Note: To view Amended, Updated & Annotated Insolvency and Bankruptcy Code 2016 [as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance 2021], refer to [14th Edition] of Taxmann's Insolvency & Bankruptcy Law Manual

1. Background

After commencement of corporate insolvency resolution process under section 7, 9 or 10 of Insolvency Code, 2016, further action will commence before Adjudicating Authority (NCLT).

Procedure before NCLT shall be as per rules 20 to 24 and 26 of Part III of NCLT Rules, 2016 [Till rules under Insolvency and Bankruptcy Code are notified] – rule 10 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

A Committee of Creditors (CoC) is required to be constituted to oversee the insolvency resolution process.

The actual work will be done by ‘resolution professional’ under supervision of Committee of Creditors (CoC) and Adjudicating Authority (NCLT).

1.1 Mandatory upper time limit of 330 days including time spent in legal process to complete resolution process

Normally, the Corporate Insolvency Resolution Process (CIRP) is required to be completed within 180 days from date of application by NCLT to initiate the corporate insolvency process – section 12(1) of Insolvency Code, 2016.

This period can be extended if resolution professional files application to Adjudicating Authority, if instructed by resolution passed at a meeting of the Committee of Creditors (CoC) by a vote of sixty-six per cent (66%) of the voting shares – section 12(2) of Insolvency Code, 2016.

On receipt of such approval, resolution professional shall make application to adjudicating authority (NCLT) – Regulation 40 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

On receipt of such application, Adjudicating Authority (NCLT) can grant only one extension upto maximum 90 days – section 12(3) of Insolvency Code, 2016.

Mandatory period for completion of CIRP is 330 days even including time of appeal, stay etc. – The Corporate Insolvency Resolution Process (CIRP) shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under section 12 of Insolvency Code and the time taken in legal proceedings in relation to such resolution process of the corporate debtor – second proviso to section 12(3) of Insolvency Code, inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019, w.e.f. 16-8-2019.

This is to discourage practice of Corporate Debtors of filing appeals, revisions and writ petitions to delay CIRP.

Period of 90 days allowed in case of CIRP pending as on date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 – Where the insolvency resolution process of a corporate debtor is pending and has not been completed within the period referred to in the second proviso to section 12(3), such resolution process shall be completed within a period of ninety days from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 – third proviso to section 12(3) of Insolvency Code, inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019, w.e.f. 16-8-2019.

Extension of timeline due to Covid-19 lockdown – Notwith-standing the timelines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process – Regulation 40C of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 inserted w.e.f. 29-3-2020.

2. Moratorium and public announcement

After admission of application, Adjudicating Authority shall pass following orders [section 13(1) of Insolvency Code, 2016].

(a) declare a moratorium for the purposes referred to in section 14 of Insolvency Code, 2016.

(b) cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15 of Insolvency Code, 2016, and

The public announcement referred to above shall be made immediately after the appointment of the interim resolution professional – section 13(2) of Insolvency Code, 2016.

Meaning of Moratorium – A “moratorium” is a delay or suspension of an activity or a law. In a legal context, it may refer to the temporary suspension of a law to allow a legal challenge to be carried out. It is legal authorisation to debtors to delay payments due.

2.1 Order declaring Moratorium

On the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following [section 14(1) of Insolvency Code, 2016]

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein.

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(d) the recovery of any property by an owner or less or where such property is occupied by or in the possession of the corporate debtor.

Provision of moratorium not applicable to guarantor – The provisions of section 14(1) of Insolvency Code shall not apply to a surety in a contract of guarantee to a corporate debtor – section 14(3)(b) of Insolvency Code.

Thus, recovery proceedings, insolvency resolution process or bankruptcy proceedings against surety (guarantor) can be initiated even if moratorium is granted to corporate debtor.

No moratorium on essential supplies – The supply of essential goods or services to the corporate debtor as may be specified under Regulations shall not be terminated or suspended or interrupted during moratorium period – section 14(2) of Insolvency Code, 2016.

Property – “Property” includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property – section 3(17) of Insolvency Code, 2016.

Duration of order of moratorium – The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process. However, if resolution plan is approved under section 31(1) or order of liquidation or corporate debtor is passed, the moratorium shall cease to have effect from the date of such approval or liquidation order – section 14(4) of Insolvency Code, 2016.

After the order of approval of resolution plan by Adjudicating Authority (NCLT) the moratorium order passed by the Adjudicating Authority under section 14 of Insolvency Code shall cease to have effect – section 31(3) of Insolvency Code, 2016.

As per section 12(1) of Insolvency Code, 2016, the process of resolution is required to be completed within 180 days from date of application by NCLT to initiate the corporate insolvency process.

Section 12(2) of Insolvency Code, 2016 provides that this period of 180 days can be extended if resolution professional files application to Adjudicating Authority, if instructed by resolution passed at a meeting of the Committee of Creditors (CoC) by a vote of 66% of the voting shares.

Powers of NCLT during insolvency resolution of Corporate Persons – The National Company Law Tribunal shall have jurisdiction to entertain or dispose of following applications and claims while exercising jurisdiction. These are overriding provision, even if contrary to any other law – section 60(5) of Insolvency Code, 2016.

(a) any application or proceeding by or against the corporate debtor or corporate person;

(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

Insolvency commencement date – “Insolvency commencement date” means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority under section 7, 9 or section 10 of Insolvency Code, 2016, as the case may be – Section 5(12) of Insolvency Code, 2016.

“Insolvency commencement date” will always be the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority.

The reason is that as per amendment made to section 16(1) of Insolvency Code w.e.f. 28-12-2019, IRP is required to be appointed on the insolvency commencement date itself.

3. Public announcement of corporate insolvency resolution process

The public announcement of the corporate insolvency resolution process under the order referred to in section 13 of Insolvency Code shall contain the prescribed information.

Manner of public announcement – The public announcement will be made in manner prescribed – section 15(2) of Insolvency Code.

The requirements of public announcement are specified in Regulation 6 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The public announcement shall be in form A as specified in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

It should be published in one English and one regional language newspaper. It should also be put on website of corporate debtor and Board (IBBI).

IBBI has designated the website www.ibbi.gov.in for this purpose. The details of the manner of publishing the public announcement on the designated website are described in IBBI circular No. IP(CIRP)/006/2018 dated 23-2-2018.

4. Appointment and tenure of interim resolution professional

The Adjudicating Authority (NCLT) shall appoint an interim resolution professional on the insolvency commencement date – Section 16(1) of Insolvency Code, 2016 as amended vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019.

Thus, IRP appointment date and insolvency commencement date would be same after 28-12-2019.

4.1 Management of affairs of corporate debtor by interim resolution professional

From the date of appointment of the interim resolution professional, the management of the affairs of the corporate debtor shall vest in the interim resolution professional.

The powers of the Board (IBBI) of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional.

The officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional.

The financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional [section 17(1) of Insolvency Code, 2016].

4.2 Authority of interim resolution professional

The interim resolution professional vested with the management of the corporate debtor shall have all the powers of management as specified in section 17(2) of Insolvency Code, 2016.

4.3 Duties of interim resolution professional

The interim resolution professional shall perform the duties as specified in section 18(1) of Insolvency Code, 2016.

4.4 Personnel to extend cooperation to interim resolution professional.

The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor – section 19(1) of Insolvency Code, 2016.

If they do not cooperate, application can be made by interim resolution professional to the Adjudicating Authority (NCLT) for necessary directions. NCLT will issue suitable orders – section 19(3) of Insolvency Code, 2016.

4.5 Management of operations of corporate debtor as going concern

The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern [section 20(1) of Insolvency Code, 2016].

5. Submission of proof of claims to interim resolution professional

Proof of claims shall be submitted to interim resolution professional as follows—

(a) Operational Creditor – Operational Creditor shall submit proof of claims in form B as contained in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, with details specified in Regulation 7.

(b) Financial Creditor – Financial Creditor shall submit proof of claims in form C as contained in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, with details specified in Regulation 8.

(c) Workmen and employees – Workmen and employees shall submit proof of claims in form D as contained in IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, with details specified in Regulation 9.

The claim should contain declaration in specified form and verified.

Substantiation of claims – Provisions are contained in regulations 10 to 15 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The proofs should be submitted before last date as specified in public announcement. However, it can submitted later anytime before approval of resolution plan by the Committee.

The interim resolution of professional shall verify claims and make list of creditors. Debts in foreign currency shall be valued in Indian currency at official rate notified by RBI.

Cost of proof shall be on creditor of proving debt due to him – Regulation 11 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

6. Committee of Creditors (CoC)

The interim resolution professional shall after collection of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a Committee of Creditors (CoC) – section 21(1) of Insolvency Code, 2016.

Formation of Committee and Submission of report to NCLT within 37 days – The interim resolution professional shall submit report certifying constitution of committee within 30 days and report of first meeting of committee within further seven days – Regulation 17 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

All financial creditors to be members of CoC – The Committee of Creditors (CoC) shall comprise all financial creditors of the corporate debtor. “Financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to – Section 5(7) of Insolvency Code, 2016.

If there are no financial creditors – Where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified – proviso to section 21(8) of Insolvency Code.

Voting share of creditors – Committee of Creditors (CoC) which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor – Section 5(28) of Insolvency Code, 2016.

Passing of resolution by majority but with 66% voting in specified cases – Save as otherwise provided in Insolvency Code, all decisions of the Committee of Creditors (CoC) shall be taken by a vote of not less than fifty one per cent of voting share of the financial creditors – section 21(8) of Insolvency Code, 2016.

CoC can decide to liquidate corporate debtor any time before confirmation of resolution plan by NCLT – Committee of Creditors (CoC) have vast powers in respect of Corporate Insolvency Resolution Plan. They can decide any time (before confirmation of resolution plan by NCLT) that the corporate debtor cannot be continued as a going concern and should be liquidated.

The statutory wording of section 33(2) of Insolvency Code is as follows.

For the purposes of section 33(2) of Insolvency Code, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under section 21(1) of Insolvency Code and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum – Explanation to section 33(2) of Insolvency Code, 2016 inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019 to be effective from date to be notified.

6.1 Rights and duties of authorised representative of financial creditors

The authorised representative under section 21(6) or 21(6A) or 24(5) shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means – section 25A(1) of Insolvency Code, 2016.

It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents – section 25A(2) of Insolvency Code, 2016.

The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions – section 25A(3) of Insolvency Code, 2016.

If the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share:– first proviso to section 25A(3) of Insolvency Code, 2016.

If any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor – second proviso to section 25A(3) of Insolvency Code, 2016.

The authorised representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be – section 25A(4) of Insolvency Code, 2016.

For the purposes of section 25A of Insolvency Code, the “electronic means” shall be such as may be specified – Explanation to section 25A of Insolvency Code, 2016.

6.2 Voting by authorised representative of class of financial creditors if financial creditors give conflicting directions

Section 21(6A) of Insolvency Code provides that if a financial debt is owned by a class of creditors, an insolvency professional (other than the interim resolution professional) can be appointed by Adjudicating Authority on receipt of application from interim Resolution Professional (IRP).

First proviso to section 25A(3) of Insolvency Code, 2016 provides that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share.

It is possible that different financial creditors may give different instructions. In that case, the authorised representative is required to follow instructions of each financial creditor.

Now, it is provided vide section 25A(3A) of Insolvency and Bankruptcy Code (Amendment) Act, 2019, w.e.f. 16-8-2019, that the authorised representative shall cast all votes in accordance with decision taken by vote of more than 51% of voting shares, (except voting under section 12A). For example, if 52% of financial creditors give instructions in favour of resolution and 48% against, his entire 100% voting will be in favour of resolution.

However, in case of voting under section 12A of Insolvency Code (for withdrawal of application for CIRP admitted by adjudicating authority), the voting of authorised representative will be in ratio of 52:48.

However, for a vote to be cast in respect of an application under section 12A of Insolvency Code (withdrawal of application for CIRP admitted by Adjudicating Authority), the authorised representative shall cast his vote in accordance with the provisions of section 12(3) of Insolvency Code – proviso to section 25A(3A) of Insolvency Code inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019 to be effective from date to be notified.

Voting by Authorised Representative – The authorised representative shall cast his vote in respect of each financial creditor or on behalf of all financial creditors he represents in accordance with the provisions of section 25A(3) or 25(3A) of Insolvency Code, as the case may be – Regulation 25A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 inserted w.e.f. 27-11-2019. [Earlier, Regulation 26(1A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provided that the voting of authorised representative will be by electronic means or through electronic voting. This has been omitted w.e.f. 27-11-2019].

6.3 Related Party in case of corporate debtor

Definition of ‘related party’ is relevant in following provisions of Insolvency code.

- Related party to whom a corporate debtor owes a financial debt shall not have any right of representation, participation or voting in a meeting of the Committee of Creditors (CoC), as per first provisoto section 21(2) of Insolvency Code.
- In case of related party transactions, resolution professional can enter into transaction only with prior approval of Committee of Creditors (CoC), with 66%voting in favour [section 28(1) read with section 28(3) of Insolvency Code, 2016].
- The definition of ‘related party’ is relevant to determine ineligible resolution application under section 29A of Insolvency Code.
- The definition is relevant in case of preferential transactions under section 43 of Insolvency Code and avoidance of undervalued transaction under section 46 of Insolvency Code.

The definition ‘related party in relation to corporate debtor’ is defined in section 24 of Insolvency Code. Definition relating to Related party in relation to an individual is defined in section 24 of Insolvency Code.

7. Appointment of resolution professional in first meeting of CoC

The first meeting of the Committee of Creditors (CoC) shall be held within seven days of the constitution of the Committee of Creditors (CoC) – section 22(1) of Insolvency Code, 2016.

The Committee of Creditors (CoC), may, in the first meeting, by a majority vote of not less than sixty six per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional – section 22(2) of Insolvency Code, 2016.

The Adjudicating Authority (NCLT) shall inform name of proposed new Resolution Professional to IBBI. The resolution professional can be appointed only with approval of Board (IBBI). Till then, the interim resolution professional will continue – section 22(5) of Insolvency Code, 2016. Now, IBBI has devised a system of prepar-ing panel of Resolution Professionals (RP). The Adjudicating Authority (NCLT) can choose any one of RP from the panel.

7.1 Resolution professional to conduct corporate insolvency resolution process

The resolution professional shall conduct the entire corporate insolvency resolution process and manage the operations of the corporate debtor during the corporate insolvency resolution process period – section 23(1) of Insolvency Code, 2016.

There can be situations where resolution plan is not submitted at all or not approved. Hence, a proviso has been substituted in place of existing proviso, vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019, which provides as follows –

The resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the corporate insolvency resolution process period, until an order approving the resolution plan under section 31(1) or appointing a liquidator under section 34 of Insolvency Code is passed by the Adjudicating Authority – Proviso to section 23(1) of Insolvency Code inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019.

This is to ensure that the RP keeps the unit as a going concern till resolution plan is approved by Adjudicating Authority (NCLT).

The resolution professional shall exercise powers and perform duties as are vested or conferred on the interim resolution professional – section 23(2) of Insolvency Code, 2016.

8. Meeting of Committee of Creditors (CoC)

The members of the committee of (financial) creditors may meet in person or by such electronic means as may be specified – section 24(1) of Insolvency Code, 2016.

All meetings of the Committee of Creditors (CoC) shall be conducted by the resolution professional – section 24(2) of Insolvency Code, 2016.

Notice of such meeting will be given to (a) members of Committee of Creditors (CoC), including the authorised representatives referred to in section 21(6) and 21(6A) and section 24(5)(b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt – section 24(3) of Insolvency Code, 2016.

The directors, partners and one representative of operational creditors, as referred above, may attend the meetings of Committee of Creditors (CoC), but shall not have any right to vote in such meetings – section 24(4) of Insolvency Code, 2016.

Each creditor shall vote in accordance with the voting share assigned to him based on the financial debts owed to such creditor – section 24(6) of Insolvency Code, 2016.

Any resolution at meeting of secured creditors should be passed with 51% majority (except where 66% majority is prescribed).

Procedure for meeting of Committee of Creditors – Provisions relating to notice of meeting of Committee, service of notice, contents of notice, meeting by video conferencing and conduct of meeting of CoC have been specified in Regulation 18 to Regulation 24 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

8.1 Voting rights of creditors in meeting

Voting rights of each financial creditor will be in proportion to debt due to each creditor to ‘total debt’.

Total debt will be equal to debts due to creditors, workmen and employees, as defined in Regulation 16(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The voting will be by electronic means or through electronic voting – Regulation 26(1A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

8.2 First meeting of financial creditors

First meeting of creditors will be convened within seven days from constitution of Committee of Creditors (CoC). The Committee shall be constituted within 30 days from date of appointment of resolution professional Regulation 17 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

8.3 Procedure for meeting of financial creditors

Provisions relating to notice of meeting, serving of notice, contents of meeting, quorum, participation at meeting through video conferencing and voting at meeting are specified in Regulations 18 to 26 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

9. Duties of resolution professional

It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor – section 25(1) of Insolvency Code, 2016.

He can take any or all the actions specified in section 25(2) of Insolvency Code, 2016 for this purpose.

However, action as specified in section 28 of Insolvency Code, 2016 cannot be taken without prior approval of Committee of Creditors (CoC) with 66% voting in favour – section 28(3) of Insolvency Code.

9.1 Sale of assets outside the ordinary course of business with approval of committee

The resolution professional may sell unencumbered asset(s) of the corporate debtor, other than in the ordinary course of business, if he is of the opinion that such a sale is necessary for a better realisation of value under the facts and circumstances of the case.

The book value of all assets sold during corporate insolvency resolution process period in aggregate under this sub-regulation shall not exceed ten per cent of the total claims admitted by the interim resolution professional.

A sale of assets under this Regulation shall require the approval of the committee.

Protection to bona fide purchaser – A bona fide purchaser of assets sold under this Regulation shall have a free and marketable title to such assets notwithstanding the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature-Regulation 29(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

10. Prior approval of Committee of Creditors (CoC) for certain actions by resolution professional

In specified cases, resolution professional can take action only with prior approval of Committee of Creditors (CoC), with 66% voting in favour [section 28(1) read with section 28(3) of Insolvency Code, 2016].

Action void if taken without approval – Where any action under section 28(1) is taken by the resolution professional without seeking the approval of the Committee of Creditors (CoC) in the manner as required in this section, such action shall be void – section 28(4) of Insolvency Code, 2016.

11. Preparation of information memorandum

First step is to prepare information memorandum.

The resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board (IBBI) for formulating a resolution plan – section 29(1) of Insolvency Code, 2016.

Contents of information memorandum – Contents of Information Memorandum are specified in Regulation 36(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Submission of information memorandum – Subject to regulation 36(4) (about confidentiality), the resolution professional shall submit the information memorandum in electronic form to – (a) each member of the committee within two weeks of his appointment as resolution professional; and (b) to each prospective resolution applicant latest by the date of invitation of resolution plan under of section 25(2)(h) of the Insolvency Code – Regulation 36(1)of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

12. Resolution Plan by Resolution Applicant

The first and foremost duty of Resolution Professional is to get resolution plan/s by Resolution Applicants.

Resolution applicant to prepare resolution plan – Resolution Professional can invite prospective resolution applicant/s, who fulfil such criteria as may be laid down by him with the approval of Committee of Creditors (CoC), having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans – section 25(2)(h) of Insolvency Code.

Resolution Applicant – “Resolution applicant” means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under section 25(2)(h) of the Code – section 5(25) of Insolvency Code.

Insolvency Professional can fix criteria of persons who can submit resolution plan – Section 25(2)(h) of Insolvency Code now specifically provides that the Insolvency Professional can fix criteria of persons who can submit a resolution plan. This criteria should be fixed in consultation with Committee of Creditors (CoC). Further, the person should not be ‘ineligible resolution applicant’ as defined in section 29A of Insolvency Code.

This is to ensure that (a) only persons with sufficient resources and technical and financial competency submit the resolution plan (b) unscrupulous or defaulting persons do not gain control of corporate debtor by making a back door entry.

12.1 Providing relevant information to resolution applicant

The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form. The resolution applicant should undertake – (a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading (b) to protect any intellectual property of the corporate debtor it may have access to and (c) not to share relevant information with third parties unless clauses (a) and (b) of this sub-section are complied with – section 29(2) of Insolvency Code, 2016.

12.2 Ineligible Resolution Applicant

Section 29A of Insolvency Code specifies persons not eligible to act as resolution applicant.

These provisions apply to PIRP also – Section 54P(1) of Insolvency Code inserted vide Ordinance w.e.f. 4-4-2021.

The basic idea behind section 29A is that only those who contributed to defaults of the company or are otherwise undesirable are rendered ineligible.

Some of the criteria specified in section 29A in respect of ineligible resolution applicant like undischarged insolvent, convicted for offence punishable with imprisonment and disqualification as director can apply only to an individual. There will be very few individuals who will have sufficient resources to apply as resolution applicant.

The most important criteria are following – (I) clause (c) which provides that person having account with Bank which is NPA cannot be resolution applicant and (II) clause (h) which provides that a surety (guarantor) of corporate debtor which has not paid the guarantee amount when guarantee has been invoked cannot be a resolution applicant.

Person having NPA eligible if it was acquired under an earlier resolution plan – To encourage market of NPA, it is provided that if a person has NPA account which they had acquired pursuant to prior resolution plan, he will be eligible if such acquired NPA is less than three years old.

12.3 Corporate debtor cannot make back entry to the defaulting corporate debtor through its associate companies or defaulting connected persons

Intention of section 29A of Insolvency Code is that Corporate debtor cannot make back entry to the defaulting corporate debtor through its associate companies or defaulting connected persons.

It was observed that corporate debtors were trying to gain control of the defaulting body corporate through its associate companies or group companies. This was clear misuse of the Insolvency Code as they were getting loan waivers and re-gaining control of the defaulting corporate debtor.

Hence, section 29A of Insolvency Code specified persons not eligible to be resolution applicant. The basic idea is that persons who are already defaulters or their associate companies or group companies cannot submit resolution plan.

Thus, unscrupulous persons cannot be allowed to take passion of defaulting corporate debtors.

13. Provision of ‘ineligible resolution applicant’ – Remedy worse than disease

The provision is no doubt with good intentions, but it is on the basis of basic assumption that the corporate debtor has defaulted because of the misappropriation and diversion of funds by management.

Government probably has in mind cases like Sahara and Kingfisher but there are many other reasons for failure of an enterprise.

This may be true in some cases, but surely not in all the cases. There can be various reasons for failure of an enterprise, misappropriation is only one of them.

In a market driven economy, failure can be for various reasons like change in market conditions, severe competition, change in technology, change in Government policies, stay by Supreme Court, bona fide management decisions (which later proved to be incorrect) and many others.

For example, introduction of mobile phone has wiped out alarm clock and camera industry and has affected many other sectors adversely, for no fault of theirs.

Failure of Nokia cannot be attributed to misappropriation at all.

Many industries had to be closed down because of orders of Supreme Court due to environment and other issues. Many 2G licenses and mining leases were cancelled by Supreme Court. This resulted in huge losses to many corporates.

All this cannot be attributed to misappropriation alone.

Many of Public Sector Undertakings (PSU) (including Air India) are incurring huge losses. Does it mean that the losses are due to misappropriation and diversion of funds?

Really, excluding the cases where there was misappropriation of funds or where management is clearly incompetent, in many cases, the corporate debtor himself is the best judge to decide the policy to revive or rehabilitate the enterprise, as they know ins and outs of the enterprise. They know where the shoe pinches.

An outsider cannot be normally expected to have deep and thorough knowledge of the problems faced by the enterprise and think of probable remedies.

Hence, really, blanket ban that the existing promoters cannot participate in resolution plan at all is not correct. Issues of each corporate debtor have to be considered on case of case basis and then to decide whether or not to allow the corporate debtor in the insolvency resolution process.

14. Invitation for expression of interest

The resolution professional shall publish brief particulars of the invitation of expression of not later than 75 days from insolvency commencement date, from interested and eligible resolution applicants to submit resolution plan – Regulation 36A(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The resolution professional shall publish in form G in papers and websites, as prescribed in Regulation 36A(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Form G will indicate where detailed invitation for expression of interest can be downloaded and last date of submission of detailed invitation (minimum 15 days to be given) – Regulation 36A(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Expression of interest received after due date will be rejected – Regulation 36A(6) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Publication of specified information – The resolution professional shall publish brief particulars of the invitation in Form G as follows – (a) in newspapers (b) on the website, if any, of the corporate debtor; (c) on the website, designated by the Board for the purpose (d) in any other manner decided by Committee – Regulation 36A(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

IBBI has designated the website www.ibbi.gov.in for this purpose. The details of the manner of publishing such forms on the designated website are described in IBBI circular No. IP(CIRP)/006/2018 dated 23-2-2018.

The brief particulars shall be sent in pdf form to IBBI on invite.rp@ibbi.gov.in by the Resolution Professional. This will be published by IBBI on designated website.

Resolution professional to prepare final list of prospective resolution applicants – The RP will conduct due diligence of the applicants. He can ask for clarification. Or additional information. He will prepare provisional list of eligible prospective applicants for submission to Committee. Objection can be raised by prospective resolution applicants within five days. After that, RP will prepare final list of prospective list of resolution applicants within 10 days for submission to committee – Regulation 36A(8) to 36A(12) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Request for resolution plan – The resolution professional shall issue information memorandum, evaluation matrix and request for resolution plans within five days of issue of provisional list. Minimum 30 days will be allowed to prospective resolution applicants to submit resolution plan. Non refundable deposit shall not be asked. Detailed procedure as prescribed is required to be followed by resolution professional – Regulation 36B of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Successful Resolution applicant to submit performance security – Successful Resolution applicant is required to submit performance security, which can be forfeited if resolution plan is not implemented – – Regulation 36B(4A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Evaluation Matrix – “Evaluation matrix” means such parameters to be applied and the manner of applying such parameters, as approved by the committee, for consideration of resolution plans for its approval – Regulation 2(1)(ha) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

15. Submission of resolution plan by resolution applicant to insolvency professional

A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under section 29A of Insolvency Code to the resolution professional prepared on the basis of the information memorandum – section 30(1) of Insolvency Code, 2016.

“Resolution plan” means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II of Insolvency Code, 2016 – Section 5(26) of Insolvency Code, 2016.

It is now clarified that a resolution plan may include provisions for the restructuring of the corporate debtor, including by way of merger, amalgamation and demerger – Explanation to Section 5(26) of Insolvency Code, 2016 inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019 to be effective from date to be notified.

Thus, the resolution plan can include provision for restructuring like amalgamation, merger or demerger, even if there are separate provisions under Companies Act, 2013 for the same.

Thus, CIRP is a ‘single window clearance’ process.

Requirements of resolution plan – The resolution plan shall confirm to requirements of section 30(2) of Insolvency Code, 2016.

Approval of shareholders is not required once resolution plan is approved – Under Companies Act, 2013, SEBI Act or some other Laws, approval of shareholders is required for certain actions.

Section 30(2)(e) of Insolvency Code states that the resolution plan should not contravene any of the provisions of law for the time being in force.

As per Explanation to section 30(2) of Insolvency Code, for the purposes of section 30(2)(e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.

Thus, once resolution plan is approved by Adjudicating Authority (NCLT), approval of shareholders is deemed to have been granted under Companies Act, SEBI Act or any other law, which requires approval of shareholders by ordinary or special resolution. Separate approval is not required.

Resolution plan to contain measures necessary to maximise value of assets – Resolution plan shall provide for the measures as may be necessary A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets [Regulation 37 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016].

Priority to amount due to operational creditors over financial creditors – As per regulation 38(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, amount due to operational creditors under a resolution plan shall be given priority in payment over financial creditors.

In my view, this applies to cases where (a) unsecured financial creditor (b) secured financial creditor who relinquishes his security and prove his debt, as provided in section 52 of Insolvency Code. In fact, both should be treated equally as per following case law [which is fair indeed]

Resolution plan to indicate how interest of all stakeholders considered – The resolution plan should include a statement as to how interest of all stakeholders, including financial creditors and operational creditors have been dealt with – regulation 38(1A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Sufficient details in resolution plan to enable Committee to assess credibility of resolution applicant – The resolution plan shall contain specified details of resolution applicant and other connected persons to enable the committee to assess credibility of each resolution applicant – Regulation 38(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The details to be submitted are given in explanation (i) to Regulation 38(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

15.1 Insolvency resolution process costs

“Insolvency resolution process costs” means – (a) the amount of any interim finance and the costs incurred in raising such finance (b) the fees payable to any person acting as a resolution professional (c) any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board (IBBI) – Section 5(13) of Insolvency Code, 2016.

Interim Finance – “Interim finance” means any financial debt raised by the resolution professional during the insolvency resolution process period or by the corporate debtor during the pre-packaged insolvency resolution process period, as the case may be, and such other debt as may be notified – Section 5(15) of Insolvency Code, 2016 [words in italics inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019]. Words in italics inserted vide Ordinance w.e.f. 4-4-2021.

Pre-packaged insolvency resolution process period – “pre-packaged insolvency resolution process period” means the period beginning from the pre-packaged insolvency commencement date and ending on the date on which an order under section 54L(1), or section 54N(1), or section 54-O(2) of Insolvency Code, as the case may be, is passed by the Adjudicating Authority – Section 5(23D) of Insolvency Code inserted vide Ordinance w.e.f. 4-4-2021.

The costs will be determined as provided in Regulations 31 to 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

15.2 Expenses incurred by interim resolution professional

Following shall be costs of interim resolution professional—

(1)The applicant shall fix the expenses to be incurred on or by the interim resolution professional.

(2)The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub-regulation (1).

(3)The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies.

(4)The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.

Explanation.—For the purposes of this regulation, “expenses” include the fee to be paid to the interim resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any, and other expenses to be incurred by the interim resolution professional. – Regulation 33 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

15.3 Resolution professional cost

The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs. For the purposes of this Regulation, “expenses” mean the fee to be paid to the resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the resolution professional – Regulation 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

16. Approval of resolution plan by Committee of Creditors (CoC)

The resolution professional shall present to the Committee of Creditors (CoC) for its approval such resolution plans which confirm the conditions in section 30(2) of Insolvency Code, 2016.

The prospective resolution applicant in the final list may submit resolution plan/s in accordance with Insolvency Code and Regulations electronically to the insolvency professional within time specified in the request for resolution under regulation 36B. This will be accompanied with affidavit that he is eligible under section 29A of Insolvency Code and undertaking that information and records provided are true and correct and if found false, deposit may be forfeited – Regulation 39(1) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

If the resolution plan does not comply with the regulations, it will be rejected – Regulation 39(1A) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The resolution professional will submit all resolution plans which comply with requirements of code and Regulations. He will also submit details of transactions of preferential transactions (section 43), undervalue transactions (section 45), extortionate credit transactions (section 50) and fraudulent transactions. He will also submit copies of orders of adjudicating authority in respect of these transactions – Regulation 39(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The CoC shall evaluate the resolution plans received as per evaluation matrix to identify the best resolution plan and approve it with modifications as it deems fit – Regulation 39(3) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Approval of Resolution Plan by Committee of Creditors (CoC) – The Committee of Creditors (CoC) may approve a resolution plan by a vote of not less than 66%, of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the IBBI (Board) -section 30(4) of Insolvency Code.

Resolution applicant can attend meeting but cannot vote – The resolution applicant may attend the meeting of the Committee of Creditors (CoC) in which the resolution plan of the applicant is considered, but he will not have voting rights, unless such resolution applicant is also a financial creditor – section 30(5) of Insolvency Code, 2016.

Discretion is with CoC – RP or Adjudicating Authority cannot interfere – If resolution plan is not approved by Committee of Creditors (CoC) with 75% majority (now 66%), adjudicating autho-rity (NCLT) has no jurisdiction to exercise his powers over a decision taken by Committee of Creditors (CoC).

The Adjudicating Authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the Adjudicatory process concerning a resolution plan under Insolvency Code, there is no scope for interference with the commercial aspects of the decision of the Committee of Creditors (CoC). There is no scope for substituting any commercial term of the resolution plan approved by the CoC. If the Adjudicating Authority or the Appellate Authority, as the case may be, would find any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by Insolvency Code – Jaypee Kensington Boulevard Apartments Welfare Association v.NBCC (India) Ltd. [2021] 125 taxmann.com 360 (SC 3 member bench).

17. Submission of plan to Adjudicating Authority

After approval of Committee of Creditors (CoC), the resolution professional shall submit the resolution plan to the Adjudicating Authority – section 30(6) of Insolvency Code, 2016.

If the Adjudicating Authority (NCLT) is satisfied that the resolution plan as approved by the Committee of Creditors (CoC) meets the requirements as referred to section 30(2) of Insolvency Code, 2016, it shall by order approve the resolution plan.

Copy of order of Adjudicating Authority shall be sent to participants and the resolution applicant. Any approval in general meeting or Board is not required.

Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation – proviso to section 31(1) of Insolvency Code, 2016.

The resolution plan so approved shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan – section 31(1) of Insolvency Code, 2016.

The copy of approved resolution plan shall be sent by resolution professional to participants – Regulation 39(5) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

17.1 Effect if resolution plan rejected by NCLT

If resolution plan is rejected by Adjudicating Authority, liquidation process will commence – section 33(1) of Insolvency Code, 2016.

18. Appeal against order of adjudicating authority

Any appeal from an order approving the resolution plan shall be in the manner and on the grounds specified in section 61(3) of Insolvency Code, 2016. Appeal can be only on the grounds specified in that section.

19. Fast track corporation insolvency resolution process

A speedy process for corporate insolvency resolution has been designed. It is termed as fast track corporate insolvency resolution process for small corporates.

This is applicable following corporate debtors – (a) a corporate debtor with assets and income below a level as may be notified by the Central Government; or (b) a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government; or (c) such other category of corporate persons as may be notified by the Central Government – section 55(2) of Insolvency Code, 2016.

Applicability of the provisions – The provisions are applicable to – (a) small company under section 2(85) of Companies Act (b) a start-up (other than partnership firm) as defined by Ministry of Commerce and Industry notification No. GSR 501(E) dated 23-5-2017 (c) an unlisted company with total assets not exceeding Rs. one crore as per financial statement immediately preceding the financial year – SO 1911(E) dated 14-6-2017.

19.1 Time period for completion of fast track process

The fast track corporate insolvency resolution process shall be completed within a period of 90 days from the insolvency commencement date. It can be extended by Adjudicating Authority by further 45 days, if resolution passed at a meeting of the Committee of Creditors (CoC) and supported by a vote of seventy five per cent of the voting shares – section 56(3) of Insolvency Code, 2016.

Further extension is not allowable.

20. Immunity from prosecution of corporate debtor after approval of CIRP

Often, insolvency resolution involves change of management or control of corporate debtor. It is possible that some prosecution may be going on against corporate debtor. In such cases, the new management suffers though fault, if any, is of earlier management. Hence, immunity has been provided to corporate debtor w.e.f.
28-12-2019 in respect of prosecution for liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process – Section 32A(1) of Insolvency Code inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019.

Prosecution will be discharged if it was already launched – If a prosecution had been instituted during the corporate Insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled – First proviso to section 32A(1) of Insolvency Code, inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019.

Prosecution of individual director or designated partner who was in charge of the corporate debtor at time of offence can continue – The immunity is only to corporate debtor and not to individual director or designated partner of LLP who is being prosecuted for personal vicarious liability, for offence committed when he was in-charge of affairs of corporate debtor – second proviso to section 32A of Insolvency Code inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019.

21. 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

Section 32A(2) of Insolvency Code inserted vide IBC (Amendment) Act, 2020, w.r.e.f. 28-12-2019, provides immunity against any action in respect of property of corporate debtor for offence committed prior to commencement of CIRP, if there was change in management.

The section 32A(2) states that no action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to another person, or sale of liquidation assets.

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The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
The golden rules of grammar, style and consistency are thoroughly followed
Font and size that's easy to read and remain consistent across all imprint and digital publications are applied

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