CHAPTER-14: CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER

INSOLVENCY & BANKRUPTCY CODE, 2016

INTRODUCTION

Prior to the introduction of this Code, there were many agencies dealing with debt, defaults, and
insolvency, resulting in delays, complications, and higher expenses in the insolvency resolution
process. The Insolvency and Bankruptcy Code, 2016 is a mature step toward resolving the legal
situation around financial failures and insolvency in India. The code has substantial value for all
stakeholders, including various government regulators, because it provides an easy departure
with a painless method in cases of insolvency of individuals and organizations. With the
enactment of IBC, 2016, various multiple legislations that were overlapping and creating
confusions had been done away. These provisions contained in the following statutes:

 The Companies Act, 2013

 The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
 Sick Industrial Companies (Special Provisions) Act, 1985
 The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002

As a result of this disjointed legal system, there have been delays, misunderstandings, and
disputes between the many laws and legal forums. Furthermore, several of these legislations,
such as SICA, have proven to be completely ineffectual in delivering a quick restructuring that
considers both debtors and creditors' interests. The World Bank's Ease of Doing Business Index
2015 ranked India 137th out of 189 countries in terms of the ease, with which insolvencies are
resolved, based on factors such as time, costs, creditor recovery rate, and debtor asset
management during insolvency proceedings, creditor participation, and the strength of the
insolvency law framework. Thus, to address the issue of overlapping judicial forums and legal
provisions, the Ministry of Finance established the Bankruptcy Law Reform Committee
(“BLRC“), chaired by Mr T.K. Viswanathan, which recommended that the existing framework
be consolidated by creating a single law for insolvency and bankruptcy.
The code is a universal code that will regulate the insolvency, voluntary liquidation, bankruptcy
proceedings of the companies formed under the Companies Act, 2013 and the previous statute,
any LLP registered under the Limited Liability Partnership Act, 2008, any other company
formed under and governed by any Special Act, the registered partnership firms, and individuals,
and any other body being incorporated under any other statute for the time being in force, as
specified by the Union Government. Thus, the code has wide its scope and applicability.
The objectives of the I&B Code, 2016 is to achieve a robust framework of the insolvency law so
that it can achieve the improved handling of the disputes between the debtors and its creditors. It
had also given parties the freedom to choose the most cost-effective approach to maximize value
during negotiation of disputes. The bankruptcy law has provided a framework for negotiations
between creditors and outside financiers, potentially allowing for such re-organizations. The
code has another objective to balance between the interests of all the stakeholders of the
company, so that the stakeholders get benefit from the availability of credit.
The main goal of the legislature in enacting this unified code was to consolidate and amend the
laws relating to reorganization and insolvency resolution of Corporate Persons, Partnership
Firms, and individuals in a time bound manner in order to maximize the value of such person's
assets, to promote entrepreneurship, and to promote an effective legal system.

IBC established the Corporate Insolvency Resolution Process to achieve the aforementioned
goals (hereinafter referred as CIRP). CIRP is a debt resolution process in which a corporate
person who is unable to pay a debt due and payable is administered by a third neutral party
(Interim Resolution Professional) in such a way that the corporate person is able to pay off its
obligations/ debt as a continuing concern rather than being wound up or killed for not paying the
amount overdue. In the case that the Corporate Person's resolution cannot be achieved through
CIRP, a liquidation process is initiated against the Corporate Person.

As a result, CIRP is not a means for recovering debts or borrowed funds from a Corporate
Debtor. It is clearly stated under Section 65 of the IBC, 2016 that if a creditor initiates CIRP for
a purpose other than purpose resolution or liquidation, the creditor will be considered to have
filed the application with a false or malicious intent.

According to Insolvency and Bankruptcy Code, only the financial creditors and operational
creditors are allowed to initiate the Corporate Insolvency Resolution Process. It has been stated
under S. 6 of the Code that in case of default, only the financial Creditor, Operational Creditor
and even the Corporate Debtor voluntarily file for instituting the insolvency proceedings.

Part III of the Code which deals with the insolvency of individuals and partnership firms has
been recently notified by the government of India vide its notification dated 15-11-2019. But I
am not going to deal with that process, as I am limiting my research only to the insolvency
proceedings related to corporate debtors. However, it has been noticed that a preliminary study
of the legislative structure envisioned under Part III of the IBC, 2016 suggests that it is
unreasonably adverse to personal guarantors’ interests. One of the reasons behind the above
preposition is that now the creditors can concurrently file the insolvency proceedings against the
Corporate Debtor and the Personal Guarantor for the same debt. This could result in a situation
where the creditor, although having filed and collected part of its debt before a Resolution
Professional in the corporate insolvency resolution process, files claims for the entire debt in the
personal guarantor’s insolvency resolution process.

IMPORTANT DEFINITIONS

Before going to study the nuances of the Corporate Insolvency Resolution Process, its procedure,
and issues and challenges, it is pertinent first to elaborate on important terms and definitions
defined under the code, to better understand the restructuring process. Some of the important
terms relevant for understanding the concept are discussed below:

 Financial Debt: Section 5(8) of the IBC provides an inclusive and non-exhaustive
definition of “financial debt” which means “a debt along with interest, if any, which is
disbursed against the consideration for time value of money…”
 As previously stated, the phrase "financial debt" refers to debt, as well as any interest,
that is disbursed in exchange for the time value of money. It is necessary to comprehend
the definition of the term “time value for money” in order to interpret the term “financial
debt.”
 In the case of Nikhil Mehta and Sons (HUF) v. AMR Infrastructure Ltd. (AT)
(Insolvency) No. 07 of 2017, the word was first examined. In this case, the applicants
paid nearly the full cost of the unit and were assured by the builder that they would be
paid a monthly fee until they received ownership of the real estate units they had
 reserved. When the Corporate Debtor failed to pay the aforementioned "Assured Returns"
as promised under the contract, the applicants filed an insolvency petition against it.
 As per NCLT, the transaction in this case was more akin to a sale of goods than a debt.
On appeal from this order, the NCLAT looked at the parties' sale and purchase agreement
to figure out what "guaranteed returns" meant. Following the payment of the majority of
the consideration money by the home buyers, the Corporate Debtor agreed to pay a
specified sum every calendar month until possession was handed over. This was the time
value of money against the consideration, according to NCLAT.
 Operational Debt: S. 5(21) of the Code defines Operational Debt means “a claim in
respect of the provision of goods or services including employment or a debt in respect of
the repayment of dues arising under any law for the time being in force and payable to
the Central Government, any State Government or any local authority”
 Because it refers to the provision of goods and services, as well as activities that pertain
to the day-to-day operating of a business organization, the dynamics of defining what is
operational debt become particularly important. The operational creditors are those
creditors to whom an operational debt is owed, according to Innoventive Industries Ltd.
V/s ICICI Bank, (2018) 1 SCC 407. A claim for the provision of goods or services,
including employment, or a debt for the repayment of dues arising under any law now in
force and payable to the Government or a local authority is referred to as an operational
debt.
 In the case of M. Ravindranath Reddy vs. G. Kishan & Ors, Company Appeal (AT)
(Insolvency) No. 331/ 2019, NCLAT (Date of Decision: 17.01.2020), it was held that any
debt arising without a direct nexus to the output produced or supplied by the corporate
debtor, even if it is a claim amounting to debt, cannot be considered an operational debt
under the IBC. “Further, it was held that an operational debt is essentially a claim in
respect of the following:
 Provision of goods;
 Provision of services, including employment; or
 A debt arising under any statute and payable to Government/local authority.”
 Even though there is a duty or duty owed from the corporate debtor to the creditor, the
claim cannot be classified as an operational debt if it does not fall into one of the three
categories described above.
 Financial Creditor: A financial creditor is defined under Section 5(7) of the IBC to
mean “a person to whom a financial debt is owed and includes a person to whom such
debt has been legally assigned or transferred”. In order to ascertain whether a person is a
financial creditor, the debt owed to such a person must fall within the ambit a
‘Financial Debt’ as under Section 5(8) of the IBC. The meaning of the ‘financial debt’ is
discussed above.
 Secured creditors and unsecured creditors are two types of financial creditors. The major
distinction between secured and unsecured financial creditors is that secured creditors
have higher priority in liquidation and asset distribution processes than unsecured
creditors. Furthermore, secured financial creditors are granted the same priority of
repayment as worker and employee dues during the liquidation process, and are given a
greater priority than other operational creditors, who are classified as unsecured creditors
for liquidation purposes.
 When contrast to operational creditors, financial creditors have a far easier time starting
insolvency procedures. Financial creditors can submit a direct application to the NCLT
under the IBC, and they just need to establish that there has been a default. It's also worth
noting that the committee of creditors can only include financial creditors; no operational
creditors are allowed to join.
 It's worth noting that the recently enacted Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 has included home buyers to the list of financial creditors.
 Operational Creditor: The word “operational creditor” is defined as “any individual to
whom operational debt is owing or to whom such obligation has been allocated” under
Section 5(20) of the IBC. The Insolvency and Bankruptcy Code defines operational debt
as a claim for the provision of products or services, including employment or
governmental dues. Therefore, it refers to anyone who has provided goods or services
and the payment for the same is due from the corporate debtor.  In addition to showing
default, an operational creditor will have to prove that there is no dispute between the
operational creditor and the debtor on the amounts owed when bringing an application for
 corporate insolvency resolution before the NCLT against an operational debtor. An
operational creditor practically has only three rights under the code:
 To begin the process of insolvency resolution.
 To obtain notification of a creditors' committee meeting.
 To attend the Committee of Creditors meeting if they have at least 10% of the total
amount owed to the corporate debtor to recover.
 Regardless of whether a financial creditor or an operational creditor proposes a resolution
plan, it must be authorized by a committee comprised solely of financial creditors. In
contrast to financial creditors, operational creditors have subjective rights, giving
financial creditors a monopoly over the Corporate Insolvency Resolution Process.
 Corporate Debtor: They have been defined under S. 3(7) of I & B Code, 2016, which
means they are the corporate persons who owes the debt to any person. They include:
Companies registered under Companies Act, 2013, LLP defined under the LLP Act, any
other entity incorporated under special statute with limited liability.

The CIRP has been filed under S. 7, S. 9 and S. 10 of the Code by Financial Creditors,
Operational Creditors and by the Corporate Debtor itself respectively. Before moving towards
discussing the process provisions wise, it is necessary to know about the procedure of resolution
process briefly.

 Filing of Application to Adjudicating Authority

 Acceptance or Rejection of Application by Adjudicating Authority
 Declaration of Moratorium Order
 Public Announcement of CIRP in the manner provided
 Appointment of Interim Resolution Professional
 Formation of Committee of Creditors
 Appointment of Resolution Professional
 Meeting of CoC
 Preparation of Information Memorandum
 Verification and Analysis of Claims
  Approval/ Rejection of Resolution Plan
 In case of rejection of Resolution Plan, the liquidation proceedings of the Corporate
Debtor take place.
TIME LIMIT PRESCRIBED FOR THE RESOLUTION PROCESS

The Resolution Process must be completed within a maximum of 330 days, including one time
extension granted by NCLT of 90 days and 60 days for judicial proceedings, according to the
Code.

APPLICATION FILED BY FINANCIAL CREDITOR UNDER S. 7

In case any default made by the company or an LLP in repayment of any financial debt and is
defaulting in spite of continuous demands, then the Financial Creditor alone or with conjunction
with other Financial Creditors, or any other persons on behalf of Financial Creditors can notified
by the Central Government, can opt to file an application under S. 7 of the Code for commencing
Corporate Insolvency Resolution Process (CIRP) against the defaulter (Corporate Debtor) in the
required format prescribed under the I & B (Application to Adjudicating Authority) Rules, 2016.

Persons eligible to file application under S. 7:

 A financial creditor who acts alone or in concert with other creditors.

 Any other person on behalf of the financial creditor as the Central Government may
notify. The following individuals have been told that they may file an application on
behalf of the financial creditor to initiate CIRP: – (i) A guardian; (ii) An executor or
administrator of a financial creditor's estate; (iii) A trustee (including a debenture trustee);
and (iv) A person properly authorized by a corporation's Board of Directors.
 Depositors: When a financial debt is in the form of securities or deposits, an application
for CIRP initiation must be filed jointly by at least 100 creditors in the same class or 10%
of the total number of creditors in the same class, whichever is lower.
 Class of Creditors: When a financial debt is owed to a class of creditors that exceeds the
number specified in Sec. 21(6A)(b), an application for initiation of CIRP must be filed
jointly by not less than 100 of such creditors in the same class, or 10% of the total
number of such creditors in the same class, whichever is less.
  Home Buyer: The application must be filed jointly by at least 100 allottees from the same
real estate project, or at least 10% of the total number of allottees from the same real
estate project, whichever is smaller.

In case the application is made jointly by financial creditors, they may nominate one amongst
them to act on their behalf.

The financial creditors have option to not proceed against the Corporate Debtor and to initiate
the proceedings (CIRP) against the personal guarantor of the Corporate Debtor; this has been laid
down by the NCLAT Bench in Bijay Kumar Agarwal v. State Bank of India. But on the other
hand, as per M/s. SEW Infrastructure Ltd. v. M/s. Mahendra Investment Advisors Pvt. Ltd., the
NCLAT held that once the insolvency proceedings were commenced against the corporate
debtor, then for the same set of claim and default, another application for CIRP against the
personal guarantor is not maintainable.

Minimum Threshold for Default: The Government of India amended the minimal threshold of
default under Section 4(1) of the Insolvency and Bankruptcy Code, 2016 from One Lakh Rupees
to One Crore Rupees by Notification F. No. 30/09/2020 dated 24th March 2020 issued by the
Ministry of Corporate Affairs.

This was due to provide some relaxations to the Corporate Debtor during the COVID-19 where
the business and economy has struck hard and therefore, the earlier threshold limit of 1 Lakh
rupees would have led to tremendous amount of applications before the adjudicating authority
and will also led to liquidation of many efficient entities which would have otherwise able to
clear their dues.

Application to be filed before NCLT: According to S. 7(1) of the IBC, 2016, the Financial
Creditor can file before the jurisdiction of NCLT where the Corporate Debtor’s registered office
is situated. It is important to note that “a default includes a default in respect of a financial debt
owed not only to the applicant financial creditor but to any other financial creditor of the
corporate debtor.”
An application for commencing of CIRP against a corporate debtor under section 7 of the Code
is prescribed in Form 1, as per Rule 4 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, , supported by the accompanying documents and records:

 The name of the resolution professional suggested operating as an interim resolution

professional, as well as his consent;
 The record of the default documented with the information utility, or such other record or
evidence of default as may be specified;
 If the applicant is an assignee or transferee of a financial contract, the application must be
accompanied by a copy of the assignment or transfer agreement, as well as any other
required evidence to prove the assignment or transfer.
A copy of the application filed with the Adjudicating Authority must be sent by registered or
speed mail to the corporate debtor's registered office as soon as possible.

NCLT, in an order dated May 12, 2020, required Information Utility to file default records with
fresh petitions filed under Section 7 of the Insolvency and Bankruptcy Code, 2016. A fresh
petition will not be considered if there is a record of default under section 7 of the IBC, 2016. In
addition, the Authorized Representatives/Parties in cases pending (as of 12.05.2020) for
admission under the aforementioned part of the IBC have been directed to file default records
with the Information Utility before the next date of hearing.

Within 14 days of receiving the application under Section 7, the Adjudicating Authority (NCLT)
must determine the presence of a default from information utility records or other evidence
provided by the financial creditor. If the Adjudicating Authority is satisfied that:

 A default has occurred;

 The application is complete; and
 No disciplinary actions against the recommended resolution professional are pending, it
may allow the application by order.
OR

 Default has not occurred or

 The application is incomplete or
  Any disciplinary proceeding is pending against the proposed resolution professional,
it may, by order, reject such application.

Before rejecting the application, the Adjudicating Authority shall send the applicant a notice
requiring him to correct the flaw in his application within seven days of receiving the
notification.

In Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Ltd. & Others, the
Hon'ble Supreme Court decided that the time limit specified in the IBC, 2016 for admitting or
dismissing a petition or initiating CIRP under proviso to sub-sec. (5) of Sec. 9 is advisory and
not mandatory in nature. In the case of Techno Electric & Engineering Co. Ltd. vs. McLeod
Russel India Ltd., the NCLAT reached the same conclusion under section 7.

Some of the following important judgments relating to the application before the adjudicating
authority are discussed below:

 Venus Sugar Ltd. v. SASF 02(IBC)02/2020 –NCLAT: If the earlier application u/s 7 was
dismissed for non-prosecution, it was always open to the Respondent to file fresh
application under Section 7 of IBC, 2016
 A. Maheshwaran v. Stressed Assets Stabilization Fund – NCLAT: If a debt amount is
disputed & the amount is more than Rs. 1 Lakh, application u/s 7 is maintainable & exact
amount of claim will be considered at the stage of the CIRP.
 Karan Goel v. M/s Pashupati Jewellers & Anr – NCLAT: It was held that merely because
a suit has been filed by the Appellant & pending, cannot be a ground to reject the
application under Sec. 7 of the Code. Pre-existing dispute cannot be a subject matter of
Sec. 7, though it may be relevant u/s 9.
 In the matter of Vineet Khosla Shareholders and (ex) Director Margra Industries Ltd. v.
Edelweiss Asset Reconstruction Company Limited: NCLAT held that the Adjudicating
Authority at the stage of admission of Application u/s 7 is not required to consider
whether or not the Resolution for a given Company would be possible or not, or whether
or not it would be possible to keep it a going concern.
“The corporate insolvency resolution process shall commence from the date of admission of the
application under sub-section (5). The Adjudicating Authority shall communicate— (a) the order
under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order
under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or
rejection of such application, as the case may be.”

Persons not allowed to file application: “The following persons shall not be entitled to make an
application to initiate corporate insolvency resolution process under this Chapter, namely:— (a)
a corporate debtor undergoing a corporate insolvency resolution process; or (b) a corporate
debtor having completed corporate insolvency resolution process twelve months preceding the
date of making of the application; or (c) a corporate debtor or a financial creditor who has
violated any of the terms of resolution plan which was approved twelve months before the date
of making of an application under this Chapter; or (d) a corporate debtor in respect of whom a
liquidation order has been made.”

APPLICATION FILED BY OPERATIONAL CREDITOR UNDER S. 9

If a Corporate Debtor (CD) makes a default to an Operational Creditor (OC) with respect to an
outstanding claim that has become due and payable and is not paid, the Operational Creditor may
serve a demand notice on the Corporate Debtor in Form No. 3 or 4 demanding payment of the
defaulted operational debt by hand, registered mail, or speed post with acknowledgement due.
Information Utility (NeSL) must also receive a copy of the demand notice.

Minimum Threshold for Default: The Government of India amended the minimal threshold of
default under Section 4(1) of the Insolvency and Bankruptcy Code, 2016 from One Lakh Rupees
to One Crore Rupees by Notification F. No. 30/09/2020 dated 24th March 2020 issued by the
Ministry of Corporate Affairs.

This was due to provide some relaxations to the Corporate Debtor during the COVID-19 where
the business and economy has struck hard and therefore, the earlier threshold limit of 1 Lakh
rupees would have led to tremendous amount of applications before the adjudicating authority
and will also led to liquidation of many efficient entities which would have otherwise able to
clear their dues.
Issuance of Demand Notice under S. 8: A demand notice is a notice sent to a corporate debtor
by an operational creditor seeking payment of the operational debt for which the default has
occurred. In Anil Syal Vs. Sanjeev Kapoor (Proprietor Kapoor Logistics) & Anr., the NCLAT
held that a demand notice issued under Section 8 of the Code against a corporate debtor for the
dues of a sister concern/group firm cannot be recognized as a legitimate notice.

In M/s Flipkart India Private Limited 132(IBC)98/2020, the NCLAT concluded that the nature of
Operational Debt determines whether a demand notice u/s 8(1) of the Code should be issued in
Form 3 or Form 4 under the Application to Adjudicating Authority Rules 2016. The Operational
Creditor does not have the option of sending the demand notice in Form 3 or Form 4 as it sees fit
under Section 8(1). Whether Form 3 or Form 4 is applicable depends on whether the invoices
were generated during the transaction or not.

It is also made clear that if the demand notice is issued in Form 3 of the Application to
Adjudicating Authority Rules 2016, a copy of the invoice is not required as long as the papers
proving the existence of operational debt and the amount in default are attached to the
application. In the case of M/s Krystal Integrated Services Pvt. Ltd. vs. M/s Indiaontime Express
Private Limited, the NCLAT held that an Operational Creditor cannot seek CIRP triggering in
the absence of delivery of a demand notice on the Corporate Debtor whose existence at the stated
address is in doubt.

The Apex Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software (P) Ltd. (Civil Appeal No.
9405 of 2017) held that any dispute over the amount or quality of products or services, or any
warranty or guarantee in this regard, must be reported to the Operational Creditor by the
Corporate Debtor. The Operational Creditor will be notified of any litigation or arbitration
procedures that have been filed and are pending prior to the receipt of such notice. The Debtor
has the option of making the payment and sending a certified copy of the transferred amount or
encashment of the check in the Operational Creditor's account.

Filing of application for initiation of CIRP: After 10 days have passed after the demand notice
was delivered, the Corporate Debtor have the option to make the payment of the due operational
debt by forwarding an authenticated copy of the record of the unpaid amount being electronically
transferred from the corporate debtor's bank account to the creditor’s account; or by sending an
authenticated copy of the record showing the operational creditor has en-cashed a corporate
debtor's cheque and in case no payment or notice of an existing dispute has been received, the
Operational Creditor may file an application in Form 5 with proof of claim and other documents
with NCLT under Section 9 of the IBC, 2016. A copy of the Application must also be served by
hand, registered mail, speed mail, or email to the Insolvency Board and the Corporate Debtor's
registered office. If the Operational Creditor desires to identify an Insolvency Resolution
Professional as Interim Insolvency Professional (IP), it must acquire consent in writing in Form
2. A fee of Rs. 2000/- must be submitted with the application.

In the case of Sunrise 14 A/S Denmark v. Ravi Mahajan 61(IBC)01/2018, the Supreme Court
declared that a petition brought by an advocate would be maintainable. However, NCLAT in the
matter of Palogix Infrastructure Private Limited v. ICICI Bank Limited held that a Power of
Attorney holder cannot file any application under S. 7 or S. 9 or S. 10 of the Code, 2016.

Under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016, the applicant can withdraw the application before the NCLT admits it. Also, under section
12A and Regulation 30A of the IBBI (Insolvency Resolution Process of Corporate Person)
Regulation, 2016, NCLT may allow withdrawal at a later time. However, if the Resolution plan
is accepted, the application for withdrawal may not be allowed (Kundan Care Products Pvt. Ltd.
v. Amit Gupta, NCLAT Delhi Judgment dated 30.09.2020 in Company Appeal (AT)
(Insolvency) No. 653/2020). However, during the Liquidation process, the withdrawal may be
permitted (Navaneetha Krishnan v. Central Bank of India, Coimbatore & Another vide NCLAT
[Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018).

Application Form and Documents:

According to S. 9(3) of the Code: “An operational creditor shall make an application in Form 5,
along with the application furnish a copy of the invoice demanding payment or demand notice
delivered by the operational creditor to the corporate debtor; an affidavit to the effect that there
is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt; a
copy of the certificate from the financial institutions maintaining accounts of the operational
creditor confirming that there is no payment of an unpaid operational debt by the corporate
debtor, if available; a copy of any record with information utility confirming that there is no
payment of an unpaid operational debt by the corporate debtor, if available; and any other proof
confirming that there is no payment of any unpaid operational debt by the corporate debtor or
such other information, as may be prescribed.”

A copy of the application filed with the Adjudicating Authority must be sent by registered or
speed mail to the corporate debtor's registered office as soon as possible. A corporate insolvency
resolution process initiated by an operating creditor under this section may propose a resolution
professional to operate as an interim resolution professional.

Admission or Rejection of the Application

NCLT, after reviewing the application in detail and confirming that it is complete in all respects,
that the amount due has not been paid, that the demand notice has been served, that there is no
dispute, and that the person named as IP is eligible to be appointed, will admit the application for
CIRP initiation by order. Although the prescribed period for admission of an application is 14
days from the date of filing, various courts, including the Hon'ble Supreme Court (Surendra
Trading Company v. Juggilal Kamlapat Jute Mills Co. Ltd. & Ors), have held that because this is
a procedural matter, admission of an application may take several months. The Adjudicating
Authority shall before rejecting an application give a notice to the applicant to rectify the defect
in his application within 7 days of the date of receipt of such notice from the adjudicating
Authority.

VOLUNTARY APPLICATION FILED BY CORPORATE DEBTOR UNDER S. 10

If the corporate debtor has committed a default of Rs. 1 lakh, it can file an application for
initiation of CIRP against itself under Section 10. A special resolution passed by the corporate
debtor's shareholders or a resolution passed by at least three-fourths of the total number of
partners is required to file an application under Section 10. It was held in Umesh Aggarwal v.
RICOH India Ltd. that the prior approval of share holders was replaced by a resolution.

Along with the Form 6 application, the corporate applicant must provide the following
information: (a) information relating to its books of account and other documents for the period
specified; (b) information relating to the resolution professional proposed to be appointed as an
interim resolution professional; and (c) the special resolution passed by the corporate debtor's
shareholders or the resolution passed by at least 3/4 of the total number of partners of the
corporate debtor, as the case may be, approving filing of the application.

CIRP's Initiation and Commencement: The day on which a financial creditor, corporate
applicant, or operational creditor, as the case may be, makes an application to the Adjudicating
Authority for the purpose of beginning CIRP[Sec. 5(11)], and the CIRP shall begin on the date
on which the application is admitted.

In the above discussion, I have touched upon the filing of application by the Financial Creditors,
Operational Creditors and Corporate Applicant and the procedure for acceptance of the
application and the commencement of the insolvency process. Thus, in all three cases, after the
acceptance of the application by the adjudicating authority, its commencement has started from
that day only. The process after the initiation of CIRP is same in all three cases i.e. in case of
Financial Creditor, Operational Creditor and Corporate Applicant. The next step in the process of
successfully resolving the company and passing of resolution plan is elaborated below:

STEP 1: Declaration of Moratorium

The first and foremost duty of the adjudicating authority after the acceptance of the insolvency
application filed under S. 7, S. 9, and S. 10 of the Code is to pass an order of moratorium. The
Insolvency and Bankruptcy Code, 2016 defines a moratorium as a period during which no
judicial procedures for recovery, enforcement of security interests, sale or transfer of assets, or
cancellation of important contracts against the Corporate Debtor can be launched or continued.

When hearing a petition against a corporate debtor, the adjudicating authority (NCLT or
NCLAT) is required to declare the moratorium period as described in Section 14 [3] of the Code.

When a corporate debtor enters the Corporate Insolvency Resolution Process, a moratorium is
declared after the confirmation of the petition filed against the organization, in which all pending
cases against the insolvent organization before any court are stayed.

Its main goal is to keep the corporate debtor's assets together during the CIRP so that the process
can be completed in a timely manner and the company can continue as a going concern. It also
imposes a prohibition on the company's directors from taking any available funds at the time the
moratorium is declared. The CIRP process will be thwarted if the specified period is not
declared, rendering the code's objective null. The Supreme Court held in Anand Rao Korada
Resolution against M/S Varsha Fabrics (P) Ltd. that the High Court should not have proceeded
with the auction of the Corporate Debtor's property after the institution of proceedings under the
IBC when the moratorium order was passed.

Section 14(4) specifies the time limit for the moratorium to be in effect, which is until the CIRP
is completed, or until the adjudicating authority approves a resolution plan under Section 31 or
until the committee of creditors resolves to liquidate the corporate debtor under Section 33,
whichever comes first.

STEP-2: Public Announcement of CIRP

The next step along with the declaration of moratorium order which should be passed by the
adjudicating authority is the Public Announcement of the Insolvency Process against the debtor
as the manner provided by the authority. The main aim of this announcement is to intimate all
the creditors of the Corporate Debtor so that they can make claims and the financial creditors
will take active part in making the resolution plan. The contents of such a Public Announcement
include the name and address of the defaulter undergoing CIRP, the name of the body under
which it is incorporated or registered, the details of the IRP, the last date of submission of claims,
the last date of the CIRP, and the penalties for false claims.

STEP-3: Appointment of Interim Resolution Professional

In the case of a financial creditor or a corporate debtor, the financial creditor must include the
name of the resolution professional who will act as an interim professional with the application.

In the case of an operational creditor, the name of the resolution professional proposed to act as
an interim professional may or may not be provided.

The Adjudicating Authority must appoint an interim resolution professional (IRP) within
fourteen days of the insolvency beginning date, according to Section 16(1) of the Insolvency and
Bankruptcy Code, 2016. Interim resolution professionals are appointed for a term of up to 30
days from the date of their appointment, as the name suggests.
Within ten days of receiving a referral from the Adjudicating Authority under sub-section (3) of
section 16, the Board shall propose to the Adjudicating Authority the name of insolvency
professional against which no disciplinary proceedings are underway. The term of the interim
resolution professional shall continue till the date of appointment of the resolution professional
under section 22. The same or replaced IRP (by committee of creditors) shall be appointed as
resolution professional (RP).

There are certain duties prescribed under the code which the IRP has to comply with and at the
same time the code also empowered the IRP with powers that are essential for effectively
managing the affairs of the Corporate Debtor. The powers of the corporate debtor's board of
directors or partners, as the case may be, shall be suspended and exercised by the interim
resolution professional. The IRP is the administrator of the corporate debtor; therefore, the
employees and managers of the corporate debtor must adhere to the orders of IRP and provide
access to vital documents and records of the corporate debtor. The interim resolution expert must
make every effort to maintain and preserve the value of the corporate debtor's property, as well
as manage the corporate debtor's operations as a going concern. Apart from all this, his work is
to constitute the committee of creditors and receive and collate all the claims that are submitted
by the creditors. He will fulfill all the duties of RP until the committee of creditors appoints a
resolution professional to monitor the corporate debtor's assets and manage its operations

STEP-4: Formation of Committee of Creditors

After compiling all claims received against the corporate debtor and determining the corporate
debtor's financial situation, the interim resolution professional will form a committee of
creditors. The committee of creditors must include all of the corporate debtor’s financial
creditors. A connected party owing a financial debt to a corporate debtor has no right of
representation, participation, or voting in a meeting of the committee of creditors. At any stage
during the corporate bankruptcy resolution process, the creditors' committee has the power to
demand that the resolution professional provide any financial information on the corporate
debtor. Within seven days of receiving the requisition, the resolution professional must provide
any financial information requested by the committee of creditors under sub-section (9) of
Section 21 to the committee of creditors. In addition, within 7 days of filing the Report with
NCLT, IRP will convene a meeting of the CoC. First and foremost duty of the CoC is to appoint
the resolution professional. They have the option to re-appoint the Interim Resolution
Professional as the Resolution Professional.

STEP-5: Appointment of Resolution Professional

By virtue of Section 18 of the Code, the IRP is the COC. Following the committee's commission,
the COC's first order of business is to nominate the Resolution Professional. The COC must
convene its first meeting within seven days after its formation, according to Section 22 of the
Code. The committee examines whether the IRP may be appointed as the Resolution
Professional to continue conducting the CIRP at this meeting. The committee then votes, and if
the IRP receives a majority of equal to or greater than 66%, the IRP becomes the Resolution
Professional. The committee, on the other hand, can decide to replace the IRP and designate a
new certified Resolution Professional to oversee the procedure. In this circumstance, the
committee requests that the Resolution Professional be appointed by the adjudicating body.

Following that, the adjudicating authority selects a Resolution Professional and submits it to the
IBBI for approval. If the board rejects the Resolution Professional chosen by the adjudicating
authority, the IRP returns to its previous status until the IBBI chooses someone. If the IBBI does
not react to the adjudicating authority after ten days of receiving the name, this is also relevant.
In the case of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta &
Ors., the Hon'ble Supreme Court of India clarified the role of the RP, stating that it is the RP's
responsibility to manage the corporate debtor's affairs as a going concern, appoint and convene
meetings of the committee of creditors to decide on resolution plans, and collect, collate, and
distribute information.

Regulation 3 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016 lists the eligibility conditions that an insolvency
professional must meet in order to be appointed as the RP of a corporate debtor (CIRP
Regulations). If an insolvency practitioner is eligible to be appointed as an independent director
on the board of the corporate debtor under Section 149 of the Companies Act, 2013, he is
considered independent.

The function of the IRP/RP is important to the overall CIRP process, and the IBC regime has put
in place a number of protections to guarantee that the CIRP is performed by a fair and impartial
IRP/RP. The Metenere decision1, on the other hand, establishes a hazardous precedent and
should be revisited, the NCLAT in the above judgment held that the ex-employee of the
Financial Creditor can be appointed as Resolution Professional which again creates an
apprehension of bias and is unlikely to act fairly in the interest of the Corporate Debtor. The
NCLAT has proceeded to uphold a suspicion of prejudice without fully elucidating the reason for
it.

The backbone of the procedure is the insolvency expert, often known as a Resolution
Professional. The first person to be appointed and the final person to be relieved is the
Resolution Professional. The fundamental responsibility of the Resolution Professional is to
ensure that the corporate debtor is revived. However, keeping the process transparent and fair is
more vital for the Resolution Professional.

STEP-6: Meeting of Committee of Creditors

In the insolvency regime, the Committee of Creditors will play a critical role. The Meeting of the
Committee of Creditors, often known as the COC, will make significant decisions that will affect
the resolution of the corporate debtor's insolvency. According to the IBC, the COC comprises
solely of financial creditors. If there are no financial creditors, the COC will be made up of the
top eighteen operational creditors, as well as one worker and one employee representative. The
powers of these members are quite similar to the rights of the members of the financial creditors.
Operational creditors will not be allowed to participate in the COC unless their debt exceeds
10%, in which case they will participate through a representative.

The meeting of the Committee of Creditors will be conducted by the Insolvency Professional,
according to Section 24 of the Code. The Meeting will be chaired by the Insolvency
Professional. Members of the creditors’ committee may attend the meeting in person or by
technological means. The meeting must be announced at least five days in advance. The notice
can be delivered by hand or mailed. Every participant must receive the notice. The terms
participant and member are not interchangeable. The participant does not have voting rights, but
members will have voting rights in the meeting to adopt resolutions. The participants are the
suspended Board Members or Partners, as well as Operational Creditors whose cumulative debt

1
State Bank of India vs. M/s Metenere Ltd
exceeds 10% of the overall debt. The decision made at such a meeting will be nullified if any
member or participant of the committee fails to receive notification. As a result, each participant
must be notified. It is the Resolution Professional's responsibility to give notice to all meeting
attendees. It is acceptable if the notice has been sent to the Resolution Professional's e-mail
address. However, if the Committee of Creditors deems it necessary, the notification period can
be reduced from five to 24 hours. If an authorized representative is present, a 48-hour notice
period is required. The suspended Board members and Operational Creditors are allowed to
attend the meeting as participants, which mean they can discuss the topic and express their
opinions but not vote.

A minimum of 33 percent of voting rights must be present for each meeting to be valid,
according to CIRP Regulation 22 of 2016. Members can be present in person, via video
conferencing, or via any other audio-visual means.

However, no vote can take place at the meeting if even a single member of the CoC is absent, as
per Regulation 21 (3) (b) read with 25 (5) of the CIRP, 2016. If any (even a single) member of
the CoC is unable to attend the meeting, the Resolution Professional conducting it must
provision for e-voting.

STEP-7: Preparation of Information Memorandum

Section 5 (10) “information memorandum” means a memorandum prepared by a resolution

expert in accordance with section 29 sub-section (1). For the purpose of establishing a resolution
plan, the resolution professional shall create an information memorandum in such form and
manner as the Board may specify, comprising such relevant material as may be required by the
Board. The resolution professional shall make all relevant information available to the resolution
applicant in both physical and electronic form, provided that the resolution applicant agrees to
abide by all current laws relating to confidentiality and insider trading, to protect any intellectual
property of the corporate debtor it may have access to, and to share relevant information.
STEP-8: Submission of Resolution Plan

A resolution plan is a proposal that tries to solve the problem of the corporate debtor's insolvency
and, as a result, its inability to repay debts. It must be approved by the committee of creditors
("COC") and adhere to the IBC's statutory provisions.

“Resolution plan” is a plan offered by a resolution applicant for insolvency resolution of the
corporate debtor as a going concern in accordance with Part II of the IBC, 2016. Any person who
presents a resolution plan to a resolution professional is referred to as a resolution applicant.
While this broad definition implies that the market as a whole will be the primary source of
resolution plans, creditors, and until recently, the corporate debtor's former promoters, are also
free to propose resolution plans. Furthermore, the Resolution Professional has no choice as to
which plans to bring before the COC; he or she is required by law to provide all plans that meet
the legal requirements.

In practice, the COC usually gives the Resolution Professional the authority to set eligibility and
evaluation criteria for resolution seekers so that only serious candidates submit plans.

Although the Resolution Professional is not explicitly forbidden from submitting a resolution
plan, the RP's statutory duty to check whether a plan fits the legal elements may create a conflict
of interest. S. 29A provides for the list of persons who cannot be a resolution applicant.

STEP-9: Approval of Resolution Plan

The approved plan is subsequently reviewed and authorized by the Adjudicating

Authority/National Company Law Tribunal (“NCLT”), bringing the CIRP to a close. The NCLT
has limited powers when examining an authorized proposal and cannot hear an appeal of the
CoC's business judgment. After the NCLT has authorized the proposal, it must be completely
and successfully implemented. Provided, however, that before granting an order for approval of a
resolution plan under this sub-section (1) of S. 31, the Adjudicating Authority must ensure that
the resolution plan contains provisions for its successful execution.

The Adjudicating Authority's moratorium order under section 14 shall cease to have effect after
the order of approval under subsection (1), and the resolution professional shall forward to the
Board all records relating to the conduct of the corporate insolvency resolution process and the
resolution plan to be recorded on its database.

The successful resolution applicant’s plea for withdrawal of his plan due to obvious un-viability
after the CoC’s approval was recently dismissed by a two-member bench of the National
Company Law Appellate Tribunal (“NCLAT”) in Educomp Solutions2, holding that the NCLT
has “no jurisdiction” to entertain such a plea once the plan has been accepted by the CoC. In the
instance of Astonfield Solar3, the NCLT in New Delhi has taken a similar stance, stating that it
has “no jurisdiction” to hear the resolution applicant's request to withdraw or modify the plan
after the CoC has been approved. These decisions were made without mentioning the decision of
a three-member bench of the NCLAT in Metalyst Forgings (where it was held that a plan could
be withdrawn even after the CoC had approved it), nor any clause in the Code that forbids or
prevents the NCLT from ‘entertaining’ a plea of withdrawal or alteration of the proposal after the
CoC has approved it.

STEP-10: In case of rejection of Resolution Plan, the liquidation proceedings of the

Corporate Debtor take place.

In the case of K Sashidhar v Indian Overseas Bank and Ors, the Honorable Supreme Court held
that the National Company Law Tribunal lacks the jurisdiction and/or authority to examine or
evaluate the decision of the Committee of Creditors to determine the fairness of the dissenting
financial creditors’ rejection of the resolution plan. At this point, the Adjudicating Authority
applies a judicial mind to the resolution plan that has been provided, and after being satisfied that
the plan meets (or does not meet) the standards set forth in Section 30, the plan may be approved
or rejected. An appeal from an order authorizing such a plan can only be made on the limited
grounds set forth in the Section 61(3) of the Code.

The Adjudicating Authority is not expected to do anything else after receiving a “rejected”
settlement proposal, but is required to start the liquidation process under Section 33(1) of the
I&B Code. The legislation has not given the Adjudicating Ability the authority or jurisdiction to
examine or review the commercial decision of the CoC, much less to inquire into the fairness of
the dissenting financial creditors' rejection of the resolution plan.
2
3
If the resolution plan is put before the Adjudicating authority after the dead line or not in the
manner prescribed under the Code may pass an order requiring the corporate debtor to be
liquidated. It is interesting to note that during the existence of resolution process also, the
committee of creditors may take direction from NCLT to liquidate the Corporate Debtor. The
resolution professional will automatically perform the duties of the liquidator if not replaced.
Proceeds from the sale of the liquidation assets shall be distributed in order of priority mentioned
under the code.

DISSOLVING THE CORPORATE DEBTOR

Upon the assets of corporate debtor completely liquidated and the liquidator making an
application, the NCLT shall pass an order dissolving the corporate debtor.

RESOLUTION AND LIQUIDATION TILL DECEMBER 2019

Total Cases Filed under IBC is around 19,000, out of which 10,860 are pending before different
benches. As per the data provided by IBBI (Insolvency and Bankruptcy Board of India) around
3300 companies have been admitted for CIRP under IBC till December 2019. Out of them about
190 cases have been resolved through resolution plans and 780 have gone into liquidation.
Around 150 applications have been withdrawn. Thus, among the CIRP that have been closed,
only 15% CIRP have been yielded a resolution plan whereas 56% of the cases ended up going
for liquidation. Thus the number of companies getting into liquidation is four times that of
companies being rescued. These 190 companies however, had assets which are four times of the
assets of the 780 companies. These companies owed Rs. 3.8 Lakh Crores to the creditors.
However, the realizable value of the assets available with them, when they entered into CIRP
was only Rs. 0.77 Lakh Crores. By the CIRP creditors have recovered 1.6 Lakh Crore which is
207 % of the realizable value of the assets of the companies.

RECENT AMENDMENT BROUGHT DURING COVID-19 IN 2020- AN ANALYSIS

The Insolvency and Bankruptcy Code, 2016 (hence referred to as the "Code" or "IBC") was
adopted to bring together existing legislation and create a legal framework for corporate
insolvency. The Code has been revised five times since then, with the most recent being the IBC
(Amendment) Ordinance, 2020, which was promulgated on June 5, 2020. Because of the impact
of the COVID-19 pandemic on businesses, this amendment was enacted. Sections 10A and 66(3)
of the Code have been added to the Ordinance in order to shield distressed corporations from
financial difficulties caused by this exceptional scenario.

The President of India issued the Ordinance under the authority granted by Article 123 of the
Indian Constitution. It went into effect right away. Under the IBC, a corporate insolvency
resolution process and a liquidation process are in effect. The Finance Ministry was forced to
introduce the current Code change for the following reasons:

 The COVID-19 pandemic has brought a halt to corporate operations. The financial
market and the economy have failed to function, resulting in uncertainty and financial
distress in the corporate world. The bulk of companies around the world have little
influence over this unique scenario.
 On March 25, 2020, the Central Government implemented a statewide lockdown,
requiring businesses to close for a period of time. Their financial situation has
deteriorated as a result of this.
 When a corporation fails to discharge a debt application, the epidemic has made it
difficult to obtain an acceptable number of resolution applicants.
 As a result of this unprecedented circumstance, businesses are being forced into
insolvency. To avoid this, Sections 7, 9, and 10 of the Code must be suspended for a set
length of time.
 The epidemic has also prompted the exclusion of defaults caused by the unusual
circumstances.
 Another consequence of the epidemic is that Parliament is unable to convene a session to
debate the current situation. As a result, the President had to act quickly to address
company insolvency.

Insertion of S. 10A
Section 10 of the Code gives an applicant locus standi to start the corporate insolvency resolution
process (CIRP) in the event of a default. The current law adds Section 10A to the Code, which
suspends the application of Sections 7, 9, and 10 of the IBC on a case-by-case basis. The rule
specifies that for corporate defaults occurring on or after March 25, 2020, no application for the
beginning of CIRP may be made by any corporate debtor for a period of six months but not more
than one year from the date of default. The proviso of the Section states that no application for
the beginning of CIRP for defaults occurring within this time period may be made. A corporate
default that happened before March 25, 2020 will not be covered by this section, according to the
clause.

The new Section raises several questions about how this clause should be applied. The
amendment does not specify the date that should be taken into account for calculating the six-
month or one-year period following March 25, 2020. In this scenario, the Adjudicating Authority
will have to make a case-by-case decision on the date. The applicant will be responsible for
showing that the default happened on or after March 25th. Instead of the current mandate,
admission of applications for the initiation of CIRP should have been forbidden to eliminate this
issue.

The main goal of this ordinance is to provide specific benefits to defaulters who are suffering
from financial hardship as a result of the pandemic. Other collection measures accessible to
creditors include Section 19 of the Recovery of Debts Due to Bank and Financial Institution Act,
Section 13 and Section 14 of the SARFAESI Act, and Section 19 of the Recovery of Debts Due
to Bank and Financial Institution Act. Operational creditors can seek recovery using the
Commercial Courts Act's remedies. Small businesses can rely on the Samadhan Scheme's
recovery. In addition, the government must specify whether the default amount accumulated
throughout the 6-month period will be included in the debt amount of default application, which
will be filed at the conclusion of the 6-month term or the prescribed term.

Amendment to S. 66

The Ordinance changes Section 66 of the Code in Section 3. Section 66 deals with a corporate
debtor's fraudulent or unlawful trade and requires the resolution professional to file an
application during the corporate debtor's CIRP, making the director or partner accountable for
the corporate debtor's contribution of assets. The Ordinance has added a new sub-section to the
Code, Section 66(3). Subsection 3 specifies that for corporate debtors whose CIRP has been
suspended for the necessary term as per Section 10A, the resolution professional shall not make
any application under Section 66(2). This modification appears to imply that the directors or
partners of a corporate debtor are immune from the implications of the corporate debtor's illegal
trade. Furthermore, this provision enables those corporate debtors who intend to commit
fraudulent operations during the required period the opportunity to do so because Section 10A
will protect them. As a result of the addition of sub-section 3, the resolution professional's
capabilities have been reduced from that of a keeper of the CIRP to that of a mere witness to
frauds. This change permits directors and partners to avoid accountability while also allowing
them to engage in fraudulent activities. 

The government intended to make an exception to Section 66(2) due to the COVID-19 scenario,
and to bring Section 66 into line with Section 10A of the Code. However, the modification has
made it illegal to file petitions for defaults during the exempted time. The nature of Section 66 is
not transactional; rather, it is based on the overall conduct of the firm. As a result, it's unclear
whether the change to Section 66 represents an exemption from Section 66(2) for a single
transaction or an exemption for the entire firm in general.

Conclusion:

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 has left us with more
questions than answers. Protection, compliance, and defaults have all taken on new meanings as
a result of this Ordinance. The government's efforts to raise awareness about the pandemic's
effects are both commendable and welcome. However, the Ordinance's poor wording has
resulted in extraordinary implications for corporations. Corporate debtors will have to devise
another method of debt restructuring that does not require the filing of insolvency procedures
indefinitely. Even after restructuring those debts, the question of whether they will continue to be
classified as protected under the proviso to section 10A or beyond its scope must be explored.
The Adjudication Authority and the courts will have to spend valuable time working out the
application, time period, default amount, and other details for each and every case as a result of
this Ordinance. As a result, the courts and the process of corporate insolvency resolution will be
burdened even more.