INSOLVENCY AND

BANKRUPTCY CODE, 2016

- Latest Developments in 2018
 NEED FOR IBC IN INDIA

Existing Mechanism – Inadequate & Ineffective : Insolvency Resolution
No single Law dealing with IB in India; World
overlapping jurisdiction Bank
160 Ranking

Painfully Slow Pace – Min 5 Yrs
140

Recovery rate is so less 120

More NPAs lying in Banks 100


High Process Cost of Insolvency
80
136
60

No Chance of Ease of Doing Business and Easy
Exit 40
1 55
20 5 27
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OLD DISEASE,NEW PRESCRIPTION
WHY ?
Promote Entrepreneurship
Improve Credit Availability
Avoid Prolonging Time
Interest of all Stakeholders
Minimize the Role of Adjudicating
Authority
Lesser Compliance mechanism
Avoid Combination and Complication of many Laws
 JOURNEY OF THE IBC
21.12.2015- IBC Bill of 2015 -introduced in LS

23.12.2015 - IBC Bill of 2015 - Referred to Joint

Committee of both Houses of Parliament

28.04.2016- IBC Bill of 2015 -Joint Committee placed

its Report to both Houses of Parliament

05.05.2016- IBC Bill of 2015 -passed by LS

11.05.2016- IBC Bill of 2015 -passed by RS

28.05.2016- IBC, 2016 -Assented by President of India

& Notified
 APPLICABILITY OF IBC,2016
Any Company incorporated under the Companies Act, 2013
or under any provisions of previous Acts

Any other Company governed by any Special Act

Any LLP incorporated under the LLP Act, 2008

Any other body, as notified by the Central Government

Partnership Firms

Individuals
 OBJECTS OF THE CODE

• Creditor in control regime

• Consolidates existing insolvency laws and amends other legislations
• Overriding effect on all other laws inconsistent with the provisions of the
Code
• Time bound resolutions for evaluation and viability determinations of
companies referred for CIRP
• Clearly defined order of priority ( *waterfall mechanism)
• Investigation of antecedent transactions in case of illegal diversion of
assets of company
• Establishment of IBBI as an independent monitoring body for
administration and governance of the insolvency and bankruptcy law
 BASIC TERMS
• Creditor
• Debtor
• Insolvency
• Bankruptcy
• Winding up
• Liquidation
• Dissolution
 WHO CAN INVOKE?

Financial Creditor (Sec.7)

- Any person to whom a financial debt is owed &
- Includes a person to whom such debt legally assigned or transferred

Operational Creditor (Sec.9)

- A person to whom an operational debt is owed &
- Includes any person to whom such debt legally assigned or transferred

Corporate Debtor (Sec.10)

- A corporate person who owes a debt to any person

 CODE
DEFAULT

In case of Co. & LLP In case of Partnership & Individual

Minimum amount of ` 1 lakh Minimum amount of ` 1 thousand

Minimum amount of ` 1 lakh & ` 1 thousand can be increased upto ` 1 Cr & ` 1

lakh respectively by CG

Where any Company or LLP commits-

A default in paying its

Financial debt Operational debt

Then a financial creditor/ operational creditor/ Company & LLP itself

May file an application, for initiating corporate insolvency resolution process with
the Adjudicating Authority.
SCHEME UNDER THE CODE
 Adjudicating Authority
NCLT
- Deal with insolvency matters of Co. & LLP
- Appeal to NCLAT
 Debt Recovery Tribunal
 Deal with insolvency matters of individual & Partnership firm
 Appeal as to DRAT

GROUNDS FOR REJECTION

Adjudicating Authority within 14 days of receipt of application, by an order -

Admit the application Reject the application

If it is
If it is complete incomplete Default Default not
occurred occurred

NOTICE OF REJECTION
Adjudicating Authority shall before rejecting application, give notice to
applicant to rectify defects in application within 7 days from the date of
receipt of such notice
TIME BOUND
180 days 90 days 270 days
(Maximum)

FAST TRACK :

45 days 135 days

90 days (One time)

Adjudicating Authority after admission of application shall, by an order

Appoint Interim
Declare a Cause a Public
Resolution
Moratorium Announcement
Professional
 MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]
Adjudicating Authority shall by order prohibit the
following:
 Institution/continuation/proceedings of suits including
execution of any judgment, decree or order in any Court
 Transferring, encumbering, alienating or disposing of
assets/legal right/beneficial interest
 Any action to Foreclosure, Recover or enforce any
security interest created including any action under
SARFAESI Act, 2002
 Recovery of any property by owner or lessor where such
property is occupied
 MORATORIUM EFFECT
[Sec.14 (1) (A) – (D)]
• Objective
 Maximizing value of the Entity to Continue Operation
 No additional stress on Business
- Supply of essential goods or services to the Corporate Debtor as may be specified shall
not be terminated or suspended or interrupted
- Central Government in consultation with any financial regulator may specify such
transactions.

• Order of Moratorium made by Adjudicating

Authority;
- Start from Date of Admission of
MORATORIUM Application;
PERIOD
• Cease to effect
[sec 14(1)] – Date of Approval of Resolution Plan or
Liquidation Order
 PUBLIC ANNOUNCEMENT

 Public announcement contain following information:

 Name & address of defaulted Corp. Debtor

 Name of Registrar with which Corp. Debtor is incorporated or
registered
• Last date for submission of Claims
• Details of Interim Resolution Professional
- Management of Corporate Debtors
- Responsible for Receiving claims
• Penalties for False or Misleading Claims
• Date on which the Insolvency Resolution Process close (i.e. 180
days from the date of admission of application)
 Public Announcement shall be made in such manner as may be
specified
 INTERIM RESOLUTION PROFESSIONALS
APPOINTMENT:
Appointment by Adjudicating Authority within 14 days from Admission of Application

TENURE:
Shall not exceed 30 days from date of Appointment

Once IRP is appointed :

FI maintaining
Officers & accounts of
Management of Powers of BOD/
Managers of Corp. Debtor
affairs of Corp. Partners (LLP) shall
Corp. Debtor shall follow
Debtor shall stand suspended &
shall report to instructions of
vest with IRP will be exercised by
IRP IRP
IRP
 RESOLUTION PROFESSIONAL
Appointment by Committee of Creditors may in their first
meeting
 within 7 (Seven) days of Constitution of Committee
 Resolve to appoint the Interim Resolution Professional as a
Resolution Professional (OR)
 Replace the Interim Resolution Professional by another
Resolution Professional.
Resolution Professional shall conduct the entire Insolvency
Resolution Process and manage the operations of the company
during the corporate Insolvency Resolution Process Period.
Resolution Professional shall exercise all such powers and duties
as are vested on the Interim Resolution Professional.
All Meetings of the Committee of Creditors shall be conducted
by the Resolution Professional
DUTIES OF RESOLUTION PROFESSIONALS
MEETING OF THE COMMITTEE OF CREDITORS
• Convene & attend all meetings
• Present all resolution plans at the meetings

DOCUMENTS
• Maintain an updated list of claims
• Prepare the information memorandum

RIGHTS
• Take immediate custody and control of all the assets including business
records of the company/LLP
• Represent and act on behalf of the company/LLP with third parties
REPLACEMENT OF RESOLUTION PROFESSIONALS
CoC to replace the Resolution Professional any time
during the pendency of IRP.
CoC may forward name of another Insolvency
Professional to the Adjudicating Authority
The Adjudicating Authority shall forward name of
proposed Resolution Professional to the Board for
confirmation
On confirmation being received from the Board,
appoint him as Resolution Professional
 COMMITTEE OF CREDITORS
The Interim Resolution Professional shall -

Collate all claims AND Determine of financial position

Constitute a Committee of Creditors– comprising of all Financial Creditors

All decisions of Committee taken by vote of not less than 75%

• Related Party:
• If no Financial Creditor, CoC shall exercise with functions.
• Shall not have any Right of Representation, Participation or
voting
• Position of Financial Creditor- Consortium Agreement :
- Each Financial Creditor shall be the part of Committee.
- Voting shares shall be on the basis of Financial
 COMMITTEE OF CREDITORS
Position of Financial Creditor when he is an Operational Creditor:
 shall be considered Financial Creditor to the extent of
Financial Debts;
 Voting Shares to the extent of Financial Debts;
 Operational Creditor to the extent of Operational Debt;
Assignment of Operational Debt
 If an Operational Creditor has assigned or legally
transferred any Operational Debt to a Financial Creditor, the
Assignee of Transferee shall be considered as an Operational
Creditor to the extent of such assignment or legal transfer.
 Determination of Voting Share by Financial Creditor
 IBC Board may specify the manner of determining of voting
share.
 RESOLUTION PLAN
 Preparation of Information Memorandum for formulating a Resolution Plan
 Providing to Resolution Applicant access to all relevant information
 Resolution Applicant will submit a Resolution Plan to the Resolution
Professional prepared as per Information Memorandum
 Examination of Resolution Plan
 Presentation of RP to CoC for Approval
 Submitting Resolution Plan to Adjudicating Authority
 Adjudicating Authority may by order approve the Resolution Plan;
 Moratorium Period ends
 R P will be binding on the Corp. Debtor, its Employees, Members, Creditors,
Guarantors & other Stakeholders
 If Resolution Plan not approved or
 Not ready within 180 days or
 Adjudicating Authority rejects the Resolution Plan
 It will pass a Liquidation Order.
 R P will act as a Liquidator and all the powers of the Board of Directors will
vest with the Liquidator
 WATERFALL MECHANISM UNDER IBC
The following debts will be paid in PRIORITY given below:

Insolvency Resolution Cost & Liquidation Cost;

Debts to Secured Creditor (who have relinquished their security interest) &
Workmens’ dues (for 24 months before commencement);

Wages & Unpaid Dues to employees (other than workmen) (for 12 months
before commencement);
Financial Debts to Unsecured Creditors;
Workmen’s Dues for earlier period;
Crown Debts and Debts to Secured Creditor following Enforcement of Security
Interest;

Remaining Debts;

Preference Shareholders;

Equity Shareholders or partners.

 NEW INSTITUTIONS
INSOLVENCY & INSOLVENCY
INFORMATION
BANKRUPTCY PROFESSIONAL
UTILITY
BOARD OF INDIA AGENCY
KEY BENEFITS
Time bound settlement of Insolvency.

Banks & Asset reconstruction

companies immediate gainers

Comprehensive coverage- Companies,

LLP, Individuals & more can be added

Database of Serial Defaulters

Protect workers
 CHALLENGE
Not a Magic – Benefits follow after 3-5 years from now.
 To create Large pool of Insolvency Professionals.
 Draft Procedural Rules for
Insolvency Professionals
Information Utilities
 Establishment of several new institutional mechanisms.
 High value of Performance Bond
 Order of priority to Distribute Assets
Secured Creditors – why not upto Collateral Value?
Unsecured creditors have priority over Trade Creditors?
Government Dues – after unsecured creditors ?
 Formation of Multiple Information Utilities – Information about a
Company may not be available through a Single IUs
Insolvency & Bankruptcy Fund- manner of usage of the Fund ?
 PROFESSIONAL AVENUE
Interim Resolution Professional
Resolution Professional
To prepare Resolution plan
To Represent
- Financial Creditor;
- Operational Creditor;
- Corporate Debtor
before NCLT- DRT & NCLAT- DRAT
To represent the Winding Up cases before the
Tribunal
To prepare scheme & seek approval from Tribunal for
Revival & Rehabilitation of Sick Cos.
STATISTICS
 LANDMARK DECISIONS
Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment
Managers LLP (Supreme Court Judgment dated 24 th July 2017)

• Inherent powers under Article 142 of the Constitution invoked to permit parties to
withdraw application post settlement

Innoventive Industries Ltd. vs. ICICI Bank (Supreme Court Judgment dated 31 st August
2017)
• Supremacy of the Code over other laws
• Application by financial creditor will have to be admitted once the debt was proved to
be “due”
• On appointment of a resolution professional, an erstwhile director of the corporate
debtor cannot file a petition on behalf of the company
• Who may prefer an appeal on behalf of the corporate debtor against an order of
admission of an insolvency application?
 Mobilox Innovation Pvt. Ltd. vs. Kirusa
Software Pvt. Ltd. (Supreme Court
Judgment dated 21st September 2017)
Surendra Trading Company vs.
Juggilal Kamalpat Jute Mill Company
• Insolvency Bill of 2015 included the
Limited & Ors. (Supreme Court
term “bonafide” in the definition of
Judgment dated 19th September 2017)
dispute, the same was omitted in the
Code
• Held that the time limit of 7 days
• Scope of “dispute” was inclusive and
for removing defects is directory
not exhaustive
[provisos to Sections 7(5) and 9 (5)]
• Once existence of a “real dispute” was
established, the petition will have to be
rejected by the NCLT
Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited (Supreme Court

Judgment dated 15th December 2017)

• Requirement to deliver a demand notice / invoice of unpaid operational debt

mandatory

• Requirement to file an affidavit or certificate from financial institution only

directory

• Procedural hurdles should not be imposed on creditors; domestic and foreign

creditors ought not to be discriminated

• Demand notice can be issued by an advocate

 Overview of the IBC amendment Ordinance, 2018…
IS LIMITATION ACT
APPLICABLE?
Neelkanth Township and Construction Pvt. Ltd.
vs. Urban Infrastructure Pvt. Ltd. (Supreme
Court Order dated 23rd August 2017)

• The question of limitation was left open

Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd.

(NCLAT Judgment dated 17th October 2017)

• Right to apply under the Code would accrue only on

1st December, 2016 when the Code came into force
Is Limitation Act applicable to Tribunals?
Ref: M.P. Steel Corporation vs. Commissioner of Central Excise (Supreme Court Judgment

dated 23rd April 2015)

• Bar of limitation applies to suits, appeals and applications before “Courts” and not quasi-

judicial bodies (those that are part of judicial branch of the State)

Post Amendment Ordinance, 2018:

Section 238A: Limitation Act, 1963 applies to proceedings or appeals before AA, NCLAR,
DRT and DRAT
 HOME BUYERS AS FINANCIAL CREDITORS

• Assocham Report - RERA as growth

KEY OBSERVATIONS OF THE
INSOLVENCY COMMITTTEE: impetus: does the promise hold out
• “Time value” interpreted to mean on the ground?
price paid for the length of time for
which the money has been disbursed • RERA regulates and formalizes real
• Insolvency Law Committee opined
estate sector; IBC restructures or
that monies so raised are a tool for
liquidates the business
raising finance for the project
• Homebuyers to be treated on par
• Apex Court steps in to secure
with other financial creditors
homebuyers’ rights
Post Amendment Ordinance, 2018:

Sec. 5(8): Financial debt

……….
(f) any amount raised under any other transaction, including any forward sale or
purchase agreement, having the commercial effect of a borrowing;

Explanation. - For the purposes of this sub-clause,- (i) any amount raised from an
allottee under a real estate project shall be deemed to be an amount having the
commercial effect of a borrowing; and…..”

Sec. 21: Committee of Creditors

……….
(6A) provides for manner of representation for other classes of creditors.

Clarifications required

Whether secured or unsecured creditors?

Whether commercial real estate buyers are included?
 GUARANTORS UNDER IBC

Alpha & Omega Diagnostics (India)

Ltd. vs. ARCIL (NCLAT Judgment dated
31st July 2017)

Post Amendment Ordinance, 2018:

• Moratorium is applicable only on the
assets of the corporate debtor that
are reflected in the balance sheet
• No moratorium can be claimed on
the assets of the guarantor
• Section 5(5A): corporate guarantor
defined
• Section 14: moratorium to not
apply to a surety in a contract for
guarantee to a corporate debtor
 PROMOTERS UNDER IBC

Section 29A of the IBC

(as amended on 18th January, 2018)

(In)Eligibility criteria:

• Layer 1 – the “person” is ineligible (wilful defaulter, disqualified director, etc.)

• Layer 2 – connected person is ineligible (promoter of a company in which

preferential or undervalued transactions have taken place and order made under
Code by Adjudicating Authority, etc.)

• Layer 3 – related party of a connected person

• Layer 4 – person acting jointly / in concert with a person under the above 3 layers
of ineligibility
In the matter of Synergies Dooray Automative Limited (Hyderabad NCLT Order dated
2nd Aug. 2017
1st Resolution Plan approved under the Code
 Synergies Castings Assigned 92.93% of its Millennium Finance
Limited debt holding in SDAL Limited (NBFC)

• In 2005, Synergies Dooray’s (SDAL) lenders approved leasing out of company assets to

Synergies Castings for 4 years

• SDAL declared sick company in 2007 - lenders assigned their debts (93% of borrowings)

to Synergies Castings in 2008 and 2011

• 92.93% of the debts assigned by Synergies Castings to NBFC, two days prior to

Government notifying that SICA would be repealed

• SDAL filed an Application under Sec. 10 of IBC for initiating CIRP

• Post assignment of the debt, NBFC got a seat in the CoC with more than 75%
voting share
• EARC objected to the assignment agreements – questionable
• RP submitted that resolution plan was in accordance with the Code
• Resolution plan was admitted by NCLT with certain conditions

• APPEAL FILED BY EARC PENDING IN THE NCLAT

Examples where the bar derailed insolvency process:
• Promoter of JSW Steel
• VTB Bank led Numetal (Rewant Ruia, member of
related to promoter of
Ruia family of Essar) rendered ineligible to bid for
Monnet Ispat, for which
Essar Steel
JSW-AION Capital
submitted their bid to take
• ArcelorMittal ineligible to bid for Essar Steel as
over the company, which
Lakshmi Mittal (since dropped his name as
was approved by the CoC.
promoter) was one of the promoters (while not in
management) of KSS Petron and Uttam Galva.
[neither JSW not Monnet
invested in each other
[provided all defaulting accounts of respective NPAs
companies]
are regularized before submission of resolution plan]
Post Amendment Ordinance, 2018:

Section 29A:

• Ineligible to submit resolution plan if at the time of submission of plan has

an NPA

• The clause does not apply to persons who have acquired NPA pursuant

to resolution plan approved under IBC, for a period of 3 years from the

date of such approval

Sec. 5(24A):

• Related party in relation to an ‘”individual” defined