Mechanism for Corporate insolvency Resolution Process under Insolvency and Bankruptcy Code 2016

In the economic scenario where debt repayment has become such a big issue that creditors were going into depression due to blocked money and multiple legal proceedings for so many years, the Insolvency and Bankruptcy Code, 2016 has come as a relief.

It is positive sign that the Government has realized that without giving a comprehensive mechanism for every probability of business, one cannot attract people to take risks and the "Make in India" dream cannot be fully realized without giving easy exit option in case of failure.

This Code in its different Parts provide the provision for application for insolvency and bankruptcy of fresh start ups, individuals, partnership firms, LLPs and Companies. The Code specifies the lower and upper financial limit of default with proviso that the Central Government may, by notification, specify the exact amount of default which shall not be more than the higher limit of an amount specified in relevant clause. In other words, the Code has specified a slab of default amount in every category and keeping in view the fluctuation of economy, final amount is to be notified by the Government as the trigger point to initiate the proceeding. One has to understand that the amount given in the Code is a "range" not the minimum and maximum fixed amount of debt default.

The objective of this law to ruled out the situation where the creditor is unable to get repaid and also if debtor has ended up in wrong business and wants to exit to start a fresh, he cannot do because of long and lengthy legal procedures. After this Code debtor and creditor anyone can apply for the initiating the process subject to the provisions for the initiation of the process in their relevant category. In general, one who has committed a default can personally apply or he can apply through resolution professional. In case of firm, majority of the partners of the firm has to file the application jointly. In case of individual and partnership firm application need to be filed before Debt Recovery Tribunal (DRT) for initiating the insolvency resolution process.

In the corporate matters, if any debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself can initiate the corporate insolvency resolution process. An operational creditor is expected to deliver demand notice of unpaid operational debt with copy of an invoice demanding payment of the amount involved in the default to the corporate debtor and if he does not receive payment within ten days of the service of the notice, he can file the application. The financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the National Company Law Tribunal (NCLT) having territorial jurisdiction over the place where the registered office of the corporate person is located when a default has occurred. The creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. Within fourteen days of the receipt of the application, the Adjudicating Authority shall admit or reject the application and communicate such decision to the operational creditor. The date of admission of the application is the date of commencement of the process in this Code.

The Code make it mandatory that the interim resolution professional for corporate insolvency process shall be appointed within fourteen days of the admission and immediately after appointment the moratorium will begin. Management of the affairs of corporate debtor will vest in the interim resolution professional. Further there is provision for public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims. It is duty of the interim resolution professional to collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor and to make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern. The interim resolution professional has duty to constitute a committee of creditors, which shall comprise all financial creditors of the corporate debtor after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor. The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors, which in the first meeting, by a majority vote of not less than seventy- five percent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.

It is duty of the resolution professional to prepare an information memorandum, then the resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of the information memorandum. The resolution professional will examine the plan and then will present the same to the committee of creditors for their approval, which has to be approved by vote of not less than seventy five percent of voting share of the financial creditors. Once it is approved the resolution professional shall submit the resolution plan to the Adjudicating Authority, who can accept or reject the plan after examination.

If an adjudicating authority rejects the plan or does not receive the plan after specified time period, the process of liquidation will be initiated. There is provision for appeal in case of rejection of the resolution plan. It is also provisioned that the resolution professional appointed for the corporate insolvency resolution process shall act as the liquidator for the purposes of liquidation where the Adjudicating Authority has passed an order for liquidation of the corporate debtor.

Any person aggrieved by the order of the Adjudicating Authority can go for appeal within 30 days to the National Company Law Appellate Tribunal or Debt Recovery Appellate Tribunal as the case may be. There is provision for appeal against the order of the Appellate Tribunal, which lies in the Supreme Court, which shall be filed before forty five days although the Hon'ble Supreme Court has discretion to condone delays as per its own discretion.

In addition to the aforesaid situation of debt default, a corporate person who intends to liquidate itself voluntarily and has not committed any default can also initiate voluntary liquidation proceedings under this Code. Therefore one can say that this Code has made provision for ensuring debt repayment and provided viable options for the same in a certain timeline.

1. Advocate-on-Record, Supreme Court of India, formerly Assistant Professor, National Law School of India University, Bangalore. Suggestions are invited at swarupama@gmail.com