CORPORATE LAW

Class XIII
Distance Education Program
National Law School of India University

Aditya Kamath, BA. LLM

Agenda 23-03-2025
 Initiation by the Financial creditor
 Initiation by operational creditor
 Moratorium
 COC
S 7: Initiation of corporate insolvency resolution
process by financial creditor.—
 (1) A financial creditor either by itself or jointly with other financial creditors may file an
application for initiating corporate insolvency resolution process against a corporate
debtor before the Adjudicating Authority when a default has occurred. Explanation.—For
the purposes of this sub-section, 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.
 (2) The financial creditor shall make an application under sub-section (1) in such form
and manner and accompanied with such fee as may be prescribed.
 (3) The financial creditor shall, along with the application furnish—
 (a) record of the default recorded with the information utility or such other record or evidence
of default as may be specified;
 (b) the name of the resolution professional proposed to act as an interim resolution
professional; and
 (c) any other information as may be specified by the Board
(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under
sub-section (2), ascertain the existence of a default from the records of an information utility or on the
basis of other evidence furnished by the financial creditor under sub-section (3).
(5) Where the Adjudicating Authority is satisfied that—
(a) a default has occurred and the application under sub-section (2) is complete, and there is no
disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit
such application; or
(b) default has not occurred or the application under sub-section (2) is incomplete or any disciplinary
proceeding is pending against the proposed resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of
sub-section (5), give a notice to the applicant to rectify the defect in his application within seven
days of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of the
application under sub-section (5).
(7) 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
 Key Terms
 “Default” means non-payment of debt when whole or any part or instalment of the
amount of debt has become due and payable and is not repaid by the debtor or the
corporate debtor, as the case may be.
 “Corporate debtor” means a corporate person who owes a debt to any person
 “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.

 Application by a single Financial Creditor being a part of Consortium is permitted

 It does not matter whether the loan has been granted individually by the financial
creditor or as part of the consortium with other financial creditors. The Tribunal,
on many occasions, has upheld this proposition.
 In an application under section 7 of the Code before the Ahmedabad Bench of the
Tribunal, an objection was raised that there are other financial creditors that are Banks and
they constitute consortium of Banks; hence an application under section 7 by one of the
constituent of consortium is not maintainable. The Bench rejected this objection in view of
section 7 of the Code, which permits any one of the financial creditors to file an application
to trigger corporate insolvency resolution process either jointly with other financial
creditors or individually. IDBI Bank Ltd v BCC Estates Pvt Ltd, (2018) 1 Comp LJ 116 .
 The Principal Bench of the Tribunal has similarly overruled an objection by the corporate
debtor that the applicant who is part of the consortium and designated as lead bank of the
consortium cannot individually enforce any right or obligation of the term loan agreement.
Bank of Baroda v Amrapali Silicon City Pvt Ltd, [2017] 143 SCL 724 : [2017] 204 Comp Cas 285
 The Chandigarh Bench of Tribunal found no substance in the contention that where loan
facilities were granted by the consortium of three banks, the application without the
approval of other two banks is not maintainable. The Bench held that the bank is a
financial creditor qua the loans granted by it and entitled to make an application for
initiating corporate insolvency resolution process. Punjab National Bank v Concord
Hospitality Pvt Ltd, NCLT, Chandigarh Bench in CP(IB) No. 43/CHD/PB/2017,
[s 7] Tribunal is bound to issue notice to the
Corporate Debtor
 In the case of Innoventive Industries Ltd v ICICI Bank, the Appellate Tribunal has
discussed in detail the issue whether it is mandatory for the Tribunal to follow the
principles of natural justice while passing the order under the Code. The Appellate
Tribunal has referred to the judgment of Calcutta High Court passed in Writ Petition
No. 7144(W) of 2017 assailing the vires of section 7 of the Code and the relevant rules
under the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules,
2016 in Sree Metaliks Ltd v UOI. The Appellate Tribunal held as follows:—
We are of the view and hold that the Adjudicating Authority is bound to issue a limited
notice to the corporate debtor before admitting a case for ascertainment of existence of
default based on material submitted by the corporate debtor and to find out whether the
application is complete and/or there is any other defect required to be removed. Adherence
to the principles of natural justice would not mean that in every situation the adjudicating
authority is required to afford reasonable opportunity of hearing to the corporate debtor
before passing the order.
[s 7] Reasonable Opportunity to the Corporate Debtor is to be
afforded before admitting Petition for corporate insolvency
resolution process
 It is to be noted that the provisions of section 7 of the Code do not explicitly provide for affording
opportunity to the corporate debtor. The Gujarat High Court in Essar Steel India Ltd v Reserve Bank of
India, [2017] 143 SCL 580 (Guj) has unequivocally held as follows—
 …It goes without saying that such filing (application under section 7) would not amount to admitting
or allowing the petition for insolvency without offering reasonable opportunity to the company, which
is requested to be taken into insolvency by any such person. Therefore, the adjudicating authority
being NCLT herein, which is constituted in place of the Company Court, needs to decide on its own
based upon factual details that whether the insolvency petition is required to be entertained as such
or not.
 For the purpose, adjudicating authority, certainly requires to extend hearing and reasonable
opportunity to the company to explain that why such an application should not be entertained. In
other words, filing of an application may not result into mechanical admission of application as seen
and posed by RBI in impugned press release. It would be a decision based on judicial discretion by the
adjudicating authority to deal with such application in accordance with law and based upon facts,
evidence and circumstance placed before it.
Section 8- Insolvency resolution by Operational
Creditor.—
 An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational
debt or copy of an invoice demanding payment of the amount involved in the default to the corporate
debtor in such form and manner as may be prescribed.
 (2)The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the
invoice mentioned in sub-section (1) bring to the notice of the operational creditor—
 existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the
receipt of such notice or invoice in relation to such dispute;
 the payment of unpaid operational debt—
 by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the
corporate debtor; or
 by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate
debtor.

 Explanation.—For the purposes of this section, a “demand notice” means a notice served by an operational
creditor to the corporate debtor demanding [payment] of the operational debt in respect of which the
default has occurred.
S 9: Application for initiation of corporate insolvency
resolution process by operational creditor.—
 (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding
payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the
corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
 The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as
may be prescribed.
 The operational creditor shall, 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 an unpaid operational debt by the corporate debtor or such other
information, as may be prescribed.
 (iv) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a
resolution professional to act as an interim resolution professional.
 (v) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by
an order—
 (vi)admit the application and communicate such decision to the operational creditor and the corporate debtor if,—
 the application made under sub-section (2) is complete;
 there is no [payment] of the unpaid operational debt;
 the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;
 no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and
 there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any
 reject the application and communicate such decision to the operational creditor and the corporate debtor, if—
 the application made under sub-section (2) is incomplete;
 there has been [payment] of the unpaid operational debt;
 the creditor has not delivered the invoice or notice for payment to the corporate debtor;
 notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or
 any disciplinary proceeding is pending against any proposed resolution professional.
 Provided that Adjudicating Authority, shall before rejecting an application under sub clause (a) of clause (iii) give a
notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice
from the adjudicating Authority.
 The corporate insolvency resolution process shall commence from the date of admission of the application under
sub-section (5) of this section.
[s 10] Initiation of corporate insolvency resolution
process by corporate applicant.—
 Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating
corporate insolvency resolution process with the Adjudicating Authority.
 The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and
accompanied with such fee as may be prescribed.
 The corporate applicant shall, along with the application, furnish—
 the information relating to its books of account and such other documents for such period as may be specified;
 the information relating to the resolution professional proposed to be appointed as an interim resolution professional; and
 the special resolution passed by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total
number of partners of the corporate debtor, as the case may be, approving filing of the application.]
 The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order—
 admit the application, if it is complete and no disciplinary proceeding is pending against the proposed resolution professional];
or
 reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional]:
 Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the
defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority.
 (v) The corporate insolvency resolution process shall commence from the date of admission of the application
under sub-section (4) of this section.
[s 11] Persons not entitled to make
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.
 Activity Financial Creditor’s position Operational Creditor’s Position

Initiation of corporate insolvency resolution process 1. Application can be made if the default has occurred (S.7). No notice of 1. Application can be made if the default has occurred and notice of
demand is required to be sent. demand has been delivered to the corporate debtor.

2. The question of dispute is not relevant for the financial creditor. 2. The process cannot be initiated if the corporate debtor disputes the
demand.

Initiation of corporate insolvency resolution process 3. Financial creditor shall furnish the name of resolution professional to act 3. Operational creditor is to attach a copy of the certificate from the
as interim resolution professional financial institutions maintaining accounts of the operational creditor
confirming that there is no payment of an unpaid operational debt by the
corporate debtor.

4. Operational creditor may propose the name of resolution professional to

act as interim resolution professional

Committee of Creditors (S.21) The committee of creditors shall comprise all financial creditors of the Operational creditors are excluded from the committee of creditors unless
corporate Debtor. All decisions of the committee of creditors shall be taken there are no financial creditors. In such a case, top nineteen operational
by a vote of not less than seventy-five per cent of voting share of the creditors will constitute committee of creditors.
financial creditors.

Resolution Plan (S.30) Resolution plan is submitted to committee of creditors and only financial Operational creditors cannot vote unless there are no financial creditors.
creditors can vote on it.

Approval of Resolution Plan (S. 31) The resolution plan once approved is binding on the corporate debtor and Operational creditors are also bound by resolution plan approved by the
its employees, members, creditors, guarantors and other stakeholders adjudicating authority.
involved in the resolution plan.

Order of priority in payment (in liq) (S. 53) Financial creditors are paid prior to operational creditors Operational creditors are paid later than financial creditors in order of
priority.
 Moratorium
Section 14:
(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:—
(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 lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during
moratorium period.

(3) The provisions of sub-section (1) shall not apply to—

(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;
(b)a surety in a contract of guarantee to a corporate debtor.
(4)The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan
under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect
from the date of such approval or liquidation order, as the case may be.
 Alpha and Omega Diagnostics (India) Ltd. v Asset Reconstruction Company of India,
 personal properties of the promoters were given as security to the banks.
 The issue was whether properties that are not owned by the corporate debtor would come within the scope of moratorium under section 14 of
the Code.
 The NCLAT held that section 14 only applies to assets of the corporate debtor and would not bar proceedings or actions against assets of third
parties.
 A literal interpretation of section 14 was undertaken, and it was noted that the word “its” in section 14(1)(b) and (c) is used in relation to the
corporate debtor only.
 A similar issue came up in Schweitzer Systemtek India Private Limited v Phoenix ARC Private Limited,
 It held as under:
“The outcome of this discussion is that the Moratorium shall prohibit the action against the properties reflected in the Balance Sheet
of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. As a
result, the Order of the Hon’ble Court directing the Court Commissioner to take over the possession shall not fall within the clutches of
Moratorium… Before I part with it is necessary to clarify my humble view that The SARFAESI Act may come within the ambits of
Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a
Corporate Debtor, otherwise not.”
 The Allahabad High Court subsequently took a differing view in Sanjeev Shriya v State Bank of India
 It applied moratorium to enforcement of guarantee against personal guarantor to the debt.
 The rationale being that if a CIRP is going on against the corporate debtor, then the debt owed by the corporate debtor is not final till the
resolution plan is approved, and thus the liability of the surety would also be unclear.
 In State Bank of India v V. Ramakrishnan and Veeson Energy Systems ,
 the NCLAT took a broad interpretation of section 14 and held that it would bar proceedings or actions against sureties.
 While doing so, it did not refer to any of the above judgments but instead held that proceedings against guarantors would affect the CIRP and
may thus be barred by moratorium.
 Alchemist Asset Reconstruction Co Ltd v Hotel Gaudavan Pvt Ltd, - Supreme
Court held:
 “The mandate of the new Insolvency Code is that the moment an insolvency
petition is admitted, the moratorium that comes into effect under section
14(1)(a) expressly interdicts institution or continuation of pending suits or
proceedings against Corporate Debtors.”
 Expressing surprise that an arbitration proceeding has been purported to be
started after the imposition of the said moratorium the Apex Court set aside the
order of the District Judge dated 6 July 2017 and further stated that the effect of
section 14(1)(a) of the Code is that the arbitration that has been instituted after
the aforesaid moratorium is non est in law.
 The Apex Court also went ahead and quashed the criminal proceeding under an
FIR against the Interim Resolution Professional and emphatically held— the
steps that have to be taken under the Insolvency Code will continue unimpeded by
any order of any other Court.
 The Calcutta High Court in Burn Standard Co Ltd v United Bank of India, held that prohibition in
filing of suit or proceeding applies to suit or proceeding filed or to be filed against the corporate
debtor, it cannot apply to suit or proceeding filed or to be filed by the corporate debtor
 An interesting order was passed by the Hyderabad Bench of the Tribunal while declaring
moratorium under section 14 of the Code.
 The moratorium order excluded from its ambit the institution of suits or continuation of pending suits or
proceedings except before the Hon’ble High Court(s) and Hon’ble Supreme Court of India, against the
corporate debtor.
 The Appellate Tribunal, while considering the appeal against the above order categorically stated
that the provision of the Code relating to moratorium does not exclude any Court and hence filing
or continuation of suits or proceedings before High Courts and Supreme Court cannot be excluded
from the ambit of section 14 by any order of the Tribunal. It also examined the power of Supreme
Court and High Courts under the Constitution of India and held that:
 …‘moratorium’ will not affect any suit or case pending before the Hon’ble Supreme Court under Article 32 of
the Constitution of India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’
will also not affect the power of the High Court under Article 226 of Constitution of India.
 It restricted the embargo of moratorium order to the suits filed before the High Court under
original jurisdiction being a money suit or suit for recovery against the corporate debtor.
 Anjali Rathi v. Today Homes and Infrastructure P. Ltd., (2021) 16 Comp
Cas-OL 145 (SC); 2021 SCC OnLine SC 729.

 Ansal Crown Heights Flat Buyers Assocition (Regd.) … Appellant

Versus Ansal Crown Infrabuild P. Ltd. and Others (2024) 243 Comp Cas
1 : 2024 SCC OnLine SC 64
What is not covered under Section 14.
 Criminal Cases- DK Kapur v Reserve Bank of India & others
 Cheque Bounce Cases- Jose Antony Kakkad v Official Liquidator, High Court
 Income Tax Proceedings - SV Kondaskar v VM Deshpande
Sub Section 2:
 Sub-section (2) provides that the supply of essential goods or services to the corporate debtor as may be
specified shall not be terminated, suspended or interrupted during the moratorium period.
 The expression “as may be specified” refers to the Regulations framed by the Board. The amount due to
suppliers of essential goods or services is considered as part of insolvency resolution process cost. The Board
has specified essential supplies in regulation 32,:-
Regulation 32. Essential Supplies.
The essential goods and services referred to in section 14(2) shall mean—
 electricity;
 water;
 telecommunication services; and
 information technology services,
to the extent these are not a direct input to the output produced or supplied by the corporate debtor.
Illustration- Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes,
and not for generation of hydro-electricity.
S 21- Committee of Creditors
1) The interim resolution professional shall after collation of all claims
received against the corporate debtor and determination of the financial
position of the corporate debtor, constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of the
corporate debtor:

 Related Party
 Operational Creditor and Financial Creditor
 Thank you
 Write a note on the concepts of Financial Creditor and Operational
Creditor and how they can initiate insolvency

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