 SCL 507 = 101 taxmann.com 309 (NCLAT).

In Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure (P.) Ltd. [2019] 111 taxmann.com 115 (NCLAT), corporate debtors (landholders) in concert with principal borrower decided to develop an area by constructing infrastructure for allottees. Lands of all corporate debtors were consolidated for construction purpose. It was held that Resolution Process would not succeed if whole project was not taken over by Resolution Professional for consolidated ‘resolution plan’. Hence, group CIRP proceedings is required to be initiated against corporate debtors apart from CIRP already initiated against principal borrower.

However, in Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd. (2019) 151 SCL 555 = 101 taxmann.com 464 (NCLAT), it was held that financial creditor cannot file two CIRP against two corporate guarantors, for same set of debt.

Consolidated CIRP in case of group companies i.e. holding and subsidiary - In Axis Bank Ltd., In re (2020) 162 SCL 67 = 115 taxmann.com 133 (NCLT), CIRP was initiated against three group companies - one holding and two 100% subsidiaries. It was noted that each 100% subsidiary depended on outcome of holding company, and without consolidation of CIRP of the three companies, resolution was not possible. Hence, consolidation of CIRP was ordered.

Direct liquidation if no possibility of revival of corporate debtor - If there is no possibility of revival of corporate debtor, it would be just and proper to put the corporate debtor under liquidation process, rather than to put it in CIRP in first instance - GNB Technologies P Ltd., In re [2020] 115 taxmann.com 188 (NCLT) * Ultratreat Industrial Services v. Karan Processors (P.) Ltd. [2021] 124 taxmann.com 84 (NCLT).

Suspension of initiation of CIRP - No CIRP if default occurs on or after 25-3-2020 and upto 24-3-2021 - In view of lockdown due to Covid-19 (Corona virus), if any default occurs on or after 25-3-2020, application for CIRP cannot be filed for one year (initially it was for six months) in specified situations. This is not universal suspension of Insolvency Code but only suspension of CIRP if default occurs during Covid-19 period i.e. 25-3-2020 to 24-32021.

Section 10A of Insolvency Code, as introduced w.r.e.f. 5-6-2020, reads as follows Notwithstanding anything contained in sections 7, 9 and 10 of Insolvency Code, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25-3-2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf.

No application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period - Explanation to section 10A of Insolvency Code.

It is clarified that the provisions of this section shall not apply to any default committed under the said sections before 25-3-2020.

Para 3.2

INSOLVENCY RESOLUTION OF CORPORATE PERSONS

56

3.2-1 Meaning of Corporate Person Corporate person means company or LLP or other body corporate with limited liability.

However, the Code does not cover Bank, Financial Institutions, Insurance Company, Asset Reconstruction Company, Mutual Funds, Collective Investment Schemes or Pension Funds.

“Corporate person” means a company as defined in section 2(20) of the Companies Act, 2013, a limited liability partnership (LLP) or any other person incorporated with limited liability under any law for the time being in force, but shall not include any financial service provider - section 3(7) of Insolvency Code, 2016.

However, section 227 of Insolvency Code empowers Central Government to notify financial services to whom provisions of Insolvency Code shall apply. Under these powers, Insolvency Code has been made applicable to NBFC with assets of Rs 500 crore or more.

Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.

“Financial service provider” means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator - section 3(17) of Insolvency Code, 2016.

“Financial sector regulator” means an authority or body constituted under any law for the time being in force to regulate services or transactions of financial sector and 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 section 3(18) of Insolvency Code, 2016.

“Financial service” includes any of the following services - section 3(16) of Insolvency Code, 2016— (a) accepting of deposits. (b) safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so. (c) effecting contracts of insurance. (d) offering, managing or agreeing to manage assets consisting of financial products belonging to another person. (e) rendering or agreeing, for consideration, to render advice on or soliciting for the purposes of— (i) buying, selling, or subscribing to, a financial product (ii) availing a financial service; or (iii) exercising any right associated with a financial product or financial service. (f) establishing or operating an investment scheme. (g) maintaining or transferring records of ownership of a financial product. (h) underwriting the issuance or subscription of a financial product. (i) selling, providing, or issuing stored value or payment instruments or providing payment services.

Financial Product - “Financial product” means 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

Insolvency & Bankruptcy Code Ready Reckoner AUTHOR : V.S. DATEY PUBLISHER : TAXMANN DATE OF PUBLICATION : FEBRUARY 2022 : 9789393880024 : 560 : PAPERBACK

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Description This book is a comprehensive, topic-wise commentary on laws governing Insolvency & Bankruptcy in India. This book covers an analysis of the following Laws: u

Insolvency and Bankruptcy Code, 2016 (IBC) [as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2021]

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Recovery of Debts and Bankruptcy Act, 1993

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Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFESI Act)

The book intends to provide answers to the practical issues faced by professionals on a routine basis. It provides complete and accurate information about all Insolvency and Bankruptcy Laws provisions.

The Present Publication is the 2022 Edition, authored by V.S. Datey, updated till January 2022, with the following noteworthy features: u

[Topic-wise Commentary] on the IBC

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[Analysis of all Provisions] of the IBC with relevant Rules/Regulations, Judicial Pronouncements, Circulars and Notifications

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[Previous Amendments at a Glance] made by the Insolvency and Bankruptcy Code (Amendment) Act, 2021

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[Short Commentary/Guide] on the Insolvency and Bankruptcy Code (Amendment) Act, 2021

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