MANAGEMENT OF NON-PERFORMING ASSETS

BY BANKS
In accordance with the international practice and as per the
recommendations by the committee on the Financial System
(Narasimham Committee) RBI introduced prudential norms
for income recognition, asset classification and provisioning
in a phased manner.

Banks are urged to ensure and fix a realistic repayment

schedules on the basis of cash flows of the unit/borrower.
This will facilitate:
- Prompt repayment by the borrower
- Improve the record of recovery in advance
Non Performing Assets
An asset becomes non performing when it ceases to generate
income for the bank.
Non Performing asset is a loan or an advance where;
i. Term Loan - Interest and/or instalment of principal
remain overdue for a period of more than 90 days
ii. Overdraft/Cash credit(OD/CC).- The account remains
‘out of order’.
iii. Bills purchased or discounted - Remains overdue for a
period of more than 90 days
iv. Short duration crops- Instalment of principal or interest
thereon remains overdue for two crop seasons.
v. Long duration crops (more than 1 year) - Instalment of
principal or interest thereon remains overdue for one
crop seasons
Out of Order –

a) If the outstanding balance remains continuously in excess of the sanctioned

limit/DP.

b) In cases where the outstanding balance is less than sanctioned limit/DP, but
there are no credits continuously for 90 days or credits are not enough to cover
the interest debited during the same period, these accounts should be treated as
out of order.

The availability of security or networth of borrower /guarantor

should not be taken into account for the purpose of treating an
advance as NPA.
If one account of a borrower is NPA, then all other accounts
(if he is having more than one account) of the same borrower will be
treated as NPA.
Income Recognition
1) In accordance with the international policy, income on
NPA is recognised on actual basis and not on accrual basis.
2) However, interest on advances against term deposits,
NSCs, IVPs, KVPs and Life policies may be taken on accrual
basis provided adequate margin is available in the accounts..
Reversal of income
When an account becomes NPA, the entire interest accrued
and credited to income account in the past periods should be
reversed if the same is not realised. Further application of
interest also will be stopped. Similarly fees, Commission also.
Asset classification
1. Standard Assets
2. Sub-standard Assets
3. Doubtful Assets
4. Loss Assets
Standard Assets: Assets which does not pose any immediate
problems for the bank.
For the purpose of early identification of stress before turning into
NPA, standard Assets are bifurcated into 3 categories of accounts
called Special Mention Accounts (SMA).

SMA sub Principal or int payment or any

categories other amount wholly or partly
overdue between
SMA-0 1-30 days
SMA-1 31-60 days
SMA-2 61 -90 days

2,3,and 4 categories are NPAs.

Sub standard Assets: These are assets which remained NPA
for a period less than or equal to 12 months.

Doubtful Assets: Asset that has been non-performing for

more than 12 months.(DA1-12 to less than 24 months; DA2- 24 to less
than 48months and DA3-above 48 months)
Loss Assets: Assets which are identified by the bank or
internal or external auditors or the RBI inspection but the
amount has not been written off wholly. In other words such
an asset is considered uncollectible and of such little value
that its continuance as a bankable asset is not warranted
although there may be some salvage or recovery value.
- Advances against Term Deposit, NSC, Kisan Vikas Patra
/Indira Vikas Patra and life policies need not be treated
as NPAs, provided adequate margin is available in the
accounts.
- The credit facilities backed by guarantee of the Central
Govt though overdue may be treated as NPA only when
the Govt repudiates its guarantee when invoked. State
Govt guaranteed accounts does not have that concession.
Provisioning norms
Standard Assets-
SME & Agri–0.25% Commercial Residential– 0.75% Commercial
Real Estate– 1% Others – 0.40%

Sub standard Assets

General Provision of 15 per cent on total outstanding.
Unsecured portion 25 per cent.

Doubtful Assets
above 12 months to 24 months 25%
above 24 months to 48months 40%
 more than 48 months 100%
Unsecured 100%
Loss Assets – 100%
NPA Management
Asset quality of banks is one of the most important indicator
of their financial health. Hence
- Banks should put in place a robust MIS mechanism for
early detection of signs of distress at individual account
level as well as at segment level.
- Early warning signals should be used for putting in place
an effective asset quality management framework.
- IT and MIS system should be robust and able to generate
reliable and quality information with regard to asset
quality for effective decision making
- There shouldn’t be inconsistencies between information
furnished under regulatory/statutory reporting and the
Banks own MIS reporting with regard to their asset
quality.
Recourses available with the Banks on NPAs
Banks can proceed in the following ways
i. Legal recourse through court, DRT
ii. Lok Adalats
iii. Direct settlement(OTS) with the borrower
iv. Taking over the security as per SARFAESI Act
v. Selling it to Asset Reconstruction Companies (ARC)
One Time Settlement(OTS)
- As per RBI guidelines. Guidelines issued in March 2000
- Applicable for recovery suits filed in courts, DRT also
- Board of Directors to evolve policy guidelines on OTS.
- Settlement amount to be paid in lumpsum. If not possible
in lumpsum, borrower should pay at least 25 per cent
upfront and the balance within one year with interest.
Lok Adalats
Constituted under Legal Services Authority Act1987. Banks
can settle their NPAs particularly doubtful and loss category
accounts with outstanding balance upto 20 lakhs. Lok Adalats
help in resolving disputes between the parties by conciliation,
mediation, compromise or amicable settlement and thereby
reduce burden on courts. They were given judicial status.
- The Lok Adalats settle cases on the spot.
- No court fees involved when fresh disputes are referred
to it.
- Can take cognizance of any existing suit in the court as
well as look into and adjudicate upon fresh disputes.
- If no settlement is arrived at, the parties can continue
with court proceedings.
- Its decrees have legal status, deemed to be a decree of a
civil court and are binding.
- Generally presided by two or three senior persons
including retired senior civil servants, defence personnel
and judicial officers.
 - Large number of cases involving small amounts were
successfully resolved through these fast track courts.
- Though popular method, banks find difficulty in bringing
the parties together.
Debt Recovery Tribunals (DRT)
- Set up under The Recovery of Debts due to Banks and
Financial Institutions Act 1993.
- Decides on cases where outstanding is 20 lakhs and
above.
- Expeditious adjudication and recovery of debts due to
banks and FIs.
- Two types of tribunals set up DRTs and DRATs.
- For appeal to DRAT, applicant to deposit 75% of amount
- Presiding officer, two Recovery officers and other
employees in DRTs. Presiding officer is the Judge and
of the rank of District and Sessions Judge
Wilful Default
Wilful Default would be deemed to have occurred if any of
the following events is noted.
1) Default in repayment obligations by the unit to the Bank
even when it has the capacity to repay.
2) Default in repayment obligations by the unit to the Bank
and has not utilised the credit facility(ies) availed from
the bank for the specific purposes for which it has
availed of but has diverted the funds for other purposes.
3) Default in repayment obligations by the unit to the Bank
and has siphoned off the funds so that the funds have not
 been utilised for the specific pupose for which credit
facility was availed of, nor are the funds available with
the unit in the form of other assets.
4) Default in repayment obligations by the unit to the Bank
and has also disposed off or removed the movable fixed
assets or immovable property given by it for the purpose
of securing a term loan without the knowledge of the
Bank.
Wilful Default-Penal measures
Applicable without any exception to all wilful defaulters with
an outstanding balance of Rs.25 lakhs and above.
a) No additional credit facilities to be granted to the listed
wilful defaulters. In addition, such companies including
their entrepreneurs / promoters will be debarred from
Bank finance for floating new ventures for a period of 5
years from the date of removal of their name from the
list of wilful defaulters as published.
b) The legal process, wherever warranted, against the
borrowers/guarantors and foreclosure of recovery of
dues shall be initiated expeditiously. The Bank shall
initiate criminal proceedings against wilful defaulters,
wherever necessary.
c) Wherever possible, the bank shall adopt a proactive
approach and change of management of the wilfully
defaulting borrowing unit.
SARFAESI ACT
For realisation of dues without the intervention of courts or
tribunals, govt enacted Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002 commonly known as SARFAESI Act.
- Not applicable to unsecured loans
- Not applicable to loans outstanding below 1 lakh
- Not applicable to loans where the remaining principal
due is less than 20 per cent of amount advanced.
In SARFAESI Act, there are 3 concepts to deal with the
problem of NPAs.
I. Securitisation – means conversion of a financial or
non-financial asset into securities
II. Asset Reconstruction- it is a financial tool for corporate
Debt restructuring and financial rehabili-
tation through rebundling, takeovers or sale.
III. Security Enforcement- this confers the right on lenders to
Foreclose a non-performing loan.
Permits a secured creditor whose debt has become NPA to
issue a notice to the borrower requiring the borrower in
writing to discharge his dues within 60 days. In case the
borrower fails to discharge within 60 days of issue of notice,
the secured creditor is entitled to take one or more of the
following measures.
i) Take over possession of the secured assets of the borrower
and transfer by way of lease, assignment or sale.
ii) Take over management of the secured assets of the
borrower and transfer by way of lease, assignment or sale
iii) Appoint any person as a manager (such person could be
ARC) to manage the secured assets taken over by the secured
creditor.
The secured creditor can sell the assets through any of the
following routes:
- By obtaining quotations from the persons dealing in such
assets.
- By inviting tenders from the public
- By holding public auctions
- By private treaty
Appellate authority is DRT.
Asset Reconstruction Companies (ARCs)
ARCs are a mechanism which can help clean up the balance
sheets of banks and financial institutions by cutting short the
time to resolution as well as maximising the recoveries.
ARCs are established by virtue of this act. Banks can clean
up their books by selling assets to ARCs at a discounted price
or taking over the assets of a defaulter and selling them to
recover their dues. They are also called securitisation
company (SC) or reconstruction company (RC) The first ARC
is Asset Reconstruction Company of India Limited (ARCIL).
 - Isolates NPAs from the balance sheets of banking and
financial institutions and thereby enable them to focus on
their core activities.
- Facilitates development of market for distressed assets
- ARC is registered under Companies Act and regulated by
the RBI as a NBFC. They can issue bonds and
debentures for their funding needs, but not deposits from
public.
Functions of ARC
- Acquisition of financial assets
- Change or take-over of management/sale or lease of
business of the borrower
- Rescheduling of debts
- Enforcement of security interest
- Settlement of dues payable by the borrower
ARC acquires assets from banks/FIs and transfers these assets
to one or more trusts set up under Section 7(1) and (2) of the
SARFAESI act. The trusteeship of such trusts shall vest with
the ARC.
Operation of ARCs
ARCs buys loans of banks at a discount and issues it Security
Receipt (SRs) instead of paying cash. Then ARC services the
loan out of the recovery it makes on the assets taken over by
them. It charges 2 per cent management fee which is built
into the final redemption of Security Receipts. Banks receive
cash only after SRs redeemed. If ARCs recovery is more than
the value of SRs, it keeps back the extra money.
ARCs can even undertake a secondary sale of loans. The bad
loans can be sold to another bank say, a foreign bank.
Moreover, if an ARC controls 75 per cent of the bad debts of
the defaulting firm, it can use the security enforcement law to
take management control of the company which banks cannot
do.
- ARCs given a resolution time frame of maximum 5 years
- 100 per cent FDI permitted in ARCs.
- A bank can sell the loan to an ARC , the day it is
classified as an NPA. The loan could be sold without
recourse
Asset Reconstruction Company of India Limited (ARCIL).
First ARC in India, sponsored by SBI,ICICI Bank, IDBI,
HDFC, HDFC Bank Ltd.
- Commenced business w.e.f.Aug 23, 2003
- Associate member of IBA
ARCIL’s objective
 Convert NPAs into Performing Assets
 Act as a nodal agency for NPA resolutions
 Unlock value by utilising productive assets
 Create a vibrant market for NPA/restructured debt
 Re-energise the financial sector.
ARCIL has deployed a comprehensive range of of resolution
strategies such as debt restructuring, mergers and acquisitions,
settlement with promoters and strip sale of assets based on in-
depth analysis. ARCIL is focused towards resolution rather
than rescheduling the debt.
Selling NPA by one Bank to another Bank.
A bank can sell a bad loan to another bank only after it
remains an NPA in its books for two years. It can receive
cash and the loan moves out completely from the sellers’
books. Acquirers of bad loans are those banks who have low
NPAs and are confident of turning around such assets on the
strengths of their own resolution skills and also finding a
scope for capital appreciation and higher returns
The Acquirer takes into account the underlying value of the
assets pledged as security, the potential time period for
recovery, the amount which can be realised from that account,
if any, over the pledged security etc.
The Seller considers factors such as impact of such a loan
sell-off on the balance sheet vis-à-vis the realisable value of
the account, opportunity cost and the prospects of whether it
would be in a better position to resolve the loan
Factors inhibiting the growth of market for bad loans
1. Security Receipts in India are not listed and traded.
2. There is limit on the holding of a security receipt (SR) of a
particular asset by an FII.(now 74%)
3. There is an absence in the pooling of SRs and
securitisation.
Credit Information Bureau (India) Ltd
Good credit decisions depend upon the availability of
comprehensive credit information regarding borrowers.
Hence a need was felt for an institution which would provide
credit-related information to lending institutions by
maintaining a data base of all borrowers.
Credit Information Bureau (India) Limited (CIBIL) is a Credit
Bureau or Credit Information Company. This company is
engaged in maintaining the records of all the credit-related
activities of companies as well as individuals including credit
cards and loans.
Credit Bureaus are specialised institutions that maintain
records of credit histories of individuals and business entities.
Whenever an applicant seeks a loan from a bank or finance
company the lender before extending the loan, checks his
credit profiles with the bureau to find out his credit history or
the credit discipline viz., whether the applicant has defaulted
with any other lender and whether he is capable of settling the
loan. Depending on the perceived risk, the loan will be
priced. The lender will able to judge the credit worthiness and
also able to monitor the applicant’s credit behaviour and
discipline.
Also it discourages borrowers from becoming over-debted by
obtaining credit from multiple lenders.
The data is shared on the principle of reciprocity- data can be
obtained from CIBIL, only by members who contribute all
data on all borrowers.
CIBIL is promoted by SBI and many other banks/FIs.
CIBIL also maintain the database of suit filed accounts of
Rs.1.00 crore and above & wilful defaulters of Rs.25 lakhs
and above.
Insolvency and Bankruptcy Code 2016 (IBC)
Insolvency is a state of economic distress, whereas
bankruptcy is a court intervention or order that decides how
an insolvent debtor will deal with unpaid obligations. That
usually involves selling assets to pay the creditors and erasing
debts that can't be paid.
IBC implemented w.e.f. 01.12.2016
 Applicable to any company incorporated under the
Companies Act 2013, or any special act, Limited
Liability Partnership(under LLP Act 2008)
 To resolve cases of insolvency or bankruptcy a fixed
timeline of 330 days. Further, Supreme Court in a
judgement held that depending on case-to-case it can be
extended over 330 days also. .
 Default should be at least Rs.1.00 lakh
 Insolvency and Bankruptcy Board(IBB) is the
independent body for administration and governance .
 Govt dues secondary to most other dues. Even the
unsecured creditors have a priority over the govt dues.
  National Company Law Tribunal (NCLT) to adjudicate
bankruptcy cases over companies, limited liability
entities while Debt Recovery Tribunal (DRT) to
adjudicate cases over individuals and unlimited liability
partnership firms.
 Apart from the financial, operational creditors, it allows
the debtor itself to initiate the insolvency-resolution
process once it has defaulted on a debt.
IBC has classified creditors in two parts namely:
1. Financial creditors and
2. Operational creditors
Institutional Framework
IBC has created five pillars of institutional infrastructure:
1. Insolvency and Bankruptcy Board of India(IBBI)
2. Insolvency Professional Agency(IPA)
3. Information Utility(IU)
4. Insolvency Professional (IP)
5. Adjudicating Authority
Insolvency and Bankruptcy Board of India (IBBI)
- For administration, governance, promoting transparency.
Insolvency Professional Agency (IPA)
- IPA is the registered body with IBBI which enrols
Insolvency Professionals and empowered to prescribe
bye-laws. At present Institute of Chartered Accountants
of India and Institute of Company Secretaries of India
 have formed a separate company u/s 8 of Companies Act
2013 to function as an IPA.
Information Utility(IU)
- It is a centralised repository of financial and credit
information of borrowers which would accept, store,
authenticate and provide access to financial information
provided by listed companies and creditors.
Insolvency Professional (IP)
- Also known as Resolution Professional(RP) who are
persons enrolled with IPA and regulated by the board
and IPA
- Appointed by applicant.
- IPs are professionals like Chartered Accountants, Cost
Accoountants, Company Secretaries, Lawyers in practice
for more than 15 years.
- Managing the debtors business during the moratorium
period, helping the creditors in reaching a consensus for
a revival plan. If the revival plan is not approved by
consensus, the business goes into liquidation.
- In liquidation, the Insolvency Professional acts as a the
liquidator and bankruptcy trustee
Adjudicating Authority
 National Company Law Tribunal (NCLT) will be
responsible for corporate insolvency, entertain or dispose
any insolvency application, approve/reject resolution
plans, decide in respect of claims or matters of law.
 Appeal in National Company Law Appellate
Tribunal(NCLAT) and thereafter to the Supreme Court.
 For individuals and other persons the adjudicating
authority is the DRT and appeal with DRAT, thereafter
to Supreme Court.
Resolution Process
To initiate an insolvency process for corporate debtors, the
default should be at least Rs.1 lakh. The code proposes two
independent stages.
1) Insolvency Resolution Process – during which creditors
assess whether the debtor’s business is viable to continue
and the options for its rescue and revival
2) Liquidation - If the insolvency resolution process fails or
creditors decide to wind down and distribute the assets of
the debtor.
Persons who may initiate the insolvency resolution process
Where any corporate debtor commits a default, the insolvency
process can be initiated by:
a) Financial Creditor
b) Operational Creditor
c) Corporate Debtor
The significant feature is that the defaulting debtor can also
initiate the process.
Financial creditor means any person to whom the financial
debt is owed. Financial debt means a debt along with interest.
Resolution Process by Financial Creditor
 A financial creditor by itself or jointly with other
Financial creditors may file an application for initiating
corporate insolvency process against a corporate debtor
before the adjudicating authority when a default
occurred.
 In the application for initiation, the name of the
resolution professional to act as an interim resolution
professional must be mentioned.
Operational creditor means a person to whom an operational
debt is owed on account of dispute in goods or service and for
which no payment is received.
 Operational debt means a claim in respect of the
provision of goods or service including employment.
 Operational creditors are not eligible to be a part of the
Committee of Creditors. They are allowed to the
meetings of the committee of creditors, but not allowed
to vote.
 Operational debts are to be paid last, before making any
surplus payment to preference and equity holders.
Resolution Process by Operational Creditor
 On the occurrence of delivering a demand notice of
default of unpaid operational debtor copy of an
invoice
 If the payment not received within 10 days or not
producing any copy regarding the payment,
 application may be filed with NCLT for initiating
corporate insolvency resolution process
 In the application for initiation, the name of the
resolution professional to act as an interim
resolution professional must be mentioned
Resolution Process by Corporate applicant
Corporate applicant means:
1) Corporate Debtor
2) A member or partner of the corporate debtor who is
authorised to make an application for the corporate
insolvency resolution process under the constitutional
document of the corporate debtor.
3) An individual who is in charge of managing the
operations and resources of the corporate debtor.
4) A person who has the control and supervision over the
financial affairs of the corporate debtor.
Process
- Where a corporate debtor has committed a default, a
corporate applicant thereof may file an application for
initiating corporate insolvency process with adjudicating
authority, ie NCLT
- The name of the interim resolution professional may be
mentioned in the application
In all cases,
 The adjudicating authority, ie NCLT, within 14 days has
to intimate the admit/reject of the application
  The corporate insolvency resolution process shall
commence from the date of admission of the application.
Interim Resolution Professional
Where the application is made by the financial creditor or the
corporate debtor the proposed interim resolution professional
will be appointed subject to the approval of IBB.
If the application is made by the operational creditor,
- The proposed professional in the application may be
appointed as interim resolution professional.
- In case no person mentioned, then the adjudicating authority
will make a reference to IBB for the recommendation of an
interim resolution professional
- The term of interim resolution professional shall not exceed
30 days from the date of appointment.
Appointment of Insolvency Professional(IP)
- First meeting of committee of creditors within 7 days of
the constitution of the committee of creditors. In this
meeting by a majority vote of not less than 75 per cent
of the voting share of the financial creditors either to
appoint the interim resolution professional or to replace
the interim resolution professional by another resolution
professional.
- The adjudicating authority shall forward the name of the
IP to the IBBI for its confirmation and make the
appointment after confirmation by IBBI.
On appointment, IP will take over the running business of the
defaulting company. Thus from the date of appointment of IP,
all powers of the board of directors shall be suspended and
vested in the hands of IP. He shall propose a ‘resolution plan’
which means a plan proposed for insolvency resolution of the
corporate debtor as a going concern. He shall have immunity
from criminal prosecution or any other liability done in good
faith.
IP may also act as liquidator and form an estate of assets and
consolidate, verify and determine the value of creditors’
claims.
Time limit for Completion of Insolvency Resolution Process
- Insolvency Resolution Process should be completed
within a period of 180 days from the date of admission of
application to initiate the process. If the process cannot
be completed within this 180 days, Adjudicating
authority (NCLT) can consider extension for a further
period which may extend upto 90 days as per the
decision of the Committee of creditors (passed by 75 per
cent vote). Extension shall not be granted more than
once.
Declaration of Moratorium and Public Announcement
The Adjudicating Authority, after admission of the application
shall, by an order:
a) Declare a moratorium for the purpose of resolution
process.
 b) Cause a public announcement of the resolution process
and call for the submission of claims
c) The public announcement shall be made immediately
after the appointment of interim resolution professional.
Moratorium
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely,
1) The institution of suits or continuation of pending suits
or proceeding against the corporate debtor including
execution of any judgement or decree.
2) Transferring, encumbering alienating or disposing of by
the corporate debtor any of its assets or any legal right or
beneficial interest thereon.
3) Any action to recover or enforce any security interest
created by the Corporate debtor in respect of its property
including any action under SARFAESI Act 2002.
4) The supply of essential goods or services to the corporate
debtor shall not be terminated or suspended or
interrupted during the moratorium period.
5) The order of moratorium shall have effect from the date
of such order till the completion of the corporate
insolvency resolution process.
The main motto of IBC is to focus on running of a company
on a going concern basis. Thus, the threat from secured
creditors under the SARFAESI Act shall also be mitigated
during the moratorium period. Resolution plan has to be
prepared by the IP and approved by the committee of
creditors.
Each creditor in the committee of creditors shall vote in
accordance with the voting share assigned to it and if 75 per
cent of the creditors approve the resolution plan, the said
resolution plan shall be implemented.
If the resolution plan is not approved by the committee of
creditors, then within a specific time period, it would cause
initiation of liquidation. Similarly, debtors have also arrive to
opt for voluntary liquidation by passing a special resolution in
general meeting. IP may act as liquidator and exercise all
powers of the board of directors. The liquidator shall form an
estate of assets and consolidate, verify and determine the
value of creditors’ claims.
Public announcement of Insolvency Resolution Process
The public announcement of the Insolvency Resolution
Process under the order shall contain the following
information:
1) Name and address of the Corporate Debtor
2) Name of the authority with which the corporate debtor is
incorporated or registered.
3) The last date for submission of claims.
4) Details of the interim resolution professional who shall
be vested with the management of the corporate debtor
and be responsible for receiving claims
5) Penalties for false or misleading claims
 6) The date on which the corporate insolvency resolution
process shall close
Distribution of assets (Priority Waterfall)
1) The proceeds from the sale of the liquidation shall be
distributed in the following order of priority and within
such period and in such manner as may be specified
namely.
a) The insolvency resolution process costs and the
liquidation costs paid in full.
b) The following debts which shall rank equally between
and among the following:
i. Workmen’s dues for the period of 24 months
preceding the liquidation commencement date
ii. Debts owed to a secured creditor
c) Wages and any unpaid dues owed to employees other
than workmen for the period of 12 months preceding the
liquidation commencement date
d) Financial debts owed to unsecured creditors
e) The following dues shall rank equally between and
among the following:

i) any amount due to the Central Govt and State Govt if

any, in respect of the whole or any part of the period of
two years preceding the liquidation commencement date.

ii) Debts owed to a secured creditor for any amount

unpaid following the enforcement of SARFAESI Act.
 f) Any remaining debts and dues
g) Preference shareholders, if any
h) Equity shareholders or partners as the case may be.
2. Any contractual arrangements between recipients with
equal ranking.
3. The fees payable to the liquidator shall be deducted
proportionately from the proceeds payable to each class of
recipients and the proceeds to the relevant recipients shall be
distributed after such deduction.
Fast Track Corporate Insolvency Resolution Process
- Aimed to expedite the resolution process of certain
categories of corporate debtors with lesser complexities
namely:
a) A Corporate debtor with assets and income below
a level as may be notified by Central Govt.
b) A Corporate debtor with such class of creditors or
such amount of debt as may be notified by Central
Govt
c) Such other category of corporate persons as may be
notified by Central Govt.
Time period for Fast Track
- To be completed within a period of 90 days; If the
process cannot be completed within this 90 days,
Adjudicating authority (NCLT) can consider extension
for a further period which may extend upto 45 days as
per the decision of the Committee of creditors (passed by
75 per cent vote). Extension shall not be granted more
than once.
Liquidation
Under IBC, a corporate debtor may be put into liquidation in
the following :
1. 75 per cent majority of the Committee of Creditors
resolves to liquidate the corporate debtor at time
during the insolvency resolution process.
2. The Committee of Creditors does not approve a
resolution plan within 180 days(or within the
extended 90 days)
3. The NCLT rejects the resolution plan submitted to it
on technical grounds.
4. The debtor contravenes the agreed resolution plan
and an affected person makes an application to the
NCLT to liquidate the corporate debtor.

Insolvency Resolution Process for Individuals/unlimited

Partnerships

- Code applies in all cases where the minimum default is

Rs.1000/- and above(govt may revise later)
The code envisages two distinct processes for individuals/
unlimited partnerships as:
1. Automatic fresh start
2. Insolvency Resolution
Under the Automatic fresh start process, eligible debtors
(basis gross income) can apply to the DRT for discharge from
certain debts not exceeding a specified threshold, allowing
them to start afresh.
The second process ie.,insolvency resolution process consists
of preparation of repayment plan by the debtor, for approval
of creditors. If approved, the DRT passes an order binding
the debtor and creditors to the repayment plan. If the
repayment plan is rejected or fails, the debtor or creditors may
apply for a bankruptcy order.

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