The national law institute university, bhopal

B.A.LL.B.(Hons.)
Trimester: XV
End term examination, april - 2019
subject: Insolvency and Bankruptcy Law (IBL)

Model Answer
INSTRUCTIONS:

 Due credit has been given for brevity, coherence and style of presentation in
evaluation.
 Also, due weightage has been given to the independent reasoning

1.
(a) Constitution of CoC and give reasons thereof? Who all will be the members?

 Section 5 (7) - “financial creditor” inclusive of ‘assignment of the financial debt’

 Section 21 (2) – Constitution of Committee of Creditor, all financial creditor

except the related party to the CD

 Section 21 (1) read with Regulation 17(1) of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 further read with IBB circular no IBBIICIRP/018/2018 dated
14.09.201- ‘A financial creditor, whose claim has not been admitted, is included
in the CoC as member, as and when its claim is admitted’

 CoC members - B1, B2, B3, F, ARC, (except P)

(b) A resolution plan submitted by ARC for restructuring of sustainable debt and conversion
of unsustainable debt to equity is strongly opposed by all the other members of the
committee of creditors. Subject to its conferment to all the other stipulated requirements,
will this resolution plan reach the Adjudicating Authority? Give reasons!

 Section 30 (4) read with section 31 (1)

 Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016
 Yes, voting percentage of the ARC – 79.27 % which is greater than 66% (requisite
percentage)

(c) S, along with R filed an application to Adjudicating Authority to direct to the RP and
CoC to allow them to participate in CoC meeting. What will be the outcome of the
application?

 Section 21 (1) and (2) – Only FCs in CoC

  In specific circumstances, OCs as per proviso to sub-section 8 of section 21 read
with regulation 16
 Here, there is no such circumstance. They will not be allowed.
 Inherent power of the AA does not cover this situation, read with section 60 (5)

(d) The raw material supplier, R wants to initiate legal recovery action for recovery of dues
by filing a recovery suit in the appropriate civil court against corporate debtor, C. Will it
succeed?

 Moratorium
 Such action is prohibited under section 14

(e) If NCLT rejects the resolution plan for C approved by more than 66% of the CoC for
non-compliance of the requirements stated under Section 30 (2) of the Code, then what
will be the next outcome? Who all will be placed in waterfall and in which order of
hierarchy?

 Section 34 (4) – New liquidator to be appointed by AA replacing the RP.

 Section 33
 The CD will be referred to the liquidation
 PA to be issued and order will be forwarded to the RoC or the concerned
registering authority.
 Waterfall – section 53
o CIRP cost and the liquidation cost full
o Claim of W (workmen) equally placed with claims of the secured financial
creditor if they relinquish their security interest as per section 52 (but B4,
B5 and B6 will not be there as they have assigned the debt already)
o Financial debt owed to unsecured creditor
o Claim of the Corporation S being a government dues
o Claim of the financial creditors if they haven’t relinquished their security
interest (the remaining amount after enforcement of security intertest, if
any)
o The related party, P will come along with equity-holders claim as per
NCLT decision in J.R Agro Private Limited V. Swadisht Oils Private
Limited.

2. What inadequacies ‘Ease of Doing Business Report’ 2015 highlighted about

‘Freedom to Exit’ in India? Illustrate ‘Freedom to Exit’ in the light of Pre-IBC
provisions relating to restructuring and recovery, and comparing it with IBC, 2016?
 25.6 % recovery rate and 4.3 years of average time in recover – World Bank
Report
 Twin-Balance Sheet Problem
 Chakravuvha Problem (Economic Survey)
 Pre-IBC
o Recovery centric method
o Liquidation and winding-up
o SARFAESI and RDDBFI
 o SICA and BIFR
o CDR, SDR and S4A- JLF mechanism
o Yet NPA mounting
o Debtor-in-Possession Model
 Post-IBC
o Creditor-in-Control Model
o Value Maximisation
o Time bound process
o Resolution of the insolvency
o A professional to oversee the process

3. Answer the following relating to initiation of Corporate Insolvency Resolution

Process (CIRP) by Financial Creditor (FC)-

(a) How an FC initiates CIRP?

 Financial Debt
 Default
 Application under section 7
 Name of the proposed insolvency professional

(b) Relevance of Principle of Natural Justice in section 7 of IBC, 2016?

 Section 7 (5) – satisfied
 Section 238, section 420 and 424 of the Companies Act
 NCLAT in Innoventive Industries Ltd. v. ICICI Bank and Anr,
pronounced on May 15, 2017
 Sree Metaliks Limited & Anr. Vs. Union of India, Calcutta HC
 Starlog Enterpises Limited. Vs. ICICI Bank Limited, NCLAT

(c) Meaning of ‘Financial Debt’ and ‘Default’?

 Section 5 (8) – time value of money
 Section 3 (12) – due and payable

(d) Creditor-in-Control Model?

 CoC as custodian of the process
 Section 21 – FC only
 Appointment and replacement of the RP
 Market based law and commercial wisdom given to CoC only

4. Discuss issue of ‘settlement’ under IBC, 2016 through the judicial pronouncements?
Why section 12A has been inserted in IBC later on?

 Settlement as method of the recovery

 Settlement of the case and withdrawal application
 Withdrawal after admission of the CIRP
 Inherent power of the AA under NCLT rules
 Settlement versus collective mechanism
 Lokhandwala katraria Case
  Uttara Food and Feed case, SC direction to amend the rule
 12A as collective wisdom and withdrawal
 Sterling Biotech Case

5. Discuss application of ‘Limitation Act’ under IBC through judicial pronouncement?

Why section 238A was inserted?
 The schedule to the Limitation Act states that money claims cannot
be raised beyond a period of 3 years from the date on which cause of
action arises.
 Neelkanth Township and Construction Pvt. Ltd. vs. Urban
Infrastructure Trustee Ltd. The Hon’ble NCLAT held that that
provisions of the IBC cannot be shackled by the Limitation Act
 Black Pearl Hotels Pvt. Ltd. v. Planet M Retail Ltd- The NCLAT
observed that even if it is considered that the Limitation Act does
apply to the IBC, then also the period of limitation will start from 1st
December 2016, i.e., from the date the rights conferred by the
enactment accrued.
 M/s. Speculum Plast Pvt. Ltd. v. PTC Techno Pvt. Ltd- Doctrine of
Limitation
 vigilantibus non dormientibus jura subvenient
 B.K. Educational Services Private Limited v Parag Gupta And
Associates, Civil Appeal No. 23988 of 2017, Hon’ble SC have held
that the Limitation Act, 1963 will apply to applications that are
made under s. 7 and s. 9 of the Insolvency and Bankruptcy Code,
2016 on and from the commencement of IBC on 01.12.2016.2 The
Supreme Court has through this judgment clarified that IBC
proceedings cannot be initiated based on time barred claims.
 Section 238A equivalent to section 433 of the Companies Act.
 Section 238 A – issue of the zombie claim.

6. Discuss the provisions pertaining to ineligibility to act as resolution applicant and the
role of RP as well as CoC in this regard? Why the same has been added through
amendment in IBC, 2016?
 Problem of discounted buying
 Entry of the person who led the default and malfeasance
 Section 29A
 (i) person or any other person acting jointly or in concert with such person
who are disqualified under Section 29A (a) to (i) and (ii) having a ‘connected
persons’ not eligible under Section 29A (a) to (i) which in turn makes a person
ineligible.
 Binani Cement Order – Hon’ble SC- The RP has decide about the eligible plan
on point of section 29A. Only eligible plans will reach to CoC
 ArcelorMittal India Private Limited versus Satish Kumar Gupta & Ors., NCLT
and Hon’ble SC order

7. Write short note (any two the following) -

(a) Mandatory contents of the Resolution Plan?
 Section 30 (2) read with regulation 38 of the CIRP Regulations, 2016
 Failure of 30 (2) will lead liquidation of the CD as well as replacement of
the RP.

(b) Different circumstances when NCLT may direct liquidation of the CD?
 Section 33
o Non-receipt of the plan to AA within the stipulated time
o Rejection of plan by AA on the want of section 31
o Rejection of plan on the want of section 30 (2)
o
 Where CoC itself recommends liquidation
 Non receipt of the plan to CoC
 Contravention of the approved plan by CD and affected person makes and
application to AA

(c) Timelines under IBC, 2016 and judicial pronouncements?

 Section 5(14)
 Section 12
 Surendra Trading Company v. Juggilal Kamlapat Jute Mills
 The timelines under Section 7(5), 9(5) and 10(4) to remove the defects in
the insolvency application within seven days is discretionary and not
mandatory in nature
 time is the essence of the Code

(d) Demand Notice and ‘existence of dispute’

 Mobilox Innovations Private Limited v Kirusa Software Private Limited-
Hon’ble SC
 Before making the application, the operational creditor must first issue a
demand notice or copy of invoice (demanding payment of operational
debt) to the corporate debtor under Section 8 (1) of the IBC (Demand
Notice).
 The corporate debtor has 10 (ten) days to either pay or bring to the notice
of the operational creditor the “existence of a dispute and the record of the
pendency of a suit or arbitration proceeding filed before the receipt of”
such Demand Notice (Section 8 (2) of IBC) (Notice of Dispute).