OVERVIEW

HISTORY AND RATIONALE FOR THE IBC

● Prior to the IBC being passed, India did not have a single law dealing with all
aspects of a company in financial distress. Instead, there were multiple laws,
each of which applied to a particular legal process, type of company or group of
creditors.
● For example, the Sick Industrial Companies Act, 1985 ("SICA") dealt with the
rescue and rehabilitation of industrial companies only, while the Companies Act,
1956 provided a process for the liquidation and winding up of all types of
corporate entities.
● There were also debt recovery laws such as the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 ("SARFAESI") and the Recovery of Debt Due to Banks and Financial
Institutions Act, 1993 ("RDDBFI Act") that provided avenues for security
 HISTORY AND RATIONALE FOR THE IBC
Continued…..
● The result of this fragmented legal framework was delays, confusion and
conflicts between these multiples laws and legal fora
● Efforts at insolvency law reform began in late 2014 when the Ministry of
Finance constituted the Bankruptcy Law Reform Committee ("BLRC") under
the chairmanship of Mr T.K. Viswanathan. The Finance Minister reiterated
the Government's commitment to insolvency reform in his 2015-16 budget
speech when he identified having a new insolvency law as one of the key
priorities for the year
 HISTORY AND RATIONALE FOR THE IBC

Continued...

● The BLRC submitted its report, including a draft of the Insolvency and
Bankruptcy Bill, 2015 (the "Bill") on November 4, 2015, which was introduced in
the Lok Sabha in December 2015 with a few amendments.
● The Bill was subsequently referred to a Joint Parliamentary Committee, which
submitted a detailed report, including a revised draft of the Bill. The IBC that was
eventually passed was the version proposed by the Joint Parliamentary
Committee.
 Introduction to IBC

● Insolvency and Bankruptcy Code, 2016 as notified by the

Government of India on 28th May 2016. The Act consolidates and
amends the laws relating to reorganization and insolvency resolution
of corporate persons, partnership firms and individuals in a time
bound manner for maximization of value of assets of these persons,
to promote entrepreneurship, availability of credit and balance the
interests of all the stakeholders.
 Introduction to IBC

● IBC, 2016 also altered the order of priority various payment

dues; and put the payments of workmen’s dues in foremost
priority over Government dues. The payments of Government
dues are kept after payment of financial debts owed to
unsecured creditors. IBC, 2016 provides the complementary
ecosystem for the insolvency law, and aims to ensure
smoother settlement of insolvency cases, enable faster
turnaround of businesses and provide for creating a database
of creditors.
 IBC CODE DEFINITIONS

Corporate Debtor: “Corporate debtor” means a corporate person who owns

a debt to any person.
Financial Creditor: Any person to whom Financial Debt is owed and
includes a person to whom such debt is legally assigned or transferred.
Financial Debt: means a debt along with intrest, if any =, which is disturbed
against the consideration for the time value of money.
Operational creditor: Any person to whom operational debt is owed and
includes a person to whom such debt is legally assigned or transferred.
Debt: means a liability or obligation in respect of a claim which is due from
any person and includes a financial debt and operational debt.
 IBC CODE DEFINITIONS

Default: “default” means non payment of debt when whole

or any part or installment 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.
 Who can initiate CIRP?

By Financial Creditor - Section 7

By Operational Creditor - Section 9
By Corporate Debtor himself - Section 10
 Corporate Insolvency Resolution Process
● The Corporate Insolvency Resolution Process can be initiated
by making an application to the National Company Law Tribunal
(NCLT) by the Financial Creditors under Section 7 of IBC, 2016
by Operational Creditors under Section 9 of the IBC, 2016 and
by the Corporate Debtor himself under Section 10 of the IBC,
2016.
 Corporate Inslovency Resolution Process

● The basic departure from the old law and fundamental rule
under this new codified law is that a company which has gone
insolvent cannot start the Liquidation process at the primary
stage until and unless it has gone through the process of
Corporate Insolvency Resolution Process (CIRP), under the
said resolution process options for revival of the company is
looked into and if the said resolution process fails then only
the company goes into liquidation.
 Process for Insolvency

● In case a corporate debtor makes a default in repayment of

dues of the creditors, the financial creditor/s, an operational
creditor or a corporate debtor through Corporate applicant or
any authorised member, a person who has the controlling
capacity over the financial affairs of the corporate debtor, has
the power to start the insolvency resolution process.
 Process for Insolvency

In order to initiate the resolution process, an application has to be

made to National Company Law Tribunal (NCLT) under (Section 10,
IBC, 2016 in case of Corporate Debtor, Section 7 and 9 of IBC, 2016 in
case of Financial Creditors and Operational Creditors).
● A 10 days Demand Notice should be given under the section 8(2)
of IBC, 2016 8(2) of IBC, 2016 has to be given by the Operational
Creditors before he approaches NCLT u/s 9 of the IBC.
 Process for Insolvency

● The new code states that the insolvency process of a Corporate Debtor must
be concluded within 180 days from the date of initiation in the NCLT (Section
12, IBC of 2016).
● The claims of the Creditors shall be frozen for a period of six months on
admission of application by NCLT. During this time, the NCLT shall listen to
the options to revive and decide the future course of action. It is further
clarified that unless a resolution plan is made or liquidation process is
initiated, no legal claim shall be sought against the corporate debtor in any
other forum or Court (Section 14 of IBC, 2016).
 Process for Insolvency
● When the application for insolvency is accepted under Section 7/9/10
of IBC, 2016 the NCLT within fourteen days appoints an Insolvency
Resolution Professional (IRP) on receiving a confirmation from Board
of Insolvency and Bankruptcy.
● The appointed IP then takes up the responsibility of the debtor’s
properties and functioning. He also collects all the information that is
relevant with regard to the financial condition of the debtor from
information utilities.
● IP is appointed for a term of thirty days only within which he does all
the necessary scrutinization (Section 18, IBC, 2016).
 Process for Insolvency
● The next step is to make a public announcement about the
commencement of corporate insolvency process so that claims from
any other creditors can also come forward, if any.
● A creditor’s committee is constituted by the IRP post receiving any
claims by public announcement (Section 13 of IBC, 2016).
● In the event any financial creditor is a related party of the defaulting
debtor, such a creditor will not have the right to represent, participate
or vote in the committee of creditors so constituted by the IP.
● In order to be a part of the Creditor’s Committee, the average dues of
the operational creditors must be at least ten percent of the debt.
 Process for Insolvency
● The Committee of Creditors shall first seven days of its incorporation
decide through seventy five percent votes whether the interim IRP
should be used as a Resolution Professional or should be replaced
with someone else.
● After the Committee finalizes the Resolution Professional, he is
appointed by the NCLT (Section 16 of IBC, 2016). The Resolution
Professional so appointed can be replaced anytime by the Creditor’s
Committee with a majority of seventy five percent votes.
 Process for Insolvency

● In the interim, i.e. till the appointed of any new Resolution

Professional, the Creditor’s Committee can take decisions with regard
to insolvency resolution by seventy five percent majority voting.
● In the event majority (75%) of the financial creditors are of the view
that the case is very complex and more time extension is required, the
NCLT may grant a one-time extension of up to a maximum of 90 days
over and above the pre decided tenure of 180 days.
● It shall be the sole responsibility of the Resolution Professional to
manage and conduct the corporate insolvency resolution procedure
during such a term (Section 18 of IBC, 2016).
 Process for Insolvency

● To enable the resolution applicant for preparing a resolution plan, the

Resolution Professional shall compile a statistic note. A resolution
applicant can be defined as an individual who has the duty and
responsibility to submit a resolution plan to the Resolution
Professional. The Creditor’s Committee further receives the plan from
the Resolution Professional for its approval.
● On the resolution being approved, the next step by the Creditor’s
Committee is to come up with options on restructuring which can be
either coming up with a modified repayment plan or to simply
liquidate the properties of the company in order to recover dues.
 LIQUIDATION
The liquidation process commences only if:

● The Creditors Committee fails to submit the resolution plan with the
provided time frame to the NCLT.
● The Resolution Plan is rejected because of non-adherence to the
Code.
● The Creditor’s Committee takes a decision for liquidating the assets
by a majority vote.
● The resolution plan is flouted by the debtor.
 LIQUIDATION

● As mentioned above, no suit can be instituted by or against the

corporate debtor during liquidation process (Section 14 of IBC,
2016). The only exception, in this case, can be through the liquidator
representing the corporate debtor based on the permission of the
NCLT.
● The liquidator shall be the same person as the Resolution
Professional replaced.
 LIQUIDATION

● . The claims of the creditors may be received, verified, admitted or

rejected based on the final decision of the liquidator within a
prearranged time.
● In order to appeal to the adjudicator, the creditor gets a total of
fourteen days.
 AMENDMENTS
In June 2018, came an amendment in the Insolvency and Bankruptcy Code,
2016 ("the Code") which have introduced many new changes in the Code.
When such change occurs, the rules and regulations forming part of the
whole scheme also need to be amended accordingly to ensure the smooth
functioning of the scheme. Accordingly, on 04th July 2018 amendment to the
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons)Regulations, 2016 ("Regulations") were notified.
Apart from small changes, following were the major changes in the
regulations.
 AMENDMENTS

Authorised Representative

Where the Corporate Debtor has class of creditors with such number of
creditors in a class as specified, the Interim Resolution Professional (IRP), as
per the amended regulations, shall offer a choice of three (3) Insolvency
Professionals (IP) to act as the Authorised Representative of Creditors of the
respective class. Such offer shall be made in Public Announcement.
The Insolvency Professional to get the maximum number of votes by the
creditors of that respective class shall be appointed as the Authorised
Representative of that class. This has been provided in the new regulations
4A, 16A and 16B.
 AMENDMENTS

Constitution of Committee
● Before the amendment, under Regulation 17, the IRP needs to file the
report w.r.t constitution of Committee with the Adjudicating Authority
on or before the expiry of Thirty (30) clays from the date of his
appointment and the first meeting of the such Committee was
required to be convened within seven (7) clays of filing of such report.
● Under the amended regulation, the IRP shall file the report certifying
the Constitution of the Committee to the Adjudication Authority within
two (2) clays of verification of claims under Regulation 12(1).
Thereafter, the first meeting of the Committee needs to be convened
within Seven (7) days of filing of such report.
 AMENDMENTS

IRP to act as RP
Amended Regulation 17(3) provides, if by any reason the appointment
of RP is delay then the IRP shall act as the RP from the Fortieth (40) day
of commencement Corporate Insolvency Resolution Process (CIRP) date
till the RP is appointed under Section 22 of the Code.
 AMENDMENTS
Notice for calling the Meeting of Committee
● The time period to call the meeting of the Committee under
Regulation 19 has been changed from Seven (7) clays to Five (5).

● The Regulation 19 further provides that the time period of serving

notice can further be reduced from Five (5) days to such other period
of not less than forty-eight (48) hours where there is any Authorised
representative and to twenty-four hours in all other cases.
 AMENDMENTS

Voting in case of Creditors in a class

As per newly inserted Regulation 16(A)(9), the Authorised
Representative shall circulate the agenda to creditors in a class and
announce the voting window at least twenty-four hours before the
window opens for voting instructions and keep the voting window open
for at least twelve hours.
 AMENDMENTS

Withdrawal of Application
Section 12 A of the Code provides that withdrawal of an Application
admitted under Sections 7, 9 or 10 of the Code by Hon'ble Adjudicating
Authority can be filed before issue of invitation for expression of interest
under Regulation 36A i.e. before Seventy-fifth (75) day of initiation of
CIRP.
 AMENDMENTS
Invitation for Expression of Interest
The existing Regulation 36A has been substituted with insertion of new
Regulation 36A. In the newly substituted Regulation 36A, a resolution
professional is required to publish an invitation for submitting Expression
of Interest (EOI) in Form G by the Seventy Fifth (75) day of insolvency
commencement date specifying basic information about the Corporate
Debtor, the criteria (which has been approved by Committee under
Section 25 of the Code), ineligibility (as stated under Section 29A of the
code), last date for submission of the EOI, documents required to be
submitted along with EOI and such other details as need be.
 AMENDMENTS

Continued….
The resolution professional after receiving of the EOI will be required to conduct due
diligence based on material on record and issue a provisional list of prospective
resolution applicants within 10 days of the last date of submission of EOI with
Committee and to all Prospective Resolution Applicants who have submitted the EOI.
Any objection w.r.t provisional list need so to be made within five(5) days from the
date of issue of the provisional list. The final list needs to be issued within 10 days of
the last date for receipt of objections
 AMENDMENTS

Timelines for submission of Resolution Plan approved by Committee

As per substituted Regulation 39(4), the RP shall take all endeavors to
submit the Resolution Plan approved by the Committee to the
Adjudicating Authority at least fifteen (15) days before the maximum
period for completion of CIRP.
 JUDGMENTS

Mr. Hemang Phophalia vs The Greater Bombay Co-operative Bank

Limited
➢ Facts
The Greater Bombay Co-operative Bank Limited had filed an application
under Section 7 of IBC(Insolvency and Bankruptcy Code) to initiate
CIRP(Corporate Insolvency Resolution Process) against Penguin Umbrella
Works Private Limited which was admitted in the NCLT, Mumbai Bench.
 JUDGMENTS

Continued….
The appellant filed an appeal stating that as the Corporate Debtor, was
struck off from the RoC(Registrar of Companies), thus CIRP cannot be
initiated. The main issue was whether an application for CIRP under
section 7 or 9 can be initiated against a company struck off by the RoC?
 JUDGMENTS

Continued….
➢ Ratio:
It was held that CIRP application against companies struck off by the
RoC is maintainable. Further, it was also stated that NCLT also has the
power to restore the name of the company and all other persons in their
respective position for the purpose of initiating CIRP under section 7 and
9 of IBC.
 JUDGMENTS

State Bank of India v Rohito Ferro Tech Pvt Ltd

➢ Facts:
SBI had moved an application in NCLT under Section 7 of the IBC against Rohit
Ferro Tech, but the adjudicating authority dismissed the appeal stating the RBI
circular issued by the RBI, dated February 12, 2018, based on which the
petition is filed for initiating CIRP has been declared to be ultra vires and
illegal by the Supreme Court. Therefore, the CIRP cannot be admitted. This
was appealed in the NCLAT by the SBI.
 JUDGMENTS

Continued…..
➢ Ratio:
The NCLAT dismissed the order passed by NCLT stating that only the
circular had been declared ultra vires and not the CIRP. It was clarified by
the NCLAT that any creditor cannot only rely upon the circular to initiate
insolvency proceedings, it needs to be backed by proper evidence.
When can the High Court interfere to with the orders passed by
the NCLT?
M/s Embassy Property Developments Pvt Ltd v State of Karnataka and
Ors
➢ Facts:
In the case of M/s Embassy Property Developments Pvt Ltd v State of
Karnataka and Ors , the Resolution Applicant, CoC and the Corporate
Debtor had filed appeal in the Supreme Court challenging the interim
order passed by the Karnataka High Court, which had put a stay on an
order passed by the NCLT. The application in High Court was filed by the
Resolution Professional. The issue which arose in this case was whether
the High Court can pass any interim order under article 226/227
interfering with the order of the NCLT and also ignoring the fact that there
is an alternative remedy of appealing to the NCLAT for the same?
 JUDGMENTS
Continued...
➢ Ratio
The Supreme Court stated that the NCLT is a creation of the special
statute to discharge specific functions. Therefore, it cannot be given a
status higher than judicial courts which have power of judicial review over
the administrative action. It also stated that NCLT's are not even civil
courts, thus , it can only try cases within its statute which has been
prescribed by law and no other matters i.e. matters of public interest, civil
nature etc. Therefore, the HC can try matters in realm of public law which
arise in matters of IBC 2016.
 CONCLUSION

The Code was enacted to consolidate and to amend various laws

relating to the insolvency, Branktrpcy & Liquidation and delete some
fructuous provisions due to change in the business complex, opening of
economies and further participation of Foriegn Investors in domestic
area.
THANK YOU