Module 05

Adjudicating Authorities
under the Code
Adjudicating Authorities
for Corporate Persons
Section 60-67
Adjudicating Authority for Corporate Persons (Section 60(1))

• This subsection designates the National Company Law Tribunal (NCLT) as the Adjudicating Authority

for handling insolvency resolution and liquidation cases of:

• Corporate persons (Companies, LLPs, etc.)

• Corporate debtors (Companies that have defaulted on their debts)

• Personal guarantors (Individuals who have given a personal guarantee for a corporate debtor’s loans)

• The NCLT that has territorial jurisdiction over the registered office of the corporate person will

handle the case.

• Example: If a company XYZ Ltd. (registered in Mumbai) defaults on a loan, the Mumbai Bench of

NCLT will have jurisdiction over its insolvency proceedings.

Centralized Proceedings for Corporate Guarantors & Personal Guarantors (Section
60(2))

• If a Corporate Insolvency Resolution Process (CIRP) or liquidation is already pending

before an NCLT, any insolvency or bankruptcy case involving its corporate guarantor
or personal guarantor must also be filed before the same NCLT.

Example:

• ABC Ltd. (corporate debtor) is undergoing CIRP at Delhi NCLT.

• If the lender wants to initiate insolvency against the company’s personal guarantor
(Mr. A), it must file the application before Delhi NCLT, not any other tribunal.
Transfer of Cases to NCLT (Section 60(3))

• If an insolvency or bankruptcy proceeding against a corporate guarantor or personal guarantor

is already pending before any other court or tribunal, it will be transferred to the NCLT handling
the corporate debtor’s insolvency.

Example:

• A bank has already filed a case against Mr. B (personal guarantor of XYZ Ltd.) in the Debt
Recovery Tribunal (DRT).

• Meanwhile, XYZ Ltd.’s CIRP is pending before Mumbai NCLT.

• The case against Mr. B will be transferred to Mumbai NCLT to ensure consolidated adjudication.
NCLT’s Powers Similar to Debt Recovery Tribunal (Section 60(4))

• For handling cases under Section 60(2) (corporate guarantor or personal guarantor’s insolvency),
the NCLT has all the powers of the Debt Recovery Tribunal (DRT) as defined under Part III of the
IBC.

Example:

• If an individual personal guarantor (Mr. X) contests the lender’s claims, NCLT can exercise all
DRT powers, such as:

• Deciding the extent of liability of the guarantor

• Ordering debt recovery from the guarantor’s personal assets

• Resolving disputes related to loan guarantees

Exclusive Jurisdiction of NCLT (Section 60(5))

• This subsection overrides all other laws and gives the National Company Law Tribunal (NCLT) the
exclusive jurisdiction to handle the following matters related to corporate debtors and corporate
persons:

(a) Applications & Proceedings by or against Corporate Debtors/Persons

• NCLT can hear any application or legal proceeding involving a corporate debtor or corporate
person.

• This ensures that all insolvency-related disputes are handled only by NCLT, preventing multiple
cases in different courts.

• Example: If a supplier files a lawsuit for unpaid dues against XYZ Ltd., which is undergoing
insolvency, the case must be filed in NCLT, not a civil court.
(b) Claims by or Against Corporate Debtors, Including Subsidiaries in India

• If the corporate debtor or corporate person has any legal claims (either against it or made by

it), they must be brought before NCLT.

• This includes claims related to subsidiary companies located in India.

Example:

• ABC Ltd. is the parent company of PQR Pvt. Ltd., a subsidiary in India.

• If ABC Ltd. is undergoing insolvency and has a pending claim against PQR Pvt. Ltd., the matter

will be decided by NCLT, not any other court.

(c) Questions on Priorities, Laws, and Facts Related to Insolvency

• NCLT has the power to decide disputes about priority of claims, such as whether financial
creditors, operational creditors, or government dues should be paid first.

• It can also rule on legal or factual questions arising in the insolvency process.

Example:

• Suppose a secured creditor and the Income Tax Department both claim priority in the
liquidation proceeds of XYZ Ltd.

• NCLT will decide who gets paid first based on IBC provisions.
Exclusion of Limitation Period During Moratorium (Section 60(6))

• This section ensures that the moratorium period (declared under Section 14 of IBC) is not counted when calculating the

limitation period for legal proceedings.

• Moratorium: When insolvency proceedings start, a moratorium is imposed, preventing creditors from taking legal action or

enforcing claims against the corporate debtor.

• Limitation Act, 1963: Normally, lawsuits and claims must be filed within a specific time period.

• Impact of Section 60(6): If a moratorium is in place, the time during which it applies will not be counted in the limitation period.

Example:

• A creditor has 3 years to file a claim against a company under the Limitation Act, 1963.

• If insolvency proceedings start, and a moratorium is in effect for 1 year, that 1-year period will be excluded when calculating

the limitation period.

• Effectively, the creditor will get 4 years (instead of 3) to file the claim.
Section 61 – Appeals and Appellate Authority

• This section lays down the procedure for appealing orders passed by the National Company Law Tribunal

(NCLT) and specifies the grounds on which an appeal can be filed.

Right to Appeal to National Company Law Appellate Tribunal (NCLAT) (Section 61(1))

• If a person is aggrieved by an order of the National Company Law Tribunal (NCLT) (Adjudicating Authority),

they can file an appeal before the National Company Law Appellate Tribunal (NCLAT).

• This provision overrides the Companies Act, 2013, ensuring that appeals related to insolvency matters are

handled only by the NCLAT and not other forums.

• Example: If ABC Ltd. is undergoing insolvency, and its creditors are dissatisfied with the resolution plan

approved by NCLT, they can challenge it before NCLAT.

Time Limit for Filing an Appeal (Section 61(2))

• Deadline: The appeal must be filed within 30 days of the NCLT order.

• Extension: NCLAT may allow a 15-day extension (maximum) only if the

appellant proves a valid reason for the delay.

• Total Maximum Period: 45 days (30 days + 15 days extension).

Grounds for Appealing an Approved Resolution Plan (Section 61(3))

• If a party is dissatisfied with an approved resolution plan (under Section 31 of IBC), they can appeal based

on these grounds:

(i) Violation of Law: If the resolution plan contravenes any existing law, it can be challenged.

Example: If a resolution plan waives statutory dues (such as GST liabilities) in violation of tax laws, it can be

appealed.

(ii) Irregularities by Resolution Professional

• If the Resolution Professional (RP) acted improperly during the Corporate Insolvency Resolution Process

(CIRP), the resolution plan can be challenged.

• Example: If the RP did not invite all eligible bidders to submit resolution plans, it could be an irregularity.
(iii) Non-Compliance with Operational Creditors’ Rights

• Operational creditors must receive payments as per the regulations set by the Insolvency and Bankruptcy Board of India (IBBI).

• Example: If a resolution plan only repays financial creditors but ignores operational creditors (e.g., suppliers, vendors), it can be

appealed.

(iv) Non-Priority Repayment of CIRP Costs

• CIRP costs (e.g., fees of Resolution Professionals, legal expenses) must be paid first, before distributing funds to other creditors.

• Example: If a resolution plan repays lenders first but delays or ignores CIRP costs, it can be appealed.

(v) Non-Compliance with IBBI Regulations

• If the resolution plan does not meet other criteria set by the IBBI, it can be challenged.

• Example: If the plan does not follow voting thresholds or fair distribution principles, it can be appealed.
Appeal Against a Liquidation Order (Section 61(4))

• If an NCLT order places a company into liquidation under Section 33, Section 54L(4), or Section
54N(4), it can be appealed if there was:

• Material irregularity (procedural violations)

• Fraud in passing the liquidation order

• Example: If liquidation was ordered based on forged financial statements, the decision can be
appealed.
Appeal Against Initiation of CIRP (Section 61(5))

• If Corporate Insolvency Resolution Process (CIRP) is started under Section 54-O(2), an appeal can
be made on the basis of:

• Material irregularity

• Fraud in obtaining the order

• Example: If a creditor falsifies loan documents to push a company into insolvency, the company
can challenge the order before NCLAT.
Section 62. Appeal to Supreme Court

• This section allows a person aggrieved by an order of the National Company Law Appellate Tribunal

(NCLAT) to appeal to the Supreme Court of India, but only on a question of law.

• Time Limit: The appeal must be filed within 45 days of receiving the NCLAT order.

• Extension: If there is a valid reason for delay, the Supreme Court may allow an appeal within an

additional 15 days (making it a maximum of 60 days).

• Example: If NCLAT upholds the liquidation of XYZ Ltd., and its directors believe that the order violates

fundamental legal principles, they can appeal to the Supreme Court within 45 days.
Civil Courts Do Not Have Jurisdiction (Section 63)

• This section bars civil courts from handling insolvency and bankruptcy matters that fall

under the jurisdiction of NCLT or NCLAT.

• It ensures that only specialized tribunals (NCLT & NCLAT) handle insolvency matters,

avoiding conflicting judgments from different courts.

• It prevents unnecessary delays in insolvency resolution by eliminating interference from civil

courts.

• Example: If a creditor of ABC Ltd. files a suit in a civil court to recover dues while ABC Ltd. is

undergoing insolvency, the suit will be dismissed because only NCLT has jurisdiction.
Disposal of Applications (Section 64)

• This section ensures timely resolution of insolvency cases.

• If a case is not decided within the time specified by IBC, NCLT or NCLAT must record reasons for

the delay.

• The President of NCLT or Chairperson of NCLAT can extend the deadline, but only by 10 more

days.

• No injunctions allowed: Courts or other authorities cannot stop NCLT or NCLAT from exercising

their powers.

• Example: If an insolvency case is not resolved within 180 days, NCLT must explain the delay and

can extend the timeline by up to 10 days.

Penalties for Fraudulent or Malicious Proceedings (Section 65)

• This section punishes individuals or companies that misuse insolvency laws for fraud or personal gain.

(1) Fraudulent or Malicious Initiation of CIRP or Liquidation

• If a person fraudulently or maliciously initiates insolvency or liquidation for any reason other than genuine insolvency,

they can be fined ₹1 lakh to ₹1 crore.

• Example: If a creditor falsely claims insolvency against PQR Ltd. to force a settlement, NCLT can impose a penalty on

the creditor.

(2) Fraudulent Voluntary Liquidation

• If a company voluntarily initiates liquidation to defraud creditors, the responsible person may be fined ₹1 lakh to ₹1

crore.

• Example: A company owner starts liquidation to avoid repaying bank loans while transferring assets to another

company. NCLT can impose a penalty.

(3) Fraud in Pre-Packaged Insolvency Resolution

• If a person fraudulently or maliciously initiates a pre-packaged insolvency resolution

process, or does it with intent to defraud, they can be fined ₹1 lakh to ₹1 crore.

• Example: A business owner secretly colludes with a bidder during pre-packaged

insolvency to regain control at a lower valuation. This can attract penalties.

Fraudulent Trading or Wrongful Trading (Section 66)

• This section holds directors, partners, and other responsible persons accountable if they knowingly conduct

business fraudulently or wrongfully during an insolvency resolution or liquidation process.

• If a company’s business was run with intent to defraud creditors or for any fraudulent purpose, the NCLT

(Adjudicating Authority) can order the responsible persons to personally contribute to the company’s assets.

• If directors or partners knew insolvency was unavoidable but failed to take steps to minimize losses, they

can also be held liable.

• However, if they exercised due diligence (acting as a reasonable director/partner would), they won’t be held

liable.

• Example: If XYZ Ltd. takes loans from multiple banks knowing it cannot repay them and diverts funds to

personal accounts, the NCLT can order the directors to repay from their own assets.
Proceedings Under Section 66 (Section 67)

• This section allows NCLT to give additional directions to ensure compliance with Section 66
orders.

• If a person is found guilty under Section 66, NCLT can place a charge on any debt, mortgage,
or asset they hold.

• If the guilty party is a creditor of the insolvent company, NCLT can lower their repayment
priority under Section 53 (Waterfall Mechanism).

• However, innocent third-party assignees who bought assets in good faith will not be affected.

• Example: If a director of ABC Ltd. fraudulently transfers assets to himself, NCLT can attach
those assets and use them for debt repayment.
Fraudulent Management in Pre-Packaged Insolvency (Section 67A)

• This section applies to the Pre-Packaged Insolvency Resolution Process (PIRP),

introduced for MSMEs (Micro, Small, and Medium Enterprises) under IBC.

• If an officer of the corporate debtor manages the company fraudulently during pre-
pack insolvency, they can be fined ₹1 lakh to ₹1 crore.

• This ensures honest management and prevents misuse of PIRP.

• Example: If the owner of an MSME transfers funds to a related company during

PIRP to avoid paying creditors, NCLT can impose heavy penalties.
 CHAPTER VI
ADJUDICATING AUTHORITY
FOR INDIVIDUALS AND
PARTNERSHIP FIRMS
Section 79-83
Sections 179 to 183

These sections deal with the adjudication of insolvency matters

concerning individuals and partnership firms, as opposed to corporate
entities.

The Debt Recovery Tribunal (DRT) serves as the primary forum for
handling such cases.
Section 179 Adjudicating Authority for Individuals and Partnership Firms

• This section establishes Debt Recovery Tribunals (DRTs) as the adjudicating authority for insolvency cases involving individuals

and firms.

• Territorial jurisdiction: The DRT having jurisdiction over the place where the debtor resides, works, or conducts business will

handle insolvency matters.

• Exclusive powers of DRT:

• Handle suits or proceedings by or against the debtor.

• Decide claims related to the debtor.

• Address priority issues and legal questions related to insolvency.

• Exclusion of moratorium period: If a moratorium (a temporary halt on legal proceedings against the debtor) is declared, its

duration is excluded from the limitation period (i.e., the time within which legal action must be taken).

• Example: If Mr. A, a sole proprietor, defaults on a bank loan and is undergoing an insolvency resolution process, the bank

cannot file a recovery suit in a civil court. Instead, it must approach the DRT.
Section 180 Civil Court Jurisdiction Barred

• This section prohibits civil courts from handling matters covered under IBC for individuals

and firms.

• Exclusive jurisdiction of DRT: No civil court or authority can hear cases related to individual

insolvency or bankruptcy.

• No injunctions allowed: Courts and tribunals cannot halt insolvency proceedings once they

are initiated before the DRT.

• Example: If Mr. B, a businessman, declares bankruptcy, his creditors cannot approach a

civil court to recover their money. They must file claims with the DRT.
Section 181 Appeal to Debt Recovery Appellate Tribunal

• If a party is dissatisfied with a DRT order, they can appeal to the Debt Recovery Appellate
Tribunal (DRAT).

• Time limit for appeal:

• Appeal must be filed within 30 days of the DRT order.

• DRAT can allow an extension of 15 days for valid reasons.

• Example: If Mr. C, a firm owner, disputes a DRT ruling on his bankruptcy, he can file an
appeal before the DRAT within 30 days.
Section 182 Appeal to Supreme Court

• A further appeal can be made to the Supreme Court, but only on questions of law.

• Time limit for appeal:

• Must be filed within 45 days of the DRAT order.
• The Supreme Court can extend it by 15 days if justified.

• Example: If a creditor challenges the interpretation of a bankruptcy provision in

Mr. D's insolvency case, they can appeal to the Supreme Court within 45 days.
Section 183 Expeditious Disposal of Cases

• Ensures that insolvency cases are resolved quickly.

• If cases are delayed, the DRT or DRAT must record reasons for the delay.

• Maximum extension of 10 days can be granted for justifiable reasons.

• Example: If a bankruptcy application against Mr. E remains undecided for

months, the DRT Chairperson must explain the delay and ensure resolution
within 10 additional days.
Thank You!!!