IBC Code,

1
IBC, 2016

2
INSOLVENCY AND BANKRUPTCY CODE, 2016

To speed up stressed Assets WHY

resolution in the country

Applicable to Individuals, LLP’s,

WHO Corporates and Partnerships

Authority to decide insolvency

application within 180 days (90
days extension allowed) WHEN
Fast Track Process of 90 days allowed
for specified authorities
WHEN
Adjudicating Authority NCLT for
Corporates, DRT for Individuals and
Partnership firms
HOW
3
Framework for Resolution of Stressed Assets in India

Till June 2022 total 5,636 cases admitted to IBC Process*

Ongoing
Closed by Liquidation
Insolvency and

6.39
Closed on Withdrawal/appeal
Bankruptcy

%
Closed on Resolution
15.29%
Code, 2016
35.47
%

24.42%
RBI Prudential Debt
Framework for • SARFAESI 2002
Recovery • RDDBFI 1993
Resolution of
Regulations • Code of Civil Procedure 1908
Stressed Asset
(07 Jun 2019) In India Other Insolvency & restructuring related laws
• Sick Industrial Companies (Special provisions) Act (BIFR) [Repealed by IBC]
• Presidency Towns Insolvency Act 1909 (proposed to be repealed in IBC)
• Provincial Insolvency Act 1920 (proposed to be repealed in IBC)
• Companies Act, 2013 (omitted relief and rehabilitation provisions)

*Source – IBBI Newsletter June 2020 4

Need for IBC, 2016

Preamble of IBC Consolidate Time bound Resolution Maximize Protect Promote

laws Process of Stress Value Stakeholder Entrepreneurship

Sectoral Distribution of CIRPs*

Key Features of IBC, 2016
 Applicable on Body Corporate, PF and
individuals 10%
 Does not apply to Financial Service 3%

3%
2%
Provider (E.g. Banks/ NBFCs) except
NBFC-SI
10% 41%
 Creditor driven process

 Early resolution of defaults 11%

 Sets Moratorium on all past disputes

during CIRP 20%

 Distribution waterfalls
Manufacturing Hotels & Restaurants
 Overrides all other laws in India Real Estate Electricity & Others
Construction Transport, Storage &
 Involves Liquidation framework
Wholesale & Retail Trade Communications
including Voluntary Liquidation
Others *Source – IBBI Newsletter June 2020
5
An Overview of IBC, 2016
IBC – Overview of the Code

Part I Part II Part III Part IV Part V

(S 1 to 3) (S 78 to 187) (S 188 to 223) (S 224 to 255)
(S 4 to 77)
Preliminary Insolvency Regulation of Miscellaneous
Corporate Resolution & Insolvency (amendments
Insolvency Bankruptcy Professionals, in other
& for Individuals Agencies and statutes)
and Information
Resolution Partnership Utility
Process Firms
(CIRP)
(notification
limited to
Personal
Guarantors)

7
Overview of INSOLVENCY AND BANKRUPTCY CODE

Part II – consists of VII chapters deals with Insolvency Resolution and Liquidation of Corporate Persons.
CHAPTER
CHAPTER II – IV – Fast
CHAPTER
CHAPTER I – Corporate Track
III –
Preliminary Insolvency Corporate
Liquidation
Definitions Resolution Insolvency
Process
Procress Resolution
Process

CHAPTER VI
CHAPTER V
–
– Voluntary CHAPTER
Adjudicating
Liquidation VII –
Authority
of Offences &
for
Corporate Penalties
Corporate
Persons
Persons

Section 4: Default in Payment of due of atleast 1 lakhs now made 1 crore due to Covid 19
8
Sailent Features of Insolvency and Bankruptcy Code

It is enacted to consolidate and amend

Covers all individuals, Focuses on reviving the
all existing Insolvency Laws in India
companies, LLP’s and company in a time bound
which in turn will enable to expedite the
Partnership Firms manner
Insolvency Proceedings in India

Provides for penalties on

Introduction of Insolvency Professionals Focuses on maximizing
promoters for asset
to bring in more professionalism and the value of assets of the
diversion leading up to
efficiency in the process corporate debtor
liquidation

The code aims at bringing

the defaulters to book by
To establish Insolvency and Bankruptcy
by empowering creditors
Board of India to regulate Insolvency
to initiate the process at
Professionals, Insolvency Professional
an early stage for
Agencies and Information Utilities
replacing the
management.
Provides for time bound
viability assessment
mechanisms, liquidation
process and distribution
Waterfall
9
 IBC – The CIRP Initiation
Section 6: Persons who may initiate CIRP
U/s 7: Financial Creditor
To whom Financial debt is owed and includes a
person to whom such debt is legally assigned
or transferred to
• Financial creditor himself/ jointly with other
creditors may file an application
• Application in FORM 1 of Insolvency and
Bankruptcy (Application to Adjudicating
Authority Rules, 2016) to filled along with the
application fees of Rs. 25,000.00.
• Nominee to be selected in case of joint
application
• Written communication from IP proposed to
be appointed as IRP is to be filled in
accordance with FOM 2 of the Adjudicating
Authority Rules.
U/s 8 &9: Operational Creditor
To whom Financial debt is owed and includes a
person to whom such debt is legally assigned
or transferred to
• It includes claims in respect of provision of
goods or services; also includes employment
or a debt in respect of the repayment of dues
arising under any law for the time being in
force and payable to CG/ SG or any local
authority.
• Application in FORM 5 of Insolvency and
Bankruptcy (Application to Adjudicating
Authority Rules, 2016) to filled along with the
application fees of Rs. 2,000.00.
U/s 10: Corporate Debtor(subject to Sec
11)
The member / partner of CD who is incharge of
managing operations and resources and has
control and supervision over financial affairs of
the CD
• Should contain special resolution passed by
the shareholders of the corporate debtor with
not less than 3/4th of the votes in the favour
of the resolution.
• Application in FORM 6 to be filled before
Hon’ble NCLT by the corporate debtor himself
declaring the insolvency of the company.
• It should also contain the details of the IP
proposed to be appointed as IRP.
10
SEC.11 Person not entitled to make application
A corporate debtor undergoing CIRP or pre - packaged insolvency resolution process
Who cannot file for initiation of CIRP

A financial or operational creditor of corporate debtor undergoing pre - packaged insolvency

resolution process

A corporate debtor in respect of whom a resolution plan has been approved

A corporate debtor completing CIRP, 12months preceding the date of application

A corporate debtor of financial creditor who has violated the terms of resolution plan which
was approved twelve months before making application under this chapter

A corporate debtor in respect of whom a liquidation order has been made

• Entire process time bound 180 days + 90 days (overall within 330 days including litigation time) (S 12)
• Moratorium Period sets in from date of admission till acceptance of Resolution Plan/ order liquidation (S 14) 11
 MODEL CORPORATE INSOLVENCY RESOLUTION PROCESS TIMELINE

Occurrence Financial or Operational AA passes order for Admissions,

of default Creditor files Appointment of IRP, Moratorium or rejects
application for CIRP the application

Appointment of Resolution
Information Memorandum to Calling and admitting of
Professional by COC and Formation
be prepared by RP claims by Interim Resolution
confirmation by AA of COC
Professional (IRP)

RP to call for Expression of COC to vote upon the

Interest after sharing Resolution Plan submitted by Resolution
Resolution Plan
Information Memorandum Applicants
with stakeholders

If COC votes in favour of If COC votes against the

the resolution plan then resolution plan then the
the resolution plan is company goes in
implemented liquidation

12
Ecosystem of IBC

Financial Creditor Operational Creditor

Corporate Debtor
Information Utility

IBBI Board Committee of Creditors

Resolution Professional
Adjudicating Authority (RP/IRP)

Liquidator
Resolution Applicant
(Also RP)
13
 TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline

Section 16(1) Commencement of CIRP and appointment of ……………………………………… T

IRP

Regulation 6(1) Public Announcement inviting claims Within 3 days of appointment of IRP T+3

Sec 15(1)(c)/ Reg 5(2) Submission of claims For 14 days from the appointment of IRP T+14
(c) and 12(1)

Reg 12(2) Submission of claims Upto 90th day of commencement T+90

Reg 13(1) Verification of Claims received under Reg Within 7 days from the receipt of the claim T+21/
12(1)/ 12(2) T+97

Sec 21(6A)(b)/ Reg Application for appointment of AR Within 2 days from verification of claims T+23
16A received under Regulation 12(1)

Reg 17(1) Report Certifying Constitution of CoC T+23

Sec 22(1)/ Reg 19(2) 1st meeting of CoC Within 7 days of filing of report certifying T+30
constitution of notice but with 5 days
notice

Sec 22(2) Resolution to appoint RP by the CoC In the 1st meeting of CoC
14
 TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline

Section 16(5) Appointment of RP On approval by AA. ,,,,,,,,,,,,,,,

Regulation 17(3) IRP performs the function of RP, till RP is If RP is not appointed by 40th day of T+40
appointed commencement
Reg 27 Appointment of Valuers Within 7 days of appointment of RP but not T+47
later than 47th day of commencement of
CIRP
Reg 12A / Reg 30A Submission of application for withdrawal of Before issue of EOI W
application admitted
CoC to dispose off the application Within 7 days of its receipt or 7 days of W+7
Constitution of CoC whichever is later
Filling application of withdrawal, if approved Within 2 days from verification of claims W+3
by CoC with 90% majority voting, by RP to AA received under Regulation 12(1)

Reg 35(A) RP to form an opinion on preferential and Within 57 days of the commencement T+57
other transactions
RP to make determination on preferential Within 115 days of the commencement T+115
and other transactions
RP to file application with AA for appropriate Within 130 days of the commencement T+130
relief
15
 TIMELINE FOR COMPLETION OF CIRP AS PER INSOLVENCY AND BANKRUPTCY CODE, 2016
Sec/ Regulation NORM Description of Activity Latest
Timeline
Reg 36(1) Submission of IM to CoC Within 95 days of commencement T+95
Regulation 36 A Publish FORM G Within 60 days of commencement T+60
Invitation of EOI
Submission of EOI Atleast 15 days from issue of EOI T+75
Provisional list of RA’s by RP Within 10 days from the last day of receipt T+85
of EOI
Submission of objections to provisional list For 5 days from the date of provisional list T+90
Final list of RA’s by RP Within 10 days of the receipt of objection T+100
Regulation 36B Issue of RFRP including EM and IM Within 5 days from the issue of provisional T+105
list
Receipt of Resolution Plans Atleast 30 days from the issue of RFRP T+135
Regulation 39 (4) Submission of CoC approved Resolution Plan As soon as approved by CoC T+165
to AA
Sec 31 (1) Approval of Resolution Plan by AA T+180

16
SECTION 14: MORATORIUM

What is prohibited What is not prohibited

• The institution of suits or continuation of • Supply of essential goods or services to CD.

pending suits including execution proceedings • Recovery proceedings against a surety in a
against the CD contract of guarantee to CD.
• Transferring, encumbering, alienating or
• Licenses, permits, quota, concessions given
disposing off the assets of the corporate debtor
including the beneficial interest.
by government to CD.
• Any action to foreclose, recover or enforce any
security interest.
• Recovery of any property by an owner or lessor,
if such property is possessed by CD

Moratorium shall cease to be in effect:

 On completion of CIRP; or
 When Resolution Plan is approved by the NCLT during the CIRP Process; or
 Where liquidation order is passed.
17
Section 15 and 16
Section 15 Public Announcement

Contents of Public Announcement as per Regulation 6 of CIRP Reg.

Section 15: • IRP shall make the PA within 3 days of his appointment.
a) Details of Corporate Debtor • Format- specified in Form-A.
b) Details of IRP • Published on:
c) Last date of submission of claim a) One English and one regional language newspaper.
d) Date of closure of CIRP (180 Days) b) Website of CD
e) Penalty for false claims c) Website of Board
Provide for the last date when the claims by creditors can be
submitted

Section 16 Appointment/ Tenure of IRP

• IRP shall be appointed by the NCLT on the date of acceptance of the Application u/s 7, 9 or 10
• If no IRP is proposed in Application u/s 9 or disciplinary proceedings are pending against the proposed IRP, then
NCLT will make reference to Board for recommendation of name of IRP

18
Section 18 - DUTIES OF IRP

Monitor the assets of the

Collect all information relating
corporate debtor and manage
to the assets, finances and Receive and collate all
its operations until a
operations of the corporate the claim
Resolution Professional is
debtor for determining the appointed
financial position

Constitute committee of File information collected Take control and custody of

creditors with the information utility the asset of CD

19
Sec 21 – Committee of Creditors
• IRP to form CoC after collating all the claim

WHO ALL CAN FORM COC

All Financial Creditors of CD, except the related party

Financial Creditor as part of consortium may appoint a single trustee or agent to represent all

Class of Financial Creditor - NCLT can appoint the Insolvency Professional to represent such class in
COC, on the application of IRP

If there are no Financial creditor, then Operational creditor will constitute COC in accordance with Reg 16 of CIRP
Regulations
• 18 largest Operational creditor by value
• Representative of workmen
• Representative of employee

20
Proof of Claims in Reg 7 – 15 of CIRP Regulations
Claim by Relevant Form for filling of claim along with
Regulation documents
Operational Creditor (other Reg 7 FORM B
than workmen and employee)

Financial Creditor (other than Reg 8 FORM C

class)

Creditors in Class Reg 8A FORM CA

Workmen and Employees Reg 9 FORM D, FORM E (Single claim for class)

Other Creditors (residuary) Reg 9A FORM F

• Claim shall be filed in fourteen days from the date of appointment of IRP
• IRP/RP shall verify every claim within seven days from the last date of the receipt of the claim.
• Where the amount claimed by a creditor is not precise due to any contingency or other reason, the IRP/Rp shall
make the best estimate of the amount of the claim based on the information available with him

21
Section 25 - DUTIES OF RP

 Take immediate custody and control of the assets

 Represent CD before third party, judicial, quasi judicial or arbitration proceedings.
 Raise interim finances subject to the approval of the committee of creditors under sec 28.
 Appoint accountants, legal or other professionals in the manner as specified by the board.
 Maintain an updated list of claims
 Convene and attend all the meetings of the committee of creditors
 Prepare the information memorandum in accordance with Sec. 29.
 Invite prospective resolution applicants
 Present all Resolution Plans at the meeting of the committee of creditors
 File application for avoidance of transaction in accordance with the chapter.

NOTE: filing of avoidance application under clause j of sub section 2 of Section 25 by the resolution
professional shall not affect the corporate insolvency resolution process.

22
SEC 28 ACTIONS OF RP REQUIRING PRIOR APPROVAL OF COC

To raise any interim finance in excess of the amount as may be decided by the committee of creditors in their
meeting
Create any security interests over the assets of CD
Undertake any related party transaction
Amend any constitutional documents of CD
Delegates its authority to any other person
To instruct financial institutions maintaining account of CD for a debit transaction in excess of the amount fixed
by CoC.
Change of capital structure of CD
Change in ownership interest of CD
Change in management of CD or its subsidiary
Disposal of transfer of shares
Transfer rights or financial debts or operational debts under material contracts
Changes in the appointment or terms of contract of such personnel as specified by committee of creditors
Changes in the appointment or terms of contract of statutory auditors or internal auditors of CD

23
IBC 2016 | CIRP | Important Sections
Section 29A
Person not eligible to
be RA
 Section 29A has been enacted
in the larger public interest and
to facilitate effective corporate
governance and prohibit
backdoor entry of promoter
 29A has list of relationship and
some carve-outs of those
ineligible to submit Resolution
Plan
 Relaxation to MSME provided
(240A)
Section 30(2)(b) Section 32A
Dissenting Financial Clean Company for
Creditor + OC new promoter
 Payment to Operational
 Immunity to new management
Creditor and Dissenting
from past liability (including
Financial Creditor (recent
prosecution) of Corporate
amendment) should be at least
Debtor
minimum pay-out that they
 Assets of Corporate Debtor also
would have received under
ring fenced from past liability
waterfall with liquidation
(including prosecution) of
 The amendment overturns,
Corporate Debtor
NCLAT ruling in case of Hero
 Even prosecution initiated
Fincorp, wherein it was held
during CIRP would be vacated
that the dissenting financial
upon approval of Resolution
creditors cannot be treated
Plan
separately.
24
IBC 2016 | CIRP | Appeals

Supreme Court

Appeal in 45 days*

NCLAT DRAT
(Tribunal) (Tribunal)
For
Individuals/
Proprietor-
For
Appeal in 30 days* ship
Companies
concerns/
/ LLPs
Partnership
DRT Firms
NCLT
(Adjudicating (Adjudicating
Authority) Authority)

*May be extended for a further period of 15 days

25
Waterfall Mechanism (sec 53)

Liquidation Proceeds

Insolvency Resolution/ Liquidation Cost

Financial Creditor/ Workmen Due (24 months)

Employee due (12 months) • Capital Gain tax arising on Liquidation of

Asset not payable. To follow the waterfall
for distribution of proceeds
Statutory dues LML Limited (In Liquidation vs CIT Mumbai
• No restriction in paying Operational Creditor
(NCLT order dated 31.08.2020
more than what they would receive as per
Waterfall Any other dues
• Once Company is in Liquidation, it can still be
revived by Composite scheme of Preference S/H
arrangement between stakeholders
Jindal Steel and Power Limited v. Arun Equity S/H
Kumar Jagatramka & Gujarat NRE Coke
Limited NCLAT – 24 Oct 2019
26
Resolution Plan
IBC 2016 | CIRP | Mandatory Contents of Information Memorandum

Assets and Liabilities with such details necessary for ascertaining its value as on date

Audited Financial Statement of last 2 years + Current year Financial statement

List of creditors containing the names, amount of claim & security interest and RPT
Contents of
Information Details of the guarantees in respect of the CD’s debt, and specifying RPT guarantor

Memorandum
Details of all material litigation and ongoing proceedings initiated Statutory Authority

Names, Addresses and stake of all members holding at least 1% stake in the CD

Number of workers & employees, and any liabilities towards them

Other information can also be provided by RP in consultation with CoC. Quality of information IM dependent on variety of factors

Liquidation value is not communicated by Resolution Professional to Prospective Bidders

28
Formulating Resolution Plan

• Deriving the Bid value post assessment of assets and risks of Corporate Debtor
• Source of upfront payments
• Proposed structure for acquisition/ takeover of CD
Financial • Projections to demonstrate viability of proposal along with estimated timelines, post takeover

• Details of payment to Creditors in compliance with IBC Code, 2016

• Reliefs, concessions and support needed from all statutory authorities for effective
implementation of the plan
Legal • Self evaluation based on evaluation matrix approved by CoC
• Compliance with 29A

• Background of Resolution Applicant covering financial and technical capabilities

Management + • Turnaround Strategy proposed
Technical • Steps to monitor business performance on a regular basis
• Key management proposed to be deployed
• SWOT analysis

CoC mainly considers quantum of recovery and recovery period

29
IBC 2016 | CIRP | Evaluation Matrix (weights decided by CoC)

Qualitative Parameters
Quantitative Parameters (60%)
(40%)

Sectoral Experience of RA Upfront cash recovery as per Resolution Plan

Net Present Value (NPV) of continuing portion

Previous turnaround acquisition experience
of debt inclusive (both interest and principal)

Financial strength of resolution applicant/ group DCFs from lenders equity/ quasi equity

Strength of projections basis expansion/ market

Term for Resolution Plan (lesser the better)
share

Risk Assessment and Mitigation Plans to protect Fresh Equity Infusion for improving operations
interest of stakeholders, etc. (only if the lenders are continuing)

Availability of additional collateral security/

Fresh Equity Infusion for financial creditors
guarantee

External Credit Rating/ Regulatory compliance Arrangement to sale assets of CD or

of the RA Restructuring of CD by merger/ demerger/ etc

Technological advancement proposed by RA or

Future Prospects Change in portfolio of goods and services of CD
30
Restructuring proposals – Key considerations

 Compliance with IBC code. Plan to cover mode payment/ settlement with all creditors with timeline.
 Plan to be tuned for high ranking basis Evaluation matrix parameters.
 Plan should not be contingent and be binding on RA
 Dealing with Creditors for essential supplies  Possibility of arm twisting post take-over?

 Structuring the deal to maximize benefits

 Need of separate SPV for acquisition of CD  Consortium, Leveraged acquisition, ring fence, hold to sale
 Mode of funding  Choice of instrument
 Capital restructuring of CD  Cap reduction, share split/ consolidation, covert loan into equity/ pref. sh.
 Write-back of loan and write-off of assets treatment
 Tax considerations (protection of losses/ Mat impact)
 Need for merger/ de-merger to make the buy-out efficient
 Need for carve-out of non-core assets into separate entity

31
 Commonly used structures
Write-back of unsustainable debt of Corporate Debtor

Erstwhile Option 1 (routed through P&L)

Resolution Stakeholder Extinguishing unsustainable debts through P&L
Applicant
 Ruchi Soya acquisition by Patanjali

Option 2 (routed through Balance Sheet)

Corporate • Converting unsustainable debts into Equity
Debtor • Undertaking Capital reduction to right size the CD
Equity & Liabilities INR Crs Assets INR Crs
 Electrosteel acquisition by Vedanta Limited
Equity Share Capital 10.0 Fixed Assets 20.0
Reserves (30.0) Investments 5.0 Option 3 (No adjustment in books of CD)
Borrowings/ Loan 50.0 Trade Receivables 10.0 • Purchase unsustainable debts from Financial
Other Creditors 15.0 Inventories 10.0
Creditors
• Can convert Purchased debt to Equity  Facilitate
Total Liabilities 45.0 Total Assets 45.0
tax neutral buy-back
 Essar Steel acquisition by Arcelor Mittal
• B/f Losses of INR 30 Crs • Write-back of debt INR 55 Crs
 Monnet Ispat by Consortium of JSW and AION
• Bid Value – INR 10 Crs (to bank)
 Alok Industries by JM Financial and Reliance
32
Taxability on Waiver of Loan and its impact under IBC

Remission of Working Capital Loan utilized for day-to-

Applicability of below Sections: Remission of Term Loan day operations

28(iv) – Benefit or perquisite × ×

other than in form of money (Mahindra & Mahindra1 ) (Rollatainers Ltd. 2)

• Deduction claimed in any

PYs in form of interest, etc. 
41(1) – Remission/ Cessation of ×
trading liability (Mahindra & Mahindra1 ) • Not claimed deduction in
any PYs in form of interest, ×
etc. (Compaq3)

Implications of above Judgements under IBC Regime

 Loan waivers are a standard feature of any resolution plan

 SC ruling provides relief in cases of term loan used for Capex
 Taxability of write-back of working capital loan/ loan for business --> Tax risk high
 IBC code only grants relief to past tax dues and not the ones arising on implementation of resolution plan
1
CIT vs Mahindra and Mahindra ([2018] 404 ITR 1 (SC))
2
Rollatainers vs CIT [2011] 15 taxmann.com 111 (Delhi HC)
3
CIT vs Compaq Electric Ltd [2011] 16 taxmann.com 385 (Karnataka HC) 33
Interplay of IBC with other laws
IBC – Its Interplay with other Regulations – Income Tax & GST
Income Tax

Tax losses to be
Both unabsorbed c/f even upon Provisions of S.
depn. and loss b/f change of majority 50CA and S. 56(2)
Section 32A of IBC
allowed to be control - Section (x) still applicable
would override S.
reduced for 1 79 of IT Act not 2 on IBC 3 281 of IT Act and 4
computing MAT applicable transactions. CBDT
S. 170 of IT Act
and not lower of has powers to
the two (S. 115JB) (PCIT opportunity relax the same
to be heard)

GST
New process
introduced, Only those input
wherein RP credits in old This ensures
obligated to GSTIN post clean slate to
apply for fresh 1 initiation of CIRP 2 New 3
GSTIN for CD and would be Management for
undertake transferred GST aspects
compliance
35
IBC – Its Interplay with other Regulations – SEBI

 Acquisitions pursuant to RP approved u/s 31 of the IBC is exempted from the obligation to
SEBI
make an open offer
Takeover
 Acquirer not prohibited to acquire such number of shares as would take the aggregate
Regulations
shareholding above the maximum permissible non-public shareholding i.e. 75% shares

 Not applicable where the preferential issue of specified securities (equity shares and
SEBI (ICDR)
convertible securities) is made in terms of a RP approved by NCLT under IBC (except lock-in
Regulations provisions)

 Not applicable to any delisting of equity shares made pursuant to a RP approved by NCLT
SEBI
under IBC
Delisting  The RP should provide specific procedure to complete the delisting of such shares and an exit
Regulations option to the existing public shareholders at a price specified in the RP

 Approval of the shareholder for various matters would no longer be required (material related
SEBI (LODR) party transaction, disposal of shares of material subsidiary, reclassification of promoter as
Regulations public, etc. if the same is in respect of a RP approved by NCLT under IBC
 Within 1 day of approval to be disclosed to Stock Exchange
IBC – Its Interplay with other Regulations – Other Acts

Competition Commission Stamp Duty Other Sectoral Bodies Foreign Investment in

• Applicability to CCI
approval same as any
regular combination
• CCI approval mandatory
before CoC approves the RP instances of prayers in
(1st proviso to Section 31(4)
of IBC)
• CCI have created a concept
of Green channel approval
depending on profile of
Buyer and Target for fast
track approval
• No specific amendment in
stamp duty laws pursuant
to IBC
• Have observed multiple
Resolution Plan seeking
relief/ waiver from
applicability of stamp duty.
May not be legally valid
• IBC Code does not absolve Debt Instrument/ Non-
the Company from debt Instrument
requiring to obtain Regulations
approvals to give effect to • 100% FDI permitted in ARCs
Resolution Plan under automatic route
• On the contrary, it provides • Resolution Applicant/
1 year to Resolution Bidders can obtain foreign
Applicant from date of currency loan under ECBs
approval of RP by NCLT to to repay INR loan of
obtain all necessary Corporate debtor
approvals under applicable
laws for time being in force.

37
Key Issues
IBC – FAQs
# Key Issues
1 Whether moratorium
applicable on Corporate
Guarantor/ Personal
Guarantor?
2 Whether contingent liability
(dues related to past that can
arise post acquisition) is also
settled/ waived in CIRP?
3 Whether Resolution Plan
approved by NCLT has
overriding effect on all other
statutory provisions (Even for
those where IBC is silent)?
4 Resolution Value can be
lower than liquidation value?
Comments
• No. Amendment in section 14 made to clarify the same.
• Infact, from 01 Dec 2019, the IBC process can be initiated against Personal Guarantor for
recovery of dues.
• Apex court clarified, even post resolution of Corporate Debtor, Financial creditors free to
pursue recovery from Corporate/ Personal Guarantor for balance dues.
• Yes. Section 32A of IBC
• No. For e.g. waiver from stamp duty cannot be granted by NCLT
• However, Section 32A provides clean slate for all past dues. New Buyer would get
immunity from all past liabilities and the assets would also be protected
• Yes. Refer Maharasthra Seamless Ltd. v. Padmanabhan Venkatesh [2020] 113
taxmann.com 421
• Please note compliance with pay-out to Operational Creditors and Dissenting Financial
Creditors as per Section 30(2)(b) should be atleast as per Minimum liquidation value
39
IBC – FAQs
# Key Issues
5 Applicability of Period of
Limitation on default for IBC
6 Whether Resolution Plan can
include proposal of merger /
restructuring?
7 Can Operational Creditor be
paid more than amount it
would have received in
waterfall, without paying
secured creditor in full
8 ARC cannot submit
resolution plan
9 Is IBC a recovery forum
Comments
• If default older than 3 years, then it is time barred for litigation. IBC cannot be invoked.
• Moratorium period to be excluded for computing period of limitation of 3 years
Yes.
Amendment in 2(26) of IBC clarifies the same.
Yes. Arcellor Mittal in case of Essar Steel
All financial creditors were paid an amount of 60.7% of their admitted claims and
operational creditors (with an amount of claim >= INR 1 crore) were paid 60.26% of their
admitted claim, and operational creditors (with an amount of admitted claim < INR 1
crore) were paid in full.
RBI denied permission to the resolution plan submitted by UV ARC in the case of acquiring
assets of Aircel (through infusion of equity) on the grounds that it does not conform with
guidelines laid down for ARCs and provisions of SARFAESI Act, 2002
Evolving jurisprudence  Many cases of recovery attempts being rejected  Monotrone
Leasing Private Limited vs PM Cold Storage Private Limited CA (AT) (Ins) No. 99 of 2020
40
Prudential Framework for Resolution of Stressed Asset
Purpose & Applicability

 Early recognition, reporting and time bound resolution of stressed assets.

 Withdrawal of all previous instructions on resolution of stressed assets such as SDR, S4A, 5:25, (SMA and JLF)
 Guidelines now provides framework for resolution and not mandatory direction for taking borrower to IBC.

Identification and reporting of Stressed Assets

 Classification of Assets into SMAs

 Monthly reporting of Stressed Assets of all borrower with exposure >= INR 5 Crs to Central Repository of Information on Large
Credits (‘CRILC’) + Weekly report of any default instances.

Implementation of Resolution Plan (‘RP’)

 Lenders to have board approved policy for resolution along with the timelines
 During the review period, decisions can be made on resolution strategy, nature of RP, approach of implementation, legal
proceedings alternatives
 Resolution plan may involve any action/plan/ reorganization, modification in the terms of advances, concessions,
compromising settlements, sale of exposures etc. 41
Restructuring under Resolution Plan

COMPONENTS OF RESOLUTION PLAN INDICATORS OF STRESS

 Modification of terms of the advances /  Default by borrower irrespective of reason

securities
behind default
 Alteration of payment period/ Payable
amount/the amount of instalments/rate of  Pattern of delinquency in payments
interest; roll over of credit facilities;
 Delisting of outstanding securities due to non-
 Sanction of additional credit facility/ release of
additional funds for an account in default to compliance with listing requirements
aid curing of default/enhancement of existing
credit limits;  Non-performing status of borrower’s credit
 Compromise settlements where time for facilities
payment of settlement amount exceeds three
months.  Performance, estimates, projects of borrowers
 Conversion of debt into other securities
including equity  Bank internal credit rating system

 Change in ownership
42
Constitution of Expert Committee
Constitution of Expert Committee under the chairmanship of Shri K.V. Kamath

Key Takeaways
26 Sectors
Recommendations regarding financial 15. Auto
parameters to be included in Resolution Plan 1. Power
Components
under the ‘Resolution Framework for Covid19 - 2. Construction
related Stress’ along with sector specific 16. Hotel,
3. Iron & Steel
benchmark ranges for such parameters Manufacturing
Restaurants,
Tourism
4. Roads
17. Mining
5. Real Estate
18. Plastic Products
Recommendation include aspects related to 6. Trading-
Manufacturing
leverage, liquidity and debt serviceability. Wholesale
The Committee has recommended financial 7. Textiles
19. Automobile
ratios for 26 sectors which could be factored 8. Chemicals
Manufacturing
by lending institutions while finalizing a RP 20. Auto
for a borrower 9. Consumer
Dealership
Durables/FMCG
21. Aviation
10.Non-ferrous
22. Sugar
The Key Financial ratios include Metals
23. Port & Port
• Total Outside Liability/ Adjusted Tangible Net 11.Pharmaceuticals
services
Worth; Manufacturing
24. Shipping
• Total Debt / EBIDTA; 12.Logistics
25. Building
• Current Ratio; 13.Gems &
Materials
• Debt Service Coverage Ratio & Jewellery
26. Corporate
• Average Debt Service Coverage Ratio 14.Cement
Retail Outlets
43
IBC LANDMARK CASES
RELEVANT JUDGEMENTS
MR. ASHUTOSH AGARWALA, RP VS. JOINT COMMISSIONER ANJALI RATHI & ORS VS TODAY HOMES AND
OF STATE TAX & ORS. INFRASTRUCTURE PRIVATE LIMITED & OTHRS;
.
This application was filed by the RP against the orders of the tax The petitioners sought attachment of the personal properties of the
authorities of the State of West Bengal and Maharashtra wherein all promoters of the corporate debtor. The SC while deciding the matter
the bank accounts of the corporate debtor were attached. The RP observed that it would not be appropriate to issue a direction of such
contended that as a moratorium under Section 14 of the Code is in nature, while the resolution plan is still not approved by the NCLT.
force the decision of the tax authorities was in contravention of the Therefore, relying on its judgement in the matter of P. MOHANRAJ
law and to direct the authorities not to issue any further notices/ VS. SHAH BROS. ISPAT (P) LIMITED, it was held that the
seizure/ attaching of assets of the corporate debtor without leave of the moratorium under the Code is only applicable to the corporate debtor
NCLT and to give access of the attached bank accounts to the RP was and not be prevented by the moratorium under Section 14 of the Code
in contravention of the law and requested the NCLT to direct the from initiating proceedings against the promoters. Further, the
authorities not to issue any further notices/ seizure/ attaching of assets petitioner can take recourse to remedies available in law only after
of the corporate debtor without the leave of the NCLT and to give
the resolution plan is approved by the NCLT and subject to the
access of the attached bank account to the RP.. The NCLT while
consequence thereafter.
deciding the matter, observed that Section 14 of the Code, inter alia,
bars any institution of suits, continuation of pending suits or
proceedings against the corporate debtor including execution of any
judgement, decree or order in any court of law, tribunal or arbitration
panel or any other authority. Further, Section 238 of the Code also has
an overriding effect on all other laws which includes State GST Act
and Central GST Act. In addition to this, no notice issued under
Section 79 of the GST Act, 2017 can be acted upon by any Central/
State Authority against the corporate debtor undergoing CIRP.
Therefore, the decision of the State tax authorities was in
contravention to the provisions of law.
45
GHANASHYAM MISHRA AND SONS PRIVATE LIMITED VS. ANJALI RATHI & ORS VS TODAY HOMES AND
EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED INFRASTRUCTURE PRIVATE LIMITED & OTHRS;
& ORS.

In this matter, the SC held that the amendment made to Section 31 of

the Code in the year 2019 is clarificatory in nature and not
declaratory, therefore, it will be operative on a retrospective basis. It
was also noted that even without the aforesaid amendment, the
Central Government, State Governments, or local authority to whom
a debt is owned, including the statutory dues, is covered in the
definition of the term ‘creditor’ and, in any case, by the term ‘other
stakeholders’ as provided in Section 31(1) of the Code. Hence, a
resolution plan will be binding on them as well. Further, the SC also
noted that the legislative intent of making the resolution plan binding
on all the stakeholders is that after the approval of the resolution
plan, no surprise claims should be brought up against the resolution
applicant and all the claims are frozen so that the resolution applicant
should start with fresh slate based on the approved resolution plan.
Therefore, the SC held that once a resolution plan is duly approved by
the NCLT under Section 31(1) of the Code, the claims, as provided in
the resolution plan, shall stand frozen and will be binding on the
corporate debtor and its employees, members, creditors, including
the Central Government, any State Government or any local authority,
guarantors, and other stakeholders. Further, on the date of approval
of the resolution plan by the NCLT, all such claims, which are not a
part of the resolution plan, shall stand extinguished and no person
will be entitled to initiate or continue any proceedings in the respect
to a claim, which is not part of the resolution plan. 46
 Essar Steel Resolution - Timeline

11
October 2018

1 6
June 2017 February 2018
01 Pursuant to RBI Direction, banks 06 Numetal and ArcelorMittal submit 11 ArcelorMittal clears the NPA and makes
a resubmission of its bid
take Essar Steel to court under IBC bids for Essar Steel

202 707 12
July 2017 March 2018 October 2018
Essar Steel files Writ Petition in
Gujrat HC against RBI direction
RP rejects bids for both Applicants
citing 29A as wilful defaulters
12 Negotiated Plan of ArcelorMittal
approved by 92.24% of CoC

March 2018 March 2019

303
August 2017
Gujrat HC quashes Essar’s petition,
thus resuming IBC Proceedings
808
Both Applicants approach the
NCLT against the move of the RP,
which rules against them
13
NCLT approves RP with direction to CoC
13 to give benefit to OC and StanChat.
Revised RP is submitted

404 909
July 2019

14
October 2017 September 2018
RP invites EoIs from Interested NCLAT upholds the NCLT order,
which is challenged in SC
14 OCs and StanChat appeals before NCLAT,
which rules in their favour
parties. Received bid from
Promoters

505 10 15
November 2017 October 2018 November 2019
IBC ordinance introduced to insert
Section 29A – Connected person
10 SC asks both parties to clear their 15 SC set aside the NCLAT order and give
upper hands of FC
dues and then make a fresh bid
not eligible
Essar Steel Resolution – FCs vs OCs
Disputed Facts
• Distribution among Secured FCs was made based on value
and quality of security held. Specific for StanChat – Pledged
share FMV was ₹25cr against loan granted of ₹3487cr
• Original RP - Operational Creditors were paid 100% upto
₹1cr and notional amount of ₹1 for claim more than ₹1cr
View by the NCLT
• Courts have no jurisdiction to scrutinize the
commercial wisdom of the CoC
• Since the treatment to OCs seems prima facie
unfair, CoC must look into the method of
apportionment of amount by giving haircut to FCs

Distribution of ArcelorMittal’s ₹42000cr Bid Revised RP – INR 1,000 cr was allocated to OC and approved of CoC
Sr. No. Particulars CoC/NCLT/SC NCLAT NCLAT Judgement
• FCs cannot be discriminated as secured or unsecured
A Workmen & Employees 100% 100%
for distribution, giving StanChat equal share in the
B Secured Financial Creditors application bid amount
B1 Other Secured Creditors 92% • Since OCs are required to be paid minimum liquidation
60.7% value doesn’t mean that they shouldn’t be paid more.
B2 StanChat 1.74%
• OCs are treated at par with FCs
C Unsecured Financial Creditors
Supreme Court Verdict
C1 with admitted claims <₹10lakh 100% 100% • Discrimination between FCs and OCs
C2 with admitted claims >₹10lakh 4.08% 60.7% is made by the Code itself, giving the
D Operational Creditors discretion to accept Resolution Plans
to the FCs
D1 with admitted claims <₹1cr 100% 100% • If equitable distribution is adopted,
D2 with admitted claims >₹1cr 20.50% 60.7% FCs would vote for Liquidation as
they would receive higher value
defeating the purpose of the Code
 Essar Steel Resolution – Key Aspects of the SC Judgement
Jurisdiction of NCLT / NCLAT Role of CoC is to determine with their commercial
is limited to review and not trespassing the business decision of wisdom and negotiation, how and in what manner the
the CoC and if certain factors in view of the Tribunal have not CIRP is to take place
been given due consideration by the CoC, it may send back the
plan for consideration of the same
Claims cannot suddenly be
included as the RA should
have the complete
knowledge of exact amount
Delegation of the Powers to the CoC of claims for making the bid
and the CoC alone must take the
decisions under the Code, however,
this does not bar the CoC from
appointing sub-committees for Distributionn of Profits made during the
negotiating with RAs CIRP will not go towards the payment of
debts of any creditor

Role of RP is not adjudicatory but administrative

Largest Resolution in the history of the IBC, the Essar

Verdict gave much needed clarity on the law …
49
50
 Thank You!
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