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Ankur Saboo, Legal Associate at Starlog Enterprises Limited]

I & B code is the codification of laws and its one of its kind which inter- alia shifts the control of the management of corporate persons as well as other persons defined under the Code from debtor driven to creditors driven.

Steps Involved as per latest amendments and judicially settled issues are:

Application for initiation of Corporate Insolvency Resolution Process (CIRP) can be filed by following persons:

Financial Creditor, Operational Creditor and Corporate Debtor.

Default:

The minimum amount of the default shall be one lakh rupees or more for matters relating to insolvency and liquidation.

Types of Creditors:

There are three types of creditors:  Operational Creditor (including workmen and employees), Financial Creditors and creditors who do not come under the previous two categories. The third type of category of the creditors implied to be taken as the creditors as per the notification issued by the Insolvency and Bankruptcy Board of India via its Press release dated 16th August, 2017 as The Insolvency and Bankruptcy Board of India has amended these regulations to provide for a form (Form F) for submission of claims by creditors other than financial and operational creditors. It is still not clarified whether this third type of creditor can initiate CIRP proceedings before the NCLT.

Filing of Application by financial Creditors:

  • A financial creditor either by itself or jointly with other financial creditors may file an application for initiating CIRP.
  • The application before Adjudicating Authority has to be filed under Section 7 of the Insolvency & Bankruptcy Code, 2016.
  • The Adjudicating Authority has to, within fourteen days of the receipt of the application either admit or reject the application.

Filling of Application by Operational Creditors:

  • The application before Adjudicating Authority has to be filed under Section 9 of the Insolvency & Bankruptcy Code, 2016.
  • A mandatory demand notice to be served by an operational creditor to the corporate debtor demanding repayment of the operational debt in respect of which the default has occurred. Some of the key provisions brought in by the code as well as settled proposition by the Adjudicating Authorities regarding structure and mode of serving of demand notice are as follows:-
  • It is mandatory for the operational creditor to deliver the demand notice in Form- 3 or invoice attached with the notice in Form-4.
  • There is a provision of sending the notice by electronic mail to be serviced to a whole time director or designated partner or key managerial personnel, if any, of the corporate debtor in addition to the traditional method of servicing of the notice. This added-on method shall expedite the process.
  • Aforesaid notice shall be sent by the person who holds any position with or relation to the ‘operational Creditor’. Thus persons independent of the operational creditor such as advocate/ lawyer or Chartered Accountant or a Company Secretary or any other person in absence of any authority and not holding any position or relation with operational creditor cannot issue the demand notice under Section 8 other code.
  • All the propositions hereinabove stated have also been well settled by Hon’ble NCLAT, Delhi in the matter Macquarie Bank Limited v/s Uttam Galva Metallics Limited.

 

  • Filing of a copy of certificate from the Financial Institution maintaining accounts of the ‘Operational Creditor’ confirming that there is no payment of unpaid operational debt by the ‘Corporate Debtor’ prescribed under clause (c) of sub-section (3) of Section 9 of the Code is to be mandatory followed. (NCLAT in the case of Smart Timing Steel Ltd. v/s National Steel and Agro Industries Ltd.)
  • In the case of Vertiv Energy Private Limited v/s Tecro Systems Limited, in view of the section 11 of the code, it was held that the operational creditor has to become member of the committee of creditor for its claim if he may desire. The separate application under 9 of the code shall not be entertained.

 

Filling of Application by Corporate Debtor:

In addition to the creditors as mentioned above, corporate debtor by its own can also file application for initiation of corporate resolution process under section 10 of the Code.

Proceedings before NCLT:

  • The ‘adjudicating authority’ is duty bound to give a notice to the corporate debtor before admission of a petition under Section 7 or Section 9, a part of rules of natural justice, as stipulated under Section 424 of the Companies Act, 2013. (A well settled proposition in the case of M/s Innoventive Industries Ltd. v/s ICICI Bank subsequently was reiterated in the case of Starlog Enterprises Limited v/s ICICI Bank by Hon’ble NCLAT).
  • The Adjudicating Authority has to, within fourteen days of the receipt of the application either admit or reject the application.
  • In case of financial application by financial creditor, occurrence of default has to be ascertained and satisfaction shall be recorded by the Adjudicating Authority.
  • In case of operational Creditor, the adjudicating shall see that there is no existence of dispute before filling of the application. If there is, the corporate debtor shall bring it to the notice of operation creditor within 10 days of receipt of the demand notice.
  • After admitting the petition, NCLT inter- alia shall declare moratorium till the resolution process is completed, confirm or refer to the IBBI Board for the name of the IRP, direct public notice along with the submission of claims.

Appointment of Interim Resolution Professional:

In case of financial creditor/ corporate debtor: It is mandatory on the part of the financial creditor that along with the application furnishes the name of the resolution professional proposed to act as an interim professional.

In case of operational creditor: Operational Creditor may or may not furnish the name of the resolution professional proposed to act as an interim professional.

However, Adjudicating Authority shall appoint an interim resolution professional within fourteen days from the insolvency commencement date i.e. name proposed by the financial creditor/ corporate debtor and operational creditor if no disciplinary proceedings are pending against the IRPs. In case of no name of IRPs proposed by the operational creditors, the adjudicating authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional. Consequently, the Board shall, within 10 days of the receipt of such reference from the Adjudicating authority recommend the name of the insolvency professional which shall be appointed as the adjudicating authority.

The term of IRP shall not exceed thirty (30) days from date of his appointment. The same or replaced IRP (by committee of creditors) shall be appointed as resolution professional (RP).

Public Announcement:

Public announcement of the CIRP shall be immediately made as will be directed by the Adjudicating authority after admission of the Application.

Submission of Claims:

The financial creditors shall submit their proof of claims by electronic means only. All other creditors may submit the proof of claims in person, by post or by electronic means.

Formation of committee of creditors:

The committee of creditors (COC) shall be constituted by the IRPs and the first meeting of the COC shall take place within a period of seven days of its constitution.

Appointment of Resolution Professional:

The committee of creditors may, in the first meeting either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.

Preparation of Information Memorandum:

Resolution Professional shall prepare information Memorandum as per the code.

Preparation of Resolution Plan:

Resolution plan can be proposed by any person for insolvency resolution of the corporate debtor and shall submit it to the resolution professional. For this purpose, he shall be termed as “Resolution Applicant”.

The Resolution Professional shall present all the resolution plans before the committee of creditors and shall be subject to their approval fulfilling the requisite majority.

Time- line for completing corporate resolution process:

The corporate resolution process shall be completed in 180 days from the date the petition is admitted. However, if the resolution to extend the process of resolution process beyond 180 days but not more than 90 days passed by committee of creditors having a vote of seventy-five per cent of the voting shares, such extension shall be valid and no other such extension can be granted thereafter.

Liquidation:

If the resolution plan is put before the Adjudicating authority after the dead line or not in the manner prescribed under the Code may pass an order requiring the corporate debtor to be liquidated. It is interesting to note that during the existence of resolution process also, the committee of creditors may take direction from NCLT to liquidate the Corporate Debtor. The resolution professional will automatically perform the duties of the liquidator if not replaced. Proceeds from the sale of the liquidation assets shall be distributed in order of priority mentioned under the code.

Dissolving the Corporate Debtor:

Upon the assets of corporate debtor completely liquidated and the liquidator making an application, the NCLT shall pass an order dissolving the corporate debtor.

 


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