In the year 2016, India passed the Insolvency and Bankruptcy Code (IBC). The
IBC brought some about significant changes and improvements and was termed the largest economic reform. It is widely seen as a regulation that will speed up
India's insolvency procedure.
The primary aim of IBC is to amalgamate and amend
the laws concerning insolvency of corporate persons, individuals, and
partnership firms, etc. CIRP is a process through which proceedings against the
debtors be initiated by:
- financial creditors;
- operational creditors;
- corporate persons.
The National Company Law Tribunal (NCLT) is the forum where corporate insolvency
proceedings can be start off, and appeals against its decisions can be taken to
the National Company Law Appellate Tribunal (NCLAT). The NCLT has all of the functions of the Debt Recovery Tribunal under the IBC.
Keywords: IBC, corporate insolvency resolution process, NCLT, NCLAT, financial
creditors operational creditors, corporate debtors.
The Insolvency and Bankruptcy Code [IBC], 2016, was enacted with the goal of
synthesizing and amending the rules and regulations relating to reorganizing and
insolvency resolution of corporate persons, partnership firms, and individuals
in a time specified manner in order to increase the value of such person's
assets, foster entrepreneurship, and increase credit availability while
balancing the benefit of all stakeholders, including creditor.
Part II of the IBC lays out the insolvency and liquidation procedures for all
corporate debtors. It establishes a 180-day deadline, which can be increased by
another 90 days to finish the process.
In terms of corporate insolvency, a
few of the novel features of the IBC include the establishment of a new forum to
adjudicate insolvency proceedings, the establishment of a dedicated regulator,
the creation of a new category of insolvency professionals, and the creation of
a new category of information utility providers. IBC, 2016 was written in a
manner that corporations do not have to go into liquidation. The firm only falls
into liquidation if a settlement is not reached.
The Apex Court highlighted for
the first time in M/s Innoventive Industries Ltd. vs. ICICI Bank
recently adopted Code of 2016, which consolidates and changes all laws relating
to insolvency and bankruptcy processes, has generated a fundamental change in
Corporate Insolvency Resolution Process:
CIRP stands for Corporate Insolvency Resolution Process.
It is a mechanism of
recovery from the Corporate Debtors. Even if the default is wilful, i.e., when
the corporate debtor has the means to pay but chooses not to, CIRP can be
initiated. As a result, the focal point of the IBC is the default of a payment
If any Corporation becomes insolvent, then CIRP can be initiated
against the corporation. The Code has set a default value in each category, but
the final amount must be declared by the government as the potential trigger for
the procedure to begin, bearing in mind the economy's fluctuation. It's vital to
note that the stated amount is a range, not a minimum or maximum set sum
of debt default.
Initiation of CIRP can be done by:
- Financial Creditor:
Any person who is owing to a business obligation or o
whom such an amount has been legally allocated or conveyed. E.g., Banks and
other financial institutions are a type of financial entity.
- Operational Creditor:
Anyone owing them an operational obligation, as well
as anyone to whom that sum has been lawfully assigned or transferred in exchange
for goods or services they have delivered. E.g., vendors, employees.
- Corporate Applicant:
Anyone who is a corporate debtor or a corporate
debtor's member or partner who is permitted to file an application or an
individual who is in command of the corporate debtor's activities and resources
or a person who has control and oversight over the corporate debtor's financial
After the commencement of the CIRP under Sections 7 or 8 and 9, or 10 of the
Insolvency Code of 2016, the Adjudicating Authority will take additional action
Section 12(1) of the Insolvency Code, 2016 mandates that the CIRP be finished
between the span of 180 days of NCLT's application to initiate the said
process. However, if the application is filed to Adjudicating Authority by the
resolution professional the said time period can be further extended and
And if instructed by a resolution obtained by a vote of 66% by the
voting shares of the Committee of Creditors at a meeting. On receipt of such
approval, the application made to adjudicating Authority shall be made by a
resolution professional. On receipt of such application, Adjudicating
Authority can grant only one extension up to a maximum of 90 days. The CIRP
must be completed within 330 days of the insolvency starting date, togetheriwth
any augmentation of the term of CIRP given under the Code and duration spent
in legal procedure related to the corporate debtor's resolution process.
- Application to National Company Tribunal:
where a company fails to make
payments, then the concerned creditors have the right to file a CIRP petition to
Adjudicating Authority, i.e., NCLT. It is considered to be a competent authority
for adjudication in cases where the company is the corporate debtor. The Merits
of the petition filed are considered, and once it is submitted, it is determined
whether the petition has a locus standi before NCLT. NCLT can reject the
petition if the merits of the case are not satisfied.
For instance, if the
defaulted amount is not equivalent with the minimum sum of INR 1,00,000. If
the Tribunal determines that the petition has merit, then it will be submitted
under sections 7, 9 , or 10 of the Insolvency Code, and the procedure
will begin. Tribunal schedules a hearing within 14 days after receiving the
- Application for Interim Resolution Process:
A resolution professional is
a licensed insolvency professional nominated and appointed by the Committee of
creditors (CoC) so that Tribunal appoints the IRP for the time being. In the
second stage of the process, the IRP must choose between finishing the rest of
the insolvency procedure or assuring that the corporate debtor's activities
After the Tribunal approves the petition, the moratorium
period starts. Financial creditors cannot get any sum from the account of
the corporate debtor after the moratorium is declared.
The Tribunal is prohibited
while this is declared:
The moratorium will remain in place until the CIRP procedure has been completed.
This term can last up to 180 days, with a 90-day extension allowed in
- Commencement of new lawsuits or continuation of existing lawsuits against
the corporate debtor (in respect of financial debt
- Defenestration of the corporate debtor from any operational, financial,
legal, or managerial obligation;
- Any subsequent foreclosure or debt collection against the corporate
debtor under the SARFAESI Act of 2002; and
- Any property owned by the corporate debtor under the SARFAESI Act
- Collation and analysis of facts:
The IRP is in charge of identifying and
evaluating the charges made by the petitioner. The Code permits IRP to hold a
meeting with the petitioner to acquire any clarity needed if IRP asks for an
exposition of the claim made by the petitioner. Within 30 days of the CIRP's
start date, the IRP must appoint a Committee of Creditors (CoC). The Committee
selects a Resolution professional after the founding of the CoC. (RP). Within
seven days of the Committee's formation, the CoC must decide whether to appoint
a temporary RP as a resolution professional or to appoint another RP to replace
the interim resolution professional.
- Verification and Analysis of Claims:
At this point, IPRs will summon and
verify the creditor's claims, as well as classify them. Following that, a CoC
will be constituted, which will include all of the corporate debtor's financial
creditors, after 30 days of being accepted into CIRP.
- Resolution Plan:
CoC must make a public pronouncement following the
IRP/collation RPs and verification of the petitioner's assertions. The notice of
insolvency states that the corporate debtor is undergoing an insolvency action
and that all interested candidates or bidders are asked to submit a resolution
plan that could be chosen. Potential investors, creditors, and others could be
among the bidders. Based on the number of suggestions, the CoC reviews the
suggested resolution plans. The proposal that wins more than 75% of the CoC's
support will be submitted to the NCLT without question.
A resolution plan is to be adopted by the CoC and then
presented to the NCLT. The resolution plan is implemented and becomes legally
operative on the corporate debtor and all parties if the NCLT authorizes it. The
Tribunal may order the corporate debtor's liquidation if the NCLT does not
sanction the resolution plan or the CoC is unable to complete a resolution plan
within the given period.
We must examine several stages of the proceedings to determine the impact of
COVID-19 on IBC 2016. In light of economic imbalance caused by Pandemic Covid-19
and the associated restrictions on economic affairs, the Indian government
proposed postponing the right to commence insolvency resolution proceedings
under the IBC, 2016, for a six months period. In response, the government passed
the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, which took
effect on June 5, 2020. The Ordinance revised Section 66 of the IBC and added a
new Section 10A (Suspension of Initiation of Corporate Insolvency Resolution
Process) (Fraudulent Trading or Wrongful Trading).
Conclusion and Suggestions:
As blanket legislation, the IBC is important for the country's insolvency
regulations to be implemented. Since the IBC is a newly enacted law that is
continually being developed, it is vital to study the changes as well as court
judgments in order to fully appreciate the complexities. CIRP helps creditors to
recover their money while simultaneously looking out for the company's best
For initiation of the CIRP process, the Code specifies three persons
who can initiate the process under the concerning Sections. Although IBC has
some shortcomings and there are some challenges with the Code's obligations, but
the problems are being resolved through the courts and tribunals. Also,
comprehensive insolvency and bankruptcy legislation is being given to creditors
The IBC allows the interim insolvency professional to take over
the administration of the company without the NCLT taking into account whether
the debtor is better prepared to do so. Even under the existing IBC structure,
when the Insolvency Professional assumes control, there are initiation
problems or disincentives for initiating the IBC resolution process.
- In reference to avoiding value destruction in the context of corporate
insolvency might have been better served if the debtor company had the
option to retain control over its management, where appropriate. Because
they have the better understanding of business operations and the best
way-out to resolve the insolvency process.
- Nonetheless, Due to practical constraints, CIRPs were unable to finish
all processes within 270 days. This was one of the flaws that the 2019 amendment
addressed. Despite this, the change said that the processes must be completed
within 330 days, with a 90-day transitional period after which the company may
be liquidated. This was also acting against the interests of multiple
stakeholders due to the adjudicating Authority's delay. Thus, based on this, SC
overruled the obligatory clause in the case of Essar Steel. Therefore,
currently, it is the responsibility of the Adjudicating and appellate Authority
to ensure 330 days deadline can only be increased in exceptional cases.
- M/s Innoventive Industries Ltd. vs ICICI Bank, AIR 2017 SC 4084.
- Insolvency and Bankruptcy Code, 2016, §. 12(1).
- Insolvency and Bankruptcy Code, 2016, §. 12(2).
- Regulation 40 of IBBI (Insolvency Resolution Process for Corporate Persons)
- Insolvency and Bankruptcy Code, 2016, §. 12(2).
- Insolvency and Bankruptcy Code, 2016, §. 12.
- Insolvency and Bankruptcy Code, 2016, §. 4.
- Insolvency and Bankruptcy Code, 2016, § 7.
- Insolvency and Bankruptcy Code, 2016, § 9.
- Insolvency and Bankruptcy Code, 2016, § 10.
- Insolvency and Bankruptcy Code, 2016, § 22.
- Insolvency and Bankruptcy Code, 2016, § 14.
- Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002
- Insolvency and Bankruptcy Code, 2016, § 18(b).
- Insolvency and Bankruptcy Code, 2016, § 18(c).
- Insolvency and Bankruptcy Code, 2016, §. 10A.
- Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta
and Others, (2020) 8 SCC 531