IBC, 2016

Preamble

This code shall apply to

This Code
extends to  Company under Co. Act, 2013  LLP  Company under Special Act  Body corporate notified by CG
Whole of India  Person guarantors to corporate debtors  Partnership or proprietorship firms  Individuals

IMPORTANT DEFINITIONS
Board means Insolvency & Bankruptcy Board of India (IBBI)

INSOLVENCY RESOLUTION & LIQUIDATION OF CORPORATE PERSONS

Application  This Part shall apply to insolvency of CORPORATE DEBTORS where minimum amount of default is 1 crore
(Sec. 4)  For MSMEs, where the amount of default is ≥ 10 lakh, there is an alternate mechanism of Pre-Packaged Insolvency
Resolution Process (PIRP)

Adjudicating Corporate Applicant Corporate Guarantor Dispute

Authority
Means Includes a suit or arbitration
 Corporate debtor proceedings relating to
 Member or partner of corporate debtor authorised to make  Existence of amount of debt
Means a corporate person
an application for CIRP who is surety in a contract  Quality of goods & services
NCLT  Individual in charge of managing the operations of of guarantee to corporate  Breach of a representation or
corporate debtor debtor warranty
 A person having control over financial affairs of corporate
debtor

CA HARSH GUPTA IBC, 2016

 Resolution Applicant Resolution Plan Resolution Professional

Plan proposed for insolvency resolution

Person who submits resolution plan to of the corporate debtor as a going Means Insolvency Professional (IP) appointed to conduct
resolution professional concern CIRP & includes Interim Resolution Professional (IRP)

Financial Creditor (FC) Operational Creditor (OC)

means means
A person to whom a financial debt is owed & includes a person to whom such debt has been legally A person to whom an operational debt is
assigned owed & includes a person to whom such
debt has been legally assigned
Financial debt means a debt along with interest, which is disbursed against the consideration for the
time value of money & includes Operational debt means
 Money borrowed against payment of interest  a claim in respect of the provision of
 Amount raised by acceptance under acceptance credit facility goods or services
 Amount raised pursuant issue of debentures, bonds, notes or similar instrument  including employment
 Liability in respect of any lease or hire purchase contract which is deemed as financial lease  a debt payable to Govt. or local
 Receivables sold or discounted other than on non-recourse basis authority in respect of dues arising
 Amount raised under any transaction, including forward sale, having the commercial effect of under any law
borrowing (e.g. – amount raised from an allottee under a real estate project)
 Derivative transaction entered into for protection against the fluctuation in any rate or price
 Counter-indemnity obligation in respect of guarantee, indemnity or other instrument issued by
bank or FI
 Amount in respect of any indemnity or guarantee for above-mentioned items

Initiation
of CIRP by
Financial
Creditor
(Sec. 7)

CA HARSH GUPTA IBC, 2016

Initiation
of CIRP by
Operational
Creditor
(Sec. 8 &
9)

Initiation
of CIRP by
Corporate
Applicant
(Sec. 10)

CA HARSH GUPTA IBC, 2016

Persons not The following a. corporate debtor undergoing CIRP or PIRP
entitled to persons are not b. FC or OC of a corporate debtor undergoing PIRP
make entitled to make
application application to c. corporate debtor having completed CIRP 12 months preceding the date of making application
(sec. 11) initiate CIRP d. corporate debtor having completed PIRP 12 months preceding the date of making application
e. corporate debtor or financial creditor who has violated the terms of resolution plan which was approved
12 months preceding the date of making application
f. corporate debtor under liquidation
Note – Nothing shall prevent a corporate debtor to initiate CIRP against another corporate debtor
Time limit for Extension of CIRP period
CIRP
NCLT can extend the period by ≤ 90 days.
CIRP shall be
(Sec. 12) completed within 180 If instructed by 66% vote of No extension shall be granted more than once
days from the date CoC, Resolution professional
of commencement of shall file an application to CIRP shall mandatorily be completed within 330 days from CIRP
CIRP NCLT to extend the period commencement date including any extension or time taken in legal
proceedings

Withdrawal of  NCLT may allow withdrawal of applicationu/s 7, 9 or 10

application
 on application by approval 90% vote of CoC
(Sec. 12A)
Moratorium & After admission of application u/s 7, 9 or 10, NCLT shall by an order
Public
announcement Declare a MORATORIUM Sec. 14
(Sec. 13) Cause a PUBLIC ANNOUNCEMENT of initiation of CIRP & call for submission of claims Sec. 15
Appoint an IRP Sec. 16

Moratorium On CIRP commencement date, NCLT shall declare moratorium for prohibiting all of the Date of effect of order
following –
(Sec. 14) Moratorium shall have effect
a. institution of suits or continuation of pending SUITS against corporte debtor
from the date of such order till
b. transferring or disposing of ASSETS by corporate debtor completion of CIRP
c. action to foreclose, recover or enforce any SECURITY INTEREST created by corporate debtor
d. RECOVERY of any property by an owner or lessor where such property is occupied by Where during CIRP, NCLT
corporate debtor approves resolution plan or
passes order for liquidation,
Exception – Supply of essential goods or services shall not be terminated during moratorium, moratorium shall cease to have
except where dues has not been paid for such supply effect
Public IP shall make a public announcement of Public announcement contains the following information
Announcement initition of CIRP within 3 days of his
(Sec. 15) appointment as IRP  Name & address of corporate debtor  Name of authority with which
debtor is registered
Expenses of this shall be borne by the
applicant, unless reimbursed by CoC  Last date for submission of claims  Details of IRP
 Penalties for false claims  Date on which CIRP shall be
closed

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Appointment of
IRP NCLT shall appoint IRP on insolvency commencement date IRP shall continue till appointment of RP
(Sec. 16) Application for CIRP
by FC or Corporate RP proposed by them in application shall become IRP, if no disciplinary proceedings are pending
debtor
NCLT shall make a reference to IBBI for the recommendation of an IP who may
IRP is not proposed act as IRP
Application for CIRP IBBI shall recommend the name within 10 days
by OC
RP proposed by them in application shall become IRP, if no disciplinary
IRP is proposed proceedings are pending
Management of Powers of IRP Duties of IRP
affairs by IRP
 Management of affairs of  Execute deeds & documents on  Collect all information relating to financial
(Sec. 17) corporate debtor behalf of corporate debtor position of debtor
 Exercising powers of Board or  Take actions specified by IBBI  Get valuation of debtor done, if necessary
partners  Have authority to access electronic  Receive & collate all claims
 Officers of debtor shall report to records from information utility
IRP  Constitute a CoC
 Have authority to access the books
 Financial institutions maintaining & records  Monitor assets & manage operations till
A/c of debtor shall act on  Responsible for appointment of RP
carrying out
instuctions of IRP compliance with the legal  File information collected with information
requirements utility
 Take control & custody of assets
Committee of IRP shall, after collation of all CoC shall comprise of all FC
Creditors claims, constitute a CoC If FC is related party, it shall have no right to participate in meeting of CoC
(Sec. 21) Constitution of In case of consortium exception
CoC agreement, each FC shall be FC regulated by financial sector regulator, if it is a related party solely on
a part of CoC account of conversion of debt into equity

 Such person shall be FC to the extent of financial debt & shall be included in CoC with voting shares
Where person is proportionate to financial debt
both FC & OC  Where OC has assigned any operational debt to FC, the assignee shall be considered to be OC
Where consortium arrangement provides for a single trustee or agent, each FC may
Financial debt as
consortium  Authorise trustee or agent to act on his behalf in CoC
arrangement  Exercise his right to vote to the extent of his voting share

 Financial debt in form of securities or deposits & Such trustee or agent shall act as
terms of financial debt provide for appointment of authorised representative on behalf
trustee or agent of such FCs
Authorised
Representative  Financial debt is represented by a guardian, Such person shall act as authorised
executor or administrator representative on behalf of FC
such authorised representative shall attend meetings of CoC & vote on behalf of FC

Save as otherwise provided, all decisions of CoC shall be taken by ≥ 51% voting share of FC
Where debtor doesn’t have FC, CoC shall comprise of
Vote in the
Meeting 18 largest OCs by value
1 representative elected 1 representative elected
Where OCs is < 18, all such OCs shall be member by all workmen by all employees

Furnishing  CoC can require RP to furnish any financial information relating to corporate debtor
information to
CoC  RP shall make available such information within 7 days
Meeting of CoC Notice Quourum
(Sec. 24) RP shall give notice of meeting to Quorum ≥ 33% of voting rights present in person or
 Members of CoC, including authorised through audio-video means
All meetings of representatives
CoC shall be If quorum is absent, meeting shalll automatically
 Members of suspended Board or partners adjourn at same time & place next day
conducted by RP
 OCs if their aggregate dues is ≥ 10% of debt
Directors, partners & 1 representative of OCs may At adjourned meeting, members present shall be the
attend the meeting but shall have no right to vote quourum

Appointment of At first meeting, by ≥ 66% vote, CoC

RP
Appoint IRP as RP Communicate its decision to IRP, debtor & NCLT
(Sec. 22) First meeting of File an application before NCLT for appointment of proposed RP
CoC shall be held
within 7 days of NCLT shall forward the name of proposed RP to IBBI for confirmation
constitution of Replace IRP by another RP
CoC
If IBBI doesn’t confirm within 10 days

NCLT shall order IRP to continue as RP until IBBI confirms

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Duties of RP RP shall preserve To protect the assets following ACTIONS can be taken
& protect the
(Sec. 25) assets of  Take immediate custody of all  Act on behalf of corporate  Raise interim-finance
corporate debtor assets debtor with third parties
 Appoint accountants & other  Maintain updated list of  Convene meetings of CoC
professionals claims
 Prepare Information  Invite prospective resolution  Present all Resolution Plans to
Memorandum applicants CoC

Eligibility of IP to a. He is eligible to be appointed as INDEPENDENT DIRECTOR of debtor, where debtor is a company

be appointed as b. He is NOT a RELATED PARTY of debtor
RP
c. He is NOT an EMPLOYEE, PROPRIETOR or PARTNER of a firm of auditors or secreterial auditors or cost
auditor of debtor in last 3 years
d. He is NOT an EMPLOYEE, PROPREITOR or PARTNER of a legal or consulting firm having transaction with
debtor of ≥ 5% of gross turnover in last 3 years
Note – Fees payable to RP & any costs in running the business shall be included in the insolvency resolution
process cost.
Replacement of
RP CoC with ≥ 66% vote replace RP CoC shall forward the name of proposed NCLT shall forward the same to IBBI for
RP to NCLT confirmation as provided u/s 16
(Sec. 27)
Approval of CoC RP needs prior approval of CoC with ≥ 66% votes for the following transactions
for certain
actions  Raising interim finance  Debit transactions > specified  Disposal of shares of any
(Sec. 28) amount shareholder  Action taken
without prior
 Creating security  Related party transactions  Change in management approval is void
interest  CoC may report the
 Change in capital  Amend constitutional  Transfer of debts actions of RP to
structure documents IBBI
 Change in ownership  Delegating its authority  Change in contracts of specified
interest personnel or auditors
Resolution Plan RP shall provide required
RP shall prepare Information Memorandum for RP shall examine the Resolution
(Sec. 29) formulating Resolution Plan information to Resolution Plan & submit the same to CoC
Applicant
Persons not  Undischarged insolvent  At the time of submission  Is a Promoter or in management
eligible to be of Plan or control of a corporate debtor
Resolution  Wilful defaulter in which
- Has an A/c classified as
Applicant  Disqualified to act as director NPA - A Preferential Transaction
(Sec. 29A)  Prohibited from trading by SEBI - Is Promoter or is under - Undervalued Transaction
management or control - Extortionate Credit
 Has given a guarantee in favour of a creditor, whose of corporate debtor Transaction
application has been admitted under IBC & guanartee whose A/c is classified - Fradulent Transaction
has been invoked as NPA
 Convicted with imprisonment has taken place & an order has
& 1 year has elapsed from been made by NCLT
≥ 2 years – Act under 12th Schedule such classification till
≥ 7 years – Any other law commencement of CIRP But this clause shall not apply if
But eligible after 2 years of his release from But is eligible if makes transaction has taken place by
imprisonment payment before submission Resolution Applicant pursuant to
of Plan a Resolution Plan
 He is subject to above-mentioned disabilities under any law outside India
 Has a connected person not eligible under all the above-mentioned clauses
Submission of  Resolution Applicant may submit a RESOLUTION PLAN
Resolution Plan  RP shall examine that each plan
(Sec. 30)
- Provides for payment of insolvency - Provides for payment of debts of OCs - Provides for mangement of affairs of
resolution process cost debtor
- Implementation & supervision of plan - Doesn’t contravene the law - Confirms to the requirements
specified by IBBI
 RP shall present such resolution plans to CoC
 CoC may approve a resolution plan by 66% vote
 RP shall submit the approved resolution plan with NCLT

Approval of Resolution applicant shall obtain necessary

Resolution Plan approvals required under any law within 1 year of In case Sec. 5 of Competition Act is
NCLT shall by order approve or approval of plan by NCLT or time provided in such applicable, approval of CCI shall be
(Sec. 31) reject the resolution plan law, whichever is later obtained, prior to approval of plan by
CoC
a. The plan is in contravention of any law
b. Material irregularity in exercise of powers by RP
Grounds for filing appeal
against approval of Resolution c. Debts of OCs have not been provided for in the plan
Plan by NCLT d. Insolvency resolution process cost has not been provided
e. Doesn’t comply with criteria specified by IBBI

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Initiation of NCLT shall order liquidation of corporate debtor in following cases –
Liquidation  NCLT doesn’t receive resolution plan
(Sec. 33)  NCLT rejects resolution plan
 Where RP intimates NCLT the decision of ≥ 66% vote of CoC to
liquidate

 Where an approved resolution plan is Where NCLT

contravened by concerned corporate determines that
debtor, corporate debtor
has contravened
 any person who is prejudicially affected the resolution
(other than the corporate debtor), plan, it shall
pass a
 may make an application to NCLT for liquidation order
liquidation

When liquidation order is passed, no suit or legal proceeding shall be

instituted against the corporate debtor, without prior approval of NCLT

The order of liquidation shall be deemed to be a notice of discharge to

officers & employees except when the business is continued during
liquidation process

Appointment of On liquidation order Powers & Duties  To verify all the claims of the creditors.
Liquidator  RP shall act as liquidator unless of Liquidator  To take all the property and actionable claims of the
(Sec. 34) replaced by NCLT Corporate Debtor into his custody.
(Sec. 35) To evaluate the assets and property of the Corporate
 All powers of board shall be vested in 
liquidator Debtor.
 To carry out the business of Corporate Debtor for its
beneficiary liquidation.
 To make the Progress Report of the Corporate Debtor.

Liquidation Liquidation Estate shall comprise of Liquidation estate shall NOT include
Estate
(Sec. 36)  Assets over which debtor has ownership rights  Assets owned by third party in possession of debtor
 Assets that may or may not be in possession of debtor  Assets in security collateral held by financial service
 Tangible & intangible assets providers & subject to netting & set-off
 Assets subject to determination of ownership by court  Personal assets of shareholder or partner
 All proceeds of liquidation as & when realised  Assets of subsidiary

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Consolidation  Liquidator shall receive the claims within 30 days of Verification of
of Claims commencement of liquidation claims
(Sec. 38)  FC may submit claim via. Information utility or in the (Sec. 39 & 40) Liquidator may admit or reject the
manner used by OC claim & shall communicate his
 OC may submit claim in the manner specified by IBBI decision within 7 days
 Creditor may withdraw or vary claim within 14 days of
submission
Relevant Time Effect

Related Party (other than employee) 2-years preceding CIRP commencement Where liquidator or RP is of the
opinion that debtor has at a relevant
Other than a related party 1-year preceding CIRP commencement time given a preference, he shall
apply to NCLT for avoidance of
preferential transactions
Preferential Deemed Preferential Transaction Exceptions
Transaction
(Sec. 43)  Transfer of property for the benefit 1. Transfer in the ordinary course of business
of creditor; and 2. Transfer creating a security interest to the extent that
 such transfer has the effect of  Security interest secures new value & was given at or after signing of security
putting such creditor in a agreement & was used by debtor to acquire such property; and
beneficial position than it would
have been as per waterfall  Such transfer was registered with information utility within 30 days of receiving
arrangement possession of property

Relevant Time

2-years preceding insolvency Effect

Related Party
commencement
1-year preceding insolvency Liquidator or RP shall apply to NCLT to
Other than a related party declare such transaction void
commencement

Meaning of 1. Gift
undervalued
transaction 2. Transaction for a consideration the value of which is significantly less than the consideration
provided by debtor & not in ordinary course of business
Undervalued
transactions  Where liquidator or RP has not reported
Application by undervalued transaction, If satisfied, NCLT shall pass an order to reverse
(Sec. 45 to 49) Creditor/ Member/ the transaction & requiring IBBI to initiate
 Creditor, member or partner may make an
Partner application to NCLT disciplinary proceedings against liquidator or RP

Where debtor has entered into undervalued transaction & NCLT shall order
NCLT is satisfied that such transaction was entered into  Restoring the position as it
deliberately existed before such
Powers of NCLT  For keeping assets beyond reach of any person to make a transaction; and
claim; or  Protecting interest of
 To adversely affect the interest of such a person in persons who are victims of
relation to claim transaction

 Where the corporate debtor has been a party to an extortionate credit transaction
Extortionate  involving the receipt of financial or operational debt during the period within 2 years preceding the insolvency
credit
transactions commencement date,
 the liquidator or the RP, may make an application for avoidance of such transaction to the NCLT
(Sec. 50)  if the terms of such transaction required exorbitant payments to be made by the corporate debtor.

Secured A secured creditor who seeks to realise its security interest, shall intimate liquidator of the price at
creditor in which he proposes to realise its secured asset If secured creditor
liquidation faces resistance from
proceedings Where amount realised > debts Creditor shall tender surplus funds to liquidator debtor in realisation,
he may make an
(Sec. 52) Where amount realised < debts Unpaid debts shall be paid by liquidator u/s 53 application to NCLT

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 Dissolution
(Sec. 54)
 Where assets have been
completely liquidated,
liquidator shall make an
application to NCLT for
dissolution

 NCLT shall then pass

dissolution order
Waterfall  Order shall be forwarded
Arrangement to the authority with
which the corporate
(Sec. 53) debtor is registered
within 7 days

VOLUNTARY LIQUIDATION

Declaration from Majority of directors, stating that the company Declaration is accompanied by
Step 1 will be able to pay its dues and is not being liquidated to defraud  Audited financial statements for last 2 years
any person;  Valuation report of assets
Passing of Special Resolution for approving the proposal of voluntary liquidation and appointment of liquidator, within 4 weeks of
the aforesaid declaration(s).
However, OR is required in case the company is liquidated as a result of
Step 2 Expiry of duration, if fixed by articles On the occurrence of event, specified in Articles, invoking dissolution

If a corporate person owes debts, approval of 2/3rd majority creditors would also be required;

Step 3 Intimation to the ROC and the Board about the Approval, within 7 days of such Approval;
Step 4 When the affairs are wound up, the Liquidator shall make an application to NCLT for the dissolution;
Step 5 NCLT passed the order of dissolution which is forwarded to the concerned ROC within 14 days of the receipt of order.

FAST TRACK CIRP

Applicability Time-limit Extension of CIRP period
 Small Co.
 Start-up (other than partnership firm) CIRP shall be NCLT can extend the period by ≤ 45 days.
 Unlisted Co. whose total assets ≤ 1 completed within 90 If instructed by 75% vote
crore days from the date of CoC, Resolution
of commencement of professional shall file an No extension shall be granted more than
Application for CIRP may be filed with a CIRP application to NCLT to once
creditor or corporate debtor alongwith proof extend the period
of default

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CA HARSH GUPTA IBC, 2016