CRI Part 2 - CS Vaibhav Chitlangia - Yes Academy, Pune

Corporate Restructuring,
Insolvency,
Liquidation
and
Winding Up
4th Edition
- CS Vaibhav Chitlangia
INDEX
Ch. No. Chapter Page Nos.
14 Insolvency 14.1 – 14.37
15 Petition for CIRP 15.1 – 15.14
16 Role, Functions and Duties of IP / IRP / 16.1 – 16.24

RP
17 Resolution Strategies 17.1 – 17.10
18 Committee of Creditors 18.1 – 18.11
19 Preparation and Approval of Resolution 19.1 – 19.16

Plans
20 Individual Insolvency 20.1 – 20.12
21 Fresh Start Process 21.1 – 21.12
22 Securitisation and Debt Recovery 22.1 – 22.69
23 Cross Border Insolvency 23.1 – 23.34
24 Liquidation on Failure of CIRP 24.1 – 24.25
25 Voluntary Liquidation 25.1 – 25.13
26 Winding Up on the order of NCLT 26.1 – 26.22
27 Pre Packaged Insolvency Resolution 27.1 – 27.10

Process
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CH 14 - INSOLVENCY
WHAT IS INSOLVENCY? HOW IS IT DIFFERENT FROM BANKRUPTCY
Insolvent means a person who is unable to pay his/her/its debts as they become due in the ordinary
course of business. Insolvency is “the state of one whose assets are insufficient to pay his debts.”
Other than cases of outright fraud, the debtor may be insolvent because of the following cases-
• Financial failure - a persistent mismatch between payments by the enterprise and receivables
into the enterprise, even though the business model is generating revenues, or
• Business failure - which is a breakdown in the business model of the enterprise, and it is unable
to generate sufficient revenues to meet payments. Often, an enterprise may be a successful business
model while still failing to repay its creditors.
The word Bankruptcy has its roots in the trade that was carried out on Ponte Vecchio, a medieval
segmental arch bridge, in Florence, Italy. In medieval Italy, if a banker, who conducted his
marketplace transactions on a bench, was unable to meet business obligations and was in debt,
his bench was broken in a symbolic show of failure and his inability to continue.
CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.1

Insolvency Bankruptcy
Bankruptcy is the legal status accorded to
 Insolvency is the State of not being able to 
such people
repay one’s debts
It is a formal declaration of insolvency in
 It is merely a situation and can be used in 
accordance with the law of the land
respect of individuals as well as corporates.
Bankruptcy Liquidation
 Liquidation means closure or winding up
 Section 79(4) of the Insolvency and
of a corporation or an incorporated entity
Bankruptcy Code, 2016 defines the term
through legal process.
“bankruptcy” as the state of being
 In liquidation process, the assets of the
bankrupt.
corporate body are sold and its liabilities
 Under the IB Code, 2016, “bankrupt” means
are discharged
 a debtor who has been adjudged as
 Liquidation results in the dissolution of
bankrupt under section 126
the company by virtue of which, the
 each of the partners of a firm, where
company ceases to exist.
a bankruptcy order under section 126
has been made against a firm
 any person adjudged as an
undischarged insolvent.

The bankruptcy process begins with filing of a petition in a court or before an appropriate authority
designated for this purpose. The debtor’s assets are then evaluated and used to pay the creditors in
accordance with law.
INSOLVENCY FRAMEWORK IN UK, USA AND INDIA
United Kingdom – Historical Development
In England, the Act of Parliament of 34 & 35 Henry VIII, c4 is regarded as the first legislation on
the subject. Promulgated in 1542 under the reign of Henry VIII, it was a strict and creditor supportive
legislation enacted mainly for the benefit of creditors. This Act of 1542, was in fact akin to a
criminal statute directed against men who indulged in wasteful expenditures and then refused to pay
off debts incurred during the course of extravagance. The 1542 Act looked upon the debtors as
offenders. There was no provision for the discharge of debtors and even future earnings of the
debtors were not exempt from execution for the debt.
In the beginning of the eighteenth century, these strict and creditor supportive medieval laws began
to lose its punitive nature. That is why a few authors maintain that the first real bankruptcy laws
in England were 4 Anne, c. 17(I705), and 10 Anne, c.15(1711) as unlike earlier statutes which looked
upon debtors as offenders. The highlighting feature of the Statutes of Anne was the discharge of
the bankrupt who conformed to the provisions of the law. While the additional rights given to the
bankrupt under the 1705 Act were significant yet the Act was passed for the sole benefit of the
creditors.
Current Scenario
In contrast to the above, the primary focus of modern insolvency laws is not elimination of insolvent
entities but on their rehabilitation and continuation of their business. The Current Regulatory
Framework in UK The Insolvency Act, 1986 and the Insolvency Rules, 1986 regulate the insolvency
framework is the United Kingdom. The Insolvency Act, 1986 was enacted on the recommendation of
the Cork Review Committee Report on Insolvency Law and Practice (1982). Prior to the enactment

of the Insolvency Act, 1986, the law relating to insolvency in the UK was fragmented and was
contained in the Bankruptcy Act, 1914, the Deeds of Arrangement Act, 1914, the Companies Act,
1948 and parts of the County Courts Act, 1959. They Acts were supplemented by the principles of
common law and equity.
Features of the Act of 1986
The Act of 1986 consolidated the following –

• enactments relating to company insolvency and winding up,
• enactments relating to the insolvency and bankruptcy of individuals, and
• all other enactments bearing on these two subject matters, including the functions and qualification
of insolvency practitioners, the public administration of insolvency, the penalisation and redress of
malpractice and wrong doing, and the avoidance of certain transactions at an under value.
The Insolvency Act, 1986 deals with the insolvency of individuals and companies and is divided into
the following three groups.
• Group 1 deals with Company Insolvency;
• Group 2 deals with Insolvency of Individuals; and
• Group 3 deals with Miscellaneous Matters Bearing on both Company & Individual Insolvency.
Further, the Insolvency Act, 1986 introduced the following three new procedures in order to explore
the possibility of bringing a burdened company back to life as a viable entity –
1. Company Voluntary Arrangements’ (CVAs)- It provides away where a company in financial

difficulty can come to a binding agreement with its creditors. It is are negotiation by a
company of the payments due to all of its creditors, or other form of financial restructuring,
and is subject to creditors meeting and approval of 75% of the creditors present and voting.
2. ‘Administration’- In this second option, an administrator is appointed by a court to suggest
proposals to deal with the company’s financial difficulties. This option offers companies a
breathing space as the creditors are restrained from taking any action during this period. It
is designed to hold a business together while plans are formed, either to put in place a

financial restructuring plan to rescue the company, or to sell the business and assets, to
produce better results for the creditors, than a liquidation.
3. ‘Administrative Receivership’- This third option permits the appointment of a receiver by
certain creditors (normally the holders of a floating charge).
United States of America – Historical Development
America followed the English bankruptcy system and like the UK system, American bankruptcy laws
involved imprisonment until debts were paid or creditors agreed for the release of the debtor. There
was no uniform law in America as bankruptcy laws differed from State to State. Some of these
American states became in famous as debtor’s havens because of their unwillingness to enforce
commercial obligations.
Article I, Section 8, Clause 4 of the United States Constitution as adopted in the year 1789, made
provision for the grant to Congress the power to establish uniform bankruptcy law through out the
United States. The Congress enacted temporary bankruptcy statutes in 1800, 1841 and 1867 to deal
with economic recessions. The Acts of 1800 and 1841 vested jurisdiction in the federal district courts.
The district court judges were given the power to appoint commissioners or assignees to take charge
of and liquidate a debtor’s property. However, these laws were temporary measures and were repealed
as soon as economic conditions stabilized.
There was not a permanent bankruptcy law in the United States of America until 1898, when the
National Bankruptcy Act was enacted. This Act of 1898 was later amended in 1938 to provide for
the rehabilitation of a debtor as an alternative to liquidation of assets. The National Bankruptcy Act,
1898 governed bankruptcy in the United States for 80 years until 1978, when after a thorough review
of the then existing law and practice, the Bankruptcy Reform Act, 1978 was enacted. The Bankruptcy
Reform Act, 1978 superseded the National Bankruptcy Act, 1898 and established bankruptcy courts
in each district and made provisions for the appointment of separate bankruptcy judges.

Current Scenario
“Bankruptcy Code”, a federal law, governs bankruptcy in the United States of America. It is a
uniform federal law that governs all bankruptcy cases in America. The Bankruptcy Code was enacted
in 1978.
The procedural aspects of the bankruptcy process are governed by the Federal Rules of Bankruptcy
Procedure (Bankruptcy Rules). Six basic types of bankruptcy cases are provided for under the
Bankruptcy Code.
1. Chapter 7 titled “Liquidation” - In Chapter 7 Bankruptcy, a court-appointed trustee or

administrator takes possession of non-exempt assets, liquidates these assets and then uses
the proceeds to pay creditors. He shall be accountable for all the property received and has
the right to investigate the financial affairs of the debtor. He shall also file accounts of the
administration of the estate with the United States Trustee and the Court.
2. Chapter 9 titled “Adjustment of Debts of a Municipality” - Chapter 9 Bankruptcy proceedings
provides for reorganization which is available to municipalities. In Chapter 9 Bankruptcy
proceedings a municipality (which includes cities, towns, villages, counties, taxing districts,
municipal utilities, and school districts) get protection from creditors and a municipality can
pay back debt through a confirmed payment plan.
3. Chapter 11 titled “Reorganization” - Unlike Chapter 7 where the business ceases operations
and a trustee sells all of its assets, under Chapter 11 the debtor remains in control of its
business operations and repay creditors concurrently through a court-approved reorganization
plan. Generally, it is a debtor in possession regime. Section 1106 of the Bankruptcy Code
requires the trustee, where appointed, to file a plan “as soon as practicable” or, alternatively,
to file a report explaining why a plan will not be filed or to recommend that the case be
converted to another chapter or dismissed.
4. Chapter 12 – This chapter added to the Bankruptcy Code in 1986. It allows a family farmer
or fisherman to continue to operate the business while the plan is being carried out.
5. Chapter 13 – This chapter enables individuals with regular income to develop a plan to repay
all or part of their debts.

6. Chapter 15 – This part was added to the Bankruptcy Code in 2005. It provides mechanism
for dealing with insolvency cases involving debtors, claimants and other interested parties
involving more than one country. Under Chapter 15 are presentative of a corporate bankruptcy
proceeding outside the country can get access to the United States courts.
HISTORICAL DEVELOPMENTS OF INSOLVENCY LAWS IN INDIA
India, being a common law country and a British Colony in the past, has its law influenced to a
great extent by the laws prevailing in the United Kingdom. Accordingly, a lot of influence of the
English legal system can be seen in the history of the Insolvency laws in India.
The following chart traces the history of the development of insolvency laws in India –

GOVERNMENT COMMITTEES ON BANKRUPTCY REFORMS
Over years, various Committees were formed by the Government to look into the laws related to
banking and insolvency and suggest measures for the same. These Committees have all contributed
in some way or another in the formulation of the Insolvency and Bankruptcy Code, 2016. Some of
these important Committees were –
Committee Year Recommendation

Tiwari Committee 1981 Enactment of the Sick Industrial Companies
(Special Provisions) Act, 1985, (SICA)
Narsimha Committee I 1991 Enactment of the Recovery of Debts Due to

Banks and Financial Institutions (RDDBFI)
Act, 1993
Narsimha Committee II 1998 Enactment of Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest Act
(SARFAESI), 2002
Justice Eradi Committee 1999 Recommended setting up of a National
Company Law Tribunal (NCLT)
N L Mitra Committee 2001 Proposed a comprehensive bankruptcy code
J J Irani Committee 2005 Proposed significant changes to make the
restructuring and liquidation process speedier,
efficient and effective and accordingly
amendments were made to (RDDBFI) Act,
1993 and (SARFAESI), 2002
Bankruptcy Law Reform 2014 Reviewed the existing bankruptcy and

Committee insolvency framework in the country and
proposed the enactment of Insolvency and
Bankruptcy Code as a uniform and
comprehensive legislation on the subject

WHY NEW LAW?
It is not true to say that India did not have any law dealing with Insolvency before the enactment
of the Insolvency and Bankruptcy Code, 2016. However, the legal framework in that respect was
scattered and extremely inefficient.
Following are the reasons that can be attributed to the need of a new law for insolvency in India–
 There were multiple overlapping laws and adjudicating forums dealing with financial failure and
insolvency of companies and individuals
 The framework did not provide the lenders an effective and timely way of recovery or
restructuring of defaulted assets and caused undue strain on the Indian credit system.
 Individual bankruptcy and insolvency was dealt with under the Presidency Towns Insolvency Act,
1909, and the Provincial Insolvency Act, 1920, which are both about a century old legislations.
 The liquidation of companies was handled under various laws and different authorities.
 None of the laws provided for a strict time frame within which the process to resolve insolvency
was to be completed
As per World Bank data in 2015, insolvency resolution in India took 4.3 years on an average, which
was way higher when compared to other countries such as United Kingdom (1 year) and United
States of America (1.5 years). These delays were caused due to time taken to resolve cases in
courts, and confusion due to a lack ofclarity about the current bankruptcy framework.
Keeping in mind these shortcomings of the previous legislation, the Insolvency and Bankruptcy
Code, 2016 was enacted with an objective to
“consolidate and amend the laws relating to reorganization and insolvency resolution of corporate
persons, partnership firms and individuals in a time bound manner.”
Note - Under the Constitution of India ‘Bankruptcy & Insolvency’ is provided in Entry 9 of List III
(Concurrent List) in the Seventh Schedule to the Constitution. Hence both the Centre and State
Governments are authorised to make laws on the subject.

INSOLVENCY AND BANKRUPTCY CODE, 2016 – AN INTRODUCTION
The Ministry of Finance had constituted a Committee called the “Bankruptcy Law Reform
Committee” which drafted the Insolvency and Bankruptcy Code, 2016.
The Code was introduced in the Lok Sabha on 21 December, 2015 and was subsequently referred to
a Joint Committee of Parliament. The Committee submitted its recommendations and the modified
Code was passed by the Lok Sabha on 5 May, 2016. The Code was passed by Rajya Sabha on 11
May, 2016 and it received the presidential assent on 28 May 2016. The Code was notified in the
Official Gazette on 28 May, 2016.
Key Objectives of the Insolvency and Bankruptcy Code, 2016
 To consolidate and amend the laws relating to reorganisation and insolvency resolution of
corporate persons, partnership firms and individuals
 To provide for a time bound insolvency resolution mechanism
 To ensure maximisation of value of assets
 To promote entrepreneurship
 To increase availability of credit
 To balance the interests of all the stakeholders including alteration in the order of priority of
payment of Government dues
 To establish an Insolvency and Bankruptcy Board of India as a regulatory body
 To provide procedure for connected and incidental matters
Salient features of the Code are –
1. Clear, coherent and speedy process for early identification of financial distress and resolution
of companies and limited liability entities if the underlying business is found to be viable.
2. Two distinct processes for resolution of individuals, namely- “Fresh Start” and “Insolvency
Resolution”.

3. Debt Recovery Tribunal and National Company Law Tribunal to act as Adjudicating Authority
and deal with the cases related to insolvency, liquidation and bankruptcy process in respect
of individuals and unlimited partnership firms and in respect of companies and limited
liabilities entities respectively.
4. Establishment of an Insolvency and Bankruptcy Board of India to exercise regulatory oversight
over insolvency professionals, insolvency professional agencies and information utilities.
5. Insolvency professionals would handle the commercial aspects of insolvency resolution process.
Insolvency professional agencies will develop professional standards, code of ethics and be
first level regulator for insolvency professionals members leading to development of a
competitive industry for such professionals.
6. Information utilities would collect, collate, authenticate and disseminate financial information
to be used in insolvency, liquidation and bankruptcy proceedings.
7. Enabling provisions to deal with cross border insolvency.
ORGANISATION OF THE CODE
The Insolvency and Bankruptcy Code, 2016 consists of total 255 sections organised in 5 Parts.

Section 1 of the Code provides that the Central Government may appoint different dates for different
provisions of this Code and any reference in any such provision to the commencement of this Code
shall be construed as a reference to the commencement of that provision.
APPLICABILITY OF THE CODE
Section 2 of the Code provides that the provisions of the Code shall apply to :
 Any company incorporated under the Companies Act, 2013;

 Any other company governed by any special Act;
 Any Limited Liability Partnership;
 Such other body incorporated under any law, as the Central Government may by notification
specify;
 Personal guarantors to corporate debtors;
 Partnership firms,
 Individuals.
It may be noted that as per Section 238, Insolvency and Bankruptcy Code, 2016 has overriding effect
over other laws.
WHAT SETS THE CODE APART?
The following are some of the distinguishing factors which have led to the recognition of IB Code,
2016 as one of the most successfully drafted legislations in India –
1. Who may initiate the resolution process -
In case the defaulter is a Corporate Person, the Insolvency Resolution process can be initiated by–
a. The Financial Creditors

b. The Operational creditors
c. the Corporate Applicant

If the defaulter is an individual or a firm, the Resolution Process can be initiated by –
a. The Debtor
b. Any of the Creditors
2. Threshold to initiate Insolvency resolution process-
For Corporate Debtors (Including LLPs) – Minimum Default of Rs. 1,00,00,000/-

For Individuals/ Firms – Minimum default of Rs. 1,000/-
3. Processes envisaged in the Code for the resolution of insolvency –
For a Resolution Process under Part II of the Code (i.e., of a Corporate Person) –
Insolvency Resolution Process, during which the creditors assess the viability of debtor’s business
and the options for its rescue and revival.
Liquidation, in case the insolvency resolution process fails or financial creditors decide to wind up
and distribute the assets of the debtor.
For a Resolution Process under Part II of the Code (i.e., of an individual / firm)
a. Automatic Fresh Start
b. Insolvency Resolution
4. Time Limit for completion of the resolution process –
The Insolvency Resolution Process as envisaged under the Code is required to be completed within
180 days (subject to a one-time extension by 90 days) from the date of acceptance of application
by the NCLT.
However, the Insolvency and Bankruptcy Code (Amendment) Act, 2019 has laid down that the
corporate insolvency resolution process shall mandatorily be completed within a period of 330 days
from the insolvency commencement date. This shows that an overall limit of 330 days has been
imposed for the completion of the Resolution process.

5. Priority of claims for distribution of proceeds –
The Code envisages that he claims of different creditors / stakeholders shall be discharged in the
following order of priority –
1. fees of insolvency professional and costs related to the resolution process,

2. workmen’s dues for the preceding 24 months and secured creditors,
3. employee wages,
4. unsecured creditors,
5. government dues and remaining secured creditors (any remaining debt if they enforce their
collateral),
6. any remaining debt,
7. shareholders.
This shows that there has been a significant change in the order of priority in which claims are
discharged under the Code.
8. Other Provisions –
The Code specifies stringent penalties for certain offences such as concealing property in case of
corporate insolvency. The imprisonment in such cases may extend up to five years, or a fine of up
to one crore rupees, or both.
Further, in case of cross-border insolvency proceedings, the central government has been given the
power to enter into bilateral agreements and reciprocal arrangements with other countries to enforce
the provisions of the Code.
DIFFERENT FUNCTIONARIES UNDER THE CODE
The IB Code, 2016 provides for the establishment of a completely new Institutional Framework for
the smooth functioning of the Code. This includes the
 Insolvency and Bankruptcy Board of India (IBBI),
 Adjudicating Authorities (AAs),

 Insolvency Professionals (IPs),
 Insolvency Professional Agencies (IPAs) and
 Information Utilities (IUs)
The Insolvency and Bankruptcy Board of India (IBBI)
The Insolvency and Bankruptcy Board of India was established on 1st October 2016. It is a unique
regulator which regulates a profession as well as processes under the Code. Its role includes over
seeing the functioning of insolvency intermediaries i.e., insolvency professionals, insolvency
professional agencies and information utilities. The Board is responsible for implementation of the
Code that consolidates and amends the laws relating to insolvency resolution of corporate persons,
partnership firms and individuals in a time bound manner. The Board is empowered to frame and
enforce rules for various processes under the Code, namely, corporate insolvency resolution, corporate
liquidation, individual insolvency resolution and individual bankruptcy
IBBI is a body corporate having perpetual succession and a common seal, with power, subject to the
provisions of this Code, to acquire, hold and dispose of property, both movable and immovable, and
to contract, and shall, by the said name, sue or be sued.
Composition –
The Board shall consist of the following members who shall be appointed by the Central Government,
namely:
a. A Chairperson
b. Three members not below the rank of joint Secretary or equivalent, one of each to represent
the Ministry of Finance, the Ministry of Corporate Affairs and Ministry of Law, ex-officio.
c. One member to be nominated by the Reserve Bank of India, ex-officio.
d. Five other members to be nominated by the Central Government, of whom at least three
shall be the whole-time members.

The term of office of the Chairperson and members (other than ex officio members) is of five
years or till they attain the age of sixty-five years, whichever is earlier, and they are eligible for
reappointment.
Removal of Members –
The Central Government has the power to remove a member from office, after giving an opportunity
of being heard to the member, if he /she -
a. is an undischarged bankrupt as defined under Part III;
b. has become physically or mentally incapable of acting as a member;
c. has been convicted of an offence, which in the opinion of the Central Government involves
moral turpitude;
d. has, so abused his position as to render his continuation in office detrimental to the public
interest.
Powers and Functions of the Board –
Following are some of the functions of the IBBI -

a. Regulation of Information Utilities;
b. Regulation of Insolvency Professional Agencies and Insolvency Professionals;
c. Regulation making in specific areas about procedural details in the insolvency and bankruptcy
process & data collection, research and performance evaluation;
d. Regulating all matters related to insolvency and bankruptcy process.
e. Setting out eligibility requirements of insolvency intermediaries i.e., Insolvency Professionals,
Insolvency Professional Agencies and Information Utilities.
f. Regulating entry, registration and exit of insolvency intermediaries.
g. Making model bye laws for Insolvency Professional Agencies.
h. Setting out regulatory standards for Insolvency Professionals.
i. Register insolvency professional agencies, insolvency professionals and information utilities and
renew, withdraw, suspend or cancel such registrations.

j. promote the development of, and regulate, the working and practices of, insolvency
professionals, insolvency professional agencies and information utilities and other institutions,
in furtherance of the purposes of the Code.
k. Levy fee or other charges for carrying out the purposes of this Code, including fee for
registration and renewal of insolvency professional agencies, insolvency professionals and
information utilities.
l. Specify by regulations standards for the functioning of insolvency professional agencies,
insolvency professionals and information utilities.
m. Lay down by regulations the minimum curriculum for the examination of the insolvency
professionals for their
n. Carry out inspections and investigations on insolvency professional agencies, insolvency
professionals and information utilities and pass such orders as may be required for compliance
of the provisions of this Code and the regulations issued hereunder.
o. Monitor the performance of insolvency professional agencies, insolvency professionals and
information utilities and pass any directions as may be required for compliance of the
provisions of this Code and the regulations issued hereunder.
p. Call for any information and records from the insolvency professional agencies, insolvency
professionals and information utilities.
q. Publish such information, data, research studies and other information as may be specified
by regulations.
r. Collect and maintain records relating to insolvency and bankruptcy cases and disseminate
information relating to such cases.
s. Constitute such committees as may be required including in particular the committees laid
down in Section 197.
Section 196(3) states that the Board shall have the same powers as are vested in a civil court under
the Code of Civil Procedure, 1908, while trying a suit, in respect of the following matters, namely:
1. The discovery and production of books of account and other documents, at such place and
such time as may be specified by the Board.
2. Summoning and enforcing the attendance of persons and examining them on oath.
3. Inspection of any books, registers and other documents of any person at any place.

4. Issuing of commissions for the examination of witnesses or documents.
Insolvency Professionals (IP)
Insolvency Professionals (IPs) are required to act as intermediaries in the insolvency resolution
process. They are a class of regulated but private professionals having minimum standards of
professional and ethical conduct.
Under the Act, a resolution professional has to –
a. Be a member of any Insolvency Professional Agency (IPA)
b. Be registered as an Insolvency Professional with the IBBI
The IBBI has framed the IBBI (Insolvency Professional) Regulations, 2016 to regulate the working
of Insolvency Professionals
Functions and obligations of insolvency professionals –
To take such actions as maybe necessary and required in the following matters –
a. fresh start order process under Part III
b. individual insolvency resolution process under Part III
c. corporate insolvency resolution process under Part II
d. Individual bankruptcy process under Part III
e. liquidation of a corporate debtor firm under Part II.
Code of Conduct of the Insolvency Professionals –

a. To take reasonable care and diligence while performing his duties
b. To comply with all requirements and terms and conditions specified in the bye-laws of the
insolvency professional agency of which he is a member
c. To allow the insolvency professional agency to inspect his records
d. To submit a copy of the records of every proceeding before the Adjudicating Authority to the
Board as well as to the insolvency professional agency of which he is a member
e. To perform his functions in such manner and subject to such conditions as may be specified

Insolvency Professional Agencies (IPA)
Insolvency Professional Agencies are designated to regulate Insolvency Professionals. Their main
function is to conduct examinations to enrol Insolvency Professionals and enforce a code of conduct
for their functioning. These agencies enrol Insolvency Professionals, provide pre-registration
educational course to its enrolled members and enforce a code of conduct for their functioning. They
also issue ‘authorisation for assignment’ to the IPs enrolled with them.
Currently, there are 3 IPAs registered with the IBBI. They are –
a. ICSI Insolvency Professional Agency.
b. Insolvency Professional Agency of Institute of Cost Accountants of India.
c. Indian Institute of Insolvency Professional of ICAI.
Section 199 of the Code provides that save as otherwise provided in this Code, no person shall carry
on its business as insolvency professional agencies under this Code and enrol insolvency professionals
as its members except under and in accordance with a certificate of registration issued in this behalf
by the Board.
Functions of IPAs –
a. grant membership to persons who fulfil all requirements set out in its byelaws on payment
of membership fee
b. lay down standards of professional conduct for its members
c. monitor the performance of its members
d. safeguard the rights, privileges and interests of insolvency professionals who are its members
e. suspend or cancel the membership of insolvency professionals who are its members on the
grounds set out in its bye-laws
f. redress the grievances of consumers against insolvency professionals who are its members,
and
g. publish information about its functions, list of its members, performance of its members and
such other information as may be specified by regulations.

To regulate the working of Insolvency Professional Agencies, IBBI has framed the following
Regulations -
a. The Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of
Insolvency Professional Agencies) Regulations, 2016
b. The Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations,
2016
Information Utilities
The main duty of the Information Utilities (IUs) is to collect, collate, authenticate and disseminate
financial information. The purpose of such collection, collation, authentication and dissemination
financial information of debtors is to facilitate swift decision making in the resolution proceedings.
Obligations of Information Utility -
 create and store financial information in a universally accessible format

 accept electronic submissions of financial information from persons who are under obligations
to submit financial information
 accept, in specified form and manner, electronic submissions of financial information from
persons who intend to submit such information
 meet such minimum service quality standards as may be specified by regulations
 get the information received from various persons authenticated by all concerned parties
before storing such information
 provide access to the financial information stored by it to any person who intends to access
such information in such manner as may be specified by regulations
 publish such statistical information as may be specified by regulations
The Insolvency and Bankruptcy Board of India has framed the IBBI (Information Utilities)
Regulations, 2017.

Adjudicating Authority
The IB Code, 2016 provides for two Adjudicating Authorities. They are –
For Corporate Persons – National Company Law Tribunal

For Individuals and Firms – Debt Recovery Tribunal
Section 60(5) of the Code provides that notwithstanding anything to the contrary contained in any
other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to
entertain or dispose of –
a. any application or proceeding by or against the corporate debtor or corporate person;
b. any claim made by or against the corporate debtor or corporate person, including claims by
or against any of its subsidiaries situated in India; and
c. any question of priorities or any question of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate person
under this Code.
Section 63 of the Code excludes the jurisdiction of the civil courts. It provides that no civil court or
authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on
which National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal
(NCLAT) has jurisdiction under this Code.
Similarly, in case of individuals and partnership firms, section 79(1) of the Code provides that the
“Adjudicating Authority” for insolvency resolution and bankruptcy for individuals and partnership
firms is the Debt Recovery
Insolvency and bankruptcy Fund
The Code provides for the creation of an Insolvency and Bankruptcy Fund.
The Code provides that the following amounts should be credited to the fund-
a. Grants made by the Central Government for the purposes of the Fund

b. Amount deposited by persons as contribution to the Fund
c. Amount received in the Fund from any other source
d. Interest or other income received out of the investment made from the Fund.
It is further provided in the Code that a person who has contributed any amount to the Fund may,
in the event of proceedings initiated in respect of such person under the Code, make an application
to such Adjudicating Authority for withdrawal of funds not exceeding the amount contributed by it,
for making payments to workmen, protecting the assets of such persons, meeting the incidental
costs during the proceedings or such other purposes as may be prescribed.
Key Definitions and Concepts
Sections 3, 5 and 79 of the Insolvency and Bankruptcy Code, 2016 define important terms used in
the Code.
Section 3 - General Important Terms
Section 5 - Terms relating to Insolvency Resolution and Liquidation for Corporate Persons covered in
Part II.
Section 79 - Terms relating to Insolvency Resolution and Bankruptcy for Individuals and Partnership
Firms discussed in Part III.
Important Definitions under Section 3-
Section 3 states that unless the context otherwise requires,
“Claim” means – (a) a right to payment, whether or not such right is reduced to .
judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
(b) right to remedy for breach of contract under any law for the time being
in force, if such breach gives rise to a right to payment, whether or not such right is
reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or
unsecured [Section 3(6)].

“Corporate Person” means a company as defined in clause (20) of section 2 of the Companies Act,
2013, a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the
Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under
any law for the time being in force but shall not include any financial service provider [Section
3(7)].
“Corporate Debtor” means a corporate person who owes a debt to any person [Section 3(8)]
“Creditor” means any person to whom a debt is owed and includes a financial creditor, an operational
creditor, a secured creditor, an unsecured creditor and a decree holder [Section 3(10)].
“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.
“Default” means non-payment of debt when whole or any part or instalment of the amount of debt
has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case
may be [Section 3(12)].
“Financial Information”, in relation to a person, means one or more of the following categories of
information, namely:– (a) records of the debt of the person; (b) records of liabilities when the
person is solvent; (c) records of assets of person over which security interest has been created;
(d) records, if any, of instances of default by the person against any debt; (e) records of the
balance sheet and cash-flow statements of the person; and (f) such other information as may be
specified [Section 3(13)].
“Financial Institution” means –

(a) a scheduled bank;
(b) financial institution as defined in section 45-I of the Reserve Bank of India Act, 1934;
(c) public financial institution as defined in clause (72) of section 2 of the Companies Act, 2013;
and (d) such other institution as the Central Government may by notification specify as a financial
institution

“Financial Sector Regulator” means an authority or body constituted under any law for the time
being in force to regulate services or transactions of financial sector and includes the Reserve Bank
of India, the Securities and Exchange Board of India, the Insurance Regulatory and Development
Authority of India, the Pension Fund Regulatory Authority and such other regulatory authorities as
may be notified by the Central Government/
“Insolvency Professional” means a person enrolled under section 206 with an insolvency professional
agency as its member and registered with the Board as an insolvency professional under section.
“Insolvency Professional Agency” means any person registered with the Board under section 201 as
an insolvency professional agency.
“Information Utility” means a person who is registered with the Board as an information utility
under section 210.
“Person” includes – (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a
trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established
under a statute, and includes a person resident outside India [Section 3(23)]
Section 3(37) provides that words and expressions used but not defined in the Insolvency and
Bankruptcy Code, 2016 but defined in the Indian Contract Act, 1872, the Indian Partnership Act,
1932, the Securities Contact (Regulation) Act, 1956, the Securities Exchange Board of India Act,
1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Limited Liability
Partnership Act, 2008 and the Companies Act, 2013, shall have the meanings respectively assigned
to them in those Acts.
“Adjudicating Authority”, for the purposes of Part II, means National Company Law Tribunal
constituted under section 408 of the Companies Act, 2013.

“Constitutional Document”, in relation to a corporate person, includes articles of association,
memorandum of association of a company and incorporation document of a Limited Liability
Partnership.
“Corporate Applicant” means –

(a) corporate debtor; or
(b) a member or partner of the corporate debtor who is authorised to make an application for the
corporate insolvency resolution process under the constitutional document of the corporate debtor;
or
(c) an individual who is in charge of managing the operations and resources of the corporate debtor;
or
(d) a person who has the control and supervision over the financial affairs of the corporate debtor.
“Corporate guarantor” means a corporate person who is the surety in a contract of guarantee to a
corporate debtor.
“Dispute” includes a suit or arbitration proceedings relating to – (a) the existence of the amount
of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty
[Section 5(6)].
“Financial Creditor” means any person to whom a financial debt is owed and includes a person to
whom such debt has been legally assigned or transferred to [Section 5(7)].
“Financial Debt” means a debt along with interest, if any, and includes –
(a) money borrowed against the payment of interest;
(b) any amount raised by acceptance under any acceptance credit facility or its de-materialised
equivalent;
(c) any amount raised pursuant to the issue of bonds, notes, debentures, loan stock or any similar
instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract;

(e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (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
(ii) the expressions, “allottee” and “real estate project” shall have the meanings
respectively assigned to them in clauses (d) and (zn) of section 2 of the Real
Estate (Regulation and Development) Act, 2016
(g) any derivative transaction entered into in connection with protection against or benefit from
fluctuation in any rate or price and for calculating the value of any derivative transaction, only the
market value of such transaction shall be taken into account;
(h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter
of credit or any other instrument issued by a bank or financial institution;
(i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items
referred to in sub-clauses (a) to (h) of this clause.
Important Case Laws –
1) Col. Vinod Awasthy V/s. AMR Infrastructures Ltd (NCLT) – Homebuyers Not Operational
Creditors.
2) Nikhil Mehta and Sons v. AMR Infrastructure Ltd. (NCLT) – Homebuyers Not Financial
Creditors
“Initiation Date” means the date on which a financial creditor, corporate applicant or operational
creditor, as the case may be, makes an application to the Adjudicating Authority for initiating
corporate insolvency resolution process [Section 5(11)].
“Insolvency Commencement Date” means the date of admission of an application for initiating
corporate insolvency resolution process by the Adjudicating Authority under sections 7, 9 or section
10, as the case may be

[Provided that where the interim resolution professional is not appointed in the order admitting
application under section 7, 9 or 10, the insolvency commencement date shall be the date on which
such interim resolution professional is appointed by the Adjudicating Authority]
“Insolvency Resolution Process Costs” means –

(a) the amount of any interim finance and the costs incurred in raising such finance;
(b) the fees payable to any person acting as a resolution professional;
(c) any costs incurred by the resolution professional in running the business of the corporate debtor
as a going concern;
(d) any costs incurred at the expense of the Government to facilitate the insolvency resolution
process; and
(e) any other costs as may be specified by the Board [Section 5(13)].
“Insolvency Resolution Process Period” means the period of one hundred and eighty days beginning
from the insolvency commencement date and ending on one hundred and eightieth day [Section
5(14)].
“Interim Finance” means any financial debt raised by the resolution professional during the insolvency
resolution process period [Section 5(15)].
“Operational Creditor” means a person to whom an operational debt is owed and includes any person
to whom such debt has been legally assigned or transferred [Section 5(20)].
“Operational Debt” means a claim in respect of the provision of goods or services including
employment or a debt in respect of the payment of dues arising under any law for the time being
in force and payable to the Central Government, any State Government or any local authority [Section
5(21)].
“Pre-Packaged Insolvency Commencement Date” means the date of admission of an application for
initiating the pre-packaged insolvency resolution process by the Adjudicating Authority under clause
(a) of sub-section (4) of section 54C.

“Pre-Packaged Insolvency Resolution Process Costs” means-
(a) the amount of any interim finance and the costs incurred in raising such finance;
(b) the fees payable to any person acting as a resolution professional and any expenses incurred by
him for conducting the pre-packaged insolvency resolution process during the pre-packaged insolvency
resolution process period, subject to sub-section (6) of section 54F;
(c) any costs incurred by the resolution professional in running the business of the corporate debtor
as a going concern pursuant to an order under sub-section (2) of section 54J;
(d) any costs incurred at the expense of the Government to facilitate the prepackaged insolvency
resolution process; and
(e) any other costs as may be specified [Section 5(23C)].
“Pre-Packaged Insolvency Resolution Process Period” means the period beginning from the pre-
packaged insolvency commencement date and ending on the date on which an order under sub-
section (1) of section 54L, or sub-section (1) of section 54N, or sub-section (2) of section 54-O,
as the case may be, is passed by the Adjudicating Authority
“Related Party”, in relation to a corporate debtor, means –

(a) a director or partner of the corporate debtor or their relative;
(b) a key managerial personnel of the corporate debtor or their relative;
(c) an LLP or a partnership firm in which a director, partner, or manager of the corporate debtor
or his relative is a partner;
(d) a private company in which a director, partner or manager of the corporate debtor is a director
and holds along with his relatives, more than 2% of its share capital;
(e) a public company in which a director, partner or manager of the corporate debtor is a director
and holds along with relatives, more than 2% of its paid-up share capital;
(f) any body corporate whose board of directors, managing director or manager, in the ordinary
course of business, acts on the advice, directions or instructions of a director, partner or manager of
the corporate debtor;
(g) any LLP or a partnership firm whose partners or employees in the ordinary course of business,
acts on the advice, directions or instructions of a director, partner or manager of the corporate
debtor;

(h) any person on whose advice, directions or instructions, a director, partner or manager of the
corporate debtor is accustomed to act;
(i) a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a
holding company to which the corporate debtor is a subsidiary;
(j) any person who controls more than 20% of voting rights in the corporate debtor;
(k) any person in whom the corporate debtor controls more than 20% of voting;
(l) any person who can control the composition of the board of directors or corresponding governing
body of the corporate debtor;
(m) any person who is associated with the corporate debtor on account of –
(i) participation in policy making processes of the corporate debtor; or
(ii) having more than two directors in common between the corporate debtor and such
person; or
(iii) interchange of managerial personnel; or
(iv) provision of essential technical information to, or from, the corporate debtor.
“Related Party”, in relation to an individual, means –

(a) a person who is a relative of the individual or a relative of the spouse of the individual;
(b) a partner of a limited liability partnership, or a limited liability partnership or a partnership
firm, in which the individual is a partner;
(c) a person who is a trustee of a trust in which the beneficiary of the trust includes the individual,
or the terms of the trust confers a power on the trustee which may be exercised for the benefit of
the individual;
(d) a private company in which the individual is a director and holds along with his relatives, more
than two per cent. of its share capital;
(e) a public company in which the individual is a director and holds along with relatives, more than
two per cent. of its paid-up share capital;
(f) a body corporate whose board of directors, managing director or manager, in the ordinary course
of business, acts on the advice, directions or instructions of the individual;
(g) a limited liability partnership or a partnership firm whose partners or employees in the ordinary
course of business, act on the advice, directions or instructions of the individual;
(h) a person on whose advice, directions or instructions, the individual is accustomed to act;

(i) a company, where the individual or the individual along with its related party, own more than
50% of the share capital of the company or controls the appointment of the board of directors of
the company.
“Resolution Applicant” means a person, who individually or jointly with any other person, submits a
resolution plan to the resolution professional pursuant to the invitation made under clause (h) of
subsection (2) of section 25 [Section 5(25)].
“Resolution Plan” means a plan proposed by resolution applicant for insolvency resolution of the
corporate debtor as a going concern in accordance with Part II. It may be noted that a resolution
plan may include provision the restructuring of the corporate debtor, insolvency by way of merger,
amalgamation and demerger.
“Adjudicating Authority” means the Debt Recovery Tribunal constituted under sub-section (1) of
section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
“Associate” of the debtor means –

(a) a person who belongs to the immediate family of the debtor;
(b) a person who is a relative of the debtor or a relative of the spouse of the debtor;
(c) a person who is in partnership with the debtor;
(d) a person who is a spouse or a relative of any person with whom the debtor is in partnership;
(e) a person who is employer of the debtor or employee of the debtor;
(f) a person who is a trustee of a trust in which the beneficiaries of the trust include a debtor, or
the terms of the trust confer a power on the trustee which may be exercised for the benefit of the
debtor;
(g) a company, where the debtor or the debtor along with his associates, own more than fifty per
cent. of the share capital of the company or control the appointment of the board of directors of
the company

“Bankrupt” means –
(a) a debtor who has been adjudged as bankrupt by a bankruptcy;
(b) each of the partners of a firm, where a bankruptcy order has been made against the firm; or
(c) any person adjudged as an undischarged insolvent [Section 79(3)].
“Bankruptcy Debt”, in relation to a bankrupt, means –

(a) any debt owed by him as on the bankruptcy commencement date;
(b) any debt for which he may become liable after bankruptcy commencement date but before his
discharge by reason of any transaction entered into before the bankruptcy commencement date; and
(c) any interest which is a part of the debt under section 171 [Section 79(5)].
“Bankruptcy Commencement Date” means the date on which a bankruptcy order is passed by the
Adjudicating Authority.
“Debtor” includes a judgment-debtor.
“Discharge Order” means an order passed by the Adjudicating Authority discharging the debtor under
sections 92, 119 and section 138, as the case may be.
“Excluded Assets” for the purposes of this part includes –

(a) unencumbered tools, books, vehicles and other equipment as are necessary to the debtor or
bankrupt for his personal use or for the purpose of his employment, business or vocation,
(b) unencumbered furniture, household equipment and provisions as are necessary for satisfying the
basic domestic needs of the bankrupt and his immediate family;
(c) any unencumbered personal ornaments of such value, as may be prescribed, of the debtor or
his immediate family which cannot be parted with, in accordance with religious usage;
(d) any unencumbered life insurance policy or pension plan taken in the name of debtor or his
immediate family;
(e) an unencumbered single dwelling unit owned by the debtor of such value as may be prescribed
[Section 79(14)].

“Excluded Debt” means –
(a) liability to pay fine imposed by a court or tribunal;
(b) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other
legal obligation;
(c) liability to pay maintenance to any person under any law for the time being in force;
(d) liability in relation to a student loan;
(e) any other debt as may be prescribed [Section 79(15)].
“Immediate Family” of the debtor means his spouse, dependent children and dependent parents.
“Partnership Debt” means a debt for which all the partners in a firm are jointly liable.
“Qualifying Debt” means amount due, which includes interest or any other sum due in respect of
the amounts owed under any contract, by the debtor for a liquidated sum either immediately or at
certain future time and does not include– (a) an excluded debt; (b) a debt to the extent it is
secured; and (c) any debt which has been incurred three months prior to the date of the application
for fresh start process.
“Repayment Plan” means a plan prepared by the debtor in consultation with the resolution
professional under section 105 containing a proposal to the committee of creditors for restructuring
of his debts or affairs [Section 79(20)].
“Undischarged Bankrupt” means a bankrupt who has not received a discharge order under section
138.

MAJOR CASE LAWS
1. Innoventive Industries Limited v. ICICI Bank [SC]

Facts :
A. ICICI Bank had taken Innoventive Industries Ltd. to NCLT for the recovery of its due as the company
had defaulted on loan repayment. The NCLT had given a verdict in favour of the ICICI Bank, which
Innoventive Industries challenged in the National Company Law Appellate Tribunal (NCLAT), which
also ruled in the favour of ICICI Bank.
B. Aggrieved, Innoventive Industries filed an appeal in the Supreme Court seeking relief under the
Maharashtra Relief Undertaking (Special Provisions) Act, 1958 (MRUA), which states that if a
company is facing bankruptcy, protection needs to be provided for the employees.
Legal Principles held / Observations made –

1. That that the MRU Act is repugnant to the IBC.
2. Under the MRUA, the State Government may take over the management of the undertaking and
impose a moratorium in much the same manner as that contained in the IBC. By giving effect to
the MRUA, the plan/scheme that may be adopted under the IBC will directly be hindered. There would
be a direct clash between moratoriums under the two statutes.
3. That the non-obstante clause of the IBC will prevail over the non-obstante clause in the MRUA.
2. Arun Kumar Jagatramka vs. Jindal Steel and Power Ltd [SC]

1. That enactment of the IBC has marked a quantum change in corporate governance and the rule of
law. IBC perceives good corporate governance, respect for and adherence to the rule of law as central
to the resolution of corporate insolvencies.
2. IBC perceives corporate insolvency not as an isolated problem faced by an individual business entities
but places it in the context of a framework which is founded on public interest in facilitating economic
growth by balancing diverse stakeholder interests.

3. IBC attributes a primacy to the business decisions taken by creditors acting as a collective body, on
the premise that the timely resolution of corporate insolvency is necessary to ensure the growth of
credit markets and encourage investment.
4. In its diverse provisions, the IBC ensures that the interests of corporate enterprises are not conflated
with the interests of their promoters; the economic value of corporate structures is broader in content
than the partisan interests of their managements.
5. IBC is a legislation aimed at re-organization and resolution of insolvencies. Liquidation is a matter of
last resort.
3. Gujarat Urja Vikas Nigam Limited Vs. Mr. Amit Gupta & Ors. [SC]

1. That the primary focus of the IBC is to ensure the revival and continuation of the corporate debtor.
2. The interests of the corporate debtor have been bifurcated and separated from the interests of persons
in management.
3. The timelines which are prescribed in the IBC are intended to ensure the resuscitation of the corporate
debtor.
4. The enactment of the IBC is in significant senses a break from the past. While interpreting the
provisions of the IBC, care must be taken to ensure that the regime which Parliament found deficient
and which was the basic reason for the enactment of the new legislation is not brought in through
the back door by a process of disingenuous legal interpretation.
5. However, this is not to say that the interpretation given to the statutory provisions that existed prior
to the enactment IBC is to be rejected in toto. The interpretation given to such statutory provisions
that are textually similar may be relevant, provided that such interpretation is in tandem with the
objective of enacting the IBC, that is, inter alia, avoidance of multiplicity of fora and a timely
resolution of the insolvency process.

4. Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors [SC]

1. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate
debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of
such persons will deplete.
2. Maximization of value of the assets of such persons so that they are efficiently run as going concerns
is another very important objective of the Code. This, in turn, will promote entrepreneurship as the
persons in management of the corporate debtor are removed and replaced by entrepreneurs.
3. When, a resolution plan takes off and the corporate debtor is brought back into the economic
mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands
of banks and financial institutions.
4. Ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a
beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid
in full, and shareholders/investors are able to maximize their investment.
5. The Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort
if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even
in liquidation, the liquidator can sell the business of the corporate debtor as a going concern.

CH 15- PETITION FOR CIRP
WHAT IS A CIRP?
The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 defines the
expression “corporate insolvency resolution process” as “the insolvency resolution process for corporate
persons under Chapter II of Part II of the Code.”
A Corporate Insolvency Process means a process where –

1. the financial creditors assess the viability of debtor’s business; and
2. the seek options for its revival and rehabilitation.
If the corporate insolvency resolution process fails or the financial creditors decide that the business
of the debtor cannot be carried on in a profitable manner and it should be wound up, the debtor’s
business undergoes the liquidation process. In the liquidation process, the assets of the debtor are
realised and distributed by the liquidator in accordance with the provisions of the Insolvency and
Bankruptcy Code, 2016.The failure of a CIRP results in the Liquidation of the Company.
PERSONS WHO MAY INITIATE A CIRP
Section 6 of the IB Code, 2016 provides that where any corporate debtor commits a default, three
categories of people may initiate a CIRP against a Corporate Debtor. They are–
1. Financial Creditors
2. Operational Creditors
3. Corporate Applicant
PROCEDURE FOR MAKING APPLICATION
The IB Code, 2016 has envisaged the procedure for initiation of CIRP by different sets of people in
different sections. These are –

 Section 7 – Financial Creditors
 Section 8 & 9– Operational Creditors
 Section 10 – Corporate Applicant
Initiation of Corporate Insolvency Resolution Process by Financial Creditors (Section 7)
The Financial Creditor shall file Form 1 with NCLT to initiate insolvency proceedings against the
Corporate Debtor.
The Application u/s 7 of the IB Code, 2016 can be filed by –

 A financial creditor by itself;
 A financial creditor jointly with other financial creditors;
 Any other person on behalf of the financial creditor.
However, an application for initiation corporate insolvency resolution process against the corporate
debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not
less than ten per cent. of the total number of such creditors in the same class, whichever is less.
Further, please note that for financial creditors who are allottees under a real estate project, an
application for initiating corporate insolvency resolution process against the corporate debtor shall be

filed jointly by not less than one hundred of such allottees under the same real estate project or
not less than ten per cent. of the total number of such allottees under the same real estate project,
whichever is less.
NOTE - A financial creditor can file an application for corporate insolvency resolution process even
if the default is in respect of debt of another financial creditor.
Further, If the NCLT finds that –

 The Application is incomplete, or
 The Resolution Professional whose name is suggested is not eligible, or
 Default has not occurred;
it may return the application to the applicant. The applicant has a duration of 7 days to rectify the
mistakes and resubmit the application to the NCLT failing which, the application shall be rejected.
Supreme Court judgment: time period of 14 days is directory and not mandatory - Surendra Trading
Company v. Juggilal Kamlapat Jute Mills Company Limited and Others.
Further, please also note that the NCLT vide Order dated 12th May, 2020 has stated that default
record from Information Utility must be filed with all new petitions filed under Section 7 of the
Code and no new petition shall be entertained without record of default.
Admission of application– If the National Company Law Tribunal is satisfied as to the existence of
the default and has ensured that the application is complete and no disciplinary proceedings are
pending against the proposed resolution professional, it shall admit the application. The National
Company Law Tribunal is not required to look into any other criteria for admission of the application.
Initiation of Corporate Insolvency Resolution Process by an Operational Creditor (Section 8 and 9)
The process to be followed by the operational creditors in order to file an application for initiation
of a CIRP against a corporate debtor is dealt with by two sections –

 SECTION 8 –
Section 8 lays down the various rules related to the issuance of demand Notice to the Corporate
Debtor by the Operational Creditor.
A “demand notice” means a notice served by an operational creditor to the corporate debtor
demanding payment of the operational debt in respect of which the default has occurred.
 SECTION 9 -
Section 9 lays down the procedure that needs to be followed by the Operational Creditor after the
Demand Notice has been issued.
Note - The rationale for a different procedure in case of operational creditor is based on the premise
that the operational debts (such as trade debts, salary or wage claims, government dues) generally
tend to be of smaller amounts (in comparison to financial debts) or are recurring in nature. The
possibility of disputed debts in relation to operational creditors is also higher in comparison to
financial creditors such as banks and financial institutions. Further, the procedure laid down in
section 8 also facilitate informal negotiations between such creditors and the corporate debtor. Such
negotiations may result in a restructuring of the debt outside the formal proceedings.
The following chart shows the procedure that needs to be followed –

NOTE –
The Applicant under section 9 is not required to mandatorily suggest the name for the interim
Resolution Professional. The Operational Creditor shall file Form 5 with NCLT to initiate insolvency
proceedings against the Corporate Debtor.
Admission of application.– The National Company Law Tribunal shall admit the application and
communicate such decision to the operational creditor and the corporate debtor within fourteen days
of the receipt of such application if the following conditions are fulfilled.
(a) the application made under sub-section (2) is complete,
(b) there is no payment of the unpaid operational debt,
(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational
creditor,
(d) notice of dispute has not been received by the operational creditor or there is no record of
dispute in the information utility, and
(e) there is no disciplinary proceeding pending against the proposed resolution professional.

Initiation of Corporate Insolvency Resolution Process by the Corporate Applicant (Section 10)
It is to be noted that initially when the IB Code, 2016 was enacted, the power to file an application
under section 10 was given to the Corporate Debtor only. This was subsequently amended and the
term Corporate Applicant was inserted in the section. This was done in order to widen the scope
and ambit of the Section.
NOTE - The Corporate Applicant can only initiate the corporate insolvency resolution process upon
the occurrence of a default and not on mere likelihood of inability to pay debts.
Section 10(1) of the Code uses the expression “corporate applicant” and not a “corporate debtor”.
According to section 5(5) of the Code, a “corporate applicant” means –
a. corporate debtor; or

(b) a member or partner of the corporate debtor who is authorised to make an application for the
corporate insolvency resolution process under the constitutional document of the corporate debtor;
or
(c) an individual who is in charge of managing the operations and resources of the corporate debtor;
or
(d) a person who has the control, and supervision over the financial affairs of the corporate debtor.
The corporate applicant shall file Form 6 with NCLT to initiate insolvency proceedings.
DEFAULT BASED TEST – THE CONCEPT
The Insolvency and Bankruptcy Code, 2016 provides a default based test for initiating the corporate
insolvency resolution process. A default based test for initiating the insolvency resolution process
means proper action is taken at the earliest instance showing signs of financial distress. It permits
early intervention which helps in timely resolution of insolvency.
SUSPENSION OF INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS
Section 10A was inserted vide the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020
which came into effect from 05th June, 2020 in light of COVID-19 pandemic that has impacted
business, financial markets and economy all over the world, including India, and created uncertainty
and stress for business for reasons beyond their control. Section 10A reads as follows:
“Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate
insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after
25th March, 2020 for a period of six months or such further period, not exceeding one year from
such date, as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process
of a corporate debtor for the said default occurring during the said period.

Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section
shall not apply to any default committed under the said sections before 25th March, 2020.”
The aforesaid section covers the default of a corporate debtor which arises after the 25th March
2020 emerging due to the impact of COVID 19 and shall remain suspended for six months or upto
a period of one year. However, the defaults prior to this date are enforceable under the Code, the
section also states that “no application shall ever be filed for initiation of corporate insolvency
resolution process of a corporate debtor for the said default occurring during the said period” which
means that no financial creditor, operational creditor or corporate applicant can file an insolvency
application for the defaults occurring between 25th March, 2020 and the next six months or one
year,
In the case of Ramesh Kymal Vs. M/s Siemens Gamesa Renewable Power Pvt Ltd judgement dated
February 9, 2021 Hon’ble Supreme Court observed that Section 10A does not contain any requirement
that the Adjudicating Authority must launch into an enquiry into whether, and if so to what extent,
the financial health of the corporate debtor was affected by the onset of the Covid-19 pandemic.
PERSONS NOT ENTITLED TO MAKE APPLICATION – SECTION 11
The following persons are disentitled from making an application for the initiation of CIRP against
a Corporate Debtor –
 a corporate debtor undergoing a corporate insolvency resolution process or a pre-packaged

insolvency resolution process;
 a financial creditor or an operational creditor of a corporate debtor undergoing a pre-packaged
insolvency resolution process;
 a corporate debtor having completed a CIRP twelve months preceding the date of making of
the application;
 a corporate debtor in respect of whom a resolution plan has been approved under Chapter III-
A, twelve months preceding the date of making of the application;

 a corporate debtor or a financial creditor who has violated any of the terms of resolution plan
which was approved twelve months before the date of making of the application;
 a corporate debtor in respect of whom a liquidation order has been made.
[It may be noted that a corporate debtor falling under the above clauses can initiate corporate
insolvency resolution process against another corporate debtor.]
INTERPLAY OF SECTION 54C WITH SECTIONS 7, 9 AND 10 – SECTION 11A
(1) Where an application filed under section 54C is pending, the Adjudicating Authority shall pass
an order to admit or reject such application, before considering any application filed under section 7
or section 9 or section 10 during the pendency of such application under section 54C, in respect of
the same corporate debtor.
(2) Where an application under section 54C is filed within fourteen days of filing of any application
under section 7 or section 9 or section 10, which is pending, in respect of the same corporate debtor,
then, notwithstanding anything contained in sections 7, 9 and 10, the Adjudicating Authority shall
first dispose of the application under section 54C.
(3) Where an application under section 54C is filed after fourteen days of the filing of any application
under section 7 or section 9 or section 10, in respect of the same corporate debtor, the Adjudicating
Authority shall first dispose of the application under sections 7, 9 or 10.
However, the provisions of this section shall not apply where an application under section 7 or section
9 or section 10 is filed and pending as on the date of the commencement of the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2021.
TIME-LIMIT FOR COMPLETION OF INSOLVENCY RESOLUTION PROCESS - SECTION 12
Time Limit – The Corporate Insolvency Resolution Process shall be completed within a period of 180
Days from the date of admission of the application to initiate such process.
Extension of time– The Resolution Professional shall file an application to the NCLT to extend the
abovementioned period if authorised by a resolution passed at a meeting of the committee of creditors

by a vote of 66% of the voting shares. This extension can be granted only once for a maximum
period of 90 days.
However, the Insolvency and Bankruptcy Code (Amendment) Act, 2019 has laid down that the
corporate insolvency resolution process shall mandatorily be completed within a period of 330 days
from the insolvency commencement date including any extension of the period of corporate insolvency
resolution process granted and the time taken in legal proceedings in relation to such resolution
process of the corporate debtor.
WITHDRAWAL OF APPLICATION – SECTION 12A
This Section was added by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018. It
provides that the Adjudicating Authority may allow the withdrawal of application admitted under
section 7 or section 9 or section 10, on an application made by the Applicant. The application for
withdrawal needs the approval of 90% voting share of the committee of creditors.

MAJOR CASE LAWS
1. Supreme Court Order
Facts :
A. The Corporate debtor raised a contention that since the account of the Corporate Debtor had been
declared NPA on 31st March, 2013 and since the application under Section 7 of IBC had been filed
on 27th August, 2018, after almost five years and five months from the date of accrual of the cause
of action, the application filed by financial creditor is barred by limitation.
B. National Company Law Appellate Tribunal held that, the applicant, the financial creditor, had bona
fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the
SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act.
The NCLAT, after exclusion of the period of about three years and six months till the date of the
interim order of the High Court, during which the Financial Creditor had been proceeding under
SARFAESI Act, found that the application of the Financial Creditor, under Section 7 of IBC, was
within limitation.
C. Aggrieved, the company filed this appeal with the Supreme Court.

1. Keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the
expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including
any Tribunal or any forum under the SARFAESI Act.
2. That even if the financial creditor did not specifically file an application showing cause for the delay,
delay can still be condoned irrespective of whether there is any formal application, if there are
sufficient materials on record disclosing sufficient cause for the delay.
2. Pioneer Urban Land and Infrastructure Limited and Anr. Vs. Union of India & Ors

1. That RERA is in addition to and not in derogation of the provisions of any other law for the time
being in force, and the remedies under RERA to allottees were intended to be additional and not
exclusive remedies.

2. Even by a process of harmonious construction, RERA and the Code must be held to co-exist, and, in
the event of a clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a
special statute which, in the case of a conflict, would override the general statute, viz. the Code.
3. Ramesh Kymal Vs. M/s Siemens Gamesa Renewable Power Pvt Ltd
That the date of the initiation of the CIRP is the date on which a financial creditor, operational
creditor or corporate applicant makes an application to the adjudicating authority for initiating the
process. On the other hand, the insolvency commencement date is the date of the admission of the
application.
4. Manish Kumar Vs. Union of India and Another
In this case, the following proviso to section 7 of IBC was brought into question –
“Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A)
of section 21, an application for initiating corporate insolvency resolution process against the corporate
debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not
less than ten per cent. of the total number of such creditors in the same class, whichever is less ”

1. That such creditors bearing the hallmark of large numbers, they need to be treated differently. If
not, it would spell chaos and the objects of the Code would not be fulfilled.
2. Insisting on a threshold for these categories of creditors would lead to the halt to indiscriminate
litigation which would result in an uncontrollable docket explosion as far as the authorities.
3. The legislative policy reflects an attempt at shielding the CD from what it considers would be either
for frivolous or avoidable applications, to ensure that the filing of an application is preceded by a
consensus at least by a minuscule percentage of similarly placed creditors that the time has come
for undertaking a legal odyssey which is beset with perils for the applicants themselves apart from
others.
4. As regards the percentage of applicants contemplated under the proviso, it cannot be dubbed as an
arbitrary or capricious figure.

5. Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta and Ors. a

1. That Section 33 provides that if no resolution plan is received before the end of the period or the
resolution plan is rejected, the corporate debtor is required to be liquidated. Therefore, the period under
section 12 is mandatory.
2. That the duration of 180 days may be extended further “but not exceeding 90 days”, making it clear
that a maximum of 270 days is laid down statutorily. Also, the proviso to Section 12 makes it clear
that the extension “shall not be granted more than once”.
6. Manish Kumar Vs. Union of India and Another

1. Section 12 contemplates a maximum period of 330 days from the date of the insolvency
commencement date.
2. Though, the word ‘mandatorily’ has been struck down by the Court in the decision in Committee of
Creditors of Essar Steel India Limited (supra), an enlargement of the time is permitted only in those
cases where the delay occurs not on account of the fault of the players concerned.
3. Speed, indeed, continues to be of the essence of the Code.

CH 16 – ROLE, FUNCTIONS & DUTIES OF IP / IRP / RP
WHO IS AN INSOLVENCY PROFESSIONAL?
‘Insolvency professionals’ is a class of professionals having minimum standards of professional and

ethical conduct and are regulated by “Insolvency Professional Agencies”.
In the corporate insolvency resolution process, the insolvency professional runs the debtor’s business
during the moratorium period, verifies the claims of the creditors and constitutes a creditors
committee and helps the committee of creditors in arriving at a consensus for the revival and
rehabilitation of the corporate debtor’s business. In liquidation, the insolvency professional acts as a
liquidator and a bankruptcy trustee.
An Insolvency Professional is one of the most important functionality brought into existence under
the IB Code, 2016. An insolvency Resolution is a person who acts in the following capacities –
 Interim Resolution Professional (IRP) under Part II

 Resolution Professional (RP) under Part II
 Liquidator under Part II
 Resolution Professional under Part III
 Bankruptcy Trustee under Part III
The Resolution Professional (RP) holds a central position in conducting the CIRP and his role is vital
to the efficient operation of the resolution process. The RP acts as a bridge between the debtor and
the creditor and plays a significant role in aligning the interests of the CD with those of the
creditors. The RP is appointed as an officer of the AA to conduct the resolution process and is vested
with various statutory duties and powers.
The IB Code, 2016 provides for the following important definitions –

Section 3(19): “Insolvency Professional” means a person enrolled under section 206 with an
insolvency professional agency as its member and registered with the Board as an insolvency
professional under section 207.
Under PART II
Section 5(18): “Liquidator” means an insolvency professional appointed as a liquidator in accordance

with the provisions of Chapter III or Chapter V of Part II, as the case may be.
Section 5(27): “Resolution Professional”, for the purposes of Part II, means an insolvency professional
appointed to conduct the corporate insolvency resolution process and includes an interim-resolution
professional.
UNDER PART III
Section 79(9): “Bankruptcy Trustee” means the insolvency professional appointed as a trustee for
the estate of the bankrupt under section 125.
Section 79(21): “Resolution Professional” means an insolvency professional appointed under Part III
as a resolution professional for conducting the fresh start process or insolvency resolution process.
FUNCTIONS AND DUTIES OF AN INSOLVENCY PROFESSIONAL
Section 208(1) provides that it shall be the function of an insolvency professional to take such
actions as may be necessary and assume the following roles–
 fresh start order process under Chapter II of Part III;

 individual insolvency resolution process under Chapter III of Part III;
 corporate insolvency resolution process under Chapter II of Part II;
 individual bankruptcy process under Chapter IV of Part III;
 liquidation of a corporate debtor firm under Chapter III of Part II.

Section 208(2) mandates that every insolvency professional shall abide by the following code of
conduct:–
 to take reasonable care and diligence while performing his duties;

 to comply with all requirements and terms and conditions specified in the bye-laws of the
insolvency professional agency of which he is a member;
 to allow the insolvency professional agency to inspect his records;
 to submit a copy of the records of every proceeding before the Adjudicating Authority to the
Board as well as to the insolvency professional agency of which he is a member; and
 to perform functions in such manner and subject to such conditions as specified.
The IBBI vide circular dated 03rd January, 2018 stated that an insolvency professional shall not
outsource any of his duties and responsibilities under the Code, He shall not require any certificate
from another person certifying eligibility of a resolution applicant. Another circular dated 03rd
January, 2018 stated that the insolvency professional shall exercise reasonable care and diligence
and take all necessary steps to ensure that the corporate person undergoing any process under the
Code complies with the applicable laws.
ENROLMENT AND REGISTRATION OF INSOLVENCY PROFESSIONALS
Section 206 lays down the following requirements for a person to be eligible to become a Insolvency
Professional –
 Membership with any Insolvency Professional Agency
 Registration with the IBBI
The IBBI has been given the powers to lay down the minimum standards and eligibility criteria for
people to become Insolvency Professionals.
The Board has notified the IBBI (Insolvency Professional) Regulations, 2016 in this regard.

IBBI (INSOLVENCY PROFESSIONAL) REGULATIONS, 2016
The IBBI (Insolvency Professionals) Regulations, 2016 makes provisions for the examination and
registration of Insolvency Professionals with the Insolvency and Bankruptcy Board of India. These
regulations also make provisions for the disciplinary proceedings against the insolvency professional
as well as prescribes the code of conduct for insolvency professionals.
The most important aspects that these Regulations deal with are –
 Eligibility, Qualification and Experience required for Insolvency Professionals

 Examination for enrolment of Insolvency Professionals
 Registration of Insolvency Professionals with the IBBI
 Disciplinary Proceedings against the Insolvency Professionals
 Code of conduct for Insolvency Professionals
Eligibility Criteria for Insolvency Professionals
Regulation 4 of provides that a person shall NOT be eligible to be registered as an Insolvency

Professional if he/she –
 is a minor
 is not a person resident in India
 does not have the qualification and experience specified in Regulations 5 of the IBBI
(Insolvency Professionals) Regulations, 2016
 has been convicted by any competent court for an offence punishable with imprisonment for
a term exceeding six months or for an offence involving moral turpitude, and a period of five
years has not elapsed from the date of expiry of the sentence.
Provided that if a person has been convicted of any offence and sentenced in respect thereof to
imprisonment for a period of seven years or more, he shall not be eligible to be registered
 is an undischarged insolvent, or has applied to be adjudicated as an insolvent;
 has been declared to be of unsound mind; or
 is not a fit and proper person.

Explanation: For determining whether an individual is fit and proper under these Regulations, the
Board may take account of any consideration as it deems fit, including but not limited to the
following criteria-
(i) integrity, reputation and character;

(ii) absence of convictions and restraint order; and
(iii) competence, including financial solvency and net worth.
Qualification and Experience Required for Insolvency Professional
Regulation 5 provides that a person shall be eligible to get registration as an Insolvency Professional
if he / she –
 has passed the Limited Insolvency Examination within twelve months before the date of
application for enrolment with the insolvency professional agency;
 has completed a pre-registration educational course, as may be required by the Board, from
an insolvency professional agency after his enrolment as a professional member; and
 has-
o successfully completed the National Insolvency Programme, as may be approved by the
Board;
o successfully completed the Graduate Insolvency Programme, as may approved by the
Board;
o 15 years’ of experience in management, after receiving a Bachelor’s degree from a
university established or recognised by law; or
o 10 years’ of experience as –
 Chartered Accountant registered as a member of the ICAI
 Company Secretary registered as a member of the ICSI
 Cost Accountant registered as a member of the ICMAI
 Advocate enrolled with the Bar Council

According to Regulation 7, the registration of an insolvency professional shall be subject to the
condition that he shall abide by the following Code of Conduct specified in the First Schedule to
the Regulations:
 Integrity and Objectivity

 Independence and impartiality
 Professional competence
 Represntation of correct facts and correcting misapprehensions
 Timeliness
 Information management
 Confidentiality
 Occupation, employability and Restrictions
 Remuneration and Costs
 Gifts and Hospitality

PROCESS AFTER ADMISSION OF APPLICATION INITIATING CIRP
Section 13 provides that once an application made under section 7/9/10 gets accepted by the NCLT,
the following events take place simultaneously –
 Declaration of Moratorium period (Section 14)

 Public Announcement by the NCLT (Section 15)
 Appointment of an Interim Resolution Professional (Section 16)
MORATORIUM
Section 14 provides for the Moratorium period and describes its effects.
Moratorium period is a concept whereby it is ensures that the status quo of the corporate Debtor is
maintained during the CIRP. The following acts are prohibited during the Moratorium Period –
a) institution of suits or continuation of pending suits or proceedings against the corporate

debtor including execution of any judgement, decree or order in any court of law, tribunal,
arbitration panel or other authority;
b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets
or any legal right or beneficial interest therein;

c) any action to foreclose, recover or enforce any security interest created by the corporate
debtor in respect of its property including any action under the SARFAESI Act, 2002;
d) recovery of any property by an owner or lessor where such property is occupied by or in the
possession of the corporate debtor; and
e) entering into any material contract including contracts which have the effect of a contract
for borrowing of money in the form of loan or otherwise.
However, the section specifically provides that the following should not be affected by an order of
Moratorium –
a. supply of essential goods or services to the corporate debtor

b. such transaction as may be notified by the Central Government in consultation with any
financial regulator
c. a surety in a contract of guarantee to a corporate debtor.
Purpose of Moratorium Period :
 To ensure that multiple proceedings are not taking place simultaneously and thus avoids the
possibility of potentially conflicting outcomes of related proceedings.
 To keep the corporate debtor’s assets together during the insolvency resolution process and
facilitates orderly completion of the process,
 To ensure that the company may continue as a going concern while the creditors assess the
options for resolution of default.
 Prohibition on disposal of the corporate debtor’s assets ensure that the corporate
debtor/management does not transfer its assets, thereby stripping the corporate debtor of value
during the corporate insolvency resolution process.

PUBLIC ANNOUNCEMENT OF CIRP
The NCLT is supposed to make a public Announcement of the initiation of a CIRP against a Corporate
Debtor.
Section 15 lists out the particulars that a public announcement of the initiation of the corporate
insolvency resolution process for the corporate debtor shall contain. They are-
a. Name and address of the corporate debtor under the CIRP
b. Name of the authority with which the corporate debtor is incorporated or registered,
c. Last date for submission of claims, as may be specified,
d. Details of the interim resolution professional
e. Penalties for false or misleading claims,
f. Date on which the CIRP shall close
The objective behind making this Public Announcement is to ensure that all the creditors having a
claim against the Corporate Debtor get a fair chance to make their claims and participate in the
CIRP. Section 15(1) (c) confer power upon the Insolvency and Bankruptcy Board of India to specify
the last date for submission of claims
INTERIM RESOLUTION PROFESSIONAL
Section 16 of the IB Code, 2016 provides for the following provisions for appointment of an IRP-

Tenure of the IRP – Till the date of Appointment of the Resolution Professional.
[The tenure of the IRP was of 30 days from the date of appointment in the Code when it was
originally enacted in 2016. However, the Second Amendment Act of 2018 has removed this date.]
MANAGEMENT OF AFFAIRS OF CORPORATE DEBTOR BY IRP
Section 17 provides that the appointment of an IRP shall have the following effects-
 the management of the affairs of the corporate debtor shall vest in the IRP,
 the powers of the board of directors or the partners of the corporate debtor shall stand
suspended and be exercised by the interim resolution professional
 the officers and managers of the corporate debtor shall report to the IRP and managers shall
provide access to all documents and records of the corporate debtor

 the financial institutions maintaining accounts of the corporate debtor shall act on the
instructions of the interim resolution professional.
The Section further provides that once te IRP gets the power to manage the corporate debtors, he
shall also get the right to –
a) Sign and execute in the name and on behalf of the corporate debtor all deeds, receipts, and
other documents
b) take such actions as may be specified by the Board
c) have the authority to access the electronic records of corporate debtor from information utility
having financial information of the corporate debtor,
d) have the authority to access the books of accounts, records and other relevant documents of
corporate debtor available with government authorities, statutory auditors, accountants and such
other persons as may be specified
e) be responsible for complying with the requirements under any law for the time being in force
on behalf of the corporate debtor.
END OF THE DEBTOR IN POSSESSION REGIME
The IB Code, 2016 puts an end to the Debtor in Possession Regime with the help of Section 17. This
Regime was an integral part of the erstwhile SICA and was one of the factors which proved to be
fatal for the Act. As per this concept, the management of the sick/insolvent companies remains in
power during the revival process. This allows the existing management propose and implement risky
rescue measures, the costs of failure of which is largely be borne by creditors.
The IB Code, 2016 has efficiently removed this impediment by introducing section 17 which takes
away the control of the company from the management and vests it in the Resolution Professionals.
In the case of M/s. Subasri Realty Private Limited v. Mr. N. Subramanian & Anr, the NCLAT directed
that after the appointment of the RP and declaration of moratorium, the Board of Directors stands
suspended, but that does not amount to a suspension of Managing Director, or any of the directors
or officers or employees of the Corporate Debtor (‘CD’). To ensure that the CD remains a going
concern, all the directors/employees are required to function and to assist the RP who manages the

affairs of the CD during the moratorium. If one or other officer or employee had the power to sign
a cheque on behalf of the CD prior to the order of moratorium, such power does not stand suspended
on suspension of Board of Directors nor can it be taken away by the RP. If the person empowered
to sign cheque refuses to function on the direction of the RP or misuse the power, it is always open
to the RP to take away such power, after issuing notice to the person concerned.
DUTIES OF INTERIM RESOLUTION PROFESSIONAL
Section 18 of the IB Code, 2016 provides that an Interim Resolution Professional shall perform the
following duties-
a) Collect all information relating to the assets, finances and operations of the corporate debtor
for determining the financial position of the corporate debtor, including information relating
to -
i. business operations for the previous two years
ii. financial and operational payments for the previous two years
iii. list of assets and liabilities as on the initiation date
b) receive and collate all the claims submitted by creditors to him, pursuant to the public
announcement made under sections 13 and 15
c) constitute a committee of creditors
d) monitor the assets of the corporate debtor and manage its operations until a resolution
professional is appointed by the committee of creditors
e) file information collected with the information utility
f) take control and custody of any asset over which the corporate debtor has ownership rights
including
i. assets which may be located in a foreign country
ii. assets that may or may not be in possession of the corporate debtor
iii. tangible assets, whether movable or immovable and intangible assets,
iv. securities
v. assets subject to the determination of ownership by a court or
g) to perform such other duties as may be specified by the Board.
However, the IRP can not take over the following assets –

a) assets owned by a third party in possession of the corporate debtor held under trust or under
contractual arrangements including bailment
b) assets of any Indian or foreign subsidiary of the corporate debtor
c) such other assets as may be notified by the Central Government in consultation with any
financial sector regulator.
PERSONNEL TO EXTEND CO-OPERATION TO THE IRP
Section 19 imposes an obligation on the

a) personnel
b) promoters of the corporate debtor
to extend all assistance and cooperation required by the Interim Resolution Professional in the
management of the affairs of the corporate debtor.
Where the personnel of the corporate debtor do not extend cooperation or assistance to the interim
resolution professional, the IRP may apply to the NCLT for an order. The NCLT may, by order, direct
the person to comply with the instructions of IRP.
For the purpose of this section, Personnel” includes the directors, managers, key managerial personnel,
designated partners and employees, if any, of the corporate debtor.
MANAGEMENT OF OPERATIONS OF CORPORATE DEBTOR AS GOING CONCERN
Section 20 provides that the IRP shall have all the powers and rights to do the following acts in
order to ensure that the operations of the Corporate Debtor are smoothly carried on-
a) make every endeavour to protect and preserve the value of the property of the corporate
debtor,
b) manage the operations of the corporate debtor as a going concern,
c) appoint accountants, legal or other professionals as may be necessary,

d) enter into contracts on behalf of the corporate debtor or to amend or modify the contracts
or transactions which were entered into before the commencement of the CIRP,
e) raise interim finance provided that no security interest shall be created over any encumbered
property of the corporate debtor without the prior consent of the creditors whose debt is
secured over such encumbered property,
f) issue instructions to personnel of the corporate debtor as may be necessary,
g) take all such actions as are necessary to keep the corporate debtor as a going concern.
WHAT IS INTERIM FINANCE?
“Interim finance” means any financial debt raised by the resolution professional during the insolvency
resolution process period. Any amount raised as interim finance and the costs incurred in raising
such finance is included in the “insolvency resolution process costs”.
Clause (c) of sub-section (2) to section 20 provides that the Interim Resolution Professional shall
have the authority to raise interim finance provided that no security interest shall be created over
any encumbered property of the corporate debtor without the prior consent of the creditors whose
debt is secured over such encumbered property. Thus, any interim finance raised by providing security
of an encumbered property of the corporate debtor will require prior permission of the concerned
creditor.
APPOINTMENT OF RESOLUTION PROFESSIONAL
The Resolution Professional is the most important functionality constituted under the IB Code, 2016.
The Resolution Professional has the duty to ensure that the CIRP, once initiated, is successfully
completed. the Resolution professional is appointed by the Committee of Creditors in their first
meeting.
Section 22 of the Code prescribed that the Resolution Professional all be appointed-
 By the Committee of Creditors
 Through a Resolution passed by a minimum 66% of votes
 In their first meeting

 Which is to be conducted within 7 days of the constitution of the Committee.
It is to be noted that earlier, it was mandatory for the Interim Resolution Professional to conduct
the first meeting of the Committee of Creditors within 30 days of the Insolvency Commencement
Date. This provision was, however, later amended and not there exists no time limit within which
the first meeting is to be conducted.
RESOLUTION PROFESSIONAL TO CONDUCT CIRP
Section 23 provides that the resolution professional shall be responsible for carrying out the entire
corporate insolvency resolution process and managing the operations of the corporate debtor during
such process.
The following are the important highlights of section 23 –
a) That apart from managing the operations of the business of the Corporate Debtor during the
period when the Committee of Creditors decide upon a Resolution Plan, the Resolution

Professional has to continue doing so even when a Resolution plan has been filed with the
NCLT and is pending approval from them.
b) That if a person other than the IRP is appointed as the Resolution Professional, the IRP is
bound to provide all the information, documents and records pertaining to the corporate debtor
in his possession and knowledge to the resolution professional.
In the matter of Asset Reconstruction Company (India) Pvt. Ltd. Vs. Shivam Water Treatment Pvt.
Ltd., order dated January16, 2019, the AA held that an RP is acting as an officer of the court and
any hindrance in the working of the CIRP will amount to contempt of court. Further, in its order
dated February 18, 2019, in the same matter, the AA once again clarified that the RP is discharging
his/her duties as court officer and any non-compliance with the court officer’s directives will be
deemed as contempt of court. An IP is the driving force and the nerve center in the insolvency
proceeding of a CD.
DUTIES OF RESOLUTION PROFESSIONAL
Section 25 provides for the following duties of a Resolution Professional with respect to the
preservation and protection of the assets of the corporate –
 To take immediate custody and control of all the assets of the corporate debtor,
 To represent and act on behalf of the corporate debtor with third parties,
 To exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration
proceedings
 To raise interim finances,
 To appoint accountants, legal or other
 To maintain an updated list of claims
 To convene and attend all meetings of the committee of creditors
 To prepare the information memorandum
 To invite prospective resolution applicants to submit a resolution plan or plans
 To present all resolution plans at the meetings of the committee of creditors
 To file application for avoidance of transactions
 To perform such other actions as may be specified by the Board.

Hon’ble Supreme Court of India in the matter of Arcelor Mittal India Private Limited Vs. Satish
Kumar Gupta and Ors. arising from Corporate Insolvency Resolution Process (CIRP) of Essar Steel
India Limited (Civil Appeal Nos. 9402 - 9405 of 2018) Judgment dated 4th October, 2018 observed
that the importance of the Resolution Professional is to ensure that a resolution plan is complete in
all respects, and to conduct a due diligence in order to report to the Committee of Creditors whether
or not it is in order. Even though it is not necessary for the Resolution Professional to give reasons
while submitting a resolution plan to the Committee of Creditors, it would be in the fitness of things
if he appends the due diligence report carried out by him with respect to each of the resolution
plans under consideration, and to state briefly as to why it does or does not conform to the law.
REPLACEMENT OF RESOLUTION PROFESSIONAL BY COMMITTEE OF CREDITORS
Section 27 provides for the right of the Committee of Creditors to replace the Resolution Professional.
As per the section,

 The Committee of Creditors may
 By a resolution passed with minimum 66% majority
 Resolve to replace the resolution Professional
 For which, an application has to be made to the NCLT
 And the procedure laid down under section 16 is to be followed.
ELIGIBILITY FOR RESOLUTION PROFESSIONAL
The IBBI has notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016 to provide for and regulate the Corporate Insolvency
Resolution Processes taking place under the Code.
Regulation 3 lays down a person shall be eligible to be appointed as a Resolution professional of a

Corporate Debtor if the individual, and all partners and directors of the insolvency professional entity
of which he is a partner or director, are-

a) eligible to be appointed as an independent director on the board of the corporate debtor under
section 149 of the Companies Act, 2013,
b) not a related party of the corporate debtor;
c) not an employee or proprietor or a partner:
i. of a firm of auditors or secretarial auditors in practice or cost auditors of the corporate
debtor; or,
ii. of a legal or a consulting firm, that has or had any transaction with the corporate
debtor amounting to five per cent or more of the gross turnover of such firm, in the
last three financial years.
A resolution professional shall make disclosures at the time of his appointment and thereafter in
accordance with the Code of Conduct. Further, A resolution professional, who is a director or a
partner of an insolvency professional entity, shall not continue as a resolution professional in a
corporate insolvency resolution process if the insolvency professional entity or any other partner or
director of such insolvency professional entity represents any of the other stakeholders in the same
corporate insolvency resolution process.
PREPARATION OF INFORMATION MEMORANDUM
Section 29 provides for the duty of the Resolution Professional to prepare a Resolution plan. An
information memorandum is prepared in order to enable the resolution applicants (market participants)
to provide solutions for resolving the insolvency of the corporate debtor. The section also provides that
the Resolution Professional may provide access to the records and documents of the Corporate Debtor
to third parties if they undertake to-
a. comply with provisions of law relating to confidentiality and insider trading
b. protect any intellectual property of the corporate debtor
c. not share relevant information with third parties.
“relevant information” means the information required by the resolution applicant to make the
resolution plan for the corporate debtor, which shall include the financial position of the corporate

debtor, all information related to disputes by or against the corporate debtor and any other matter
pertaining to the corporate debtor as may be specified.
Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
CorporatePersons) Regulations, 2016 states the following:
(1) Subject to sub-regulation (4), the resolution professional shall submit the information
memorandum in electronic form to each member of the committee within two weeks of his
appointment, but not later than fifty- fourth day from the insolvency commencement date, whichever
is earlier.
(2) The information memorandum shall contain the following details of the corporate debtor-
a) assets and liabilities with such description, as on the insolvency commencement date,
as are generally necessary for ascertaining their values;
b) the latest annual financial statements;
c) audited financial statements of the corporate debtor for the last two financial years
and provisional financial statements for the current financial year made up to a date
not earlier than fourteen days from the date of the application
d) a list of creditors containing the names of creditors, the amounts claimed by them,
the amount of their claims admitted and the security interest, if any, in respect of
such claims;
e) particulars of a debt due from or to the corporate debtor with respect to related
parties;
f) details of guarantees that have been given in relation to the debts of the corporate
debtor by other persons, specifying which of the guarantors is a related party;
g) the names and addresses of the members or partners holding at least one per cent
stake in the corporate debtor along with the size of stake;
h) details of all material litigation and an ongoing investigation or proceeding initiated by
Government and statutory authorities;
i) the number of workers and employees and liabilities of the corporate debtor towards
them;
j) other information, which the resolution professional deems relevant to the committee.

The resolution professional shall share the information memorandum after receiving an undertaking
from a member of the committee to the effect that such member or resolution applicant shall
maintain confidentiality of the information and shall not use such information to cause an undue
gain or undue loss to itself or any other person and comply with the requirements under sub-section
(2) of section 29.
The resolution professional shall share the information memorandum after receiving an undertaking
from a member of the committee to the effect that such member or resolution applicant shall
maintain confidentiality of the information and shall not use such information to cause an undue
gain or undue loss to itself or any other person and comply with the requirements under sub-section
(2) of section 29.
Further, Section 233 of the IBC states that no suit, prosecution, or other legal proceeding may be
brought against an IP or liquidator for anything done or intended to be done in good faith and
according to the IBC’s rules and regulations. The IP is thus accorded statutory protection for his/her
actions.
MISTAKES COMMITTED BY INSOLVENCY PROFESSIONALS IN CONDUCT OF CORPORATE

INSOLVENCY RESOLUTION PROCESS
The IBBI and Insolvency Professional Agencies (IPAs) have come across some mistakes being
committed by some of the IPs in conduct of CIRPs. These mistakes are costs to the CD and the
economy, and often amount to contravention of provisions of the law. Most of these are probably
unintentional and can be avoided with a little more care and diligence. following are a few such
mistakes as recognised by the IBBI –
a. Assignment without having Authorisation

b. Fee payable to IP
c. Application for cooperation by the promoters / suspended directors
d. Public announcement of commencement of CIRP within three days of appointment of the
IRP

e. Updating list of claims and hosting he same on the website of the corporate debtor
f. Appointment of incompetent / interested / improper professionals / registered valuers
g. Failure to disclose fee and relationship
h. Payment of improper fees to authorised representatives
i. Non representation in judicial proceedings
j. Related party transactions without approval of CoC
k. Non supply of information to stakeholders
l. Non circulation / circulation of minutes of meeting of the CoC beyond 48 hours of the
meeting
m. Compliance with orders
n. Maintenance of proper records
o. Non co-operation with the Inspecting Authority

MAJOR CASE LAWS
1. Macquarie Bank Limited v. Shilpi Cable Technologies Ltd

1. That under section 9(3)(c) of the Code a copy of the certificate from the financial institution
maintaining accounts of the operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor is certainly not a condition precedent to triggering the
insolvency process under the Code.
2. Under section 9(3)(c) of the Code a copy of the certificate from the financial institution maintaining
accounts of the operational creditor confirming that there is no payment of an unpaid operational
debt by the corporate debtor is certainly not a condition precedent to triggering the insolvency process
under the Code.
2 Nikhil Mehta & Sons (HUF) & Ors. v. AMR Infrastructures Ltd.,

1. That a purchaser of real estate, under an ‘assured-return’ plan, would be considered as a ‘Financial
Creditor’ for the purposes of Code and is, therefore, entitled to initiate corporate insolvency process
against the builder, in case of non-payment of such ‘Assured/Committed return’ and non-delivery of
unit.
2. In the matter of Pioneer Urban Land and infrastructure Ltd. & Ans vs. UOI, Hon’ble Supreme Court
has held that amounts raised from allottees under a real estate project would be subsumed within
Section 5(8)(f) even without adverting to the Explanation introduced by the Amendment Act. As
such, all the allottees under real estate projects, whether under assured return plan or not, shall fall
under the definition of “Financial Credit’.
3. Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors.
That the stage of ineligibility on a resolution applicant attaches when the resolution plan is submitted
by a resolution applicant and not at any anterior stage. The bench further held that the time limit

for completion of the insolvency resolution process as laid down under Section 12 of the Code is
mandatory and it cannot be extended beyond 270 days.
4. Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta and Ors.

1. That that a Resolution Professional is only to “examine” and “confirm” that each resolution plan
conforms to what is provided by Section 30(2).
2. That where a resolution applicant is found to be ineligible under Section 29A(c), the resolution
applicant shall be allowed by the Committee of Creditors such period, not exceeding 30 days, to make
payment of overdue amounts in accordance with the proviso to Section 29A(c).
3. That the Resolution Professional is required to examine that the resolution plan submitted by various
applicants is complete in all respects, before submitting it to the Committee of Creditors. The
Resolution Professional is not required to take any decision, but merely to ensure that the
resolution plans submitted are complete in all respects before they are placed before the Committee
of Creditors, who may or may not approve it.

CH 17 – RESOLUTION STRATEGIES
The procedure for restructuring encompasses schemes of mergers, amalgamations, demergers,

transfer/ sale of assets, restructuring of capital by way of cancellation/ delisting or any other
modification in share capital, and restructuring of debts by ways of satisfaction or modification of
security charge/ interest as suggested in Regulation 37 of the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) by
way of which the liabilities of the distressed companies can be restructured and the state of
insolvency can be resolved. Another method envisaged under the IBC regime is by way of issuance
of securities of corporate debtor in exchange for claims/ interests (of the creditors). However, all
the above examples of how insolvency is resolved for corporates results in some or the other kind of
a corporate restructuring process.
CORPORATE RESTRUCTURING
Corporate restructuring is an inorganic business strategy where one or more aspects of a business
are redesigned to improve commercial efficiency, manage competition effectively, drive faster pace
of growth, ensure effective utilization of resources, and fulfillment of stakeholders’ expectations. It
serves different purposes for different companies at different points of time and may take up various
forms. Restructuring typically occurs to address challenges or it can be driven by the necessity to
make financial adjustments to its assets and liabilities. Mergers, amalgamations, demergers, or
reconstruction of capital structure are various forms of corporate restructuring exercises. The purpose
of each of these restructuring exercises may be different but each of these exercises attempts to
bring in more efficiency in the system so that the distress can be addressed.
While the Insolvency and Bankruptcy Code, 2016 and the Regulations made thereunder prescribe the
process for resolution of corporate insolvencies, including provisions for approval of resolution plans,
these laws do not provide the way in which these resolution plans are required to be prepared.
However, a notification issued by IBBI being Notification No. IBBI/2017-18/GN/ REG024, dated 6th
February, 2018 (w.e.f. 06 February 2018), provides that:

“A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of
the corporate debtor for maximization of value of its assets including but not limited to the following-
(a) transfer of all or part of the assets of the corporate debtor to one or more persons;
(b) sale of all or part of the assets whether subject to any security interest or not;
(ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger;
(c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of
the corporate debtor with one or more persons
(ca) cancellation or delisting of any shares of the corporate debtor, if applicable;
(d) satisfaction or modification of any security interest
(e) curing or waiving of any breach of the terms of any debt due from the corporate debtor;
(f) reduction in the amount payable to the creditors;
(g) extension of a maturity date or a change in interest rate or other terms of a debt due from the
corporate debtor
(h) amendment of the constitutional documents of the corporate debtor;
(i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for
claims or interests, or other appropriate purpose;
(j) change in portfolio of goods or services produced or rendered by the corporate debtor;
(k) change in technology used by the corporate debtor; and
(l) obtaining necessary approvals from the Central and State Governments and other authorities.”
Therefore, resolution applicants have been given the right to decide the steps they want to undertake
in their resolution plans.
TYPES OF CORPORATE RESTRUCTURING
Corporate Restructuring can be broadly categorized as –
i) External Restructuring
ii) Internal Restructuring

EXTERNAL RESTRUCTURING
External restructuring consists of merger and amalgamation of one company with another or demerger
of one or more undertakings of a company into another company, acquisition of controlling stake in
a company through purchase of majority stake in it, conversion of debt into equity, etc. These can
be further categorized as –
i) Restructuring through mergers, amalgamation and demerger

A company is merged, amalgamated or demerged to achieve improvement in efficiency in operational
and financial performance of the company. In the insolvency proceedings of a corporate debtor, the
resolution plan may provide for merger, forward or reverse of the corporate debtor with the resolution
applicant (company) or any of its group companies to maximize the utilization of the assets of the
corporate debtor. Similarly, the resolution applicant may provide to demerge one or more units of the
corporate debtor to gain operational and financial efficiency.
ii) Restructuring through acquisition of controlling stake/ purchase of shares

In this type of a resolution plane, the resolution applicant may acquire the controlling stake in the
corporate debtor by either reducing or cancelling its existing paid up share capital and recapitalizing
it by infusing further equity capital. Another way of acquiring controlling stake in the company is
by by acquiring the existing equity share capital of the company partly or fully by making payment
of some nominal consideration to the shareholders of the Corporate debtor and for meeting the
requirement of funds of the Corporate debtor, by infusing the funds partly in equity or partly in the
form of debt or fully in the form of debt only.
iii) Restructuring through conversion of debt for issuance of securities

In this structure, the Resolution applicant may propose the conversion of debt of the corporate debtor
into securities of the Corporate debtor issued in favor of the creditors, thereby, changing the nature
and terms of the debt. The said securities may be in the form of equity share, preference share or
debentures /bonds.

INTERNAL RESTRUCTURING
Internal restructuring refers to those processes of corporate restructuring in which different aspects
like operations, finances etcn of the corporate debtor are restructures in a manner to bring in more
assets and pay off liabilities of the corporate debtor. Some of the commonly used Internal
restructuring processes are –
i) Operational restructuring
Operational Restructuring involves improving the operational efficiency of the corporate debtor so as
to increase its business receipts and profitability. It may consist of creation of new departments to
serve growing markets or downsizing or eliminating departments to conserve overheads. This could
also be done by through change in portfolio of goods or services produced or rendered by it, change
in technology used by it or introducing any other changes in the operational structure as may be
required.
In the corporate insolvency resolution Process of the corporate debtor, the resolution applicant is
advised to present their strategy backed by a business plan where the Operational restructuring to
be introduced by it (resolution applicant) to resolve the insolvency state of the corporate debtor.
ii) Financial restructuring

Financial restructuring is the process of reorganizing the financial structure, which primarily comprises
of equity capital and debt capital. Corporate financial restructuring involves a considerable change in
the company’s financial structure and is undertaken for various business reasons such as:
• To overcome poor financial performance by reduction of debt and interest cost
• To address external competition
• To regain market share
• To seize emerging market opportunities
• Risk reduction
• Development of core competencies
The two major compaonents of financial restructuring are –

i) Equity Restructuring

ii) Debt Restructuring
DEBT RESTRUCTURING
Debt restructuring is the process of reorganizing the whole debt capital of the company in negotiation
with bankers, creditors, vendors to the terms to favor in improving the financial performance of the
company. Debt Restructuring includes alteration of
(a) repayment period,
(b) repayable amount,
(c) the amount of installments,
(d) rate of interest; rollover of credit facilities, sanction of additional credit facility, enhancement
of existing credit limits, compromise settlements etc.
Some of the common ways of undertaking debt restructuring are –

1) Modification in payment period, where the resolution applicant may propose for partial upfront/
immediate payment of the claims of the financial creditors and balance in a period that is
acceptable to them.
2) Conversion of the debt in some other instrument where the resolution applicant proposes to
convert the debt or part of debt in equity or some other instruments such as redeemable
debentures/ preference shares or optional convertible debentures/ preference shares etc. this
restructuring may provide the corporate debtor with a feasible and viable manner to honor its
obligations and it may provide the financial creditors with a safer and faster way to get the
payment of their dues. Many a times, creditors may also agree for accepting some percentage
of restructured equity share capital of the Corporate debtor, so that in case the Corporate
Debtor revives and starts making profits, they may offload their equity and compensate them
for the loss /sacrifice they have made while settling with the Corporate Debtor.
3) Waiver of part of the principal, interest or other charges where the resolution applicant
proposes for waiver for outstanding principal, interest and other charges, which in their opinion
is not sustainable.

4) Modification in security of the secured financial creditors of the corporate debtor. Securities
may be offered to be disposed off / released to discharge the entire or part of the claims of
the financial creditors.
5) Modification in credit limits where the fund based and non-fund based credit facilities are
restructured and the credit limits are modified based on the actual requirement of the
corporate debtor post resolution.
6) Restructuring of secured long-term borrowings
7) Restructuring of unsecured long-term borrowing
8) Restructuring of short-term borrowings.
EQUITY RESTRUCTURING
Equity restructuring involves reorganization of equity capital. This includes the following processes–
• Alteration of share capital

• Reduction of share capital
• Buy-back of shares
PLEASE NOTE that acquisition under the Insolvency and Bankruptcy Code, 2016 is exempt from
SEBI Takeover Code.
RESOLUTION MEASURES UNDER THE IBC, 2016
The Insolvency and Bankruptcy Code, 2016 read with regulation 37 of CIRP regulations provides for
various measures to resolve the insolvency of the Corporate debtor. These measures are as follows:
1) Transfer of all or part of the assets of the corporate debtor to one or more persons
2) Sale of all or part of the assets whether subject to any security interest or not
3) Restructuring of the corporate debtor, by way of merger, amalgamation and demerger
4) The substantial acquisition of shares of the corporate debtor, or the merger or consolidation
of the corporate debtor with one or more persons
5) Cancellation or delisting of any shares of the corporate debtor, if applicable

6) Reduction in the amount payable to the creditors
7) Extension of a maturity date or a change in interest rate or other terms of a debt due from
the corporate debtor
8) Amendment of the constitutional documents of the corporate debtor
9) Issuance of securities of the corporate debtor, for cash, property, securities, or in exchange
for claims or interests, or other appropriate purpose
10) Change in portfolio of goods or services produced or rendered by the corporate debtor
11) Change in technology used by the corporate debtor
12) Obtaining necessary approvals from the Central and State Governments and other authorities.
ACQUISITION OF CORPORATE DEBTOR UNDER LIQUIDATION THROUGH SALE OF ASSETS AS A

GOING CONCERN
This process is governed by Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016.
This process states that –
1. Where the committee of creditors has recommended sale or where the liquidator is of the
opinion that sale of assets (business) shall maximise the value of the corporate debtor, he
shall endeavour to first sell under the said clauses.
2. For this purpose, the group of assets and liabilities of the corporate debtor, as identified by
the committee of creditors shall be sold as a going concern.
3. Where the committee of creditors has not identified the assets and the liquidator shall
identify and group the assets and liabilities to be sold as a going concern.
4. If the liquidator is unable to sell the corporate debtor or its business within ninety days from
the liquidation commencement date, he shall proceed to sell the assets of the corporate
debtor.
Following are the ways in which the liquidator can sell the assets of the corporate debtor –
1. An asset on standalone basis
2. A business in slump sale
3. A set of assets collectively
4. Assets in parcels
5. Corporate debtor as a going concern

MAJOR CASE LAWS
1. Acquisition of Bhushan Steel Ltd. by Tata Steel Ltd.
The acquisition of Bhushan Steel Ltd (BSL) for Rs. 35,200 crore by Bamnipal Steel Ltd (BNL), a
subsidiary of Tata Steel Ltd. in May 2018, was the first major case of acquisition of a major stressed
asset under the Insolvency and Bankruptcy Code. BNL completed the acquisition of controlling stake
of 72.65 per cent in BSL in accordance with the approved resolution plan under the Corporate
insolvency resolution Process (CIRP) of the IBC.
The promoters of BSL approached the National Company Law Appellate Tribunal (NCLAT) over issue
of ineligibility of Tata Steel to acquire BSL.

1. That Tata Steel UK, a foreign subsidiary of Tata Steel, which was fined by an English Court in
February 2018 under UK act, had a provision of ‘imprisonment for a term not exceeding twelve months,
or a fine, or both’. While, the provision in section 29A(d) of the Code, which deals with eligibility,
stipulates “has been convicted for any offence punishable with imprisonment for two years or more”,
cannot be equated with Section 33(1)(a) of the U.K Act. Section 29A of the IBC mandates that a
person convicted for any offence punishable with imprisonment for two years or more is ineligible for
submitting a resolution plan.
2. That Tata Steel’s resolution plan was fair towards operational creditors of Bhushan Steel which has
a total demand of Rs.1,422 crore.
2. Y. Shivram Prasad & Ors. v. S. Dhanapal & Ors

1. That promoters can that settle dues of creditors only at three stages, i.e., before admission, before
constitution of CoC and in terms of section 12A of the Code.
2. That once the order of liquidation has been passed on failure of CIRP, the promoters can not offer
to settle the dues of the creditors.

3. Edelweiss Asset Reconstruction Company Ltd. v. Bharati Defence and Infrastructure Ltd
The Resolution Professional (RP) filed an application seeking approval of the resolution plan submitted
by an resolution applicant,who is a Financial Creditor with 82.7% voting share in the CoC. The plan
provided that the resolution applicant will sell the Corporate debtor in two years.

1. That the plan does not give due consideration to the interest of all stakeholders, seeks several
exemptions, and contains a lot of uncertainties and speculations. It provides for generation of income
from on going operations and no upfront money is brought in by the resolution applicants.
2. If the ultimate object in the resolution plan is to sell the company, then it can be achieved by sale
as a going concern during the liquidation process.

CH 18- COMMITTEE OF CREDITORS
Meeting of the
Committee of
Creditors
Section 24
CONSTITUTION OF COMMITTEE OF CREDITORS

COMMITTEE WITH FINANCIAL CREDITORS
Section 21 deals with the constitution of Committee of Creditors.
The following points need to be kept in mind while constituting the Committee of Creditors–
 That a financial creditor who is a related party of the Corporate debtor shall not get any right
of representation, participation or voting in a meeting of the committee of creditors.
 That the above bar shall not apply to a financial creditor, regulated by a financial sector regulator,
if it is a related party of the corporate debtor solely on account of conversion or substitution of
debt into equity shares or instruments convertible into equity shares, prior to the insolvency
commencement date.
 Where an operational creditor has assigned or legally transferred any operational debt to a financial
creditor, the assignee or transferee shall be considered as an operational creditor to the extent of
such assignment or legal transfer
 That where multiple creditors are a part of a Consortium, each such financial creditor shall be
part of the committee of creditors and their voting share shall be determined on the basis of
the financial debts owed to them.
 That where a person is both, a financial creditor as well as an operational creditor, their right
to vote in the Committee of Creditors shall be in proportion to the extent of the financial debt
owed by the Corporate debtor to them.
 Where a financial debt is in the form of securities or deposits and the terms of the financial
debt provides for appointment of a trustee or agent to act as authorised representative for all
the financial creditors, such trustee or agent shall act on behalf of such financial creditors.
 Where no agent or trustee is appointed for a class of creditors as mentioned above, the IRP shall
make an application to the NCLT to appoint a person as a representative of such class of people.
The remuneration of such an agent/trustee shall be a part of the CIRP cost.
 The decisions of the Committee of Creditors shall be taken by a vote of minimum 51% of voting
shares.
 The Committee may require the production of any financial information by the Resolution
Professional and the RP is bound to provide such information to them within 7 days.

COMMITTEE WITH OPERATIONAL CREDITORS
Corporate Persons) Regulations, 2016 deals with situations where either the corporate debtor has no
financial debt or where all financial creditors are related parties of the corporate debtor.
The Committee of Creditors formed by Operational Creditors shall be constituted as follows-
The members of the Committee constituted as above shall have voting rights in proportion to the
amount of debt that they represent, to the total debt. For the purposes of this sub-regulation, ‘total
debt’ is the sum of-
(a) the amount of debt due to the creditors listed in sub-regulation 2(a);
(b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and
(c) the amount of the aggregate debt due to employees under sub-regulation 2(c)
Authorised Representative of Creditors in a Class
Regulation 16A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 lists down the provisions with regard to authorized
representative.
The interim resolution professional shall select the insolvency professional, who is the choice of the
highest number of financial creditors to act as the authorised representative of the creditors of the

respective class and shall apply to the Adjudicating Authority for appointment of the authorised
representatives within two days of the verification of claims. However, any delay in appointment of
the authorised representative for any class of creditors shall not affect the validity of any decision
taken by the committee.
On appointment of the authorized representative, the interim resolution professional shall:

(a) provide the list of creditors in each class to the respective authorised representative appointed
by the Adjudicating Authority.
(b) provide an updated list of creditors in each class to the respective authorised representative as
and when the list is updated.
(c) provide electronic means of communication between the authorised representative and the
creditors in the class.
Please note that the voting share of the authorised representative shall be in proportion to the
financial debt which includes an interest at the rate of eight per cent per annum unless a different
rate has been agreed to between the parties.
Further, the authorised representative shall be entitled to a fee for every meeting attended by him
in the following manner:
Number of creditors in the class Fees per meeting of the

committee
10-100 15000
101-1000 20000
More than 1000 250000
MODALITIES OF THE MEETING OF COMMITTEE OF CREDITORS
Section 24 deals with the modalities of the meeting of Committee of Creditors. It provides for the
following points-

 The committee of creditors may meet in person or by such other electronic means.
 All meetings shall be conducted by the resolution professional.
 Notice of the meeting shall be given to –
o members of committee of creditors,
o members of the suspended Board of Directors or the partners of the corporate persons,
and
o operational creditors or their representatives if the amount of their aggregate dues is
not less than 10% of the debt.
 The directors, partners and one representative of operational creditors may attend the
meetings of committee of creditors, but shall not have any right to vote.
 Any member of the committee of creditors may appoint an insolvency professional to represent
such creditor in the meetings of the committee of creditors.
WHEN TO CONDUCT THE MEETINGS OF THE COMMITTEE OF CREDITORS?
Corporate Persons) Regulations, 2016 provides that a meeting of the Committee of Creditors maybe
convened when –
a) The Resolution Professional considers necessary, or

b) A request is made by members of the committee representing 33% of voting rights.
QUORUM OF THE MEETINGS OF THE COMMITTEE OF CREDITORS?
Corporate Persons) Regulations, 2016 provides for the Quorum of the meetings of the Committee of
Creditors. It provides that –
 Quorum = members representing at least 33% of the voting rights present either in person
or by video conferencing or other audio and visual means

 The committee has been given the powers to modify the percentage of voting rights required
for quorum in respect of any future meetings of the committee.
 If the quorum is not present, the meeting shall automatically stand adjourned at the same
time and place on the next day
 In such an event, the adjourned meeting shall be deemed to be quorate with the members
of the committee attending the meeting.
NOTICE OF THE MEETING
A meeting of the committee shall be called by giving not less than five days’ notice in writing to
every participant, at the address it has provided to the resolution professional and such notice may
be sent by hand delivery, or by post but in any event, be served on every participant by electronic
means. The committee may reduce the notice period from five days to such other period of not less
than twenty-four hours, as it deems fit, however, if there is any authorised representative, the
committee may reduce the period to not less than forty-eight hours.
The notice shall inform the participants of the venue, the time and date of the meeting andof the
option available to them to participate through video conferencing or other audio and visual means,
and shall also provide all the necessary information to enable participation through video conferencing
or other audio and visual means. It shall also provide that a participant may attend and vote in the
meeting either in person or through an authorised representative, however, such participant shall
inform the resolution professional, in advance of the meeting, of the identity of the authorised
representative who will attend and vote at the meeting on its behalf.
The notice of the meeting shall contain the following:

 a list of the matters to be discussed at the meeting;
 a list of the issues to be voted upon at the meeting; and
 copies of all documents relevant to the matters to be discussed and the issues to be voted
upon at the meeting.
The notice of the meeting shall:

 state the process and manner for voting by electronic means and the time schedule, including
the time period during which the votes may be cast;
 provide the login ID and the details of a facility for generating password and for keeping
security and casting of vote in a secure manner; and
 provide contact details of the person who will address the queries connected with the
electronic voting
Rights and Duties of Authorised Representative of Financial Creditors
Section 25A, added by way of an amendment in the year 2018, provides for the following rights and
duties of authorised representative of financial creditors –
 The right to participate and vote in meetings of the committee of creditors on behalf of the
financial in accordance with the prior voting instructions of such creditors obtained through
physical or electronic means.
 The duty to circulate the agenda and minutes of the meeting of the committee of creditors
to the financial creditor.
 The duty to not act against the interest of the financial creditor and always act in accordance
with their prior instructions.
 The duty to file with the committee of creditors any instructions received by way of physical
or electronic means, from the financial creditor.
APPROVAL OF COMMITTEE OF CREDITORS FOR CERTAIN ACTIONS
Section 28 lists out the actions which require the prior approval of the committee of creditors by a
vote of 66% of the voting shares. These resolution maybe in order 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 interest over the assets of the corporate debtor
 change the capital structure of the corporate debtor

 record any change in the ownership interest of the corporate debtor
 give instructions to financial institutions maintaining accounts of the corporate debtor for a
debit transaction from any such accounts in excess of the amount as may be decided by the
committee of creditors in their meeting
 undertake any related party transaction
 amend any constitutional documents of the corporate debtor
 delegate its authority to any other person
 dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their
nominees to third parties
 make any change in the management of the corporate debtor or its subsidiary
 transfer rights or financial debts or operational debts under material contracts otherwise than
in the ordinary course of business
 make changes in the appointment or terms of contract of such personnel as specified by the
committee of creditors; or
 make changes in the appointment or terms of contract of statutory auditors or internal
auditors of the corporate debtor
If the resolution professional takes any of the actions listed above without obtaining the consent of
the committee of creditors, such action shall be void. The resolution professional may also be liable
to be replaced.
VOTING BY THE COMMITTEE
The resolution professional shall take a vote of the members of the committee present in the
meeting, on any item listed for voting after discussion on the same. At the conclusion of a vote at
the meeting, the resolution professional shall announce the decision taken on items along with the
names of the members of the committee who voted for or against the decision, or abstained from
voting. Additionally, the resolution professional shall:
 circulate the minutes of the meeting by electronic means to all members of the committee
and the authorised representative, if any, within forty-eight hours of the conclusion of the
meeting; and

 seek a vote of the members who did not vote at the meeting on the matters listed for voting,
by electronic voting system in accordance with regulation 26 where the voting shall be kept
open for at least twenty-four hours from the circulation of the minutes.
The authorised representative is required to circulate the minutes of the meeting received by the
resolution professional 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.
APPROVAL OF THE RESOLUTIPN PLAN BY THE COMMITTEE
The following chart represents the process for approval of resolution plan by the committee of
creditors –

MAJOR CASE LAWS
1. Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd and another’,

1. That the evaluation of proposals to keep the entity as a going concern, including decisions about the
sale of business or units, restructuring of debt, etc., are required to be taken by the Committee of
the Financial Creditors.
2. That the NCLT or the NCLAT cannot interfere with the commercial wisdom of the Committee of
Creditors, except within the limited scope under Sections 30 and 31 of the Code. It was further held
that the commercial wisdom of the Committee has been given paramount status without any judicial
intervention for ensuring completion of the stated processes within the timelines prescribed by the
Code.
2. Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & ors.

1. That there is primacy of the commercial wisdom of the committee of Creditors in the resolution
process as to whether to rehabilitate the corporate debtor or not by accepting a particular resolution
plan.
2. hat prior to approving the resolution plan, the Committee is required to assess the “feasibility and
viability” of the resolution plan, which takes into account” all the aspects of the resolution plan,
including the manner of distribution of funds among various class of creditors.
3. the Committee is free to negotiate with the resolution applicant by suggesting modifications in
the commercial proposal on a case to case basis.

CH 19- PREPARATION AND APPROVAL OF RESOLUTION PLAN
WHO IS A RESOLUTION APPLICANT?
The Insolvency and Bankruptcy Code (Amendment) Act, 2021 substituted the definition of
“resolution applicant” in section 5(25) of the Code. The substituted definition provides that a
“resolution applicant” means a person, who individually or jointly with any other person, submits are
solution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-
section (2) of section 25 or pursuant to section 54K, as the case may be.
WHO CAN BE A RESOLUTION APPLICANT?
Section 29A of the IB Code, 2016 deals with the disqualifications of a person from being the
Resolution Applicant of a Corporate Debtor.
The section was inserted in the Code by way of an Amendment in the year 2018 and was
subsequently amended in the same year. It provides that the a person CANNOT act as Resolution
Applicants if he/she–
✔ is an undischarged insolvent
✔ is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India at the
time of submission of the resolution plan,
✔ has an account, or an account of a corporate debtor under the management or control of
such person or of whom such person is a promoter, classified as non-performing asset AND
at least a period of one year has lapsed from the date of such classification till the date of
commencement of the corporate insolvency resolution process of the corporate debtor.
However, this disqualification can be cured if the Applicant makes payment of the amount due before
the submission of the plan
The above clause shall not apply to the following persons –
1. Applicant who is a financial entity & is not a related party of the Corporate Debtor

2. Applicants who have received the NPAs pursuant to prior resolution plan.
✔ has been convicted for any offence punishable with imprisonment –for two years or more
under any Act specified under the Twelfth Schedule; or
✔ for seven years or more under any law for the time being in force
(The ineligibility shall remain in force for a period of 2 years from the date of expiry of the
sentence.)
 is disqualified to act as a director under the Companies Act, 2013
 is prohibited by SEBI from trading in securities or accessing the securities markets
 has been a promoter or in the management or control of a corporate debtor in which a
preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent
transaction has taken place and in respect of which an order has been made by the
Adjudicating Authority under this Code
 has executed a guarantee in favour of a creditor in respect of a corporate debtor against
which an application for insolvency resolution made by such creditor has been admitted under
this Code and such guarantee has been invoked by the creditor and remains unpaid in full or
part
 is subject to any disability, corresponding to the abovementioned clauses under any law in a
jurisdiction outside India
 has a connected person not eligible as above.
WHAT IS A FINANCIAL ENTITY?
a) a scheduled bank
b) any entity regulated by a foreign central bank or a securities market regulator or other
financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with
the Financial Action Task Force Standards and is a signatory to the International Organisation
of Securities Commissions Multilateral Memorandum of Understanding
c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio
investor or a foreign venture capital investor,
d) an asset reconstruction company registered with the Reserve Bank of India

e) an Alternate Investment Fund registered with Securities and Exchange Board of India
f) such categories of persons as may be notified by the Central Government
WHO IS A “CONNECTED PERSON”?
 any person who is the promoter or in the management or control of the resolution applicant;
 any person who shall be the promoter or in management or control of the business of the
corporate debtor during the implementation of the resolution plan;
 the holding company, subsidiary company, associate company or related party of a person
referred to in clauses (i) and (ii).
EXPRESSION OF INTEREST (EOI) ISSUED BY RESOLUTION PROFESSIONALS
Regulation 36A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 prescribes the following with regard to invitation for EOI:
(1) The resolution professional shall publish brief particulars of the invitation for expression of
interest in Form G of the Schedule at the earliest, not later than seventy-fifth day from the
insolvency commencement date, from interested and eligible prospective resolution applicants to
submit resolution plans.
(2) The resolution professional shall publish Form G-
(i) in one English and one regional language newspaper with wide circulation at the location
of the registered office and principal office, if any, of the corporate debtor and any other
location where in the opinion of the resolution professional, the corporate debtor conducts
material business operations;
(ii) on the website, if any, of the corporate debtor;
(iii) on the website, if any, designated by the Board for the purpose; and
(iv) in any other manner as may be decided by the committee.
(3) The Form G in the Schedule shall –
(a) state where the detailed invitation for expression of interest can be downloaded or
obtained from, as the case may be;

(b) provide the last date for submission of expression of interest which shall not be less
than fifteen days from the date of issue of detailed invitation.
(4) The detailed invitation referred to in sub-regulation (3) shall-
(a) specify the criteria for prospective resolution applicants, as approved by the committee
in accordance with clause (h) of sub-section (2) of section 25;
(b) state the ineligibility norms under section 29A to the extent applicable for prospective
resolution applicants;
(c) provide such basic information about the corporate debtor as may be required by a
prospective resolution applicant for expression of interest;
(d) not require payment of any fee or any non-refundable deposit for submission of expression
of interest.
(5) A prospective resolution applicant, who meet the requirements of the invitation for expression
of interest, may submit expression of interest within the time specified in the invitation under clause
(b) of sub-regulation (3).
(6) The expression of interest received after the time specified in the invitation under clause (b)
of sub-regulation (3) shall be rejected.
(7) An expression of interest shall be unconditional and be accompanied by-
(a) an undertaking by the prospective resolution applicant that it meets the criteria specified
by the committee under clause (h) of sub-section (2) of section 25;
(b) relevant records in evidence of meeting the criteria under clause (a);
(c) an undertaking by the prospective resolution applicant that it does not suffer from any
ineligibility under section 29A to the extent applicable;
(d) relevant information and records to enable an assessment of ineligibility under clause
(c);
(e) an undertaking by the prospective resolution applicant that it shall intimate the resolution
professional forthwith if it becomes ineligible at any time during the corporate insolvency
resolution process;
(f) an undertaking by the prospective resolution applicant that every information and records
provided in expression of interest is true and correct and discovery of any false information
or record at any time will render the applicant ineligible to submit resolution plan, forfeit any
refundable deposit, and attract penal action under the Code;

(g) an undertaking by the prospective resolution applicant to the effect that it shall maintain
confidentiality of the information and shall not use such information to cause an undue gain
or undue loss to itself or any other person and comply with the requirements under sub-
section (2) of section 29.
(8) The resolution professional shall conduct due diligence based on the material on record in order
to satisfy that the prospective resolution applicant complies with-
(a) the provisions of clause (h) of sub-section (2) of section 25;
(b) the applicable provisions of section 29A, and
(c) other requirements, as specified in the invitation for expression of interest.
(9) The resolution professional may seek any clarification or additional information or document
from the prospective resolution applicant for conducting due diligence under sub-regulation (8).
(10) The resolution professional shall issue a provisional list of eligible prospective resolution applicants
within ten days of the last date for submission of expression of interest to the committee and to
all prospective resolution applicants who submitted the expression of interest.
(11) Any objection to inclusion or exclusion of a prospective resolution applicant in the provisional
list referred to in sub-regulation (10) may be made with supporting documents within five days from
the date of issue of the provisional list.
(12) On considering the objections received under sub-regulation (11), the resolution professional
shall issue the final list of prospective resolution applicants within ten days of the last date for
receipt of objections, to the committee.
REQUEST FOR RESOLUTION PLANS
Regulation 36B of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 lays down the provision for request for resolution plans by the
Resolution Professional. The said regulation states the following:
(1) The resolution professional shall issue the information memorandum, evaluation matrix and a
request for resolution plans, within five days of the date of issue of the provisional list under sub-
regulation (10) of regulation 36A to –
(a) every prospective resolution applicant in the provisional list;
(b) every prospective resolution applicant who has contested the decision of the resolution
professional against its non-inclusion in the provisional list.

(2) The request for resolution plans shall detail each step in the process, and the manner and
purposes of interaction between the resolution professional and the prospective resolution applicant,
along with corresponding timelines.
(3) The request for resolution plans shall allow prospective resolution applicants a minimum of thirty
days to submit the resolution plan(s).
(4) The request for resolution plans shall not require any non-refundable deposit for submission of
or along with resolution plan.
(4A) The request for resolution plans shall require the resolution applicant, in case its resolution
plan is approved under sub-section (4) of section 30, to provide a performance security within the
time specified therein and such performance security shall stand forfeited if the resolution applicant
of such plan, after its approval by the Adjudicating Authority, fails to implement or contributes to
the failure of implementation of that plan in accordance with the terms of the plan and its
implementation schedule.
Explanation I. – For the purposes of this sub-regulation, “performance security” shall mean security
of such nature, value, duration and source, as may be specified in the request for resolution plans
with the approval of the committee, having regard to the nature of resolution plan and business of
the corporate debtor.
Explanation II. – A performance security may be specified in absolute terms such as guarantee from
a bank for Rs. X for Y years or in relation to one or more variables such as the term of the resolution
plan, amount payable to creditors under the resolution plan, etc.
(5) Any modification in the request for resolution plan or the evaluation matrix issued under sub-
regulation (1), shall be deemed to be a fresh issue and shall be subject to timeline under sub-
regulation (3).
(6) The resolution professional may, with the approval of the committee, extend the timeline for
submission of resolution plans.
(7) The resolution professional may, with the approval of the committee, re-issue request for
resolution plans, if the resolution plans received in response to an earlier request are not satisfactory,
subject to the condition that the request is made to all prospective resolution applicants in the final
list: Providedthat provisions of sub-regulation (3) shall not apply for submission of resolution plans
under this sub- regulation.”

WHAT IS A RESOLUTION PLAN?
A Resolution Plan means a plan proposed by a resolution applicant for insolvency resolution of the
corporate debtor as a going concern under Part II of the IB Code, 2016. This Resolution Applicant
can be a person, who either individually or jointly with any other person, submits a resolution plan
to the resolution professional pursuant to the invitation made under the Code.
MANDATORY CONTENTS OF THE RESOLUTION PLAN
Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016,
lists down the mandatory contents of the resolution plan as follows:
(1) The amount payable under a resolution plan -
(a) to the operational creditors shall be paid in priority over financial creditors; and
(b) to the financial creditors, who have a right to vote under sub-section (2) of section 21
and did not vote in favour of the resolution plan, shall be paid in priority over financial
creditors who voted in favour of the plan.
(2) A resolution plan shall include a statement as to how it has dealt with the interests of all
stakeholders, including financial creditors and operational creditors, of the corporate debtor.
(3) A resolution plan shall include a statement giving details if the resolution applicant or any of
its related parties has failed to implement or contributed to the failure of implementation of any
other resolution.
(4) A resolution plan shall provide:
• the term of the plan and its implementation schedule;
• the management and control of the business of the corporate debtor during its term; and
• adequate means for supervising its implementation.
(5) A resolution plan shall demonstrate that –
• it addresses the cause of default;
• it is feasible and viable;
• it has provisions for its effective implementation;
• it has provisions for approvals required and the timeline for the same; and
• the resolution applicant has the capability to implement the resolution plan

SUBMISSION OF RESOLUTION PLAN
Section 30 provides for the process to be followed while submitting the Resolution Plans.
It provides that the Resolution Applicants have to submit the Resolution Plans to the Resolution
Professional along with an affidavit stating that they are eligible under the Code to act as Resolution
Applicant along with the Resolution Plans.
APPROVAL OF RESOLUTION PLAN BY THE RP AND COC
Once the Resolution Professional receives all the Resolution Plans, they shall –
a) check the viability and feasibility of the Resolution plans, and
b) submit all the resolution plan which conform to the criteria in section 30(2), to the committee
of creditors.
While examining the viability of the Resolution Plans, the Resolution Applicant shall check and
ensure that the Resolution Plan –
 provides for the payment of insolvency resolution process costs
 provides for the payment of the debts of operational creditors which shall not be less
than the amount to be paid to the operational creditors in the event of a liquidation of
 provides for the management of the affairs of the Corporate debtor after approval of the
resolution plan
The Resolution Professional shall also check that the Plan-

 provides for the implementation and supervision of the resolution plan
 does not contravene any of the provisions of the law for the time being in force
 confirms to such other requirements as may be specified by the Board.

Once the eligible Resolution Plans are submitted to the Committee of Creditors, they are supposed
supposed to approve ONE resolution plan by a vote of not less than 66% voting share and file it
with the NCLT for approval.
The following points with respect to the approval of resolution plans are worth noting –
 That the resolution applicant is allowed to attend the meeting in which their plan is
being considered, however, without having any right to vote.
 That if any approval of shareholders is required under the Companies Act, 2013 or any
other law for the time being in force for the implementation of actions under the
resolution plan, such approval shall be deemed to have been given and it shall not be a
contravention of that Act or law.
APPROVAL OF RESOLUTION PLAN BY THE NCLT
Section 31 provides for the approval of the Resolution Plan by the NCLT. It provides that where–
 The NCLT is satisfied

 That the Resolution Plan complies with all the requirements of the Code
 And can be effectively implemented
 They may pass an order approving the same.
If NCLT is satisfied that the Plan does not comply with all the requirements of the Code or that it
cannot be effectively implemented, it may reject the Plan.
Corporate Persons) Regulations, 2016 lays down the detailed procedure for the approval of Resolution
Plan. The said Regulation states the following:
(1) A prospective resolution applicant in the final list may submit resolution plan or plans prepared
in accordance with the Code and these regulations to the resolution professional electronically within
the time given in the request for resolution plans under regulation 36B along with:

(a) an affidavit stating that it is eligible under section 29A to submit resolution plans;
(b) an undertaking by the prospective resolution applicant that every information and records
provided in connection with or in the resolution plan is true and correct and discovery of false
information and record at any time will render the applicant ineligible to continue in the
corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action
under the Code.
(1A) A resolution plan which does not comply with the provisions of sub-regulation (1) shall be
rejected.
(2) The resolution professional shall submit to the committee all resolution plans which comply with
the requirements of the Code and regulations made thereunder along with the details of following
transactions, if any, observed, found or determined by him: -
(a) preferential transactions under section 43;
(b) undervalued transactions under section 45;
(c) extortionate credit transactions under section 50; and
(d) fraudulent transactions under section 66,
(3) The committee shall-
(a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix;
(b) record its deliberations on the feasibility and viability of each resolution plan; and
(c) vote on all such resolution plans simultaneously.
(3A) Where only one resolution plan is put to vote, it shall be considered approved if it receives
requisite votes.
(3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which
receives the highest votes, but not less than requisite votes, shall be considered as approved:
Provided that where two or more resolution plans receive equal votes, but not less than requisite
votes, the committee shall approve any one of them, as per the tie-breaker formula announced before
voting:
Provided further that where none of the resolution plans receives requisite votes, the committee shall
again vote on the resolution plan that received the highest votes, subject to the timelines under the
Code.
(4) The resolution professional shall endeavour to submit the resolution plan approved by the
committee to the Adjudicating Authority at least fifteen days before the maximum period for
completion of corporate insolvency resolution process under section 12, along with a compliance

certificate in Form H of the Schedule and the evidence of receipt of performance security required
under sub-regulation (4A) of regulation 36B.
(5) The resolution professional shall forthwith send a copy of the order of the Adjudicating
Authority approving or rejecting a resolution plan to the participants and the resolution applicant.
(6) A provision in a resolution plan which would otherwise require the consent of the members or
partners of the corporate debtor, as the case may be, under the terms of the constitutional
documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other
document of a similar nature, shall take effect notwithstanding that such consent has not been
obtained.
(7) No proceedings shall be initiated against the interim resolution professional or the resolution
professional, as the case may be, for any actions of the corporate debtor, prior to the insolvency
commencement date.
(8) A person in charge of the management or control of the business and operations of the
corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an
application to the Adjudicating Authority for an order seeking the assistance of the local district
administration in implementing the terms of a resolution plan.
(9) A creditor, who is aggrieved by non-implementation of a resolution plan approved under sub-
section (1) of section 31, may apply to the Adjudicating Authority for directions.
EFFECT OF ORDER OF APPROVAL PASSED BY THE NCLT
The Acceptance of the resolution plan by the NCLT results in the following consequences –
a) The Moratorium period comes to an end
b) The RP shall forward all records relating to the conduct of the CIRP and the resolution plan
to the Board to be recorded on its database.
It is to be noted that once the Resolution plan is approved, the Resolution Applicant has to ensure
that all the statutory approvals, as required, are received by them within the time as specified in
the Plan.

EFFECT OF ORDER OF REJECTION PASSED BY THE NCLT –
If the NCLT rejects the Resolution Plan submitted by the Committee of Creditors, the following
events happen-
a) An order of liquidation is passed against the Corporate Debtor

b) An Official Liquidator is appointed.
APPEAL
Section 32 deals with appeals from an order approving the resolution plan.
An appeal against an order approving a resolution plan may be filed on the following grounds:
 That the approved resolution plan is in contravention of the provisions of any law for the
time being in force
 That there has been material irregularity in exercise of the powers by the resolution
professional during the corporate insolvency resolution period
 That the debts owed to operational creditors of the corporate debtor have not been provided
for in the resolution plan
 That the insolvency resolution process costs have not been provided for repayment in priority
to all other debts, or
 That the resolution plan does not comply with any other criteria specified by the Board
LIABILITY OF CORPORATE DEBT OR FOR OFFENCES COMMITTED PRIOR TO CIRP
Section 32A provides for immunity to the resolution applicant from the liability of offences that the
promoters or the persons incharge of the corporate debtor had committed prior to the initiation of
CIRP, subject to certain conditions.
The Section also bars any action being taken against the property of the corporate debtor pursuant
to an offence committed prior to the CIRP, subject to the condition that the property is covered

under the resolution plan approved by the AA or sale under liquidation and the resolution plan should
have resulted in change in management/control of the corporate debtor such that debarred persons
are not in management/control of the corporate debtor post resolution. However, the immunity is
not provided for the property of any other person, other than the corporate debtor.
SPECIAL PROVISION RELATING TO TIME-LINE
Regulation 40C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 was inserted vide the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020 dated
20th April, 2020 which came into force from 29th March, 2020. The said Regulation came in light
of the COVID-19 situation persisting in the country. It provided that Notwithstanding the time-lines
contained in these regulations, but subject to the provisions in the Code, the period of lockdown
imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the
purposes of the time-line for any activity that could not be completed due to such lockdown, in
relation to a corporate insolvency resolution process.

MAJOR CASE LAWS
1. Binani Industries Ltd. v. Bank of Baroda and Ors.
That NCLAT laid the following principles for approval of the evaluation of resolution plans –
1. Functionally, the resolution plan shall resolve insolvency, maximise the value of assets of the corporate
debtor, and promote entrepreneurship, availability of credit, and balance the interests of all the
stakeholders. The resolution plan is not asale, or auction, or recovery or liquidation but a resolution of
the Corporate Debtor as a going concern.
2. A resolution process under IBC is not an auction. Feasibility and viability of a ‘Resolution Plan’ are
not amenable to bidding or auction. It requires application of mind by the ‘Financial Creditors’ who
understand the business well.
3. A resolution process under IBC is not recovery. Recovery is an individual effort by a creditor to recover
its dues through a process that has debtor and creditor on opposite sides. The ‘I&B Code’ prohibits
and discourages recovery.
4. A resolution process is not a liquidation. The IBC does not allow liquidation of a Corporate Debtor
directly and permits liquidation only on failure of the resolution process.
5. The IBC aims to balance the interests of all stakeholders and does not maximise value for financial
creditors. Therefore, the dues of operational creditors must get at least similar treatment as compared
to the due of financial creditors.
6. Any resolution plan if shown to be discriminatory against one or other financial creditor or the
operational creditor, can be held to be against the provisions of IBC.
2. Vijay Kumar Jain v. Standard Chartered Bank and Ors.

That Supreme Court, while holding that erstwhile directors of a corporate debtor undergoing CIRP are
entitled to receive a copy of the resolution plan, stated that every participant is entitled to a notice
of every meeting of the committee of creditors. Such notice of meeting must contain an agenda of

the meeting, together with the copies of all documents relevant for matters to be discussed and the
issues to be voted upon at the meeting vide Regulation 21(3)(iii). Court said the expression
“documents” is a wide expression which would certainly include resolution plans.
Functionally, the resolution plan shall resolve insolvency, maximise the value of assets of the corporate
debtor, and promote entrepreneurship, availability of credit, and balance the interests of all the
stakeholders. The resolution plan is not asale, or auction, or recovery or liquidation but a resolution of
the Corporate Debtor as a going concern.

CH 20- INDIVIDUAL / FIRM INSOLVENCY
The Insolvency and Bankruptcy Code, 2016 outlines a separate insolvency resolution process for
individuals/partnership firms which is different from that provided for the corporate bodies. Chapter
III of Part III provides for insolvency resolution process for individuals and partnership firms.
The Adjudicatory Authority for the process enshrined under this Part is the Debt Recovery Tribunal,
constituted under the Recovery of Debts due to Banks and Financial Institutions Act, 1993. Just like
in the case of corporate bodies, both debtor as well as the creditor can initiate the insolvency
resolution process for persons covered under this Part.
APPLICATION TO INITIATE INSOLVENCY RESOLUTION PROCESS
There are strike differences in the procedure to file an application to initiate the insolvency resolution
process under part II and Part III of the Insolvency and Bankruptcy Code, 2016.
Under Part III, both the debtors and the creditors have a right to file the application. Further, they
can choose to file the application either by themselves or through a resolution professional. It is to
be noted that the proceedings under Part III of the Code take place before the Debt Recovery
Tribunals.
The following chart explains the procedure to file an application for initiation of an Insolvency
Resolution Process under Part III of the IB Code, 2016 -

WHO IS NOT ENTITLED TO INITIATE THE INSOLVENCY RESOLUTION PROCESS.
Section 94 provides that a debtor shall not be entitled to make an application if he / it is–
a) an undischarged bankrupt;
b) undergoing a fresh start process;
c) undergoing an insolvency resolution process;
d) undergoing a bankruptcy process, or,
e) if an application under this Chapter has been admitted in respect of the debtor during the
period of 12 months preceding the date of submission of the application.

DEBTS IN RESPECT OF WHICH APPLICATION CAN BE SUBMITTED
The Code provides that an application to initiate insolvency resolution process shall be submitted
only in respect of debts which are NOT excluded debts. ‘Excluded Debts’ includes–
a) liability to pay fine imposed by a court or tribunal;

b) liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other
legal obligation;
c) liability to pay maintenance to any person under any law for the time being in force;
d) liability in relation to a student loan; or
e) any other debt as may be prescribed.
INTERIM-MORATORIUM
⮚ Date of Commencement - Date of filing of the application
⮚ Date of Termination - Date of admission of the application.
Effects of Interim Moratorium

a) any pending legal action in respect of any debt shall be deemed to have been stayed; and
b) the creditors shall not initiate any legal action or proceedings in respect of any debt.
Exclusion of certain transactions from Interim Moratorium

 Transactions as may be notified by the Central Government in consultation with any financial
sector regulator.
APPOINTMENT OF RESOLUTION PROFESSIONAL
Part III of the Code provides an option to the applicant to file the application for the initiation of
an insolvency resolution process through a resolution professional. As per Section 97, the process for
the appointment of the resolution professional necessarily depends upon whether the applicant has
proposed the name of a resolution professional.

REPLACEMENT OF RESOLUTION PROFESSIONAL
Section 98 provides for the replacement of the Resolution Professional. The process envisaged under
the Section is as follows –
The same procedure needs to be followed if the creditors decide to replace the Resolution Professional
for the period in which the Repayment Plan is implemented. However, during such replacements, the
DRT may give directions to the replaced resolution professional to share all information with and
extend full support and cooperation to the new resolution professional.
SUBMISSION OF REPORT BY RESOLUTION PROFESSIONAL
Once the resolution professional is appointed, he/she is supposed to make a report under Section 99,
recommending either acceptance or rejection of the application. The resolution professional is supposed

to submit this report within 10 days of appointment. The Report should contain proper reasons behind
the recommendation made by the resolution professional and a copy of the same must be given to
the applicant.
In case the application is filed by the creditor and the debtor challenges the existence of the debt,
the resolution professional may seek evidence from the debtor to prove the same. This evidence can
be in the form of-
a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor;
b) evidence of encashment of a cheque issued by the debtor; or
c) a signed acknowledgment by the creditor accepting receipt of dues
However, if the debt is registered with the information utility, the debtor shall not be entitled to
dispute the validity of such debt.
The section also provides that if, while preparing the report, the resolution professional finds that
the debtor is eligible for a fresh start process, he may make recommendations to that effect and
the application shall then be treated accordingly.
ADMISSION OR REJECTION OF APPLICATION
Section 100 mandates that the DRT pass an order either accepting or rejecting the application within
a period of 14 days from the date of submission of the report by the resolution professional.
A copy of the said order, along with the report of the resolution professional, should be sent to the
creditors within 7 days of the said order.
MORATORIUM
⮚ Date of Commencement – Date on which the Application is admitted

⮚ Date of Termination - Date on which an order approving the repayment plan is passed by
the DRT OR at the expiry of 180 days from the date of admission of the application, whichever
is earlier. (Section 101)
Effects of moratorium –
a) any pending legal action or proceeding in respect of any debt shall be deemed to have been
stayed;
b) the creditors shall not initiate any legal action or proceedings in respect of any debt; and
c) the debtor shall not transfer, alienate, encumber or dispose of any of the assets or his legal
right or beneficial interest therein.
PUBLIC NOTICE AND CLAIMS FROM CREDITORS
Section 102 provides that the DRT shall issue a public notice within 7 days of passing the order
admitting the application for initiation of the insolvency resolution process. The Announcement shall
be made with an objective of inviting claims from all creditors within 21 days of such announcement.
The announcement so made shall be-
a) published in at least one English and one vernacular newspaper which is in circulation in the
state where the debtor resides;
b) affixed in the premises of the Adjudicating Authority; and
c) placed on the website of the Adjudicating Authority.
Further, the announcement shall include the following details –
a) details of the order admitting the application;
b) particulars of the resolution professional with whom the claims are to be registered; and
c) the last date for submission of claims.
Pursuant to this announcement, the creditors are required to get their claims registered with the
resolution professional.
Section 104 further provides that on the basis of –

⮚ the information disclosed in the application filed by the debtor and
⮚ claims received pursuant to the public announcement,
the resolution professional is required to prepare a list of creditors including all the creditors of the
debtor. this list shall be prepared within 30 days of the public announcement.
REPAYMENT PLAN
The repayment plan is a plan that contains terms as per which the debtor agrees to repay his debts
to his creditors. The repayment plan is prepared by the debtor, in consultation with the resolution
professional. It is provided that since the creditors are not involved in the preparation of the
repayment plan, the plan should contain reasons as to why the creditors can be expected to agree
to the repayment plan.
The plan should contain provisions made for the following –

a) justification for preparation of such repayment plan and reasons on the basis of which the
creditors may agree upon the plan;
b) provision for payment of fee to the resolution professional;
c) such other matters as may be specified.
The Plan may further authorize the resolution professional to-
 carry on the debtor’s business or trade on his behalf or in his name; or

 realise the assets of the debtor; or
 administer or dispose of any funds of the debtor.
Once the repayment plan is prepared, the Resolution Professional is required to prepare a Report and
submit the same along with the Plan to the DRT within a period of 21 days from the last date of
submission of claims. The report should contain points like –
a) whether the plan is in compliance with the provisions of any law for the time being in force;
b) whether the plan has a reasonable prospect of being approved and implemented; and

c) whether there is a necessity of summoning a meeting of the creditors to consider the
repayment plan.
d) Also, if the meeting is to be conducted, the date, place and time of such meeting.
MEETING OF CREDITORS
Section 107 talks about summoning of the meeting of creditors. If the report of the resolution
professional suggests that a meeting of the creditors be conducted, then the meeting must be called
within a period of not less than 14 days and not greater than 28 days of the date on which such
report is submitted.
NOTICE OF THE MEETING
The notice of the meeting should be sent to all the creditors of the debtor at least 14 days prior to
the date of the meeting. The notice shall contain a copy of the repayment plan, statement of affairs
of the debtor, report of the resolution professional and forms for proxy voting.
CONDUCT OF MEETING OF CREDITORS
The meeting of the creditors, the creditors may decide to approve, modify or reject the repayment
plan. However, no modification should be done in the plan without the approval of the debtor. The
resolution professional may, for a sufficient cause, adjourn the meeting of the creditors for a period
of not more than 7 days at a time.
VOTING RIGHTS
The voting right of each creditor is determined by the amount of debt owed to them by the debtor
and is proportionate to the amount of debt due to them. However, no voting rights are given to the
following creditors –
a) a person to whom a debt for an unliquidated amount is owed,

b) a person who is not a creditor mentioned in the list of creditors, or

c) a person who is an associate of the debtor.
Secured creditors, prima facie, have no right to vote in the meeting of the creditors. However, they
acquire a right to vote if they choose to relinquish their security interest.
The Code further provides that the concurrence of the secured creditor shall be obtained if they do
not participate in the voting on repayment plan but provisions of the plan affect their right to
enforce security.
Section 111 of the Code provides that the repayment plan or any modification to the repayment plan
shall be approved by a majority of more than 3/4th in value of the creditors present in person or by
proxy and voting on the resolution in a meeting of the creditors
REPORT OF MEETING OF CREDITORS
The resolution professional is entrusted upon with the duty to prepare a report on the meeting of
the creditors. The Report shall contain the following details –
a) Whether the repayment plan was approved or rejected and if approved, the list the
modifications, if any;
b) the resolutions which were proposed at the meeting and the decision on such resolutions;
c) list of the creditors who were present or represented at the meeting, and the voting records
of each creditor for all meetings of the creditors; and
d) such other information as the resolution professional thinks appropriate.
The report, once prepared, is required to be sent to the following persons –
a) the debtor;
b) creditors, including those who were not present at the meeting; and
c) DRT

APPROVAL / REJECTION OF REPAYMENT PLAN
On the basis of the report prepared by the resolution professional, the DRT shall pass an order either
accepting or rejecting the application. If the Authority deems fit, it may even ask for certain
modifications to be made to the plan.
Order of Approval – Plan is binding on all the creditor

Order of Rejection – Debtor and the creditors entitled to file an application for bankruptc
IMPLEMENTATION AND SUPERVISION OF REPAYMENT PLAN
The resolution professional is entrusted with the responsibility to supervise the implementation of
the repayment plan. The resolution professional shall seek directions from the DRT, if necessary.
COMPLETION OF REPAYMENT PLAN
On completion of the repayment plan, the resolution professional shall forward the following
documents to the creditors –
a) a notice stating that the repayment plan has been fully implemented,
b) a copy of a report summarizing all receipts and payments made in pursuance of the repayment
plan, and
c) extent of the implementation of such plan as compared with the repayment plan approved
by the meeting of the creditors.
These documents should be forwarded within a period of 14 days from the date of completion of the
repayment plan.

PREMATURE END OF THE REPAYMENT PLAN
Premature end of the repayment plan means the situation wherein a repayment plan does not get
fully implemented within the period as mentioned in the repayment plan. If such a situation occurs,
the resolution professional shall prepare a report and submit it to the DRT. The report shall include
the following information –
a) the receipts and payments made in pursuance of the repayment plan;

b) the reasons for premature end of the repayment plan; and
c) the details of the creditors whose claims have not been fully satisfied.
It is important to note that NO EXTENSION OF TIME is granted for implementation of repayment

plan under Part III of the IB Code, 2016.
Once the repayment plan gets prematurely terminated, the debtor or the creditors whose claims
under repayment plan have not been fully satisfied, become entitled to apply for a bankruptcy order.
DISCHARGE ORDER
Repayment plan is a plan under which the debts of the debtor are discharge in a pre-decided manner.
It is provided that as and when the debts get discharged, the resolution professional may apply to
the DRT to pass a discharge order in respect of the debts so repaid.
Discharge order is an order passed by the DRT recognizing the fact that the debts have been repaid.
The discharge orders shall be forwarded to the Board, for the purpose of recording entries in the
register.

CH 21- FRESH START PROCESS
The fresh start process is enshrined under Chapter II of Part III of the Code. The fresh start process
is an opportunity to a debtor who is unable to pay his debts to clear off his debts in a time-bound
manner on fulfilling the prescribed conditions for the fresh start of his qualifying debts. The intent
of fresh start process is to provide debtors with comparatively small debts, a chance to discharge
off their debts and restart afresh without any liability. The fresh start process is an alternative to
the insolvency and bankruptcy processes. To prevent and curb the abuse of this debtor centric
process, the Code has aligned certain restrictions on the applicability and validity of fresh start
process.
The IB Code, 2016 has replaced the erstwhile Presidency Towns Insolvency Act and the Provincial
Insolvency Act with respect to the resolution of an individual’s or a firm’s insolvency. The Code has
brought a number of new concepts in the arena of resolution of insolvency of such persons. One
such concept is called the Fresh Start Process.
A fresh start process is a process wherein the eligible debtors are discharged from certain debts
within a specified threshold and can start afresh without any liabilities. The fresh start process has
been conceptualized for persons who owe relatively less amount of money and have little or no
income or assets to repay their debts. Once a person makes an application to the DRT and the
application gets accepted, they are discharged from the qualifying debts and are not required to
repay such debts.
WHAT IS A “QUALIFYING DEBT”?
A “qualifying debt” means amount due, which includes interest or any other sum due and does not
include –
- an excluded debt;
- a debt to the extent it is secured; and
- any debt which has been incurred 3 months prior to the date of the application for fresh
start process.

WHAT IS AN “EXCLUDED DEBT?”
An “Excluded debt” means –

 liability to pay fine imposed by a court or tribunal;
 liability to pay damages for negligence, nuisance or breach of a statutory, contractual or
other legal obligation;
 liability to pay maintenance to any person under any law;
 liability in relation to a student loan;
 any other debt as may be prescribed.
ELIGIBILITY FOR MAKING AN APPLICATION
As per Section 80, a debtor who fulfils the following criteria is allowed to file an application for
initiation of a fresh start process-
a) the gross annual income of the debtor does not exceed Rs. 60,000;
b) the aggregate value of the assets of the debtor does not exceed Rs. 20,000;
c) the aggregate value of the qualifying debts does not exceed Rs. 35000;
d) they are not undischarged bankrupts;
e) they do not own a dwelling unit, irrespective of whether it is encumbered or not;
f) a fresh start process, insolvency resolution process or bankruptcy process is not subsisting
against them; and
g) no previous fresh start order had been made in relation to them in the preceding 12 months
of the date of the application for fresh start.
FILING OF APPLICATIONS FOR FRESH START PROCESS
The application shall contain the following information supported by an affidavit:

A person who is eligible as per section 81 may make an application for initiation of a fresh start
process. An application for fresh start may be made by the debtor either personally or through a
resolution professional. Once the application is filed, a period of Interim Moratorium is initiated
against the applicant.
INTERIM MORATORIUM
✔ Date of Commencement – date of filing of said application

✔ Date of Termination – date of admission or rejection of the application
FRESH START PROCESS
The following process is required to be followed once an application for initiation of the fresh start
process is filed –

Appointment of Resolution Professional
The first step is the appointment of a resolution professional who is required to take the process
forward.
[ NOTE - The process of appointment of resolution professional is the same as given in the process
for Resolution of Individual/Firm Insolvency]
Section 82 of the Insolvency and Bankruptcy Code, 2016 provides that where an application under
Section 80 is filed by the debtor through a Resolution Professional, the Adjudicating Authority shall
direct the Board within seven days of the date of receipt of the application and shall seek
confirmation from the Board that there are no disciplinary proceedings against the Resolution
Professional who has submitted such application. The Board shall communicate to the adjudicating
authority in writing either:
• Confirming the appointment of the Resolution Professional who filed an application or
• Rejecting the appointment of the Resolution Professional who filed an application and
nominating a Resolution Professional suitable for the fresh start process.
Where an application under section 80 is filed by the debtor himself and not through the Resolution
Professional, the adjudicating authority shall direct the Board within seven days of the date of the
receipt of an application to nominate a Resolution Professional for the fresh start process. The Board
shall nominate a Resolution Professional within ten days of receiving the direction issued by the
adjudicating authority. The adjudicating authority shall by order appoint the Resolution Professional
recommended or nominated by the Board.
Examination by Resolution Professional
Section 83 provides that once the resolution professional is appointed, they are required to examine
the application within 10 days and submit a report to the DRT, either recommending acceptance or
rejection of the application.

The report by the Resolution Professional shall contain the details of the amounts mentioned in the
application which in the opinion of the Resolution Professional are–
• qualifying debts; and
• liabilities eligible for discharge under sub-section (3) of Section 92.
While making the recommendation, the resolution professional may call for any extra information
that they may require and the applicant is required to provide the same within 7 days of such call
for information. The Resolution Professional shall presume that the debtor is unable to pay his debts
at the date of the application, if in his opinion:
• the information supplied in the application indicates that the debtor is unable to pay his
debts and he has no reason to believe that the information supplied is incorrect or incomplete;
and
• there is no change in the financial circumstances of the debtor since the date of the
application enabling the debtor to pay his debts. The Resolution Professional shall record the
reasons for recommending the acceptance or rejection of the application in the report to the
adjudicating authority and shall give a copy of the report to the debtor.
Recommendation by the Resolution Professional
After going through the application and the additional information, if any, the resolution professional
shall make a recommendation to the DRT to either accept or reject the application. The resolution
professional shall recommend the acceptance of the application if they are satisfied that –
a) the information supplied in the application indicates that the debtor is unable to pay his
debts and they have no reason to believe that the information supplied is incorrect or
incomplete; and
b) there is no change in the financial circumstances of the debtor since the date of the
application enabling the debtor to pay his debts.
However, the resolution professional shall recommend the rejection of the application if it is found
that–

The Resolution Professional shall reject the application in the following cases:
(a) The debtor does not satisfy the conditions specified under Section 80; or
(b) the debts disclosed in the application by the debtor are not qualifying debts;
or
(c) the debtor has deliberately made a false representation or omission in the
application or with respect to the documents or information submitted.
Admission or Rejection by Adjudicating Authority
Section 84 prescribes that the DRT shall make an order either accepting or rejecting the application
for initiation of a fresh start process within 14 days of submission of report by the resolution
professional. If the application is accepted, a fresh moratorium period gets initiated against the
debtor.
Effect of Moratorium Period
The following are the effects of the initiation of a moratorium period –
a) any pending legal action or legal proceeding in respect of any debt shall be deemed to have
been stayed;
b) the creditors shall not initiate any legal action or proceedings in respect of any debt
c) the debtor is barred from –
i. acting as a director of any company, or directly or indirectly taking part in or be
concerned in the promotion, formation or management of a company;
ii. disposing of or alienating any of the assets;
iii. travelling outside India except with the permission of the Adjudicating Authority
d) the debtor is further required to-
i. inform his business partners that he is undergoing a fresh start process;
ii. inform prior to entering into any financial or commercial transaction of such value as
may be notified, either individually or jointly, that he is undergoing a fresh start
process;

iii. disclose the name under which he enters into business transactions, if it is different
from the name in the application admitted under section
Duration of Moratorium Period – 180 days
Objections by Creditor
Section 86 provides that any creditor, amount due to whom, gets discharged as a part of the fresh
start order, may file an objection with the resolution application within a period of 10 days from the
date of receipt of the order. However, the objection can be filed only on the following grounds,
namely:
⮚ inclusion of a debt as a qualifying debt;

⮚ incorrectness of the details of the qualifying debt specified in the order under section.
The resolution professional shall examine the objections and either accept or reject the objections,
within 10 days of the date of the application. The Resolution Professional may examine on any
matter that appears to him to be relevant to the making of a final list of qualifying debts for the
purposes of Section 92. On the basis of the examination, the Resolution Professional shall:

Application against Decision of Resolution Professional
Any person aggrieved by a decision taken by the resolution professional on an objection filed by
them may make an application to the DRT. However, the application must be filed within a period
of 10 days from the date of the decision taken by the resolution professional and shall be filed on
the following grounds only –
a) that no opportunity was given to the debtor or the creditor to make a representation;
b) that the resolution professional colluded with the other party in arriving at the decision;
c) that the resolution professional did not comply with the requirements of section 86.
The adjudicating authority shall decide the application referred within fourteen days of such
application and make an order as it deems fit. Where the application has been allowed by the
Adjudicating Authority, it shall forward its order to the Board and the Board may take such action
as may be required against the Resolution Professional.
The DRT is required to decide upon the application within 14 days of its submission.
REPLACEMENT OF RESOLUTION PROFESSIONAL
Section 89 gives powers to the debtor and the creditors to replace the resolution professional. For
this, an application is required to be filed by the person to the DRT. The DRT is then required to
follow the procedure that is required to be followed while appointing the resolution professional.
REVOCATION OF FRESH START PROCESS ORDER
Section 91 sets out the grounds on which the resolution professional may submit an application to
the DRT seeking revocation of its order made for initiation of the fresh start process. The object of
section 91 is to provide for rescinding the fresh start process where due to any change in the
financial circumstances of the debtor, the debtor becomes ineligible for a fresh start process or the
debtor acts in violation of certain provisions of the Code.

The resolution professional may make an application seeking revocation of the order admitting
application for fresh start process on the following grounds-
 if due to any change in the financial circumstances of the debtor, the debtor becomes
ineligible for a fresh start process; or
 non-compliance by the debtor of the restrictions imposed; or
 if the debtor has acted in a mala fide manner and has wilfully failed to comply with the
provisions of the Code.
The DRT has to decide upon the application within a period of 14 days and a copy of the same
should be provided to the IBBI for entering into their records.
DISCHARGE ORDER
Section 92 provides for the passing of a discharge order by the DRT at the end of the moratorium
period for discharge of the debtor from the qualifying debts. The resolution professional shall prepare
a final list of qualifying debts and submit such list to the DRT at least 7 Days before the moratorium
period comes to an end.
On receiving the list and at the end of the moratorium period, the DRT shall make an order
discharging the debtor from the qualified debts. The order may also provide for the following–
a) penalties in respect of the qualifying debts from the date of application till the date of the
discharge order;
b) interest including penal interest in respect of the qualifying debts from the date of application
till the date of the discharge order;
c) any other sums owed under any contract in respect of the qualifying debts from the date of
application till the date of the discharge order.

The discharge order shall be forwarded to the Board for the purpose of recording an entry in the
register. Please note that a discharge order discharges only the debtor and is recorded in the financial
history of the debtor.
STANDARD OF CONDUCT
Section 93 of the Insolvency and Bankruptcy Code, 2016 provides that the Resolution Professional
shall perform his functions and duties in compliance with the code of conduct provided under Section
208.
FRESH START PROCESS

CH 22- DEBT RECOVERY AND SARFAESI
In the traditional lending process, a bank makes a loan, maintaining it as an asset on its balance
sheet, collecting principal and interest, and monitoring whether there is any deterioration in
borrower’s creditworthiness. This requires a bank to hold assets till repayment of loan. The funds of
the bank are blocked in these loans and to meet its growing fund requirement a bank has to raise
additional funds from the market.
WHY SECURITIZATION?
a) When a borrower, who is under a liability to pay to secured creditor, makes any default in
repayment of secured debt or any installment thereof, the account of borrower is classified
as non-performing asset (NPA). NPAs constitute a real economic cost to the nation because
the money locked up in NPAs are not available for productive use and to the extent that
banks seek to make provisions for NPAs or write them off, it is a charge on their profits.
High level of NPAs impact adversely on the financial strength of banks.
b) The public at large is also adversely affected because bank’s main source of funds are deposits
placed by public continued growth in NPA portfolio threatens the repayment capacity of the
banks and erode the confidence reposed by them in the banks.
c) The banks had to take recourse to the long legal route against the defaulting borrowers
beginning from filling of claims in the courts. A lot of time was usually spent in getting
decrees and execution thereof before the banks could make some recoverie
All these issues gave the passage for evolution of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) which is a unique piece of
legislation having far reaching consequences.

WHAT IS SECURITIZATION?
Securitization" means acquisition of financial assets by any Securitization company or Reconstruction

company from any originator, whether by raising of funds by such securitization company or
reconstruction company from qualified institutional buyers by issue of security receipts representing
undivided interest in such financial assets or otherwise.
Example-
Consider a bank, XYZ bank. The loans given out by this bank are its assets thus, the bank has a
pool of these assets on its balance sheet with such of the bank locked up in these loans. The
customers who have -taken a loan from the XYZ bank are known as obligors.
To free these blocked funds the assets are transferred by the originator (the person who holds the
assets, XYZ bank in this case) to a, special purpose vehicle (i.e., any securitization company or
Reconstruction Company).
The SPV (any securitization company or reconstruction company) is a separate entity formed exclusive
for the facilitation of the securitization process and providing funds to the originator. Once assets
are securitized, these assets are removed from the bank’s books and the money generated through
securitization can be used for the other profitable uses like for giving new loans.
THE SARFAESI ACT, 2002
Following are the key features of the Act –
a) It regulates securitisation and reconstruction of financial assets and enforcement of security

b) It enables the banks and financial institutions to realise long-term assets, manage problems
of liquidity, asset liability mismatch

c) It helps banks improve recovery by exercising powers to take possession of securities, sell
them and reduce NPAs by adopting measures for recovery or reconstruction without the
intervention of the court
d) It provides for setting up of asset reconstruction companies
STATEMENT OF OBJECTS AND REASONS OF SARFAESI ACT
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction
of financial assets and enforcement of security interest and for matters connected therewith or
incidental thereto. The provisions of the Ordinance enabled banks and financial institutions to manage
problems of liquidity, asset liability mismatches and improvement in recovery by exercising powers
to take possession of securities, sell them and reduce non- performing assets by adopting measures
for recovery or reconstruction.
The SARFAESI Act, 2002 empowered the Banks and Financial Institutions with vast power to enforce
the securities charged to them. The Banks can issue notices to the defaulters to pay up the dues
and if they fail to do so within 60 days of the date of the notice, the banks can take over the
possession of assets like factory, land and building, plant and machinery etc. charged to them
including the right to transfer by way of lease, assignment or sale and realize the secured assets.
In case the borrower refuses peaceful handing over of the secured assets, the bank can also file an
application before the District Magistrate or Chief Metropolitan Magistrate for taking possession of
assets. The Banks can also take over the management of business of the borrower. The bank in
addition can appoint any person to manage the secured assets the possession of which has been
taken over by the bank. Banks can package and sell loans via “Securitisation” and the same can be
traded in the market like bonds and shares.

CONSTITUTIONAL VALIDITY OF THE SARFAESI ACT, 2002
The constitutionality of the SARFAESI Act, 2002 was challenged in various courts on grounds that
it was loaded heavily in favour of lenders, giving little chance to the borrowers to explain their views
once recovery process is initiated under the legislation.
In Mardia Chemicals Ltd. v. UOI, it was argued by the petitioner that –
a) there was no occasion to enact such a draconian legislation when there already existed the
RDDBFI Act, 1993 for recovery of debts by banks;
b) no provision had been made to take into account lenders liability;
c) the mechanism for recovery under Section 13 did not provide for an adjudicatory forum of
inter se disputes between lender and borrower; and
d) that the appeal provisions were illusory because the appeal was not maintainable unless 75%
of the amount claimed was deposited with the Debts Recovery Tribunal.
The Court held that –

a) though some of the provisions were a bit harsh for some of the borrowers but the Act could
not be said to be unconstitutional in the view of the fact that the objective of the Act was
to achieve speedier recovery of the dues declared as NPAs and better availability of capital

liquidity and resources to help in growth of economy of the country and welfare of the people
in general
b) the Act provided for a forum and remedies to the borrower to ventilate their grievances
against the bank or financial institution, inter alia, with respect to the amount of the demand
of the secured debt
c) another safeguard was also available to the borrower within the Act which was to approach
the DRT under Section 17
For the above reasons, the court held that the Act was Constitutionally valid.
However, the Hon’ble Supreme Court held that the requirement of deposit of 75% of the amount
claimed before entertaining an appeal under Section 17 was an oppressive, onerous and arbitrary
condition and against all the canons of reasonableness and ruled the provision to be unconstitutional.
IMPORTANT DEFINITIONS
“Appellate Tribunal” means a Debts Recovery Appellate Tribunal established under sub-section (1)
of section 8 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of
1993);
“Asset Reconstruction” means acquisition by any asset reconstruction company of any right or
interest of any bank or financial institution in any financial assistance for the purpose of realisation
of such financial assistance; (ba) “asset reconstruction company” means a company registered with
Reserve Bank under section 3 for the purposes of carrying on the business of asset reconstruction
or securitisation, or both;
“Bank” means –
(i) a banking company; or
(ii) a corresponding new bank; or
(iii) the State Bank of India; or
(iv) a subsidiary bank; or
(v) a multi-State co-operative bank; or

(vi) such other bank which the Central Government may, by notification, specify for the
purposes of this Act.
In 2013, the government amended the Act to include co-operative banks formally under the definition of banks
eligible to use it. However, petitions were filed questioning the authority of the notification and the power of
Parliament to amend the SARFAESI Act. The Supreme Court vide order dated 05th May, 2020 in the matter of
‘Pandurang Ganpati Chaugule vs Vishwasrao Patil Murgud Sahakari Bank Limited’ held that co-operative are
banks under the State legislation and multiState co-operative banks are ‘banks’ under section 2(1)(c) of SARFESI
Act,2002. The order also stated that it is permissible for the Parliament to enact the law to provide recovery
procedures for bank dues that have been done by providing speedy recovery of secured interest without
intervention of the court/tribunal. This move helps the co-operative banks to avoid inordinate delays in the
recovery of their bad loans due to the involvement of civil courts and co-operative tribunals. The Indian banking
system has 1,544 urban co-operative banks (UCBs) and 96,248 rural co-operative banks, with substantial
deposits from retail investors. Considering their size, for the smooth functioning of these co-operative banks,
speedy recovery of defaulting loans is critical.
“Central Registry” means the registry set up or cause to be set up under sub-section (1) of section
20.
“Debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and includes –
(i) unpaid portion of the purchase price of any tangible asset given on hire or financial lease
or conditional sale or under any other contract;
(ii) any right, title or interest on any intangible asset or licence or assignment of such intangible
asset, which secures the obligation to pay any unpaid portion of the purchase price of such
intangible asset or an obligation incurred or credit otherwise extended to enable any borrower to
acquire the intangible asset or obtain licence of such asset;
“Default” means –
(i) non-payment of any debt or any other amount payable by the borrower to any secured
creditor consequent upon which the account of such borrower is classified as non-
performing asset in the books of account of the secured creditor; or

(ii) non-payment of any debt or any other amount payable by the borrower with respect to
debt securities after notice of ninety days demanding payment of dues served upon such
borrower by the debenture trustee or any other authority in whose favour security interest
is created for the benefit of holders of such debt securities;
“Financial Assistance” means any loan or advance granted or any debentures or bonds subscribed or
any guarantees given or letters of credit established or any other credit facility extended by any
bank or financial institution [including funds provided for the purpose of acquisition of any tangible
asset on hire or financial lease or conditional sale or under any other contract or obtaining assignment
or licence of any intangible asset or purchase of debt securities;
“Financial Asset” means debt or receivables and includes –

(i) a claim to any debt or receivables or part thereof, whether secured or unsecured;
or
(ii) any debt or receivables secured by, mortgage of, or charge on, immovable property;
or
(iii) a mortgage, charge, hypothecation or pledge of movable property; or
(iv) any right or interest in the security, whether full or part underlying such debt or
(v) any beneficial interest in property, whether movable or immovable, or in such debt,
receivables, whether such interest is existing, future, accruing, conditional or
contingent; or
(vi) any beneficial right, title or interest in any tangible as set given on hire or
financial lease or conditional sale or under any other contract which secures the
obligation to pay any unpaid portion of the purchase price of such asset or an
obligation incurred or credit otherwise provided to enable the borrower to acquire
such tangible asset; or (vb) any right, title or interest on any intangible asset or
licence or assignment of such intangible asset, which secures the obligation to pay
any unpaid portion of the purchase price of such intangible asset or an obligation
incurred or credit otherwise extended to enable the borrower to acquire such
intangible asset or obtain licence of the intangible asset; or (vi) any financial
assistance; receivables; or

“Financial Institution” means –
(i) a public financial institution within the meaning of section 4A of the Companies Act,
1956;
(ii) any institution specified by the Central Government under sub-clause (ii) of clause (h)
of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993;
(iii) the International Finance Corporation established under the International Finance
Corporation (Status, Immunities and Privileges) Act, 1958
(iiia) debenture trustee registered with the Board and appointed for secured debt securities;
(iiib) asset reconstruction company, whether acting as such or managing a trust created for the
purpose of securitisation or asset reconstruction, as the case may be
(iv) any other institution or non-banking financial company as defined in clause (f) of section
45-I of the Reserve Bank of India Act, 1934, which the Central Government may, by
notification, specify as financial institution for the purposes of this Act;
“Asset reconstruction” means acquisition by any securitization company or reconstruction company

of any right or interest of any bank or financial institution in any financial assistance for the purpose
of realization of such financial assistance.
“Obligor” means a person liable to the originator, whether under a contract or otherwise, to pay a
financial asset or to discharge any obligation in respect of a financial asset, whether existing, future,
conditional or contingent and includes the borrower;
“Originator” means the owner of a financial asset which is acquired by a asset reconstruction
company for the purpose of securitisation or asset reconstruction;
“negotiable document” means a document, which embodies a right to delivery of tangible assets
and satisfies the requirements for negotiability under any law for the time being in force including
warehouse receipt and bill of lading;
“Borrower "means any person who has been granted financial assistance by any bank or financial
institution of who has given any guarantee or credited any mortgage or pledge as security for the

financial assistance granted by any bank or financial institution and includes a person who becomes
borrower of a securitization company or reconstruction company consequent upon acquisition by it of
any rights or interest of any bank or financial institution in relation to such financial assistance.
Non performing asset” means an asset or account of a borrower, which has been classified by a
bank or financial institution as sub standard doubtful or loss asst in accordance with the directors
or under guidelines relating to asset classification issued by the Reserve bank.
“Reconstruction Company” means a company formed and registered under the Companies Act 1956
for the purpose of asset reconstruction.
“Secured creditor " means any bank or financial institution or any consortium or group of banks or
financial institutions and includes:-
a. Debenture trustee appointed by any bank or financial institution or
b. Securitization company or reconstruction company or
c. any other trustee holding, securities on behalf of a bank or financial institution ,in whose favor
security interest is created for due re pay me m by any borrower of any financial assistance.
“secured debt” means a debt which is secured by any security interest;
“Securitization” means acquisition of financial assets by any securitization company or reconstruction

company from any originator (owner or financial assets
“Property” means –
(i) immovable property;
(ii) movable property;
(iii) any debt or any right to receive payment of money, whether secured or unsecured;
(iv) receivables, whether existing or future;
(v) intangible assets, being know-how, patent, copyright, trade mark, licence, franchise or any other
business or commercial right of similar nature as may be prescribed by the Central Government in
consultation with Reserve Bank

“Qualified Buyer” means a financial institution, insurance company, bank, state financial corporation,
state industrial development corporation, trustee or asset reconstruction company which has been
granted a certificate of registration under sub-section (4) of section 3 or any asset management
company making investment on behalf of mutual fund or a foreign institutional investor registered
under the Securities and Exchange Board of India Act, 1992 or regulations made thereunder, any
category of non- institutional investors as may be specified by the Reserve Bank under subsection
(1) of section 7 or any other body corporate as may be specified by the Board;
“Secured Asset” means the property on which security interest is created;
“Secured creditor” means–

(i) any bank or financial institution or any consortium or group of banks or financial institutions
holding any right, title or interest upon any tangible asset or intangible asset as specified in
clause (l);
(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing a trust set up by such
asset reconstruction company for the securitisation or reconstruction, as the case may be;
(iv) debenture trustee registered with the Board appointed by any company for secured debt
securities; or
(v) any other trustee holding securities on behalf of a bank or financial institution, in whose
favour security interest is created by any borrower for due repayment of any financial
assistance.
“Security Interest” means right, title or interest of any kind, other than those specified in section
31, upon property created in favour of any secured creditor and includes –
(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any
kind, on tangible asset, retained by the secured creditor as an owner of the property, given
on hire or financial lease or conditional sale or under any other contract which secures
the obligation to pay any unpaid portion of the purchase price of the asset or an obligation
incurred or credit provided to enable the borrower to acquire the tangible asset; or

(ii) such right, title or interest in any intangible asset or assignment or licence of such
intangible asset which secures the obligation to pay any unpaid portion of the purchase
price of the intangible asset or the obligation incurred or any credit provided to enable
the borrower to acquire the intangible asset or licence of intangible asset;
“Security Receipt” means a receipt or other security, issued by a asset reconstruction company to
any qualified buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder
thereof, of an undivided right, title or interest in the financial asset involved in securitization;
ASSET RECOSTRUCTION COMPANIES (ARC)
What is an Asset Reconstruction Company?
An Asset Reconstruction Company means a company incorporated under provisions of Companies

Act, 1956 for purpose of asset reconstruction and registered with the RBI as an Asset Reconstruction
Company.
The main objective of asset reconstruction company (ARC) is to-
a) act as agent for any bank or financial institution for the purpose of recovering their dues
from the borrowers on payment of fees;
b) act as manager of the borrower’s asset taken over by banks, or financial institution;
c) act as the receiver of properties of any bank or financial institution; and
d) carry on such ancillary or incidental business with the prior approval of Reserve Bank wherever
necessary.

Registration of an ARC
Section 3 of the SARFAESI Act, 2002 provides for registration of Securitization or reconstruction
companies with RBI. It provides that a company cannot act as an ARC without –
⮚ obtaining a certificate of registration; and

⮚ having net owned fund of not less than two crore rupees or such other higher amount as the
Reserve Bank, may, by notification, specify.
Provided that the Reserve Bank may, by notification, specify different amounts of owned fund for
different class or classes of asset reconstruction companies:
Provided further that an asset reconstruction company, existing on the commencement of this Act,
shall make an application for registration to the Reserve Bank before the expiry of six months from
such commencement and notwithstanding anything contained in this sub-section may continue to
carry on the business of securitisation or asset reconstruction until a certificate of registration is
granted to it or, as the case may be, rejection of application for registration is communicated to it.
In order to get a certificate from the RBI, the company is required to make an application to the
RBI in the prescribed forms. The RBI is required to conduct an inspection of the books and records

of the company to satisfy itself about the compliance with the terms laid down in the Act. The
registration to an ARC is granted only if the following conditions are satisfied-
 that the ARC has not incurred losses in any of the 3 preceding financial years;
 that such ARC has made adequate arrangements for realisation of the financial assets
acquired for the purpose of securitisation or asset reconstruction;
 that the ARC shall be able to pay periodical returns and redeem on respective due dates
on the investments made in the company by the qualified buyers or other persons;
 that the directors of ARC have adequate professional experience in matters related to
finance, securitisation and reconstruction;
 that none of its directors has ever been convicted of any offence involving moral turpitude;
 that the sponsor of the ARC is a fit and proper person;
 that the applicant has complied with or is in a position to comply with prudential norms
specified by the RBI, and
 that the ARC has complied with the conditions as specified in the guidelines issued by
the RBI for the said purpose.
Every ARC is required to obtain prior approval of the Reserve Bank for any substantial change in its
management or change of location of its registered office or change in its name.
The expression "Substantial change in management" means the change in the management by way
of transfer of shares of amalgamation of transfer of the business of the company.
The Reserve Bank may, after being satisfied that the conditions specified in sub-section (3) are
fulfilled, grant a certificate of registration to the asset reconstruction company to commence or carry
on business of securitisation or asset reconstruction, subject to such conditions, which it may
consider, fit to impose.The Reserve Bank may reject the application if it is satisfied that the
conditions specified are not fulfilled: Provided that before rejecting the application, the applicant
shall be given a reasonable opportunity of being heard.

Cancellation Of Certificate Of Registration
Reserve Bank has the power under Section 4 to cancel the certificate of Registration issued by it to
any ARC if it finds out that the ARC has –
 ceased to carry on the business of securitisation or asset reconstruction; or

 ceased to receive or hold any investment from a qualified buyer or
 failed to comply with any conditions subject to which the certificate of registration had been
granted to it; or
 at any time failed to fulfil any of the conditions referred to Section 3; or
 failed to –
o comply with any direction issued by the Reserve Bank under the provisions of this
Act; or
o maintain accounts in accordance with the requirements of any law or any direction or
order issued by the Reserve Bank; or
o submit or offer for inspection its books of account or other relevant documents when
so demanded by the Reserve Bank.
However, before cancelling registration, Reserve Bank shall give ARC, an opportunity of being heard.
An asset reconstruction company aggrieved by the order of cancellation of certificate of registration

may prefer an appeal, within a period of thirty days from the date on which such order of cancellation
is communicated to it, to the Central Government: Provided that before rejecting an appeal such
company shall be given a reasonable opportunity of being heard. However, an asset reconstruction
company, which is holding investments of qualified buyers and whose application for grant of
certificate of registration has been rejected or certificate of registration has been cancelled shall,
notwithstanding such rejection or cancellation be deemed to be a asset reconstruction company until
it repays the entire investments held by it (together with interest, if any) within such period as
the Reserve Bank may deem fit.

ACQUISITION OF INTEREST IN FINANCIAL ASSETS (SECTION 5)
The ARCs acquire financial assets from the banks and financial institutions in order to reconstruct
them and transact with them in accordance with the SARFAESI Act, 2002. The following points are
important with respect to the same –
⮚ The ARCs may acquire such assets by-
o issuing a debenture or bond or any other security in the nature of debenture or,
o entering into an agreement with such bank or financial institution.
Please note that any document executed by any bank or financial institution under sub-section (1)
in favour of the asset reconstruction company acquiring financial assets for the purposes of asset
reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions
of section 8F of the Indian Stamp Act, 1899. However, this shall not apply where the acquisition of
the financial assets by the asset reconstruction company is for the purposes other than asset
reconstruction or securitisation.
 On acquisition, such ARC shall be deemed to be the lender and all the rights of such
bank/financial institution shall vest in the ARC in relation to such financial assets.
 All the right, title or interest held by the bank/financial institution shall vest in the ARC on
acquisition of such assets
 All contracts, deeds, bonds, agreements, powers-of- attorney, grants of legal representation,
permissions, approvals, consents or no-objections under any law or otherwise and other
instruments shall, after the acquisition of the financial assets, be of as full force and effect
against or in favour of the ARC.
 If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or
other proceeding of whatever nature relating to the said financial asset is pending by or
against the bank or financial institution, save as provided in the third proviso to sub-section
(1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 the same
shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the
acquisition of financial asset by the asset reconstruction company, as the case may be, but

the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against
the asset reconstruction company, as the case may be.
 On acquisition of financial assets under sub-section (1), the asset reconstruction company,
may with the consent of the originator, file an application before the Debts Recovery Tribunal
or the Appellate Tribunal or any court or other Authority for the purpose of substitution of
its name in any pending suit, appeal or other proceedings and on receipt of such application,
such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders
for the substitution of the asset reconstruction company in such pending suit, appeal or other
proceedings.
 All the suits, appeals or other proceedings shall be continued, prosecuted and enforced by or
against the ARC.
 The bank or financial institution may give a notice of acquisition of financial assets by any
ARC to the concerned obligor and to the concerned registering authority.
 The obligor, on receipt of such notice, shall make payment to the concerned ARC and payment
made to such company shall be a full discharge from all liability in respect of such payment
 Where no notice of acquisition of financial asset is given by any bank or financial institution,
any money or properties subsequently received by them shall constitute monies or properties
held by them in trust for the benefit of and on behalf of the ARC.
TRANSFER OF PENDING APPLICATIONS TO ANY ONE OF DEBTS RECOVERY TRIBUNALS IN

CERTAIN CASES (SECTION 5A)
If any financial asset, of a borrower acquired by an asset reconstruction company, comprise of

secured debts of more than one bank or financial institution for recovery of which such banks or
financial institutions has filed applications before two or more Debts Recovery Tribunals, the asset
reconstruction company may file an application to the Appellate Tribunal having jurisdiction over any
of such Tribunals in which such applications are pending for transfer of all pending applications to
any one of the Debts Recovery Tribunals as it deems fit.
On receipt of such application for transfer of all pending applications the Appellate Tribunal may,
after giving the parties to the application an opportunity of being heard, pass an order for transfer
of the pending applications to any one of the Debts Recovery Tribunals.

NOTICE TO OBLIGOR AND DISCHARGE OF OBLIGATION OF SUCH OBLIGOR (SECTION 6)
The bank or financial institution may give a notice of acquisition of financial assets by any asset
reconstruction company, to the concerned obligor and any other concerned person and to the
concerned registering authority (including Registrar of Companies) in whose jurisdiction the mortgage,
charge, hypothecation, assignment or other interest created on the financial assets had been
registered. Where no notice of acquisition of financial asset under sub-section (1) is given by any
bank or financial institution, any money or other properties subsequently received by the bank or
financial institution, shall constitute monies or properties held in trust for the benefit of and on
behalf of the asset reconstruction company, as the case may be, and such bank or financial
institution shall hold such payment or property which shall forthwith be made over or delivered to
such asset reconstruction company, as the case may be, or its agent duly authorised in this behalf.
ISSUE OF SECURITY BY RAISING OF RECEIPTS BY ARC
The ARCs are allowed to issue security receipts to qualified buyers or such other category of investors
including non- institutional investors as may be specified by the RBI. They may further raise funds
from the qualified buyers by formulating schemes for acquiring financial assets. However, it is to be
kept in mind that such ARCs shall keep and maintain separate and distinct accounts in respect of
each such scheme for every financial asset acquired.
Further, the Act provides that the scheme for the purpose of offering security receipts may be in
the nature of a trust which shall be managed by the ARC, and the ARC shall hold the assets so
acquired in trust, for the benefit of the qualified buyers holding the security receipts or from whom
the funds are raised. In such a scenario, the provisions of the Indian Trusts Act, 1882 shall apply.
In the event of non-realisation of financial assets, the qualified buyers of ARC, holding security
receipts of not less than 75% of the total value of the security receipts shall be entitled to call a
meeting of all the qualified buyers and every resolution passed in such meeting shall be binding on
the company. The meeting shall be conducted in the same manner in which the meetings of the
directors are conducted.

How will an asset reconstruction company raise fund from qualified buyers? As per Section 7(2) of SARFAESI
Act, an asset reconstruction company may raise funds from the qualified buyers by formulating schemes
for acquiring financial assets and shall keep and maintain separate and distinct accounts in respect of each
such scheme for every financial asset acquired out of investments made by a qualified buyer and ensure
that realisations of such financial asset is held and applied towards redemption of investments and payment
of returns assured on such investments under the relevant scheme.
EXEMPTION FROM REGISTRATION
Section 8 provides that the no security receipt issued by the ARC or any subsequent transfer of it
by the receipt holder shall require any compulsory registration.
(a) any security receipt issued by the asset reconstruction company, as (b) any
the case may be, under sub- section (1) of section 7, and not creating, transfer of
declaring, assigning, limiting or extinguishing any right, title or interest, to security
or in immovable property except insofar as it entitles the holder of the receipts, shall
security receipt to an undivided interest afforded by a registered instrument; not require
or compulsory
registration.
MEASURES FOR ASSET RECONSTRUCTION
Section 9 provides that the ARCs can provide for the following acts in order to carry out the measures
of asset reconstruction –
 the proper management of the business of the borrower, by change in, or take over of,
the management of the business of the borrower;
 the sale or lease of a part or whole of the business of the borrower;
 rescheduling of payment of debts payable by the borrower;
 enforcement of security interest in accordance with the provisions of this Act;
 settlement of dues payable by the borrower;

 taking possession of secured assets in accordance with the provisions of this Act;
 conversion of any portion of debt into shares of a borrower company.
Provided that conversion of any part of debt into shares of a borrower company shall be deemed
always to have been valid, as if the provisions of this clause were in force at all material times.
OTHER FUNCTIONS OF AN ARC
Section 10 provides that apart from the primary function of asset reconstruction, an ARC shall
perform the following function –
 act as an agent for any bank or financial institution for the purpose of recovering their
dues from the borrower on payment of such fee or charges as may be mutually agreed
upon between the parties;
 act as a manager on such fee as may be mutually agreed upon between the parties;
 act as receiver if appointed by any court or tribunal.
Provided that no asset reconstruction company shall act as a manager if acting as such gives rise
to any pecuniary liability.
RESOLUTION OF DISPUTES
Section 11 deals with the resolution of disputes. It provides that where any dispute relating to securitisation
or reconstruction or non-payment of any amount due including interest arises amongst any of the parties,
namely, the bank, or financial institution, or asset reconstruction company or qualified buyer, such dispute
shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996, as if
the parties to the dispute have consented in writing for determination of such dispute by conciliation or
arbitration and the provisions of that Act shall apply accordingly.
POWERS OF THE RESERVE BANK OF INDIA
The SARFAESI Act, 2002 provides the RBI with a lot of powers to determine policies and issue
directions to the different parties involved in the process of securitization.
Section 12 – Power to determine policies and issue directions.

Section 12A - Power to call for statements and information.
It states that the Reserve Bank may at any time direct a asset reconstruction company to furnish
it within such time as may be specified by the Reserve Bank, with such statements and information
relating to the business or affairs of such asset reconstruction company (including any business or
affairs with which such company is concerned) as the Reserve Bank may consider necessary or
expedient to obtain for the purposes of this Act.
Section 12B – Power to carry out audit and inspection.

1. The Reserve Bank may, for the purposes of this Act, carry out or caused to be carried out audit
and inspection of an asset reconstruction company from time to time.
2. It shall be the duty of an asset reconstruction company and its officers to provide assistance and
co-operation to the Reserve Bank to carry out audit or inspection under sub-section (1).
3. Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset
reconstruction company is being conducted in a manner detrimental to public interest or to the
interests of investors in security receipts issued by such asset reconstruction company, the Reserve
Bank may, for securing proper management of an asset reconstruction company, by an order –
(a) remove the Chairman or any director or appoint additional directors on the board of directors
of the asset reconstruction company; or
(b) appoint any of its officers as an observer to observe the working of the board of directors of
such asset reconstruction company: Provided that no order for removal of Chairman or director under
clause (a) shall be made except after giving him an opportunity of being heard.
4. It shall be the duty of every director or other officer or employee of the asset reconstruction
company to produce before the person, conducting an audit or inspection under sub-section (1), all
such books, accounts and other documents in his custody or control and to provide him such
statements and information relating to the affairs of the asset reconstruction company as may be
required by such person within the stipulated time specified by him.

ENFORCEMENT OF SECURITY INTEREST
Section 13 of the SARFAESI Act, 2002 provides for powers to banks and financial institutions to
enforce their security interests in cases where the assets of the borrowers have been classified as
NPAs. It states that -
1. Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act,
1882, any security interest created in favour of any secured creditor may be enforced, without the
intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.
2. Where any borrower, who is under a liability to a secured creditor under a security agreement,
makes any default in repayment of secured debt or any instalment thereof, and his account in
respect of such debt is classified by the secured creditor as non-performing asset, then, the secured
creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured
creditor within sixty days from the date of notice failing which the secured creditor shall be entitled
to exercise all or any of the rights under sub- section (4) :
The following steps need to be followed by the creditor/lender under this section –
1. Classification of the asset as a Non performing Asset under the RBI guidelines
2. Demand Notice to the borrower, in writing, seeking discharge of liability within 60 days.
3. The notice shall give details of the amount payable by the borrower and the secured assets
intended to be enforced by the secured creditor in the event of non-payment of secured
debts by the borrower
4. The borrower may make any representation / objection to the lender with respect to the
demand notice.
5. The lender has to decide upon the objection and communicate the same to the borrower
within 15 days of the receipt of the representation / objection.
[Note : No decision taken by the lender under this section shall be brought in question in any court
of law]

6. If the borrower repays the amount within the specified time period of 60 days, no right to
take any action lies with the lender.
7. If the borrower fails to repay any part of the amount within the period of 60 days, the
borrower may –
a. take possession of the secured assets of the borrower
b. take over the management of the business of the borrower
c. appoint any person to manage the secured assets the possession of which has been
taken over by the secured creditor
d. require any person from whom any money is due or may become due to the borrower,
to pay such money the lender.
8. If the asset taken over under this section is made subject to an auction, the lender shall not
make any bids in the first round. However, they are eligible to make bids in subsequent
rounds.
9. The amount received as proceeds of enforcement of security shall be applied in the following
order -
a. payment of costs, charges and expenses incurred by the lender
b. in discharge of the dues of the secured creditor.
10. If any amount is left due after taking the abovementioned action, the lender shall file a
recovery suit in the DRT.
It is important to note that if the financial assistance had been obtained jointly from more than 1
lender, then such security interest shall be enforced only by taking consent of at-least 60% of such
lenders by value.
Further, same provisions apply to the holders of debenture securities also with the exception that
there debt need not be classified as an NPA for taking an action under this section.
Assistance by Chief Metropolitan Magistrate or the District Magistrate (Section 14)
1. Where the possession of any secured asset is required to be taken by the secured creditor or if
any of the secured asset is required to be sold or transferred by the secured creditor under the
provisions of this Act, the secured creditor may, for the purpose of taking possession or control of

any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District
Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may
be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the
case may be, the District Magistrate shall, on such request being made to him-
(a) take possession of such asset and documents relating thereto; and
(b) forward such asset and documents to the secured creditor. Provided that any application by the
secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the
secured creditor, declaring that –

MANNER AND EFFECT OF TAKEOVER
Section 15 provides that the takeover of the Management of a secured asset shall be done in the
following manner and have the following effects –
 A Notice needs to be published in an English and a Vernacular Newspaper

 All the directors of the company / administrator of other forms of businesses shall be
deemed to have vacated their offices and all their rights and powers shall vest with the
people appointed in their place by the lender.
However, once the debts are realised in full, the secured creditor is required to restore the
management of such businesses. It is to be noted that no compensation is to be provided to the
directors and other offices for the loss of office because of any action taken under this Act.

2. On publication of a notice –
(a) in any case where the borrower is a company as defined in the Companies Act, 2013, all persons
holding office as directors of the company and in any other case, all persons holding any office having
power of superintendence, direction and control of the business of the borrower immediately before the
publication of the notice under sub-section (1), shall be deemed to have vacated their offices as such;
(b) any contract of management between the borrower and any director or manager thereof holding office
as such immediately before publication of the notice under sub-section (1), shall be deemed to be
terminated;
(c) the directors or the administrators appointed under this section shall take such steps as may be
necessary to take into their custody or under their control all the property, effects and actionable claims to
which the business of the borrower is, or appears to be, entitled and all the property and effects of the
business of the borrower shall be deemed to be in the custody of the directors or administrators, as the
case may be, as from the date of the publication of the notice;
(d) the directors appointed under this section shall, for all purposes, be the directors of the company of the
borrower and such directors or as the case may be, the administrators appointed under this section, shall
alone be entitled to exercise all the powers of the directors or as the case may be, of the persons exercising
powers of superintendence, direction and control, of the business of the borrower whether such powers are
derived from the memorandum or articles of association of the company of the borrower or from any other
source whatsoever.
No compensation to directors for loss of office (Section 16)

1. Notwithstanding anything to the contrary contained in any contract or in any other law for the time
being in force, no managing director or any other director or a manager or any person in charge of
management of the business of the borrower shall be entitled to any compensation for the loss of office
or for the premature termination under this Act of any contract of management entered into by him with
the borrower.
2. Nothing contained in sub-section (1) shall affect the right of any such managing director or any other
director or manager or any such person in charge of management to recover from the business of the
borrower, moneys recoverable otherwise than by way of such compensation.

GRIEVANCE REDRESSAL
Section 17 provides a mechanism for redressal of grievances of the borrowers against whom certain
action are taken under this Act.
This section provides that any borrower, aggrieved by the action taken by the secured creditor/lender
under section 13 may make an application against the same with the DRT within 45 days of such
action being taken, provided that different fees may be prescribed for making the application by the
borrower and the person other than the borrower.
Explanation. – For the removal of doubts, it is hereby declared that the communication of the
reasons to the borrower by the secured creditor for not having accepted his representation or
objection or the likely action of the secured creditor at the stage of communication of reasons
to the borrower shall not entitle the person (including borrower) to make an application to the
Debts Recovery Tribunal under this sub-section.
An application under the above sub-section shall be filed before the Debts Recovery Tribunal within
the local limits of whose jurisdiction –
(a) the cause of action, wholly or in part, arises;
(b) where the secured asset is located; or
(c) the branch or any other office of a bank or financial institution is maintaining an account in
which debt claimed is outstanding for the time being.
The Debts Recovery Tribunal shall consider whether any of the measures taken by the secured
creditor for enforcement of security are in accordance with the provisions of this Act and the rules
made thereunder. If the DRT finds that the actions taken by the secured creditor were unjustified
and illegal, it may –
i. declare the recourse taken by the secured creditor as invalid;
ii. restore the possession of secured assets or management of secured assets to
the borrower; and
iii. pass such other direction as it may consider appropriate and necessary.

However, if the Debts Recovery Tribunal declares the recourse taken by a secured creditor is in
accordance with the provisions of the Act and the rules made thereunder, then, notwithstanding
anything contained in any other law for the time being in force, the secured creditor shall be entitled
to take recourse to one or more of the measures specified under section 13 to recover his secured
debt. In order to exercise proper authority under this Act, the DRT has been entrusted with the
jurisdiction to examine, with respect to any lease/tenancy, that the lease/tenancy –
a. has expired or stood determined; or
b. is contrary to section 65A of the Transfer of Property Act, 1882; or
c. is contrary to terms of mortgage; or
d. is created after the issuance of notice of default and demand by the Bank
Any application filed under this section shall be dealt with as expeditiously as possible and disposed
of within sixty days from the date of such application. However, after citing reasonable justification,
this time limit may be increased upto a total of 4 months.
Appeal to Appellate Tribunal (Section 18)
Any party aggrieved by any decision given by the DRT on an application filed under this section may
appeal to the Debt Recovery Appellate Tribunal within 30 days from the date of receipt of the order.
However, if the appeal is being preferred by the borrower, they have to ensure that an amount not
less than 50% of the amount is deposited by them with the Tribunal. However, the Appellate
Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-
five per cent of debt referred to in the second proviso.
Right to lodge a caveat (Section 18C)
Section 18C deals with the right to lodge a caveat. It provides that where an application or an appeal
is expected to be made or has been made under section 17 or section 18, the secured creditor or any
person claiming a right to appear before the Tribunal or the Court of District Judge or the Appellate
Tribunal or the High Court, as the case may be may lodge a caveat in respect thereof.

In such cases the secured creditor by whom the caveat has been lodged (hereafter in this section
referred to as the caveator) shall serve notice of the caveat by registered post, acknowledgement
due, on the person by whom the application has been or is expected to be made. Where a notice of
any caveat has been served on the applicant or the Appellant, he shall periodically furnish the
caveator with a copy of the application or the appeal made by him and also with copies of any paper
or document which has been or may be filed by him in support of the application or the appeal.
RIGHT OF THE BORROWER TO RECEIVE COMPENSATION AND COSTS
Section 19 provides that if the Tribunal finds that the action taken by the secured creditor was
unjustified and illegal, they may direct the return of such secured asset along with payment of such
compensation and costs as may be determined by such Tribunal.
Section 19 provides that if the Debts Recovery Tribunal or the Court of District Judge, on an application made
under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under
section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in
accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to
return such secured assets to the concerned borrowers or any other aggrieved person, who has filed the
application under section 17 or section 17A or appeal under section 18 or section 18A, as the case may be, the
borrower or such other person shall be entitled to the payment of such compensation and costs as may be
determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in
section 18B.
CENTRAL REGISTRY
Section 20 provides for the setting up of a special body known as the Central Registry for the
purposes of registration of transaction of securitisation and reconstruction of financial assets and
creation of security interest under this Act. A person, called the Central Registrar, who shall be
responsible to ensure proper functioning of the Registry shall also be appointed under the Act.
The Act provides that the Registry should maintain Registers to record the following –

 securitisation of financial assets;
 reconstruction of financial assets;
 creation of security interest;
 every transaction thereof; and
 any modification therein.
The head office of the Central Registry shall be at such place as the Central Government may
specify and for the purpose of facilitating registration of transactions referred to in sub-section (1),
there may be established at such other places as the Central Government may think fit, branch
offices of the Central Registry. The Central Government may, by notification, define the territorial
limits within which an office of the Central Registry may exercise its functions.
The provisions of this Act pertaining to the Central Registry shall be in addition to and not in
derogation of any of the provisions contained in the Registration Act, 1908, the Companies Act, 1956,
the Merchant Shipping Act, 1958, the Patents Act, 1970, the Motor Vehicles Act, 1988, and the
Designs Act, or any other law requiring registration of charges and shall not affect the priority of
charges or validity thereof under those Acts or laws.
INTEGRATION OF REGISTRATION SYSTEMS WITH CENTRAL REGISTRY
Section 20A deals with the Integration of registration systems with Central Registry. Section 20A
states that:
1. The Central Government may, for the purpose of providing a Central database, in consultation with
State Governments or other authorities operating registration system for recording rights over any
property or creation, modification or satisfaction of any security interest on such property, integrate
the registration records of such registration systems with the records of Central Registry established
under section 20, in such manner as may be prescribed.
2.The Central Government shall after integration of records of various registration systems referred
to in sub-section (1) with the Central Registry, by notification declare the date of integration of
registration systems and the date from which such integrated records shall be available; and with

effect from such date, security interests over properties which are registered under any registration
system referred to in subsection (1) shall be deemed to be registered with the Central Registry for
the purposes of this Act
Explanation. – For the purpose of this sub-section, the registration records include records of registration
under the Companies Act, 2013, the Registration Act, 1908, the Merchant Shipping Act, 1958, the Motor
Vehicles Act, 1988, the Patents Act, 1970, the Designs Act, 2000 or other such records under any other
law for the time being in force.
Delegation of powers (Section 20B)

It provides that the Central Government may, by notification, delegate its powers and
functions under this Chapter, in relation to establishment, operations and regulation of the
Central Registry to the Reserve Bank, subject to such terms and conditions as may be
prescribed.
CENTRAL REGISTRAR (SECTION 21)
Section 21 deals with the Central Registrar. Section 21 states that the Central Government may, by
notification, appoint a person for the purpose of registration of transactions relating to securitisation,
reconstruction of financial assets and security interest created over properties, to be known as the
Central Registrar. The Central Government may also appoint such other officers with such
designations as it thinks fit for the purpose of discharging, under the superintendence and direction
of the Central Registrar, such functions of the Central Registrar under this Act as he may, from
time to time, authorise them to discharge.

REGISTER OF SECURITISATION, RECONSTRUCTION AND SECURITY INTEREST TRANSACTIONS
(SECTION 22)
Section 22 deals with the Register of securitisation, reconstruction and security interest transactions.
Section 22 states that a record called the Central Register shall be kept at the head office of the
Central Registry for entering the particulars of the transactions relating to –
(a) securitisation of financial assets;
(b) reconstruction of financial assets; and
(c) creation of security interest.
Please note that the register shall be kept under the control and management of the Central
Registrar.
FILING OF TRANSACTIONS OF SECURITISATION, RECONSTRUCTION AND CREATION OF SECURITY

INTEREST (SECTION 23)
Section 23 provides that the particulars of every transaction of securitisation, asset reconstruction
or creation of security interest shall be filed with the Central Registrar in the manner and on
payment of such fee as may be prescribed.
SATISFACTION OF SECURITY INTEREST
Section 25 deals with the Asset Reconstruction Company or secured creditor to report satisfaction
of security interest. It states that the asset reconstruction company or the secured creditor shall
give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest
relating to the asset reconstruction company or the secured creditor within thirty days from the
date of such payment or satisfaction. On receipt of intimation, the Central Registrar is required to
order that a memorandum of satisfaction shall be entered in the Central Register
Section 25 further states that either the lender or the borrower shall intimate the Registry about
the satisfaction of security interest. If the intimation is given by the lender, the Registry shall

register the same in its Registers. However, if the intimation is given by the borrower, the Registrar
shall send a Notice to the lender to show, within 14 days, as to why the satisfaction should not be
registered. If no cause is shown, the Central Registrar shall order that a memorandum of satisfaction
shall be entered in the Central Register. However, if any cause is shown, the Central Registrar shall
record a note to that effect in the Central Register, and shall inform the borrower that he has done
so.
It is to be noted that any registration of transactions of creation, modification or satisfaction of

security interest by a secured creditor or other creditor shall be deemed to constitute a public notice
from the date and time of filing of particulars of such transaction with the Central Registry. Non
registration of creation of security interest with the Registry shall bar a lender from taking any
action against the borrower under this Act.
Modification of security interest registered under this Act

Section 24 provides that whenever the terms or conditions, or the extent or operation, of any
security interest are or is modified, it shall be the duty of the asset reconstruction company or
the secured creditor, as the case may be, to send to the Central Registrar, the particulars of such
modification, and the provisions of this Chapter as to registration of a security interest shall apply
to such modification of such security interest.
Right to Inspect (Section 26)
Section 26 deals with the right to inspect particulars of securitisation, reconstruction and security
interest transactions. Section 26 provides that the particulars of securitisation or reconstruction or
security interest entered in the Central Register of such transactions kept under section 22 shall be
open during the business hours for inspection by any person on payment of such fee as may be
prescribed.

Rectification by Central government in matters of registration, modification and satisfaction (Section
26A)
Section 26A deals with the rectification by Central Government in matters of registration,
modification and satisfaction, etc. It states that:
1. The Central Government, on being satisfied –

(a) that the omission to file with the Registrar the particulars of any transaction of
securitisation, asset reconstruction or security interest or modification or satisfaction of such
transaction or; the omission or misstatement of any particular with respect to any such
transaction or modification or with respect to any satisfaction or other entry made in
pursuance of section 23 or section 24 or section 25 of the principal Act was accidental or
due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the
position of creditors; or
(b) that on other grounds, it is just and equitable to grant relief, may, on the application of
a secured creditor or asset reconstruction company or any other person interested on such
terms and conditions as it may seem to the Central Government just and expedient,
direct that the time for filing of the particulars of the transaction for registration or modification
or satisfaction shall be extended or, as the case may require, the omission or mis-statement shall
be rectified.
OFFENCES
Any person who contravenes the provisions of this Act or of any rules made thereunder shall be
punishable with imprisonment for a term which may extend to one year, or with fine, or with both
NON-APPLICABILITY OF THE ACT
As per Section 31 the provisions of this Act shall not apply to –

1. a lien on any goods, money or security given by or under the Indian Contract Act, 1872 or
the Sale of Goods Act, 1930 or any other law for the time being in force;
2. a pledge of movables within the meaning of section 172 of the Indian Contract Act;
3. creation of any security in any aircraft;
4. creation of security interest in any vessel;
5. any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930;
6. any properties not liable to attachment;
7. any security interest for securing repayment of any financial asset not exceeding 1 Lakh
rupees;
8. any security interest created in agricultural land; or
9. any case in which the amount due is less than 20% of the principal amount and interest.
CIVIL COURT NOT TO HAVE JURISDICTION
Section 34 provides that no civil court shall have jurisdiction to entertain any suit or proceeding in
respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by
or under this Act to determine and no injunction shall be granted by any court or other authority
in respect of any action taken or to be taken in pursuance of any power conferred by or under this
Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Applicability of Limitation Act

As per Section 36 of SARFAESI Act, Limitation Act, 1963 is
applicable to the claims made under this Act. Accordingly, no
secured creditor shall be entitled to take all or any of the
measures under Sub-section (4) of Section 13, unless his claim in
respect of the financial asset is made within the period of
limitation prescribed under the Limitation Act, 1963.
Applicability of other Acts

Section 35 provides that the provisions of this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in force or any instrument
having effect by virtue of any such law. In accordance with Section 37, the provisions of this

Act or the rules made thereunder shall be in addition to and not in derogation of, the
Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and
Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 or any other law for the time being in force.
SECURITY INTEREST (ENFORCEMENT) RULES, 2002
These Rules were enacted by the Central Government to ensure smooth functioning of the Act.
Demand Notice
 The service of demand notice shall be made by delivering at the place where the borrower
or his agent, voluntarily resides or carries on business or personally works for gain, by
registered post with acknowledgement due or by Speed Post or by courier or by any other
means of transmission of documents like fax message or electronic mail service.
 Any other notice in writing to be served on the borrower or his agent by authorized officer,
shall be served in the same manner as provided in this rule.
 . Where there are more than one borrower, the demand notice shall be served on each
borrower.
 The demand notice may invite attention of the borrower to provisions of sub-section (8)
of section 13 of the Act, in respect of time available to the borrower, to redeem the
secured assets.
 Where authorised officer has reason to believe that the borrower or his agent is avoiding
the service of the notice it shall be effected by affixing a copy of the demand notice on
the outer door or some other conspicuous part of the house or building in which the
borrower or his agent ordinarily resides or carries on business.
 Where the borrower is a body corporate, the demand notice shall be served on the
registered office or any of the branches of such body corporate.

Reply to Representation made by the Borrower
After issue of demand notice, if the borrower makes any representation or raises any objection to
the notice, the Authorized Officer shall consider such representation or objection and examine the
same.
If on examining the representation made or objection raised by the borrower, the secured creditor is
satisfied that there is a need to make any changes or modifications in the demand notice, he shall
modify the notice accordingly and serve a revised notice or pass such other suitable orders as deemed
necessary, within 15 days from the date of receipt of the representation or objection.
If on examining the representation made or objection raised, the Authorized Officer comes to the
conclusion that such representation or objection is not acceptable or tenable, he shall communicate
within 15 days of receipt of such representation or objection, the reasons for non-acceptance of the
representation or objection, to the borrower
Procedure after issue of Notice
If the amount mentioned in the demand notice is not paid within the time specified therein, the
authorised officer shall proceed to realise the amount by adopting any one or more of the measures,
namely :—
a) The authorised officer shall take possession of such movable property in the presence of two
witnesses after a Panchnama drawn and signed by the witnesses.
b) The borrower shall be intimated by a notice, enclosing the panchnama drawn in Appendix I
and the inventory made in Appendix II.
c) All notices under these rules may also be served upon the borrower through electronic mode
of service, in addition to the modes specified under rule 3.
d) After taking possession, the authorised officer shall make or cause to be made an inventory
of the property.

e) The authorised officer shall keep the property taken possession either in his own custody or
in the custody of any person authorised or appointed by him, who shall take as much care
of the property
Provided that if such property is subject to speedy or natural decay, or the expense of keeping such
property in custody is likely to exceed its value, the authorised officer may sell it at once.
f) The authorised officer shall take steps for preservation and protection of secured assets and
insure them.
Valuation of movable secured assets (Rule 5)
After taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised offi
shall obtain the estimated value of the movable secured assets and thereafter, if considered
necessary, fi in consultation with the secured creditor, the reserve price of the assets to be sold in
realisation of the dues of the secured creditor
Sale of Movable Assets
The authorised officer may sell the movable secured assets taken possession by adopting any of the
following methods—
a) obtaining quotations from parties dealing in the secured assets or otherwise interested in buying
such assets; or
b) inviting tenders from the public; or
c) holding public auction; or
d) by private treaty.
2.The authorised officer shall serve to the borrower a notice of thirty days for sale of the movable
secured assets. Sale by any methods other than public auction or public tender shall be on such
terms as may be settled between the parties in writing.
Provided that if the sale of such secured assets is being, effected by either inviting tenders from
the public or by holding public auction, the secured creditor shall cause a public notice in the Form
given in Appendix II-A to be published in two leading newspapers, including one in vernacular

language, having vide circulation in that locality. Provided further that if sale of movable property by
any one of the methods specified under sub-rule (1) fails and the sale is required to be conducted
again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen
days to the borrower for any subsequent sale. 3. Sale by any methods other than public auction or
public tender, shall be on such terms as may be settled between the secured creditors and the
proposed purchaser.
3. The authorized officer shall upload the detailed terms and conditions of the sale of the
movable secured assets on the web-site of the secured creditor, which shall include,
Issue of certificate of sale (Rule 7)
1. Where movable secured assets is sold, sale price of each lot shall be paid as per the terms of the
public notice or on the terms as may be settled between the parties, as the case may be and in
the event of default of payment, the movable secured assets shall be liable to be ordered for sale
again.
2. On payment of sale price, the authorised officer shall issue a certificate of sale in the prescribed
form as given in Appendix III to these rules specifying the movable secured assets sold, price paid

and the name of the purchaser and thereafter the sale shall become absolute. The certificate of sale
so issued shall be prima facie evidence of title of the purchaser.
3. Where the movable secured assets are those referred in sub-clauses (iii) to (v) of clause (1) of
sub- section (1) of section 2 of the Act, the provisions contained in these rules and rule 7 dealing
with the sale of movable secured assets shall, mutatis mutandis, apply to such assets.
Sale of Immovable Assets
a) Where the secured asset is an immovable property, the authorised officer shall take possession
from the borrower and by affixing the possession notice on the outer door or at such conspicuous
place of the property.
b) The possession notice shall also be published not later than seven days from the date of taking
possession, in two leading newspapers, one in vernacular language having sufficient circulation in
that locality, by the authorised officer.
c) In the event of possession of immovable property is actually taken by the authorised officer,
such property shall be kept in his own custody or in the custody of any person authorised or
appointed by him, who shall take as much care of the property in his custody as a owner of
ordinary prudence would, under the similar circumstances, take of such property
d) The authorised officer shall take steps for preservation and protection of secured assets and
insure them, if necessary, till they are sold or otherwise disposed of.
e) Before effecting sale of the immovable property, the authorised officer shall obtain valuation of
the property from an approved valuer and in consultation with the secured creditor, fix the reserve
price of the property and may sell the whole or any part of such immovable secured asset by
any of the following methods: –
(a) obtaining quotations from parties dealing in the secured assets or otherwise interested in
buying such assets; or
(b) inviting tenders from the public; or
(c) holding public auction including through e-auction mode; or
(d) by private treaty
f) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable
secured assets.
g) Fix reserve price, below which the property may not be sold.

h) Every notice of sale shall be affixed on a conspicuous part of the immovable property and the
authorised officer shall upload the detailed terms and conditions of the sale, on the website
of the secured creditor, which shall include;
(a) the description of the immovable property to be sold, including the details of the
encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;
(c) reserve price of the immovable secured assets below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be
completed;
(e) deposit of earnest money as may be stipulated by the secured creditor;
(f) any other terms and conditions, which the authorized officer considers it necessary for a
purchaser to know the nature and value of the property.
i) Sale by any method other than public auction or public tender shall be on such terms as may
be settled between the parties in writing.
Time Of Sale, Issue Of Sale Certificate And Delivery Of Possession (Rule 9)

a) No sale of immovable property shall take place before the expiry of thirty days from the date on
which the public notice of sale is published in newspapers.
Provided further that if sale of immovable property by any one of the methods specified by sub-
rule (5) of rule 8 fails and sale is required to be conducted again, the authorised officer shall
serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any
subsequent sale.
b) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in
his bid or tender or quotation.
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is
less than the public notice of sale is published in newspapers as referred to in the proviso to
sub-rule (6) or notice of sale has been served to the borrower reserve price, specified under sub-
rule (5) of rule 8: Provided further that if the authorised officer fails to obtain a price higher
than the reserve price, he may, with the consent of the borrower and the secured creditor effect
the sale at such price.
c) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-
five per cent of the amount of the sale price, to the authorised officer

d) The balance amount of purchase price payable shall be paid by the purchaser to the authorised
officer on or before the fifteenth day of confirmation of sale of the immovable property or such
extended period as may be agreed upon in writing between the parties.
e) In default of payment within the period, the deposit shall be forfeited and the property shall be
resold and the defaulting purchaser shall forfeit all claims.
f) On confirmation of sale, the authorised officer exercising the power of sale shall issue a certificate
of sale of the immovable property in favour of the purchaser.
g) Where the immovable property sold is subject to any encumbrances, the authorised officer may,
if he thinks fit, allow the purchaser to deposit with him the money required to discharge the
encumbrances and any interest due thereon together with such additional amount that may be
sufficient to meet the contingencies or further cost, expenses and interest as may be determined
by him. Provided that it after meeting the cost of removing encumbrances and contingencies
there is any surplus available out of the money deposited by the purchaser such surplus shall be
paid to the purchaser within fifteen day, from date of finalisation of the sale.
h) On such deposit of money for discharge of the encumbrances, the authorised officer shall issue
or cause the purchaser to issue notices to the persons interested in or entitled to the money
deposited with him and take steps to make the payment accordingly.
i) The authorised officer shall deliver the property to the purchaser free from encumbrances
j) The certificate of sale shall specifically mention that whether the purchaser has purchased the
immovable secured asset free from any encumbrances known to the secured creditor or not.
Procedure for recovery of Shortfall of secured debt (Rule 11)

1. An application for recovery of balance amount by any secured creditor shall be presented to the
Debts Recovery Tribunal by the authorised officer or his agent or by a duly authorised legal
practitioner, to the Registrar of the Bench within whose jurisdiction his case falls or shall be
sent by registered post addressed to the Registrar of Debts Recovery Tribunal.
2. The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993 made under Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993), shall mutatis mutandis
apply to any application filed by under sub-rule (1).
3. An application under sub-rule (1) shall be accompanied with fee as provided in rule 7 of the
Debts Recovery Tribunal (Procedure) Rules, 1993.

RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993
OBJECT OF THE ACT
The object of Act is expeditious adjudication and recovery of debts due to Bank and Financial
Institutions and to deal with matters connected therewith or incidental thereto.
TWO AUTHORITIES UNDER THIS ACT
DEBT RECOVERY TRIBUNALS (DRT) DEBT RECOVERY APPELLATE

(33DRTs) TRIBUNAL (DRAT)
(5 DRATs)
DEBT RECOVERY TRIBUNAL – DRAT – COMPOSITION

COMPOSITION DRAT shall consist of one person lo be called
DRT shall consist of one person only, to be as the Chairperson of the appellate Tribunal.
called the Presiding Officer. Any person, who is or has been or is
Any person who has been, or is qualified to qualified to be, a judge of a HIGH Court; or
be, a District judge may be appointed as the has been a member of the Indian Legal
presiding officer. service, and has held a post in Grade I of that
Presiding Officer shall hold office for a term Service for at least three years; or has held
of five years or until he attains the age of office as the presiding officer of a Tribunal
sixty-five years, whichever is earlier. for at least three years, shall be qualified for
Each Debts Recovery Tribunal has two appointment as the presiding officer of an
Recovery officers. The work amongst the Appellate Tribunal.
Recovery Officers is allocated by the The Presiding Officer of an appellate
Presiding Officer. Tribunal shall hold office for a term of five
years or until he attains the age of seventy
years whichever is earlier.
IMPORTANT DEFINITIONS
Section 2 of the Recovery of Debts Due to Banks and Financial Institutions, Insolvency and
Bankruptcy of Individuals and Partnership Firms Act, 1993 (the Act) defines various terms used in
the Act, as given under:

“Appellate Tribunal” means an Appellate Tribunal established under sub-section (1) of Section 8. [
Section 2(a)]
“Bank” means [Section 2(d)]

i) banking company; iv) a subsidiary bank; or
ii) a corresponding new bank; v) a Regional Rural Bank;
iii) State Bank of India;
vi) a multi State cooperative bank
“Debts” means any liability (inclusive of interest) which is claimed as due from any person by a
bank or a financial institution or by a consortium of banks or financial institutions during the course
of any business activity undertaken by the bank or the financial institution or the consortium under
any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned,
or whether payable under a decree or order of any civil court or any arbitration award or otherwise
or under a mortgage and subsisting on, and legally recoverable on, the date of the application and
includes any liability towards debt securities which remains unpaid in full or part after notice of
ninety days served upon the borrower by the debenture trustee or any other authority in whose
favour security interest is created for the benefit of holders of debt securities. [Section 2(g)]
“Financial institution” means –

(i) a public financial institution within the meaning of Section 4A of the Companies Act, 1956;
(ia) the securitisation company or reconstruction company which has obtained a certificate of
registration under sub-section (4) of section 3 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002
(ib) a debenture trustee registered with the Board and appointed for secured debt securities.
(ii) such other institution as the Central Government may, having regard to its business activity
and the area of its operation in India, by notification, specify. [Section 2(h)]
“property” means─
(a) immovable property;
(b) movable property;

(c) any debt or any right to receive payment of money, whether secured or unsecured;
(d) receivables, whether existing or future; and
(e) intangible assets, being know-how, patent, copyright, trade mark, licence, franchise or any other
business or commercial right of similar nature, as may be prescribed by the Central Government in
consultation with Reserve Bank
“Security interest” means mortgage, charge, hypothecation, assignment or any other right, title or
interest of any kind whatsoever upon property, created in favour of any bank or financial institution
and includes –
(a) such right, title or interest upon tangible asset, retained by the bank or financial institution as
owner of the property, given on hire or financial lease or conditional sale which secures the or any
credit provided to enable the borrower to acquire the tangible asset; or
(b) such right, title or interest in any intangible asset or licence of any intangible asset, which
secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the
obligation incurred or any credit extended to enable the borrower to acquire the intangible asset or
licence of intangible asset[ Section 2(lb)]
DEBT RECOVERY TRIBUNALS (DRT)
With a view to help Bank and Financial Institution recover their bad debts quickly and efficiently
the Government of India has constituted various Debt Recovery Tribunals. The setting up of a Debt
Recovery Tribunal is dependent upon the volume of cases. Higher the number of cases within a
territorial area, more the Debt Recovery Tribunals would be set up. Some cities have more than one
Debt Recovery Tribunal located therein. On the other hand there are number of states that do not
have Debt Recovery Tribunals.
Debt recovery tribunals are exempt from the cumbersome procedures prescribed under the civil
procedure Code. Instead, the Debt Recovery Tribunals are empowered to frame their own procedures
of practice. Till now, Government of India has constituted 37 Debt Recovery Tribunals and 5 Debt
Recovery Appellate Tribunals all over the country.

Debt Recovery Appellate Tribunals (DRATs)
DRAT Allahabad, DRAT Chennai, DRAT Delhi, DRAT Kolkata, DRAT Mumbai.
Debt Recovery Tribunals
DRT-I Ahmedabad, DRT-II Ahmedabad, DRT Allahabad, DRT Aurangabad, DRT-1 Bangalore, DRT-1I
Bangalore, DRT-I Chandigarh, DRT-II Chandigarh, DRT-III Chandigarh, DRT-1 Chennai, DRT-2
Chennai, DRT-3 Chennai, DRT Coimbatore, DRT Cuttak, DRT Ernakulam, DRT Guwahati, DRT-1
Hyderabad, DRT-2 Hyderabad, DRT Jabalpur, DRT Jaipur, DRT-1 Kolkata, DRT-2 Kolkata, DRT-3
Kolkata, DRT Lucknow, DRT-1 Mumbai, DRT-2 Mumbai, DRT-3 Mumbai, DRT Nagpur, DRT-1 New
Delhi, DRT-2 New Delhi, DRT-3 New Delhi, DRT Patna, DRT Pune, DRT Visakhapatnam, DRT Ranchi,
DRT Madurai DRT Siliguri.
COMPOSITION OF TRIBUNAL (SECTION 4)

1. A Tribunal shall consist of one person only (hereinafter referred to as the Presiding Officer) to
be appointed, by notification, by the Central Government.
2. Notwithstanding anything contained in sub-section (1), the Central Government may –
(a) authorise the Presiding Officer of any other Tribunal established under any other law for the
time being in force to discharge the function of the Presiding Officer of a Debt Recovery Tribunal
under this Act in addition to his being the Presiding Officer of that Tribunal; or
(b) authorise the judicial Member holding post as such in any other Tribunal, established under any
other law for the time being in force, to discharge the functions of the Presiding Officer of Debts
Recovery Tribunal under this Act, in addition to his being the judicial Member of that Tribunal. Staff
of Tribunal: Sub-section (1) of Section 7 provides that the Central Government shall provide the
Tribunal with one or more Recovery Officers and such other officers and employees as that
government may think fit. Subsection (2) states that the Recovery Officers and other officers and
employees of a Tribunal shall discharge their
functions under the general superintendence of the Presiding Officer. Sub-section (3) provides that
the salaries and allowances and other conditions of service of the Recovery Officers and other officers
and employees of a Tribunal shall be such as may be prescribed.

Qualifications for appointment of Presiding Officer and Term
Section 5 provides that a person shall not be qualified for appointment as the Presiding Officer of
a Tribunal unless he is, or has been, or is qualified to be, a District Judge.
Section 6 provides that the Presiding Officer of a Tribunal shall hold office for a term of five
years from the date on which he enters upon his office and shall be eligible for reappointment.
Provided that no person shall hold office as the Presiding Officer of a Tribunal after he has
attained the age of sixty-five years.
ESTABLISHMENT OF APPELLATE TRIBUNAL
As per Section 8 (1) of the Act, the Central Government shall, by notification, establish one or more
Appellate Tribunals, to be known as the Debts Recovery Appellate Tribunal, to exercise the jurisdiction,
powers and authority conferred on such Tribunal by or under this Act: 1A. The Central Government
shall, by notification, establish such number of Debt Recovery Appellate Tribunals to exercise
jurisdiction, powers and authority to entertain appeal against the order made by the Adjudicating
Authority under Part III of the Insolvency and Bankruptcy Code, 2016.
2. The Central Government shall also specify in the notification referred to in sub-section (1) the
Tribunals in relation to which the Appellate Tribunal may exercise jurisdiction.
3. Notwithstanding anything contained in sub-sections (1) and (2), the Central Government may
authorise the Chairperson of one Appellate Tribunal to discharge also the functions of the Chairperson
of other Appellate.
The first proviso to Section 8(1) provides that the Central Government may authorise the
Chairperson of any other Appellate Tribunal, established under any other law for the time being
in force, to discharge the functions of the Chairperson of the Debts Recovery Appellate Tribunal
under this Act in addition to his being the Chairperson of that Appellate Tribunal.

COMPOSITION OF APPELLATE TRIBUNAL, QUALIFICATIONS AND ITS TERM
Section 9 of the Act provides that an Appellate Tribunal shall consist of one person only (hereinafter
referred to as the Chairperson of the Appellate Tribunal) to be appointed, by notification, by the
Central Government. Section 10 of the Act deals with the qualifications for appointment of
Chairperson of the Appellate Tribunal. It provides that a person shall not be qualified for appointment
as the Chairperson of an Appellate Tribunal unless he:
Section 11 provides that the Chairperson of an Appellate Tribunal shall hold office for a term of five
years from the date on which he enters upon his office and shall be eligible for reappointment:
Provided that no person shall hold office as the Chairperson of an Appellate Tribunal after he has
attained the age of seventy years.
JURISDICTION, POWERS AND AUTHORITY OF TRIBUNALS (SECTION 17)
1. A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to
entertain and decide applications from the banks and financial institutions for recovery of debts due
to such banks and financial institutions.
1A. Without prejudice to sub-section (1), –

(a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government,
the jurisdiction, powers and authority to entertain and decide applications under Part III of Insolvency
and Bankruptcy Code, 2016.

(b) the Tribunal shall have circuit sittings in all district headquarters.
2. An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and
authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal
under this Act.
2A. Without prejudice to sub-section (2), the Appellate Tribunal shall exercise, on and from the
date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain
appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and
Bankruptcy Code, 2016.
POWER OF CHAIRPERSON OF APPELLATE TRIBUNAL (SECTION 17A)
1. The Chairperson of an Appellate Tribunal shall exercise general power of superintendence and
control over the Tribunals under his jurisdiction including the power of appraising the work and
recording the annual confidential reports of Presiding Officers.
1A. For the purpose of exercise of general powers of superintendence and control over Tribunals under
subsection (1), the Chairperson may –
(i) direct the Tribunals to furnish, in such form, at such intervals and within such time, information
relating to pending cases both under this Act and the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, or under any other law for the time being
in force, number of cases disposed of, number of new cases filed and such other information as may
be considered necessary by the Chairperson;
(ii) convene meetings of the Presiding Officers of Tribunals periodically to review their performance.
1B. Where on assessment of the performance of any Presiding Officer of the Tribunal or otherwise,
the Chairperson is of the opinion that an inquiry is required to be initiated against such Presiding
Officer for misbehavior or incapacity, he shall submit a report to the Central Government
recommending action against such Presiding Officer, if any, under section 15, and for reasons to be
recorded in writing for the same.
2. The Chairperson of an Appellate Tribunal having jurisdiction over the Tribunals may, on the
application of any of the parties or on his own motion after notice to the parties, and after hearing
them, transfer any case from one Tribunal for disposal to any other Tribunal.

DEBT RECOVERY TRIBUNAL- JURISDICTION
The DRTs have two different types of jurisdiction – pecuniary and territorial
PECUNIARY LIMITS:-
The DRT can entertain complaints only where the amount of debt due to any bank or financial
institution is Rs. 10 lakhs or more. However, if there is any appeal filed before DRT, it can even hear
the matters where the amount involved is less than 10 lakhs. DRT doesn’t have original jurisdiction
to hear matters with amount involved less than 10 lakhs. [SC in State Bank of Patiala vs Mukesh
Jain].
TERRITORIAL LIMITS:-
The DRT can entertain complaints if any of the defendants ordinarily resides or carries on business
or personally works for gain or has a branch office; or the cause of action arises within the local
limits of its jurisdiction.
Bar of Jurisdiction (Section 18)

On and from the appointed day, no court or other authority shall have, or be entitled to exercise,
any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising
jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified
in section 17: Provided that any proceedings in relation to the recovery of debts due to any multi-
State co-operative bank pending before the date of commencement of the Enforcement of Security
Interest and Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative
Societies Act, 2002 shall be continued and nothing contained in this section shall, after such
commencement, apply to such proceedings.

DEBT RECOVERY TRIBUNAL- PROCEDURE SECTION 19
1. Where a Bank or a Financial Institution has to recover any debt from any person, it may make
an application to the concerned DRT. within the local limits of whose jurisdiction–
o the branch or any other office of the bank or financial institution is maintaining
an account in which debt claimed is outstanding, for the time being; or (aa) the
defendant, or each of the defendants where there are more than one, at the time
of making the application, actually and voluntarily resides, or carries on business,
or personally works for gain; or
o (b) any of the defendants where there are more than one, at the time of making
the application, actually and voluntarily resides, or carries on business, or personally
works for gain; or
o (c) the cause of action, wholly or in part, arises.
Provided that the bank or financial institution may, with the permission of the Debts Recovery
Tribunal, on an application made by it, withdraw the application, whether made before or after the
Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 for the
purpose of taking action under the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, if no such action had been taken earlier under that
Act:
Provided further that any application made under the first proviso for seeking permission from the
Debts Recovery Tribunal to withdraw the application made under sub-section (1) shall be dealt with
by it as expeditiously as possible and disposed of within thirty days from the date of such application:
2. Further, when a Bank or a financial institution, which has to recover its debt from any person,
has filed an application to the Tribunal and against the same person and another bank or financial
institution also has a claim to recover its debt, the later bank or financial institution may join
the applicant bank or financial institution at any stage of the proceeding, before the final order
is passed by making an application to that Tribunal.

3. Every application under sub-section (1) or sub-section (2) shall be in such form, and shall be
accompanied with true copies of all documents relied on in support of the claim along with such
fee, as may be prescribed: Provided that the fee may be prescribed having regard to the amount
of debt to be recovered: Provided further that nothing contained in this sub-section relating to
fee shall apply to cases transferred to the Tribunal under sub-section (1) of section 31.
Explanation – For the purposes of this section, documents includes statement of account or
any entry in banker’s book duly certified under the Bankers’ Books Evidence Act, 1891
3A. Every applicant in the application filed under sub-section (1) or sub-section (2) for recovery of
debt, shall –
3B. If any application filed before the Tribunal for recovery of any debt is settled prior to the
commencement of the hearing before that Tribunal or at any stage of the proceedings before the
final order is passed, the applicant may be granted refund of the fees paid by him at such rates as
may be prescribed.
4. On receipt of application, the Tribunal shall issue summons requiring the defendant to show cause
within 30 days as to why the relief prayed for should not be granted.
with following directions to the defendant –
(i) to show cause within thirty days of the service of summons as to why relief prayed for
should not be granted;
(ii) direct the defendant to disclose particulars of properties or assets other than properties
and assets specified by the applicant under clauses (a) and (b) of sub-section (3A);
and
(iii) to restrain the defendant from dealing with or disposing of such assets and properties
disclosed under clause (c) of sub-section (3A) pending the hearing and disposal of the
application for attachment of properties.
4A. Notwithstanding anything contained in section 65A of the Transfer of Property Act, 1882, the
defendant, on service of summons, shall not transfer by way of sale, lease or otherwise except in
the ordinary course of his business any of the assets over which security interest is created and
other properties and assets specified or disclosed under sub-section (3A), without the prior approval
of the Tribunal:

Provided that the Tribunal shall not grant such approval without giving notice to the applicant bank
or financial institution to show cause as to why approval prayed for should not be granted:
Provided further that defendant shall be liable to account for the sale proceeds realised by sale of
secured assets in the ordinary course of business and deposit such sale proceeds in the account
maintained with the bank or financial institution holding security interest over such assets.
5. The defendants shall, at or before the first hearing or within such time as the Tribunal may
permit, present a written statement of his defence.
(i) The defendant shall within a period of thirty days from the date of service of summons,
present a written statement of his defence including claim for set-off under sub-section
(6) or a counter-claim under subsection (8), if any, and such written statement shall be
accompanied with original documents or true copies thereof with the leave of the Tribunal,
relied on by the defendant in his defence: Provided that where the defendant fails to file
the written statement within the said period of thirty days, the Presiding Officer may, in
exceptional cases and in special circumstances to be recorded in writing, extend the said
period by such further period not exceeding fifteen days to file the written statement of
his defence;
(ii)where the defendant makes a disclosure of any property or asset pursuant to orders passed
by the Tribunal, the provisions of sub-section (4A) of this section shall apply to such
property or asset;
i) in case of non-compliance of any order made under clause (ii) of sub-section (4), the
Presiding Officer may, by an order, direct that the person or officer who is in default, be
detained in civil prison for a term not exceeding three months unless in the meantime
the Presiding Officer directs his release:
Provided that the Presiding Officer shall not pass an order under this clause without giving an
opportunity of being heard to such person or officer
Explanation. – For the purpose of this section, the expression ‘officer who is in default’ shall mean
such officer as defined in clause (60) of section 2 of the Companies Act, 2013.
Tribunal may, after giving the applicant and the defendant an opportunity of being heard pass such
orders on the application as it deems fit to meet the ends of justice.

5A. On receipt of the written statement of defendant or on expiry of time granted by the Tribunal
to file the written statement, the Tribunal shall fix a date of hearing for admission or denial of
documents produced by the parties to the proceedings and also for continuation or vacation of the
interim order passed under sub-section (4).
5B. Where a defendant makes an admission of the full or part of the amount of debt due to a bank
or financial institution, the Tribunal shall order such defendant to pay the amount, to the extent of
the admission within a period of thirty days from the date of such order failing which the Tribunal
may issue a certificate in accordance with the provisions of sub-section (22) to the extent of the
amount of debt due admitted by the defendant. The Tribunal may make an interim order against
the defendant to debar him from transferring alienating or otherwise dealing with, or disposing of
any property and assets belonging to him without the prior permission of the Tribunal.
6. Where the defendant claims to set-off against the applicant’s demand any ascertained sum of
money legally recoverable by him from such applicant, the defendant may, at the first hearing of
the application, but not afterwards unless permitted by the Tribunal, present a written statement
containing the particulars of the debt sought to be set-off along with original documents and other
evidence relied on in support of claim of set-off in relation to any ascertained sum of money, against
the applicant.
7. The written statement shall have the same effect as a plaint in a cross-suit so as to enable the
Tribunal to pass a final order in respect of both the original claim and of the set-off.
8. A defendant in an application may, in addition to his right of pleading a set-off under sub-section
(6), set up, by way of counter-claim against the claim of the applicant, any right or claim in respect
of a cause of action accruing to the defendant against the applicant either before or after the filing
of the application but before the defendant has delivered his defense or before the time limited for
delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages
or not.
9. A counter-claim under sub-section (8) shall have the same effect as a cross-suit so as to enable
the Tribunal to pass a final order on the same application, both on the original claim and on the
counter- claim. 10. The applicant shall be at liberty to file a written statement in answer to the
counter-claim of the defendant within such period as may be prescribed.
10A. Every application under sub-section (3) or written statement of defendant under sub-section
(5) or claim of setoff under sub-section (6) or a counter-claim under sub-section (8) by the

defendant, or written statement by the applicant in reply to the counter-claim, under sub-section
(10) or any other pleading whatsoever, shall be supported by an affidavit sworn in by the applicant
or defendant verifying all the facts and pleadings, the statements pleading documents and other
documentary evidence annexed to the application or written statement or reply to set-off or counter-
claim, as the case may be: Provided that if there is any evidence of witnesses to be led by any
party, the affidavits of such witnesses shall be filed simultaneously by the party with the application
or written statement or replies filed under sub-section (10A).
10B. If any of the facts or pleadings in the application or written statement are not verified in the
manner provided under sub-section (10A), a party to the proceedings shall not be allowed to rely on
such facts or pleadings as evidence or any of the matters set out therein.
11. Where a defendant sets up a counter-claim in the written statement and in reply to such claim
the applicant contends that the claim thereby raised ought not to be disposed of by way of counter-
claim but in an independent action, the Tribunal shall decide such issue along with the claim of the
applicant for recovery of the debt.
12. [***]
13. (A) Where, at any stage of the proceedings, the Tribunal on an application made by the applicant
along with particulars of property to be attached and estimated value thereof, or otherwise is satisfied
that the defendant, with intent to obstruct or delay or frustrate the execution of any order for the
recovery of debt that may be passed against him,
i) is about to dispose of the whole or any part of his property; or
ii) is about to remove the whole or any part of his property from the local limits of the jurisdiction
of the Tribunal; or
iii) is likely to cause any damage or mischief to the property or affect its value by misuse or creating
third party interest, the Tribunal may direct the defendant, within a time to be fixed by it, either
to furnish security, in such sum as may be specified in the order, to produce and place at the
disposal of the Tribunal, when required, the said property or the value of the same, or such portion
thereof as may be sufficient to satisfy the certificate for the recovery of debt, or to appear and
show cause why he should not furnish security.
(B) Where the defendant fails to show cause why he should not furnish security, or fails to furnish
the security required, within the time fixed by the Tribunal, the Tribunal may order the attachment
of the whole or such portion of the properties claimed by the applicant as the properties secured in

his favour or otherwise owned by the defendant as appears sufficient to satisfy any certificate for
the recovery of debt.
14. [***]
15. The Tribunal may also in the order direct the conditional attachment of the whole or any portion
of the property specified under sub-section (13).
16. If an order of attachment is made without complying with the provisions of sub-section (13),
such attachment shall be void.
17. In the case of disobedience of an order made by the Tribunal under sub-sections (12), (13) and
or breach of any of the terms on which the order was made, the Tribunal may order the properties
of the person guilty of such disobedience or breach to be attached and may also order such person
to be detained in the civil prison for a term not exceeding three months, unless in the meantime
the Tribunal directs his release.
18. Where it appears to the Tribunal to be just and convenient, the Tribunal may, by order,–
The Tribunal shall send a copy of every order passed by it to the applicant and the defendant. The
presiding Officer shall issue a certificate under his signature on the basis of the order of the Tribunal,
to the Recovery Officer for recovery of the amount of debt specified in the certificate.

19. Where a certificate of recovery is issued against a company as defined under the Companies Act,
2013 (18 of 2013) and such company is under liquidation, the Tribunal may by an order direct that
the sale proceeds of secured assets of such company be distributed in the same manner as provided
in section 326 of the Companies Act, 2013 or under any other law for the time being in force.
20. The Tribunal may, after giving the applicant and the defendant, an opportunity of being heard,
in respect of all claims, set-off or counter-claim, if any, and interest on such claims, within thirty
days from the date of conclusion of the hearings, pass interim or final order as it deems fit which
may include order for payment of interest from the date on which payment of the amount is found
due up to the date of realisation or actual payment. 20A. Where it is proved to the satisfaction of
the Tribunal that the claim of the applicant has been adjusted wholly or in part by any lawful
agreement or compromise in writing and signed by the parties or where the defendant has repaid or
agreed to repay the claim of the applicant, the Tribunal shall pass orders recording such agreement,
compromise or satisfaction of the claim.
20AA.While passing the final order under sub-section (20), the Tribunal shall clearly specify the
assets of the borrower over which security interest is created in favour of any bank or financial
institution and direct the Recovery Officers to distribute the sale proceeds of such assets as provided
in sub-section. 20AB. Notwithstanding anything to the contrary contained in any law for the time
being in force, the proceeds from sale of secured assets shall be distributed in the following orders
of priority, namely: –
i) the costs incurred for preservation and protection of secured assets, the costs of valuation, public
notice for possession and auction and other expenses for sale of assets shall be paid in full;
(ii) debts owed to the bank or financial institution.
Explanation – For the purposes of this sub-section, it is hereby clarified that on or after the
commencement of the Insolvency and Bankruptcy Code, 2016 in cases where insolvency and
bankruptcy proceedings are pending in respect of secured assets of the borrower, the distribution of
proceeds from sale of secured assets shall be subject to the order of priority as provided in that
Code.
21. (i) The Tribunal shall send a copy of its final order and the recovery certificate, to the applicant
and defendant.
(ii) The applicant and the defendant may obtain copy of any order passed by the Tribunal on
payment on such fee as may be prescribed.

22. The Presiding Officer shall issue a certificate of recovery along with the final order, under sub-
section (20), for payment of debt with interest under his signature to the Recovery Officer for
recovery of the amount of debt specified in the certificate.
22A. Any recovery certificate issued by the Presiding Officer under sub-section (22) shall be deemed
to be decree or order of the Court for the purposes of initiation of winding up proceedings against a
company registered under the Companies Act, 2013 or Limited Liability Partnership registered under
the Limited Liability Partnership Act, 2008 or insolvency proceedings against any individual or
partnership firm under any law for the time being in force, as the case may be.
23. Where the Tribunal, which has issued a certificate of recovery, is satisfied that the property is
situated within the local limits of the jurisdiction of two or more Tribunals, it may send the copies
of the certificate of recovery for execution to such other Tribunals where the property is situated:
Provided that in a case where the Tribunal to which the certificate of recovery is sent for execution
finds that it has no jurisdiction to comply with the certificate of recovery, it shall return the same
to the Tribunal which has issued it.
24. The application made to the Tribunal under sub-section (1) or sub-section (2) shall be dealt
with by it as expeditiously as possible and every effort shall be made by it to complete the
proceedings in two hearings, and to dispose of the application finally within one hundred and eighty
days from the date of receipt of the application
The Debts Recovery Tribunals are fully empowered to pass comprehensive orders like in Civil Courts.
The Tribunal can hear cross suits, counter claims and allow set offs. However, they cannot hear
claims of damages or deficiency of services or breach of contract or criminal negligence on the part
of the lenders.
The Debts Recovery Tribunals can also appoint Receivers, Commissioners, pass ex-parte orders, apart
from powers to review its own decision and hear appeals against orders passed by the Recovery
Officers of the Tribunals.
The application made to the Tribunal shall be dealt with by it as expeditiously as possible and
endeavour shall be made by it to dispose of the application, finally, within 180 days from the date
of receipt of the application. The Tribunal may make such orders and give such directions as may
be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure
the ends of justice.

FILING OF RECOVERY APPLICATIONS, DOCUMENTS AND WRITTEN STATEMENTS IN ELECTRONIC
FORM (SECTION 19A)
1. Notwithstanding anything to the contrary contained in this Act, and without prejudice to the
provisions contained in section 6 of the Information Technology Act, 2000, the Central Government
may by rules provide that from such date and before such Tribunal and Appellate Tribunal, as may
be notified, –
(a) application or written statement or any other pleadings and the documents to be annexed
thereto required to be filed shall be submitted in the electronic form and authenticated with digital
signature of the applicant, defendant or any other petitioner in such form and manner as may be
prescribed;
(b) any summons, notice or communication or intimation as may be required to be served or delivered
under this Act, may be served or delivered by transmission of pleadings and documents by electronic
form and authenticated in such manner as may be prescribed.
2. Any interim or final order passed by the Tribunal or Appellate Tribunal displayed on the website
of such Tribunal or Appellate Tribunal shall be deemed to be a public notice of such order and
transmission of such order by electronic mail to the registered address of the parties to the proceeding
shall be deemed to be served on such party.
3. The Central Government may by rules provide that the electronic form for the purpose specified
in this section shall be exclusive, or in the alternative or in addition to the physical form, therefor.
4. The Tribunal or the Appellate Tribunal notified under sub-section (1), for the purpose of adopting
electronic filing, shall maintain its own website or common website with other Tribunals and Appellate
Tribunal or such other universally accessible repositories of electronic information and ensure that
all orders or directions issued by the Tribunal or Appellate Tribunal are displayed on the website of
the Tribunal or Appellate Tribunal, in such manner as may be prescribed. The application made to
Tribunal for exercising the powers of the Adjudicating Authority under the Insolvency and Bankruptcy
Code, 2016 shall be dealt with in the manner as provided under that Code. Explanation. – For the
purpose of this section,–
(a) ‘digital signature’ means the digital signature as defined under clause (p) of section 2 of the
Information Technology Act, 2000;

(b) ‘electronic form’ with reference to an information or a document means the electronic form as
defined under clause (r) of section 2 of the Information Technology Act, 2000.
APPEAL TO DRAT – PROCEDURE
Section 20 of the Act provides that any person, aggrieved by an order made by Debt Recovery
Tribunal may prefer an appeal to Debt Recovery appellate Tribunal. However, on appeal shall lie to
DRAT from an order made by DRT with the consent of parties.
The appeal to DRAT shall be filed within a period of 30 days from the date of receiving the copy of
the order of DRT. However, DRAT may entertain an appeal after the expiry of 30 days, if it is
satisfied that there was sufficient cause for not filing it within that period.
On receipt of an appeal, DRAT may confirm, modify or set aside the order appealed against, after
giving an opportunity of being heard.
The appeal made to the DRAT shall be dealt with by it as expeditiously as possible and an endeavour
shall be made by it to dispose of the appeal, finally, within 6 months from the date of receipt of
the appeal.
DEPOSIT OF AMOUNT OF DEBT DUE FOR FILING APPEAL
Where an appeal is preferred by any person from whom the amount of debt is due to a Bank or a
Financial Institution or Financial institutions, such appeal shall not be entertained by the Appellate
Tribunal unless such person has deposited with the Appellate Tribunal 50% of the amount of debt
so due from him as determined by the Tribunal, provided that the Appellate Tribunal may, for reasons
to be recorded in writing, waive or reduce the amount to be deposited.
SECTION 21 provides that where an appeal is preferred by any person from whom the amount of
debt is due to a bank or a financial institution or a consortium of banks or financial institutions,
such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with
the Appellate Tribunal fifty per cent of the amount of debt so due from him as determined by the

Tribunal under section 19: Provided that the Appellate Tribunal may, for reasons to be recorded in
writing, reduce the amount to be deposited by such amount which shall not be less than twenty-
five per cent of the amount of such debt so due to be deposited under this section.
POWERS OF THE TRIBUNAL AND APPELLATE TRIBUNAL

Section 22 deals with the procedure and powers of the Tribunal and the Appellate Tribunal.
The DRT and DRAT have been empowered to lay down its own procedure and regulation and shall
not be bound by the procedure laid down by the Code of Civil Procedure, 1908. However, they shall
observe the principles of natural justice and shall be subject to the rules made by the Central
Government for the procedure to be followed in inquiries.
The DRT shall have the same powers as are vested in the civil court. Under the Code of Civil
Procedure 1908, while trying a suit, in respect of the following matters namely;-
a) summoning and enforcing the attendance of any person and examining him on oath;
b) requiring the discovery and production of documents;
c) receiving evidence on affidavits;
d) issuing commissions for the examination of witnesses or documents;
e) reviewing its decisions;
f) dismissing an application for default or deciding it ex parte;
g) setting aside any order of dismissal of any application for default or any order passed by it
ex parte;
h) any other matter which may be prescribed
The DRT and DRAT shall be deemed to be a Civil Court for the following purposes:-
1. Sec. 195 of Criminal Procedure Code, 1973 which deals with contempt of lawful authority of public
servants; and
2. Chapter XXVI of Criminal procedure code, 1973 which deals with offences affecting the
administration of Justice.

RIGHT TO LEGAL REPRESENTATION AND PRESENTING OFFICERS
Section 23(1) provides that a Bank or a Financial Institution making an application to a Tribunal or
an appeal to an Appellate Tribunal may authorise one or more legal practitioners or any of its officers
to act as Presenting Officers and every person so authorised by it may present its case before the
Tribunal or the Appellate Tribunal. Sub-section (2) states that the defendant may either appear in
person or authorise one or more legal practitioners or any of his or its officers to present his or its
case before the Tribunal or the Appellate Tribunal
Application of Limitation Act Section 24 states that the provisions of the Limitation Act, 1963,
shall, as far as may be, apply to an application made to a Tribunal.
RECOVERY OF DEBT DETERMINED BY TRIBUNAL
Modes Of Recovery Of Debts
As per the provision of Section 25 the Recovery Officer shall on receipt of the copy of the certificate
under Section 19 proceed to recover the amount of debt specified in the certificate by one or more
of the following modes, namely:-
a) attachment and sale of the movable or immovable property of the defendant;
b) taking possession of property over which security interest is created or any other property of the
defendant and appointing receiver for such property and to sell the same;
c) arrest of the defendant and his detention in prison;
d) appointing a receiver for the management of the movable or immovable properties of the
defendant;
e) any other mode of recovery as may be prescribed by the Central Government.

Validity Of Certificate And Amendment Thereof
The defendant cannot dispute before the Recovery Officer the correctness of the amount specified
in the certificate and no objection to the certificate on any other ground shall also be entertained
by the Recovery Officer.
However, the Presiding Officer shall have power to withdraw the certificate or correct any clerical or
arithmetical mistake in the certificate by sending intimation to the Recovery Officer. The presiding
Officer shall intimate to the Recovery Officer any order withdrawing or cancelling a certificate or
any correction made by him.
Stay of proceedings under certificate and amendment or withdrawal thereof (Section 27)
1. Notwithstanding that a certificate has been issued to the Recovery Officer for the recovery of any
amount, the Presiding Officer, may by an order, grant time for payment of the amount, provided the
defendant makes a down payment of not less than twenty-five per cent of the amount specified in
the recovery certificate and gives an unconditional undertaking to pay the balance within a reasonable
time, which is acceptable to the applicant bank or financial institution holding recovery certificate.
1A. The Recovery Officer shall, after receipt of the order passed under sub-section (1), stay the
proceedings until the expiry of the time so granted.
1B. Where defendant agrees to pay the amount specified in the Recovery Certificate and proceeding
are stayed by the Recovery Officer, the defendant shall forfeit right to file appeal against the orders
of the Tribunal. 1C. Where the defendant commits any default in payment of the amount under sub-
section (1), the stay of recovery proceedings shall stand withdrawn and the Recovery Officer shall
take steps for recovery of remaining amount of debt due and payable.
2. Where a certificate for the recovery of amount has been issued, the Presiding Officer shall keep
the Recovery Officer informed of any amount paid or time granted for payment, subsequent to the
issue of such certificate to the Recovery Officer.
3. Where the order giving rise to a demand of amount for recovery of debt has been modified in
appeal, and, as a consequence thereof the demand is reduced, the Presiding Officer shall stay the

recovery of such part of the amount of the certificate as pertains to the said reduction for the
period for which the appeal remains pending.
4. Where a certificate for the recovery of debt has been received by the Recovery Officer and
subsequently the amount of the outstanding demands is reduced [or enhanced] as a result of an
appeal, the Presiding Officer shall, when the order which was the subject-matter of such appeal has
become final and conclusive, amend the certificate or withdraw it, as the case may be.
Other modes of recovery (Section 28)

1. Where a certificate has been issued to the Recovery Officer under sub-section (7) of section 19,
the Recovery Officer may, without prejudice to the modes of recovery specified in section 25, recover
the amount of debt by any one or more of the modes provided under this section.
2. If any amount is due from any person to the defendant, the Recovery Officer may require such
person to deduct from the said amount, the amount of debt due from the defendant under this Act
and such person shall comply with any such requisition and shall pay the sum so deducted to the
credit of the Recovery Officer : Provided that nothing in this sub-section shall apply to any part of
the amount exempt from attachment in execution of a decree of a civil court under section 60 of
the Code of Civil Procedure, 1908. 3. (i) The Recovery Officer may, at any time or from time to
time, by notice in writing, require any person from whom money is due or may become due to the
defendant or to any person who holds or may subsequently hold money for or on account of the
defendant, to pay to the Recovery Officer either forthwith upon the money becoming due or being
held or within the time specified in the notice (not being before the money becomes due or is held)
so much of the money as is sufficient to pay the amount of debt due from the defendant or the
whole of the money when it is equal to or less than that amount.
ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold
any money for or on account of the defendant jointly with any other person and for the purposes
of
this sub-section, the shares of the joint holders in such amount shall be presumed, until the contrary
is proved, to be equal. iii) A copy of the notice shall be forwarded to the defendant at his last
address known to the Recovery Officer and in the case of a joint account to all the joint holders at
their last addresses known to the Recovery Officer.
iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under
this subsection shall be bound to comply with such notice, and, in particular, where any such notice

is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any
pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry,
endorsement or the like to be made before the payment is made notwithstanding any rule, practice
or requirement to the contrary. v) Any claim respecting any property in relation to which a notice
under this sub-section has been issued arising after the date of the notice shall be void as against
any demand contained in the notice.
vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement
on oath that the sum demanded or the part thereof is not due to the defendant or that he does
not hold any money for or on account of the defendant, then, nothing contained in this sub-section
shall be deemed to require such person to pay any such sum or part thereof, as the case may be,
but if it is discovered that such statement was false in any material particular, such person shall be
personally liable to the Recovery Officer to the extent of his own liability to the defendant on the
date of the notice, or to the extent of the defendant’s liability for any sum due under this Act,
whichever is less.
vii) The Recovery Officer may, at any time or from time to time amend or revoke any notice under
this subsection or extend the time for making any payment in pursuance of such notice.
viii) The Recovery Officer shall grant a receipt for any amount paid in compliance with a notice
issued under this sub-section, and the person so paying shall be fully discharged from his liability
to the defendant to the extent of the amount so paid.
ix) Any person discharging any liability to the defendant after the receipt of a notice under this
sub- section shall be personally liable to the Recovery Officer to the extent of his own liability to
the defendant so discharged or to the extent of the defendant’s liability for any debt due under
this Act, whichever is less.
x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance
thereof to the Recovery Officer, he shall be deemed to be a defendant in default in respect of the
amount specified in the notice and further proceedings may be taken against him for the realisation
of the amount as if it were a debt due from him, in the manner provided in sections 25, 26 and
27 and the notice shall have the same effect as an attachment of a debt by the Recovery Officer
in exercise of his powers under section 25.
4. The Recovery Officer may apply to the court in whose custody there is money belonging to the
defendant for payment to him of the entire amount of such money, or if it is more than the amount
of debt due, an amount sufficient to discharge the amount of debt so due.

4A. The Recovery Officer may, by order, at any stage of the execution of the certificate of recovery,
require any person, and in case of a company, any of its officers against whom or which the
certificate of recovery is issued, to declare on affidavit the particulars of his or its assets.
The Recovery Officer may recover any amount of debt due from the defendant by distraint and sale
of his movable property in the manner laid down in the Third Schedule to the Income-tax Act, 1961.
Deposit of amount of Debt due for filing appeal against Orders of the Recovery Officer Section 30A
states that where an appeal is preferred against any order of the Recovery Officer, under section
30, by any person from whom the amount of debt is due to a bank or financial institution or
consortium of banks or financial institutions, such appeal shall not be entertained by the Tribunal
unless such person has deposited with the Tribunal fifty per cent of the amount of debt due as
determined by the Tribunal.
APPLICATION OF CERTAIN PROVISIONS OF INCOME-TAX ACT
Section 29 of the Act provides that the provisions of the Second and Third Schedules to the Income-
tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to
time shall, as far as possible, apply with necessary modified as if the said provisions and the rules
referred to the amount of debt due under this Act instead of to the Income-tax. Provided that any
reference under the said provisions and the rules to the “assessee” shall be construed as a reference
to the defendant under the Act. Furthermore, Section 30, after amendment by the Amendment Act,
2000, gives a right to any person aggrieved by an order of the Recovery Officer, to prefer an appeal
to the Tribunal within thirty days from the date on which a copy of the order is issued to such
person. Thus now an appellate forum has been provided against any orders of the Recovery Officer
which may not be in accordance with the law. There is, therefore, sufficient safeguard which has
been provided in the event of the Recovery Officer acting in an arbitrary or an unreasonable manner.
TRANSFER OF PENDING CASES (SECTION 31)
1. Every suit or other proceeding pending before any court immediately before the date of
establishment of a Tribunal under this Act, being a suit or proceeding the cause of action whereon
it is based is such that it would have been, if it had arisen after such establishment, within the

jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal : Provided that
nothing in this sub-section shall apply to any appeal pending as aforesaid before any court: Provided
further that any recovery proceedings in relation to the recovery of debts due to any multi- State
co-operative bank pending before the date of commencement of the Enforcement of Security Interest
and Recovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies
Act, 2002, shall be continued and nothing contained in this section shall apply to such proceedings.
2. Where any suit or other proceeding stands transferred from any court to a Tribunal under sub-
section (1), –
(a) the court shall, as soon as may be after such transfer, forward the records of such suit or other
proceeding to the Tribunal; and
(b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding,
so far as may be, in the same manner as in the case of an application made under section 19 from
the stage which was reached before such transfer or from any earlier stage as the Tribunal may
deem fit.
APPEAL AGAINST THE ORDER OF RECOVERY OFFICE
Any person aggrieved by an order of the Recovery Officer made under this Act may; within 30 days
from the date, on which a copy of the order is issued to him, prefer an appeal to the Tribunal.
LIMITATION PERIOD
The provisional of the Limitation Act, I908, shall as far as may be apply by an application made to
DRT.
ACT TO HAVE OVER-RIDING EFFECT
Section 34 provides that save as provided under subsection (2), the provisions of this Act shall have
effect notwithstanding anything inconsistent herewith contained in any other law for the time being
in force or in any instrument having effect by virtue of any law other than this Act.

POWER OF TRIBUNAL TO ISSUE CERTIFICATE OF RECOVERY IN CASE OF DECREE OR ORDER
Section 31A specify the power of Tribunal to issue certificate of recovery in case of decree or order.
It states that :
1. Where a decree or order was passed by any court before the commencement of the Recovery of
Debts Due to Banks and Financial Institutions (Amendment) Act, 2000 and has not yet been
executed, then, the decreeholder may apply to the Tribunal to pass an order for recovery of the
amount.
2. On receipt of an application under sub-section (1), the Tribunal may issue a certificate for recovery
to a Recovery Officer.
3. On receipt of a certificate under sub-section (2), the Recovery Officer shall proceed to recover
the amount as if it was a certificate in respect of a debt recoverable under this Act
PRIORITY TO SECURED CREDITORS
Section 31B provides that notwithstanding anything contained in any other law for the time being
in force, the rights of secured creditors to realise secured debts due and payable to them by sale of
assets over which security interest is created, shall have priority and shall be paid in priority over all
other debts and Government dues including revenues, taxes, cesses and rates due to the Central
Government, State Government or local authority
Explanation – For the purposes of this section, it is hereby

clarified that on or after the commencement of the Insolvency
and Bankruptcy Code, 2016 (31 of 2016), in cases where
insolvency or bankruptcy proceedings are pending in respect of
secured assets of the borrower, priority to secured creditors in
payment of debt shall be subject to the provisions of that Code.

WILL INSOLVENCY AND BANKRUPTCY CODE, 2016 PREVAILS OVER SARFAESI ACT, 2002?
In the case of Canara Bank v. Sri Chandramoulishvar Spg. Mills (P) Ltd., the NCLAT while referring
to Supreme Court’s verdict in Innoventive case has ruled that when two proceedings are initiated,
one under the Insolvency and Bankruptcy Code, 2016 (the Code) and the other under the SARFAESI
Act, 2002, then the proceeding under the Code shall prevail. The appeal in the case was preferred
by the Financial Creditor i.e. Canara Bank against the NCLT’s (National Company law Tribunal)
order, whereby the application preferred by Operational Creditor under Section 9 of the Insolvency
and Bankruptcy Code, 2016 (application for initiation of corporate insolvency resolution process by
operational creditor) against the Corporate Debtor i.e. M/s. Sri Chandra Moulishvar Spinning Mills
Private Limited was admitted by the Tribunal. The Appellant’s main grievance in the case was that
he had already initiated proceedings under the SARFAESI Act, 2002 for recovery against the Corporate
Debtor. The NCLAT in view of the issue involved in the case, made reference to Supreme Court’s
verdict in the case of Innoventive Industries Ltd. v. ICICI Bank, whereby the Apex Court was of the
view that if the application under Section 9 is complete and there is no ‘existence of dispute’ and
there is a ‘debt’ and ‘default’ then the Adjudicating Authority is bound to admit the application.
Thus, NCLAT upheld NCLT’s decision and also noted that such action cannot continue as the Code
will prevail over SARFAESI Act, 2002.

CH 23 – CROSS BORDER INSOLVENCY
WHAT IS CROSS BORDER INSOLVENCY?
Cross-border insolvency is the expression frequently employed to designate those cases of insolvency
where assets or liabilities, of an insolvent debtor, are located in two or more separate jurisdictions
or where the personal circumstances of the debtor are such as to render him or they are
simultaneously subject-to the insolvency laws of more than one country.
Cross border insolvency issues arise when a non-resident is either a debtor or contributory or creditor
of the insolvent Indian company. The other instances include cases where the insolvent debtor has
assets in more than one state or where some of the creditors of the debtor are not from the state,
where the insolvency proceeding is taking place.
OBJECTIVES OF CROSS BORDER INSOLVENCY LAWS
a. Maximization of value of assets

b. Ensuring equitable treatment of similarly situated creditors
c. Provision for timely, efficient and impartial resolution of insolvency
d. Preservation of the insolvency estate to allow equitable distribution to creditors
e. Ensuring a transparent and predictable insolvency law that contains incentives for
gathering and dispensing information
f. Recognition of existing creditor rights and establishment of clear rules for ranking of
priority claims
g. Establishment of a framework for cross-border insolvency
CURRENT CROSS BORDER INSOLVENCY SCENARIO
Insolvency laws aim to assist both the debtor and the creditor in the management and disposition
of the debtor’s assets. Recently insolvency petitions against numerous companies are being admitted.

A few of these companies also have assets in other jurisdictions, and one of the crucial questions
that arise is the treatment of such assets. This is the sphere of cross-border insolvency laws.
The Insolvency Law Committee constituted by the Ministry of Corporate Affairs submitted its first
Report in March 2018 which recommended amendments to the Insolvency and Bankruptcy Code,
2016 based on the experience gained from implementation of the Code. With respect to cross-border
insolvency, the Committee noted that the existing provisions in the Code (sections 234 and 235)
do not provide a comprehensive framework for cross-border insolvency matters. The Committee
decided to attempt to provide a comprehensive framework for this purpose based on the UNCITRAL
Model Law on Cross-Border Insolvency, 1997 which could be made a part of the Code by inserting a
separate part for this purpose.
Further, the Standing Committee on Finance (2020-2021) in its Thirty Second Report on
“Implementation of Insolvency & Bankruptcy Code-Pitfalls and Solutions” noted that the Insolvency
Law Committee on cross border Insolvency (2018) had suggested the Incorporation of UNCITRAL
Model Law on cross Border Insolvency into the Insolvency and Bankruptcy Code. The Committee also
noted that an expert Committee on Cross-Border Insolvency Rule/Regulations Committee (CBIRC)
had been constituted for recommending rules and regulations for smooth implementation of proposed
cross border insolvency provisions, which are under consideration. Once the recommendations are
adopted, the committee hope that the cross-border insolvency framework would go a long way in
ensuring coordination and communication between jurisdictions to successfully address the resolution
of cross border insolvency cases. The committee, therefore, recommended that the adoption of the
provision of the cross- border Insolvency Framework should be expedited.

Globally, cross-border insolvency laws are based on one country providing assistance to the other in
taking control of the assets and eventual disposition of such assets of the debtor company. Such
aims are achieved by the mutual recognition of each country’s insolvency regime. The European Union
has one of the most effective cross-border regimes where, under Insolvency Regulations, the country
where proceedings are initiated against the debtor and the Centre of Main interest is located in such
country, the laws of that country automatically take priority and have the same effect in all other
member states and govern all issues except those specifically excluded.
The model law is designed to provide a harmonized approach to the treatment of cross-border
insolvency proceedings, facilitate cooperation between the courts and office holders involved in the
insolvency in diff jurisdictions, and provide for the mutual recognition of judgements and direct
access of foreign representatives to the courts of the enacting state. India has not adopted the
model law.
As regards cross-border insolvency laws in India, under the Companies Act, 2013, a court could order
the winding up of an unregistered company, which included a foreign company. However, if an Indian
company with assets abroad was sought to be wound up, there was no specific statutory process for
the proceedings. It was based on the mutual recognition of foreign decrees as in the Code of Civil
Procedure, 1908, in India. Foreign creditors could also independently proceed against the assets of
the company located in the foreign jurisdiction. In the absence of such recognition, it is difficult for
a liquidator to gather information on the assets and enforce the disposition of foreign assets in a
liquidation.
In its current form, the Code contains only two provisions that may possibly enable and
assist the liquidator with respect to a company having assets in a foreign jurisdiction.
Section 234 of the Code allows the union government to enter into reciprocal agreements
with other countries to enforce the provisions of the Code. Section 235 envisages a ‘letter
of request’ by the liquidator for action on the assets of the company situated in another
country. However, there must exist a reciprocal arrangement with such country. It is
important to appreciate that the Code does not envisage the adoption of the UNCITRAL
Model law or any cross-border insolvency regime.

The Insolvency Law Committee Report (ILC) on cross-border insolvency, observed that Sections 234
and 235 of the Code did not provide a comprehensive framework on cross-border insolvency matters
and stated that it has attempted to formulate a framework based on the UNCITRAL Model Law. If
the code is to be effective in the management and disposition of foreign assets of debtor companies,
it is the need of the hour that India put in place a framework for cross-border insolvency. Till such
time, liquidation of foreign assets will be a long-drawn process.
DEVELOPMENT OF UNCITRAL LEGISLATIVE GUIDE AND MODEL LAW
UNCITRAL Stands for – United Nation’s Commission for International TRAde Law
The increasing globalisation has increased the incidence of cross-border insolvencies. Inadequacy of
national insolvency laws to deal with cases of cross- border nature, frequently results in inadequate
and hostile legal approaches, which hamper the rescue of financially troubled businesses.
As a solution to these kinds of problems, The United Nations commission on international trade law
approved the text of the UNCITRAL Model law on cross-border insolvency (the model law) in May
1997 and that of the UNCITRAL Legislative Guide on insolvency Laws in June, 2004.
THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE (UNCITRAL)
The United Nations Commission on International Trade Law (UNCITRAL) is a subsidiary body of the
General assembly. The United Nations Commission on International Trade Law (UNCITRAL) was
established by the General assembly in 1966 [resolution 2205 (XXi) of 17 December 1966]. The
Commission carries out its work at annual sessions, which are held in alternate years at united
Nations Headquarters in New York and at the Vienna international Centre at Vienna. The united
Nations Commission on international trade law prepares international legislative texts for use by
States in modernizing commercial law and non-legislative texts for use by commercial parties in
negotiating transactions.
Examples of Non-legislative texts:
• UNCITRAL Arbitration Rules

• UNCITRAL Conciliation Rules
• UNCITRAL Notes on Organizing Arbitral Proceedings
• UNCITRAL Legal Guide on International Countertrade Transactions
Examples of Legislative texts:
• UNCITRAL Model Law on International Commercial Arbitration
• UNCITRAL Model Law on Cross Border Insolvency
• UNCITRAL Model Law on Procurement of Goods, Construction and Services
• UNCITRAL Model Law on International Credit Transfers
• UNCITRAL Model Law on Electronic Commerce
UNCITRAL LEGISLATIVE GUIDE ON INSOLVENCY LAWS
The Legislative Guide on insolvency law was prepared by the United Nations Commission on
International Trade Law (UNCITRAL). the project arose from a proposal made to the Commission in
1999 that UNCITRAL should undertake further work on insolvency law, specifically corporate
insolvency, to foster and encourage the adoption of effective national corporate insolvency regimes
Purpose
The purpose of the Legislative Guide on Insolvency Law is to assist the establishment of an efficient
and effective legal framework to address the financial difficulty of debtors. The Legislative Guide
provides a comprehensive statement of the key objectives and principles that should be reflected in
a State’s insolvency laws. It is intended to inform and assist insolvency law reform around the world,
providing a reference tool for national authorities and legislative bodies when preparing new laws and
regulations or reviewing the adequacy of existing laws and regulations.
Key Provisions of the Legislative Guide

The Legislative Guide has been divided into 4 Parts –
Part 1- the key objectives of an insolvency law, structural issues such as the relationship between
insolvency law and other law, the types of mechanisms available for resolving a debtor’s financial
difficulties and the institutional framework required to support an effective insolvency regime.

Part II - core features of an effective insolvency law, following as closely as possible the various
stages of an insolvency proceeding from their commencement to discharge of the debtor and closure
of the proceedings.
Part III – the treatment of enterprise groups in insolvency, both nationally and internationally. While
many of the issues addressed in parts one and two are equally applicable to enterprise groups, there
are that only apply in the enterprise group context.
Part IV - the obligations that might be imposed upon those responsible for making decisions with
respect to the management of an enterprise when that enterprise faces imminent insolvency or
insolvency becomes unavoidable.
UNCITRAL Legislative Guide on Insolvency Law vis-a-vis UNCITRAL Model Law on Cross- Border
Insolvency
A model law generally is used differently than a legislative guide. Specifically, a model law is a
legislative text recommended to States for enactment as part of national law, with or without
modification. As such, model laws generally propose a comprehensive set of legislative solutions to
address a particular topic and the language employed supports direct incorporation of the provisions
of the model law into a national law. The focus of a legislative guide, on the other hand, is upon
providing guidance to legislators and other users and for that reason guides generally include a
substantial commentary discussing and analysing relevant issues. It is not intended that the
recommendations of a legislative guide be enacted as part of national law as such. rather, they
outline the core issues that it would be desirable to address in that law, with some recommendations
providing specific guidance on how certain legislative provisions might be drafted.
UNCITRAL MODEL LAW ON INSOLVENCY LAWS
A model law is a legislative text that is recommended to countries for incorporation into their national
law. The model law is designed to assist states to equip their insolvency laws with a modem,
harmonized and fair framework to address more effectively, instances of cross-border insolvency.

UNCITRAL Model law offers solutions such as:-
 foreign assistance for an insolvency proceeding taking place in the enacting state.
 foreign representative's access to courts of the enacting state
 recognition of foreign proceedings
 Cross- border cooperation and coordination of concurrent proceedings, etc.
The UNCITRAL Model law has been adopted in as many as 44 countries and, therefore, forms part
of international best practices in dealing with cross border insolvency issues. The model law deals
with four major principles of cross-border insolvency, namely:
(a) direct access to foreign insolvency professionals and foreign creditors to participate in or
commence domestic insolvency proceedings against a defaulting debtor;
(b) recognition of foreign proceedings & provision of remedies;
(c) cooperation between domestic and foreign courts & domestic and foreign insolvency practioners;
and (d) coordination between two or more concurrent insolvency proceedings in different countries.
The main proceeding is determined by the concept of centre of main interest (COMI).
PURPOSE OF THE MODEL LAW
The purpose of the model law is to provide effective mechanisms for dealing with cases of cross
border insolvency and to promote:-
1) cooperation between the courts and other competent authorities of a state (the country that
enacts the law) and foreign states involved in cases of cross-border insolvency;
2) greater legal certainty for trade and investment;
3) fair and efficient administration of cross-border insolvencies that protects the interests of all
creditors and other interested persons, including the debtor;
4) protection and maximization of the value of the debtor’s assets;

ELEMENTS RECOGNISED IN THE MODEL LAW
Access - These provisions give representatives of foreign insolvency proceedings and creditors a right
of access to the courts of an enacting State to seek assistance and authorize representatives of
local proceedings being conducted in the enacting State to seek assistance elsewhere.
Recognition – to establish simplified procedures for recognition of qualifying foreign proceedings in

order to avoid time-consuming legalization or other processes that often apply and to provide certainty
with respect to the decision to recognize. These core provisions accord recognition to orders issued
by foreign courts commencing qualifying foreign proceedings and appointing the foreign representative
of those proceedings.
Relief - Key elements of the relief available include interim relief at the discretion of the court
between the making of an application for recognition and the decision on that application, an
automatic stay upon recognition of main proceedings and relief at the discretion of the court for
both main and non-main proceedings following recognition.
Cooperation and Coordination - These provisions address cooperation among the courts of States
where the debtor’s assets are located and coordination of concurrent proceedings concerning that
debtor. The Model Law expressly empowers courts to cooperate in the areas governed by the Model
Law and to communicate directly with foreign counterparts
PRINCIPLE OF SUPREMACY OF INTERNATIONAL OBLIGATIONS
Article 3 provides that to the extent the Model Law conflicts with an obligation of the State enacting
the Model law arising out of any treaty or other form of agreement to which it is a party with one
or more other States, the requirements of the treaty or agreement prevail.
Interpretation
In the interpretation of Model law, regard is to be had to its international origin and to the need to
promote uniformity in its application and the observance of good faith. [Article 8]

PROVISIONS CONTAINED IN THE MODEL LAW
Applicability Of Model Law (Article 1)

According to article I of the model law, it applies where:-
a) Assistance is sought in the enacting state by a foreign court or a foreign representative in
connection with a foreign proceeding; or
b) Assistance is sought in a foreign state in connection with a proceeding under the laws of the
enacting state relating to insolvency; or
c) A foreign proceeding and a proceeding under the laws of the enacting state relating to insolvency
in respect of the same debtor are taking place concurrently; or
d) Creditors or other interested persons in a foreign state have an interest in requesting the
commencement of or participating in, a proceeding, under the laws of the enacting state relating
to insolvency.
Definitions
 “Foreign proceedings” means a collective judicial or administrative proceeding in a foreign
state, including an interim proceeding, pursuant to a law relating to insolvency in which the
assets and affairs of the debtors are subject to control or supervision by a foreign court, for
the purpose of reorganization or liquidation;
 ''Foreign main proceeding” means a foreign proceeding taking place in the state where the
debtor has the centre of its main interests;
 “Foreign non-main proceeding” means a foreign proceeding, other than a foreign main
proceeding, taking place in a state where the debtor has an establishment within the meaning
of this article;
 “Foreign representative” means a person or body, including one appointed on an interim basis,
authorized in a foreign proceeding to administer the reorganization or the liquidation of the
debtor’s assets or affairs or to act as a representative of the foreign proceeding;
 ”Foreign court” means a judicial or other authority competent to control or supervise a foreign
proceeding;

Competent court or authority The functions under the Model law relating to recognition of foreign
proceedings and cooperation with foreign courts shall be performed by the court, courts, authority or
authorities as specified in the Model Law who are competent to perform those functions in the
enacting State. [article 4]
Types of Foreign Proceedings

To fall within the scope of the Model law, a foreign insolvency proceeding needs to possess certain
attributes. these include the basis in insolvency-related law of the originating State; involvement of
creditors collectively; control or supervision of the assets and affairs of the debtor by a court or
another official body; and reorganization or liquidation of the debtor as the purpose of the proceeding.
Within those parameters, a variety of collective proceedings would be eligible for recognition, be they
compulsory or voluntary, corporate or individual, winding- up or reorganization. it also includes those
proceedings in which the debtor retains some measure of control over its assets, albeit under court
supervision (e.g. suspension of payments, “debtor in possession”). An inclusive approach is also used
as regards the possible types of debtors covered by the Model law.
Competent court or authority (Article 4) The functions under the Model law relating to recognition
of foreign proceedings and cooperation with foreign courts shall be performed by the court, courts,
authority or authorities as specified in the Model Law who are competent to perform those functions
in the enacting State
Principle Of Supremacy Of International Obligations (Article 3)

Article 3 provides that to the extent that-the model law conflicts with an obligation of the state
enacting the model law arising out of any treaty or other form of agreement to which it is a party
with one or more other states, the requirements of the treaty or agreement prevail.
Access Of Foreign Representatives And Creditors To Courts In State Enacting Model Law
RIGHT OF DIRECT ACCESS (ARTICLE 9)

A foreign representative is entitled to apply directly to a court in the state enacting law. Article 9
is limited to expressing the principle of direct access by the foreign representative to courts of the

enacting state, thus freeing the representative from having to meet formal requirements such as
licences/permission or consent.
APPLICATION BY A FOREIGN REPRESENTATIVE TO COMMENCE A PROCEEDING (ARTICLE 11)

According to article 11, a foreign representative can apply to commence a proceeding under the
enacting state relating to insolvency, if the conditions for commencing such a proceeding are
otherwise met. A foreign representative has this right without prior recognition of the foreign
proceeding because the commencement of an insolvency proceeding might be crucial for urgent need
for preserving the assets of the debtor.
(a) Establishes simplified proof requirements for seeking recognition and relief for foreign
proceedings, which avoid time-consuming “legalization” requirements involving notarial or consular
procedures (Article 15);
(b) Provides that the foreign representative has procedural standing for commencing an insolvency
proceeding in the enacting State (under the conditions applicable in the enacting State) and that
the foreign representative may participate in an insolvency proceeding in the enacting State (Articles
11 and 12);
(c) Confirms, subject to other requirements of the enacting State, access of foreign creditors to the
courts of the enacting State for the purpose of commencing in the enacting State an insolvency
proceeding or participating in such a proceeding (Article 13);
(d) Gives the foreign representative the right to intervene in proceedings concerning individual actions
in the enacting State affecting the debtor or its assets (Article 24);
(e) Provides that the mere fact of a petition for recognition in the enacting State does not mean
that the courts in that State have jurisdiction over all the assets and affairs of the debtor (Article
10).
Upon recognition of a foreign proceeding, the foreign representative is entitled to participate in a

proceeding regarding the debtor under the laws of the enacting state relating to insolvency.
Article 12 is limited to giving the foreign representative procedural standing (or “procedural
legitimation”) to make petitions, requests or submissions concerning issues such as protection,

realization or distribution of assets of the debtor or cooperation with the foreign proceeding and does
not vest the foreign representative with any specific powers or rights.
PROTECTION OF CREDITORS AND OTHER INTERESTED PERSONS
Foreign creditors have the same rights, regarding the commencement of and participation in a
proceeding, under the laws of the enacting state relating to insolvency as creditors in the state.Model
law in a general way provides that the court to refuse to take an action governed by the model
law if the action would be manifestly contrary to the public policy of the enacting state.
The Model law contains following provisions to protect the interests of the creditors (in particular
local creditors), the debtor and other affected persons:
In addition to those specific provisions, the Model Law in a general way provides that the court may
refuse to take an action governed by the Model law if the action would be manifestly contrary to
the public policy of the enacting State (Article 6).

NOTIFICATION TO FOREIGN CREDITORS OF A PROCEEDING (ARTICLE 14)
Article 14 of the model law provides that whenever, under laws of the enacting state relating to
insolvency, a notification is to be given to creditors, such a notification shall also be given to the
known creditors, that do not have addresses in the state. The court may order that appropriate steps
may be taken with a view to notify any creditor whose address is not yet known. The main purpose
of notifying foreign creditors is to inform them of the commencement of the insolvency proceeding
and of the time limit to file their claims.
Such notification shall be made to the foreign creditors individually, unless the court considers that,
under the circumstances, some other form of notification would be more appropriate. No letters
rogatory or other, similar formality is required. When a notification of commencement of a proceeding
is to be given to foreign creditors, the notification shall:
(a) Indicate a reasonable time period for filing claims and specify the place for their filing;
(b) Indicate whether secured creditors need to file their secured claims; and
(c) Contain any other information required to be included in such a notification to creditors pursuant
to the law of this State and the orders of the court.
RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF

Application for Recognition of a Foreign Proceeding (Article 15) Article 15 defines the core procedural
requirements for an application by a foreign representative for recognition. In incorporating the
provision into national law, it is desirable not to encumber the process with additional requirements
beyond these requirements. a foreign representative may apply to the court for recognition of the
foreign proceeding in which the foreign representative has been appointed. An application for
recognition shall be accompanied by:
(a) A certified copy of the decision commencing the foreign proceeding and appointing the foreign
representative; or
(b) A certificate from the foreign court affirming the existence of the foreign proceeding and of
the appointment of the foreign representative; or

(c) In the absence of evidence referred to in subparagraphs (a) and (b) above, any other evidence
acceptable to the court of the existence of the foreign proceeding and of the appointment of the
foreign representative.
According to Article 16, the court is entitled to presume that those documents are authentic whether
or not they have been legalized. “legalization” is a term often used for the formality by which a
diplomatic or consular agent of the State in which the document is to be produced certifies the
authenticity of the signature, the capacity in which the person signing the document has acted and,
where appropriate, the identity of the seal or stamp on the document.
It further requires that an application for recognition must be accompanied by a statement identifying
all foreign proceedings in respect of the debtor that are known to the foreign representative. That
information is needed by the court not so much for the decision on recognition itself but for any
decision granting relief in favour of the foreign proceeding. In order to tailor such relief appropriately
and make sure that the relief is consistent with any other insolvency proceeding concerning the
same debtor, the court needs to be aware of all foreign proceedings concerning the debtor that may
be under way in third States
Decision to Recognize a Foreign Proceeding (Article 17)

Subject to Article 6, a foreign proceeding shall be recognized if:
(a) The foreign proceeding is a proceeding within the meaning as defined under Article 2;
(b) The foreign representative applying for recognition is a person or body within the meaning as
defined under Article 2;
(c) the application meets the requirements of Article 15; and
(d) the application has been submitted to the court referred to in Article 4.
The foreign proceeding shall be recognized as a foreign main proceeding if it is taking place in the
State where the debtor has the centre of its main interests; or as a foreign non-main proceeding if
the debtor has an establishment within the meaning of subparagraph (f) of Article 2 in the foreign
State.
The purpose of Article 17 is to indicate that, if recognition is not contrary to the public policy of the
enacting State and if the application meets the above said requirements, recognition will be granted

as a matter of course. a decision to recognize a foreign proceeding would normally be subject to
review or rescission, as any other court decision
RECOGNITION OF A FOREIGN PROCEEDING AND RELIEF
APPLICATION FOR RECOGNITION OF A FOREIGN PROCEEDING (ARTICLE 15)

Article 15 defines the core procedural requirements for an application by a foreign representative for
recognition. A foreign representative may apply to the court for recognition of the foreign proceeding
in which the foreign representative has been appointed.
An application for recognition shall be accompanied by:-

a. A certified copy of the decision commencing the foreign proceeding and appointing the foreign
representative; or
b. A certificate from the foreign court affirming the existence of the foreign proceeding and of
the appointment of the foreign representative.
c. In the absence of evidence referred to in subparagraphs (a) and (b) above, any other
evidence acceptable to the court of the existence of the foreign proceeding and of the
appointment of the foreign representative.
The Model law presumes that documents submitted in support of the application for recognition need
not be authenticated in any special way, in particular by legalization. According to Article 16, the
court is entitled to presume that those documents are authentic whether or not they have been
legalized. “legalization” is a term often used for the formality by which a diplomatic or consular
agent of the State in which the document is to be produced certifies the authenticity of the
signature, the capacity in which the person signing the document has acted and, where appropriate,
the identity of the seal or stamp on the document.
SUBSEQUENT INFORMATION (ARTICLE 18)

The foreign representative shall inform the court immediately, if from the time of filing the
application forrecognition of the foreign proceeding, there is:
(a) any substantial change in the status of the recognized foreign proceeding or the status of the
foreign representative’s appointment; and

(b) any other foreign proceeding regarding the same debtor that becomes known to the foreign
representative.
RELIEF THAT MAY BE GRANTED UPON APPLICATION FOR RECOGNITION OF A FOREIGN

PROCEEDING (ARTICLE 19)
According to Article 19, from the time of filing an application for recognition until the application is
decided upon, the court may, at the request of the foreign representative, where relief is urgently
needed to protect the assets of the debtor or the interests of the creditors, grant relief of a
provisional nature, including:
(a) Staying execution against the debtor’s assets;

(b) entrusting the administration or realization of all or part of the debtor’s assets located in a
State to the foreign representative or another person designated by the court, in order to protect
and preserve the value of assets that, by their nature or because of other circumstances, are
perishable, susceptible to devaluation or otherwise in jeopardy; and
(c) any relief mentioned in Article 21.
Relief available under Article 19 is provisional in the sense that, the relief terminates when the
application for recognition is decided upon; however, the court is given the opportunity to extend the
measure, as provided in Article 21. The court may refuse to grant relief under this Article if such
relief would interfere with the administration of a foreign main proceeding
EFFECTS OF RECOGNITION OF A FOREIGN MAIN PROCEEDING (ARTICLE 20)
Once foreign proceeding is recognized which is a foreign main proceeding, the following are the
effects:-
a. Commencement or continuation of individual actions or individual proceedings concerning the
debtor’s assets, obligations or liabilities is stayed:
b. Execution against the debtor's assets is stayed; and
c. The right to transfer; encumber or otherwise dispose of any assets of the debtor is suspended.

The effects provided by article 20 are not discretionary in nature. These flow automatically from
recognition of the foreign main proceeding. The automatic effects under article 20 apply only to
main proceedings.
RELIEF THAT MAY BE GRANTED UPON RECOGNITION OF A FOREIGN PROCEEDING (ARTICLE

21)
Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the
assets of the debtor or the interests of the creditors, the court may, at the request of the foreign
representative, grant any appropriate relief, including:-
a. Staying the commencement or continuation of individual actions or individual proceedings
concerning the debtor‘s assets, rights, obligations or liabilities, to the -extent they have not been
stayed the debtor’s assets, obligations or liabilities, to the extent they have not been stayed
under article 20;
b. Staying execution against the debtor’s assets to the extent it has not been stayed under article
20;
c. Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to
the extent this right has not been suspended under article 20;
d. Entrusting the administration or realization of all or part of the debtor’s assets located in this
state to the foreign representative or another person designated by the court;
e. Providing for the examination of witnesses, the taking of evidence or the delivery of information
concerning the debtor’s assets, affairs, rights, obligations or liabilities;
f. Extending relief granted under article 19; and
g. Granting any additional relief that may be available to a person or body administering a
reorganization or liquidation under the law of the enacting state under the laws of that state.
Upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request
of the foreign representative, entrust the distribution of all or part of the debtor’s assets located in
the State enacting the Model law to the foreign representative or another person designated by the
court, provided that the court is satisfied that the interests of creditors are adequately protected.

PROTECTION OF CREDITORS AND OTHER INTERESTED PERSONS (ARTICLE 22)
The court may under article 22, at the request of the foreign representative or person affected by
relief granted or at its own motion, modify or terminate such relief. In granting relief under article
19, or in modifying or terminating relief, the court must be satisfied that the interests of the
creditors and other interested persons, including the debtor, are adequately protected.
ACTIONS TO AVOID ACTS DETRIMENTAL TO CREDITORS (ARTICLE 23)
The procedural standing conferred by Article 23 extends only to actions that are available to the
local insolvency administrator in the context of an insolvency proceeding, and the article does not
equate the foreign representative with individual creditors who may have similar rights under a
different set of conditions. Such actions of individual creditors fall outside the scope of Article 23.
The Model law expressly provides that a foreign representative has “standing” to initiate actions to
avoid or otherwise render ineffective legal acts detrimental to creditors. The provision is drafted
narrowly in that it does not create any substantive right regarding such actions and also does not
provide any solution involving conflict of laws. The effect of the provision is that a foreign
representative is not prevented from initiating such actions by the sole fact that the foreign
representative is not the insolvency administrator appointed in the enacting State.
COOPERATION WITH FOREIGN COURTS AND FOREIGN REPRESENTATIVES
Cross-Border cooperation is the core element of the model law. Its objective is to enable courts and
insolvency administrators from two or more countries to be efficient and achieve optimal results.
INTERVENTION BY A FOREIGN REPRESENTATIVE IN PROCEEDINGS (ARTICLE 24)
Upon recognition of a foreign proceeding, the foreign representative may, provided the requirements
of the law of the State are met, intervene in any proceedings in which the debtor is a party. The
purpose of Article 24 is to avoid the denial of standing to the foreign representative to intervene in

proceedings merely because the procedural legislation may not have contemplated the foreign
representative among those having such standing. The article applies to foreign representatives of
both main and non-main proceedings.
COOPERATION AND DIRECT COMMUNICATION BETWEEN COURTS OR FOREIGN

REPRESENTATIVES (ARTICLE 25)
The court is entitled to communicate directly with, or to request information or assistance directly
from, foreign courts or foreign representatives. the ability of courts, with appropriate involvement of
the parties, to communicate “directly” and to request information and assistance “directly” from
foreign courts or foreign representatives is intended to avoid the use of time-consuming procedures
traditionally in use, such as letters rogatory
ARTICLE 25
The court is entitled to communicate directly with, or to request information or assistance directly
from, foreign courts or foreign representatives. The ability of courts with appropriate involvement of
the parties to communicate "directly” and to request information and assistance "directly” from
foreign courts or foreign representatives is intended to avoid the use of time consuming procedures
traditionally.
ARTICLE 26
Article 26 provides for co-operation and direct communication between a person or body administering
a reorganization or liquidation under the law of the enacting state and foreign courts or foreign
representatives.
ARTICLE 27
Cooperation may be implemented by any appropriate means, including:-

a) Appointment of a person or body to act at the direction of the court;
b) Communication of information by any means considered appropriate by the court;

c) Coordination of the administration and supervision of the debtor’s assets and affairs;
d) Approval or implementation by courts of agreements concerning the coordination of proceedings;
e) Coordination of concurrent proceedings regarding the same debtor;
f) The enacting state may wish to list additional or forms or examples of cooperation.
COMMENCEMENT OF A PROCEEDING AFTER RECOGNITION OF A FOREIGN MAIN PROCEEDING

(ARTICLE 28)
After recognition of a foreign main proceeding, a proceeding under the laws of the enacting state
relating to insolvency may be commenced only if the debtor has assets in the state enacting the
model law. It further provides that recognition of a foreign main proceeding will not prevent the
commencement of a local insolvency proceeding concerning the same debtor as (long as the debtor
has assets in the state.
COORDINATION OF A PROCEEDING (ARTICLE 29)
Where a foreign proceeding and a proceeding under the law of the enacting state relating to insolvency
are taking place concurrently regarding the same debtor, the court shall seek cooperation under
articles 25, 26 and 27 , and the following shall apply:
(a) When the proceeding in the State (which has enacted Model law) is taking place at the time
the application for recognition of the foreign proceeding is filed, (i) any relief granted under Article
19 or 21 must be consistent with the proceeding in such State; and (ii) if the foreign proceeding is
recognized in such State as a foreign main proceeding, article 20 does not apply;
(b) When the proceeding in such State commences after recognition, or after the filing of the
application for recognition, of the foreign proceeding,
(i) Any relief in effect under Article 19 or 21 shall be reviewed by the court and shall be
modified or terminated if inconsistent with the proceeding in this State; and
(ii) if the foreign proceeding is a foreign main proceeding, the stay and suspension referred
to in Article 20 shall be modified or terminated, if inconsistent with the proceeding in such
State;

(c) in granting, extending or modifying relief granted to a representative of a foreign non-main
proceeding, the court must be satisfied that the relief relates to assets which, according to the law
of the enacting State, should be administered in the foreign non-main proceeding or concerns
information required in that proceeding
The salient principle embodied in Article 29 is that the commencement of a local proceeding does
not prevent or terminate the recognition of a foreign proceeding. This principle is essential for
achieving the objectives of the Model law in that it allows the court in the enacting State in all
circumstances to provide relief in favour of the foreign proceeding.
COORDINATION OF MORE THAN ONE FOREIGN PROCEEDING (ARTICLE 30)
Article 30 deals with cases where the debtor is subject to insolvency proceedings in more than one
foreign state and foreign representatives of more the than one foreign proceeding seek recognition
or relief in the enacting state. The provision applies whether or not an insolvency proceeding is
pending in the enacting state. If, in addition or more foreign proceedings, there is a proceeding in
the enacting state, the court will have to act pursuant to both article 29 and article 30.
In respect of more than one foreign proceedings, of the same debtor, the court shall seek cooperation
and coordination under articles 25, 26 and 27 the following shall apply –
a) Any relief granted under article 21 to a representative of a foreign non-main proceeding after
recognition of a foreign main proceeding must be consistent with foreign main proceeding.
b) If a foreign main proceeding is recognized, after recognition or after the filing of an application
for recognition of a foreign non-main proceeding, any relief in effect under article 21 shall be reviewed
by the court and shall be modified or terminated if inconsistent with the foreign main proceeding
c) if after recognition of a foreign non-main proceeding, another foreign non-main proceeding is
recognized, the court shall grant, modify or terminate relief for the purpose of facilitating coordination
of the proceedings

RULE OF PAYMENT IN CONCURRENT PROCEEDINGS (ARTICLE 32)
Without prejudice to secured claim, a creditor who has received part payment in respect of its claim
in a proceeding, pursuant to a law relating to insolvency, in a foreign state, may not receive a
payment for the same claim in a proceeding, under the laws of the enacting state relating to
insolvency regarding the same debtor, so long as the payment to the other creditors of the same
class is proportionately less than the payment the creditor has already received.
The rule set forth in article 32 is a useful safeguard in a legal regime for coordination and cooperation
in the administration of cross-border insolvency proceedings. It is intended to avoid situation in
which a creditor might obtain more favourable treatment than the other creditors of the same class
by obtaining payment of the same claim in insolvency proceedings in different jurisdictions.
UNCITRAL LEGISLATIVE GUIDE VIS-À-VIS UNCITRAL MODEL LAW
A model law generally is used differently than a legislative guide. Specifically, a model law is a
legislative text recommended to States for enactment as part of national law, with or without
modification. As such, model laws generally propose a comprehensive set of legislative solutions to
address a particular topic and the language employed supports direct incorporation of the provisions
of the model law into a national law.
The focus of a legislative guide, on the other hand, is upon providing guidance to legislators and
other users and for that reason guides generally include a substantial commentary discussing and
analysing relevant issues. It is not intended that the recommendations of a legislative guide be
enacted as part of national law as such. Rather, they outline the core issues that it would be
desirable to address in that law, with some recommendations providing specific guidance on how
certain legislative provisions might be drafted.

EFFECTIVE INSOLVENCY AND CREDITOR RIGHTS SYSTEMS - WORLD BANK PRINCIPLES
A brief summary of the key elements of the World Bank principles for effective insolvency and
creditor rights systems is below:
CREDIT ENVIRONMENT
A regularized system of credit should be supported by mechanisms that provide efficient, transparent
and reliable methods for recovering debt, including seizure and sale of immovable and movable assets
and sale or collection of intangible assets, such as debt owed to the debtor by third parties an
efficient system for enforcing debt claims is crucial to a functioning credit system, especially for
unsecured credit.
Enforcement systems
A modern, credit-based economy requires predictable, transparent and affordable enforcement of
both unsecured and secured credit claims by efficient mechanisms outside of insolvency, as well as
sound insolvency system. These systems must be designed to Work in harmony.
Credit information systems

A modem credit-based economy requires access to complete, accurate and reliable environment that
provides the framework for the creation and operation of effective credit be clearly circumscribed,
especially regarding information about individuals. Legal controls on the type of information collected
and distributed by credit information systems may often be used to advance public policies including
anti discrimination laws. Privacy concerns should be addressed through notice of the existence of
such systems, notice of when any information from such systems is used to make adverse decisions,
and access by data subjects to stored credit information with the ability to dispute and have
corrected inaccurate or incomplete information. An effective enforcement and supervision mechanism
should be in place that provides efficient, inexpensive, transparent and predictable methods for
resolving disputes concerning the operation of credit information systems along with proportionate
sanctions which encourage compliance but that are not so stringent as to discourage operations of
such systems

Informal corporate workouts
Corporate workouts should be supported by an environment that encourages participants to restore
an enterprise to financial viability. Informal workouts are negotiated in the “shadow of the law.”
accordingly, the enabling environment must include clear laws and procedures that require disclosure
of or access to timely and accurate financial information on the distressed enterprise; encourage
lending to, investment in or recapitalization of viable distressed enterprises; support a broad range
of restructuring activities, such as debt write-offs, reschedulings, restructurings and debt-equity
conversions; and provide favourable or neutral tax treatment for restructurings. A country’s financial
sector should promote an informal out-of-court process for dealing with cases of corporate financial
difficulty in which banks and other financial institutions have a significant exposure— especially in
markets where enterprise insolvency is systemic.
Insolvency Law Systems

Effective insolvency systems should always aimed to:-
 Integrate with a country’s broader legal and commercial systems
 Maximize the value of a firm’s assets and recoveries by creditors;
 Provide for both efficient liquidation of non-viable -businesses and those where liquidation
is likely to provide a greater return to creditors and reorganization of viable businesses;
 Provide to equitable treatment of similarly situated creditors, including similarly situated
foreign and domestic creditors;
 Provide for timely, efficient and impartial resolution of insolvencies;
 Prevent the improper use of the insolvency system;
 Prevent the premature dismemberment of a debtor’s asserts by individual creditors seeking
quick judgments;
 Provide a transparent procedure the contains, and consistently applies clear risk allocation
rules and incentives for gathering and dispensing information.
Where an enterprise is not viable, the main thrust of the law should be swift and efficient liquidation
to maximize recoveries for the benefit of creditors. Liquidations can include the preservation and sale
of the business, as distinct from the legal entity. On the other hand, where an enterprise is viable,
meaning it can be rehabilitated, its assets are often more valuable if retained in a rehabilitated

business than if sold in a liquidation. The rescue of a business preserves jobs, provides creditors with
a greater return based on higher going concern values of the enterprise, potentially produces a return
for owners and obtains for the country the fruits of the rehabilitated enterprise.
The rescue of a business should be promoted through formal and informal procedures. rehabilitation
should permit quick and easy access to the process, protect all those involved, permit the negotiation
of a commercial plan, enable a majority of creditors in favor of a plan or other course of action to
bind all other creditors (subject to appropriate protections) and provide for supervision to ensure
that the process is not subject to abuse.
Implementation: institutional and regulatory frameworks
Strong institutions and regulations are crucial for an effective insolvency system. The institutional
framework has three main elements -
a) The institutions responsible for insolvency proceedings,
b) The operational system through which cases and decisions are processed and,
c) The requirements needed to preserve the integrity of those institutions.
1. Overarching considerations of sound investment climates

Minimum standards of transparency and corporate governance should be established to foster
communication and cooperation. Disclosure of basic information including financial statements,
operating statistics and detailed cash flows is recommended for sound risk assessment.
Transparency and Corporate Governance:

Transparency and good corporate governance are the cornerstones of a strong lending system and
corporate sector. Transparency exists when information is assembled and made readily available to
other parties and, when combined with the good behavior of “corporate citizens,” creates an informed
and communicative environment conducive to greater cooperation among all parties. Transparency
and corporate governance are especially important in emerging markets, which are more sensitive to
volatility from external factors. Without transparency, there is a greater likelihood that loan pricing
will not reflect underlying risks, leading to higher interest rates and other charges. transparency and
strong corporate governance are needed in both domestic and cross-border transactions and at all

phases of investment–at the inception when making a loan, when managing exposure while the loan
is outstanding, and especially once a borrower’s financial difficulties become apparent and the lender
is seeking to exit the loan.
Predictability:
Investment in emerging markets is discouraged by the lack of well-defined and predictable risk
allocation rules and by the inconsistent application of written laws. Moreover, during systemic crises
investors often demand uncertainty risk premiums too onerous to permit markets to clear. Some
investors may avoid emerging markets entirely despite expected returns that far outweigh known
risks. Rational lenders will demand risk premiums to compensate for systemic uncertainty in making,
managing and collecting investments in emerging markets. The likelihood that creditors will have to
rely on risk allocation rules increases as fundamental factors supporting investment deteriorate. That
is because risk allocation rules set minimum standards that have considerable application in limiting
downside uncertainty, but that usually do not enhance returns in non- distressed markets. During
actual or perceived systemic crises, lenders tend to concentrate on reducing risk, and risk premiums
soar. At these times the inability to predict downside risk can cripple markets. The effect can
impinge on other risks in the country, causing lender reluctance even towards untroubled borrowers
PROVISIONS OF CROSS BORDER TRANSACTIONS UNDER THE INSOLVENCY AND BANKRUPTCY

CODE, 2016
Sections 234 and 235 of the Insolvency and Bankruptcy Code, 2016 make provisions to deal with
cases involving cross border insolvency.
Agreements with foreign countries – Section 234 empowers the central government to enter into
an agreement with other countries to resolve situations pertaining to cross border insolvency.
Section 234 of the Code provides that: The Central Government may enter into an agreement with
the Government of any country outside India for enforcing the provisions of this Code. [Section
234(1)]

The Central Government may, by notification in the Official Gazette, direct that the application of
provisions of this Code in relation to assets or property of corporate debtor or debtor, including a
personal guarantor of a corporate debtor, as the case may be, situated at any place in a country
outside India with which reciprocal arrangements have been made, shall be subject to such conditions
as may be specified. [Section 234(2)]
Letter of request to a country outside India in certain cases –

Section 235 of the Code lays down that notwithstanding anything contained in this Code or any
law for the time being in force if, in the course of insolvency resolution process, or liquidation or
bankruptcy proceedings, as the case may be, under this Code, the resolution professional, liquidator
or bankruptcy trustee, as the case may be, is of the opinion that assets of the corporate debtor or
debtor, including a personal guarantor of a corporate debtor, are situated in a country outside India
with which reciprocal arrangements have been made under section 234, he may make an application
to the Adjudicating Authority that evidence or action relating to such assets is required in connection
with such process or proceeding. [Section 235(1)]
The Adjudicating Authority on receipt of an application under sub-section (1) and, on being satisfied
that evidence or action relating to assets under sub-section (1) is required in connection with
insolvency resolution process or liquidation or bankruptcy proceeding, may issue a letter of request
to a court or an authority of such country competent to deal with such request. [Section 235(2)]
The current cross border insolvency framework in India is dependant on India entering bilateral
agreements with other countries. Finalisation of bilateral agreements is a long drawn process as it
involves long term negotiations and thus takes a lot of time. Moreover, every trade is distinct and
thus it would be difficult for the adjudicating authorities to enforce the agreements/treaties entered
into with other countries.
INSOLVENCY LAW COMMITTEE ON CROSS BORDER INSOLVENCY
The Ministry of Corporate Affairs has constituted the Insolvency Law Committee (ILC) to recommend
amendments to the Insolvency and Bankruptcy Code of India, 2016. The Committee has submitted

its 2nd Report to the Government on 16 October 2018 recommending amendments in the Insolvency
and Bankruptcy Code, 2016 with respect to cross-border insolvency. The Insolvency Law Committee
(ILC) has recommended the adoption of the UNCITRAL Model Law of Cross Border Insolvency, 1997
as it provides for a comprehensive framework to deal with cross border insolvency issues.
Key recommendations of the committee
Applicability:
The Committee recommended that at present, draft Part Z should be extended to corporate debtors
only. Duplicity of regimes: the Committee noted that currently the Companies act, 2013 contains
provisions to deal with insolvency of foreign companies. It observed that once Part Z is enacted, it
will result in a dual regime to handle insolvency of foreign companies. It recommended that the
Ministry of Corporate Affairs undertake a study of such provisions in the Companies act, 2013 to
assess whether to retain them. Reciprocity: the Committee recommended that the Model law may
be adopted initially on a reciprocity basis. This may be diluted subsequently upon re-examination.
Reciprocity indicates that a domestic court will recognise and enforce a foreign court’s judgment
only if the foreign country has adopted similar legislation to the domestic country.
Access to Foreign representatives:

The Model law allows foreign insolvency professionals and foreign creditors access to domestic courts
to seek remedies directly. Direct access with regards to foreign creditors is envisaged under the Code
even presently. With respect to access by foreign insolvency professionals to Indian courts, the
Committee recommended that the Central Government be empowered to devise a mechanism that
is practicable in the current Indian legal framework.
Centre of Main interests (COMI):

The Model law allows recognition of foreign proceedings and provides relief based on this recognition.
Relief may be provided if the foreign proceeding is a main proceeding or non-main proceeding. If the
domestic courts determine that the debtor has its COMI in a foreign country, such foreign proceedings
will be recognised as the main proceedings. This recognition will result in certain automatic relief,
such as allowing foreign representatives greater powers in handling the debtor’s estate. For non-
main proceedings, such relief is at the discretion of the domestic court. the Committee recommended

that a list of indicative factors comprising COMI may be inserted through rule-making powers. Such
factors may include location of the debtor’s books and records, and location of financing. Cooperation:
the Model law lays down the basic framework for cooperation between domestic and foreign courts,
and domestic and foreign insolvency professionals. Given that the infrastructure of adjudicating
authorities under the Code is still evolving, the cooperation between adjudicating authorities and
foreign courts is proposed to be subject to guidelines to be notified by the Central Government.
Concurrent Proceedings:
The Model law provides a framework for commencement of domestic insolvency proceedings, when a
foreign insolvency proceeding has already commenced or vice versa. It also provides for coordination
of two or more concurrent insolvency proceedings in diff countries by encouraging cooperation between
courts. The Committee recommended adopting provisions in relation to these in draft Part Z.
Public policy considerations:

Part Z provides that the adjudicating authority may refuse to take action under the Code if it is
contrary to public policy. The Committee recommended that in proceedings where the authority is
of the opinion that a violation of public policy may be involved, a notice must be issued to the
Central Government. If the authority does not issue notice, the Central Government may be
empowered to apply to it directly
Recent developments The ILC examined the suggestions/representations from public &
stakeholders, deliberated on the provisions among its members and accordingly submitted
its report on cross border insolvency. The Committee has also recommended a few carve
outs to ensure that there is no inconsistency between the domestic insolvency framework
and the proposed cross border insolvency framework. For smooth implementation of the
cross border insolvency provisions under the Code, it was decided to refer the matter to a
Committee to suggest its recommendations on rules & regulatory framework for smooth
implementation of proposed cross border insolvency provisions in the Code to this ministry
on certain terms of reference. The Committee shall submit its recommendations within
three months from its first meeting.
●●●

MAJOR CASE LAW
Jet Airways (India) Ltd. v. State Bank of India & Anr. Company Appeal (AT) (Insolvency) No. 707
of 2019
In the instant case Jet Airways (India) limited, (‘Company’) was subjected to parallel insolvency
proceedings in India as well as in the Netherlands. in India, the Company has been admitted into a
corporate insolvency resolution process under the insolvency and Bankruptcy Code, 2016 (the “Indian
Proceedings”). Pursuant to the order of the NCLT and resolutions duly passed at the meeting of the
committee of creditors of the Company (“CoC”) dated 16 July 2019, the Resolution Professional (RP)
had been appointed, resulting in the powers of the board of directors of the Company being vested
with the RP.
In the Netherlands, the Company has been declared bankrupt and the Dutch trustee had been
appointed to manage the estate of the Company (the “Dutch Proceedings”).
On an application made by the Dutch trustee, appealing the 20 June 2019 order of the NCLT before
the Hon’ble National Company Law Appellate Tribunal, New Delhi (“NCLAT”), the NCLAT, by its
orders dated 12 July 2019 and 21 august 2019 (“NCLAT Order”), inter alia, directed the RP, in
consultation with the CoC, to consider the prospect of cooperating with the Dutch trustee so as to
have joint “corporate insolvency resolution process of the Company” and further vide its order dated
04 September 2019 directed the RP under the Indian proceedings to reach an arrangement/agreement
with the Dutch trustee to extend such cooperation to each other, further allowing the CoC to guide
the RP to enable him to prepare an agreement in reaching the terms of arrangement of cooperation
with the Dutch trustee in the best interest of the Company and all its stakeholders (“Proposed
Cooperation”).
The NCLAT set aside the order dated 20th June, 2019 passed by the National Company law tribunal,
Mumbai Bench in so far it related to the observations that the ‘Dutch Court’ has no jurisdiction in
the matter of ‘corporate insolvency resolution process’ of ‘Jet Airways (India) Limited, (Offshore
Regional Hub) and the consequential directions as given to the ‘Resolution Professional’ in respect of
‘Offshore proceedings’. However, NCLAT did not interfered with the order of admission of application
under Section 7 of the Code filed by the ‘State Bank of India’ against ‘Jet Airways (India) limited’,

therefore, joint ‘Corporate Insolvency Resolution Process’ will continue in accordance with Insolvency
and Bankruptcy Code, 2016.
The Parties facilitated the Proposed Cooperation with formulation of a ‘Cross Border insolvency
Protocol’. The key agreements under the said Protocol was as follows:
1. this Protocol represents a statement of intentions and guidelines designed to minimize the costs
and maximize value of assets/recoveries for all creditors of the Proceedings, by promoting the
sharing of relevant information among the Parties and the international coordination of related
activities in the Proceedings, while respecting the separate interests of creditors and other
interested parties to the Proceeding, and the independence, sovereignty, and authority of the
NCLT/NCLAT and Dutch Bankruptcy Court
2. in recognition of the substantive differences among the Proceedings in both jurisdictions, this
Protocol shall not impose on the RP or the Dutch trustee any duties or obligations
a. that may be inconsistent with or that may conflict with the duties or obligations to which
the Parties are subject under applicable law, or
b. that are not in the interests of the Company’s estate represented by the Parties and/or
its creditors. Furthermore, nothing in this Protocol should be interpreted in any way so as
to interfere with
i. the proper discharge of any duty, obligation or function of the Parties, or
ii. the exercise of statutory or other powers otherwise available to a Party under
applicable law.
3. the Parties should coordinate with each other and cooperate in all aspects of the Proceedings in
terms of this Protocol. in doing so, the Parties acknowledge and agree that the Parties shall deal
in good faith with each other in the interests of maximizing value of assets/recovery for all of the
Company’s creditors.
4. The Parties recognised that the Company being an Indian company with its centre of main interest
in India, the Indian Proceedings are the main insolvency proceedings and the Dutch Proceedings
are the non-main insolvency proceedings:
a. Coordination – to promote international cooperation and the coordination of activities in
the Proceedings; and to provide for the orderly, effective, efficient, and timely administration
of the Proceedings in order to reduce their cost and maximize recovery for creditors.

b. Communication – to promote communication among the Parties and the CoC; and to
provide, wherever possible, for direct communication among NCLT, NCLAT and Dutch
Bankruptcy Court.
c. Information and data sharing – to provide for the sharing of relevant information and data
among the Parties in order to promote effective, efficient, and fair proceedings, and to
avoid duplication of effort and activities by the parties.
d. Preservation – to identify, preserve, and maximize the value of the Company’s worldwide
assets for the collective benefit of all creditors and other interested parties.
e. Claims Reconciliation – To coordinate an efficient and transparent claims process.
f. Maximize value of assets/recoveries – to cooperate in marshalling the assets of the Company
in order to maximize value of assets/recovery for all of the Company’s creditors.
g. Comity – to maintain the independent jurisdiction, sovereignty, and authority of NCLT,
NCLAT and Dutch Bankruptcy Court.
5. the Dutch trustee in the Indian Proceedings:

a. in the spirit of cooperation, the Dutch trustee aims to not take any decision under the
Dutch Proceedings that would adversely impact the interests of the Company or the
creditors. in the event it becomes necessary for the Dutch trustee in compliance of the
Dutch Bankruptcy Court or any other court, or under any applicable law, to take any decision
that might adversely impact the interests of the Company or the creditors, the Ddutch
trustee shall give advance intimation of such decision to the RP.
b. in the event a resolution plan for the Company is submitted to the NCLT, the Dutch
trustee shall facilitate the submission (by the Company) of a consistent reorganization
plan in the Dutch Proceedings (“schuldeisersakkoord”) in order to implement the resolution
plan in the Dutch jurisdiction incorporating the payout mechanism that is included in such
resolution plan so submitted to the NCLT for distribution of various amounts to various
stakeholders including the creditors of the Company, in accordance with applicable Dutch
laws.
6. the Dutch trustee shall seek inputs, notify the RP and consult the RP, and will be mindful of the
Indian Proceedings prior to any material decision being taken in the Dutch Proceedings, which
may, inter alia, include:

a. matters relating to any proposal or approval of a plan of reorganization or a resolution plan
or plan of compromise or any other similar arrangement in the Dutch Proceedings
b. matters relating to assuming, ratifying, rejecting, repudiating, modifying or assigning
executory contracts having a material impact on the assets, operations, obligations, rights,
property or business of the Company; ands
c. matters which are otherwise prohibited under Section 14 of the Insolvency and Bankruptcy
Code, 2016.
d. The ‘Committee of Creditors’ have no role to play as the agreement reached between the
‘Dutch administrator’ and the ‘Resolution Professional’ of India is on the basis of the
direction of this appellate tribunal. In spite of the same, unfortunately the ‘Committee of
Creditors’ interfered with the matter and put its view to the ‘Resolution Professional’
resulting into difference of the suggestions.
7. The NCLAT clarified that the ‘Dutch Trustee (Administrator) will work in co-operation with the
‘Resolution Professional of India’ and, if any, suggestion is required to be given, he may give it to
the ‘Resolution Professional’. The draft of ‘Cross Border Insolvency Protocol’ clause is made final
and should be treated as a direction of this appellate tribunal and it would be mandatory to
comply with the order of this appellate tribunal subject to the other procedures which are to be
followed in terms of the ‘Insolvency and Bankruptcy Code, 2016’

CH 24- LIQUIDATION ON FAILURE OF CIRP
INTRODCTION
Sections 33 to 54 in Chapter III of Part II of the Insolvency and Bankruptcy Code,2016 lay down
the law relating to liquidation process for corporate persons. An attempt is first made to resolve the
insolvency of corporate debtor through corporate insolvency resolution process laid down in Chapter
II of Part II of the Code. The provisions relating to liquidation in Chapter III of Part II of the Code
comes into effect only if the attempt to resolve corporate insolvency under Chapter II of the Code
fail.
It can thus be seen that the primary focus of the legislation is to ensure revival and continuation
of the corporate debtor by protecting the corporate debtor from its own management and from a
corporate death by liquidation.
In order to regulate the whole process and to ensure smooth implementation of the provisions related
to liquidation, the Board has formulated the IBBI (Liquidation Process) Regulations, 2016, to be
followed during liquidation of the corporate debtors.
INITIATION OF LIQUIDATION
Section 33 of the Code lists out the triggers for initiating the liquidation process for corporate
persons. Section 33 of the Code reads as follows:

1. Where the Adjudicating Authority does not receive are solution plan If the Adjudicating Authority,
before the expiry of the insolvency resolution process period or the maximum period permitted for
completion of the corporate insolvency resolution process under section 12 or the fast track corporate
insolvency resolution process under section 56, as the case may be, does not receive are solution
plan under sub-section (6) of section 30, it shall pass an order requiring the corporate debtor to be
liquidated in the manner as laid down in Chapter III of Part II of the Code. [Section 33(1)]
2. Where the Adjudicating Authority rejects the resolution plan If the Adjudicating Authority rejects
there solution plan under section 31 for the non-compliance of the requirements specified therein, it
shall pass an order requiring the corporate debtor to be liquidated in the manner as laid down in
Chapter III of Part II of the Code.
In both the scenarios above i.e., where the Adjudicating Authority does not receive are solution plan
or where the Adjudicating Authority rejects the resolution plan, it shall:
• pass an order requiring the corporate debtor to be liquidated in the manner as laid down in
this Chapter;
• issue a public announcement stating that the corporate debtor is in liquidation; and
• require such order to be sent to the authority with which the corporate debtor is registered.
[Section 33 (1)]

3. Where, at any time before confirmation of resolution plan, the committee of creditors resolve to
liquidate corporate debtor Where the resolution professional, at any time during the corporate
insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating
Authority of the decision of the committee of creditors approved by not less than sixty-six percent
of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a
liquidation order as referred to in sub-clauses (i), (ii)and (iii) of clause (b) of subsection (1).
[Section 33 (2)] It may be noted that the committee of creditors may take the decision to liquidate
the corporate debtor, any time after its constitution under sub-section (1) of section 21 and before
the confirmation of the resolution plan, including at any time before the preparation of the
information memorandum. [Explanation to Section 33(1)]
4. Where the corporate debtor violates the terms of the resolution plan Where the resolution plan
approved by the Adjudicating Authority under section 31 (Corporate Insolvency Resolution Process)
or under sub-section (1) of section 54L (Pre-packaged Insolvency Resolution Process), is contravened
by the concerned corporate debtor, any person other than the corporate debtor, whose interests are
prejudicially affected by such contravention, may make an application to the Adjudicating Authority
for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).
[Section 33(3)]
Bar to filing of suits and legal proceedings - Section 33 (5) provides that subject to section 52,
when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or
against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the
liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.
Liquidation order to be deemed to be a notice of discharge- The order for liquidation under section
33 shall be deemed to be a notice of discharge to the officers, employees and work men of the
corporate debtor, except when the business of the corporate debtor is continued during the liquidation
process by the liquidator. [Section 33(7)]

APPOINTMENT OF LIQUIDATOR AND FEE TO BE PAID
The Insolvency and Bankruptcy Code, 2016 provides for a clear cut procedure that is needed to be
followed while appointing a liquidator.
The procedure can be understood with the following chart -
Section 34 further provides that the appointment of a liquidator has the following effects –
a) All powers of the board of directors, key managerial personnel and the partners of the
corporate debtor, as the case may be, shall cease to have effect and shall be vested in the
liquidator.
b) A duty is cast upon the personnel of the corporate debtor to extend all assistance and
cooperation to the liquidator in managing the affairs of the corporate debtor
c) The fees of the liquidator shall be as maybe specified

Replacement of resolution professional- Sub-section (4) of section 34 makes provision for the
replacement of resolution professional. According to sub-section (4), the Adjudicating Authority shall
by order replace the resolution professional, if:
The Board shall propose the name of another insolvency professional along with written consent
from the insolvency professional in the specified form within ten days of the direction issued by the
Adjudicating Authority. The Adjudicating Authority shall, on receipt of the proposal of the Board for
the appointment of an insolvency professional as liquidator, by an order appoint such insolvency
professional as the liquidator.
Fee for the conduct of liquidation proceedings - Section 34(8) provides that an insolvency
professional proposed to be appointed as a liquidator shall charge such fee for the conduct of the
liquidation proceedings and in such proportion to the value of the liquidation estate assets, as may

be specified by the Board. The fees for the conduct of the liquidation proceedings under sub-section
(8) shall be paid to the liquidator from the proceeds of the liquidation estate under section 53.
[Section 34(9)]
POWERS AND DUTIES OF LIQUIDATOR
Section 35 of the Code enlists a number of powers and duties imposed upon the liquidator. Some of
them are –
a) To verify claims of all the creditors
b) to take into their custody or control all the assets, property, effects and actionable claims of
c) to evaluate the assets and property of the corporate debtor
d) to take measures to protect and preserve the assets and properties of the corporate debtor
e) to carry on the business of the corporate debtor for its beneficial liquidation
f) to draw, accept, make and endorse any negotiable instruments in the name and on behalf of
g) to obtain any professional assistance from any person or appoint any professional
h) to invite and settle claims of creditors and claimants and distribute proceeds in accordance
with the provisions of this Code
i) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the
name of on behalf of the corporate debtor
j) to investigate the financial affairs of the corporate debtor to determine undervalued or
preferential transaction
[NOTE : This list is a non - exhaustive list and may include other similar acts required to be done
by the Liquidator]
Section 35(2) further provides that the liquidator shall have the power to consultany of the
stakeholders entitled to a distribution of proceeds under section 53. First proviso to section 35(2)
provides that any such consultation shall not be binding on the liquidator. The second provison
further provides that the records of any such consultation shall be made available to all other
stakeholders not so consulted, in a manner specified by the Board.

LIQUIDATION ESTATE
The concept of Liquidation estate has been envisaged under Section 36 of the Code, 2016. Liquidation
Estate refers to the Estate of those properties of the corporate debtor which are available with the
liquidator to be realized in order to discharge its debts. This Estate is held by the Liquidator in
behalf if the corporate debtor in fiduciary capacity for the benefit of all the creditors.
The Code provides that the Liquidation estate should comprise of the following assets –
a) assets over which the corporate debtor has ownership rights, as evidenced in the balance
sheet of the corporate debtor or an information utility or records in the registry or any
b) depository recording securities of the corporate debtor or by any other means as may be
specified by the Board, including shares held in any subsidiary of the corporate debtor
c) assets that may or may not be in possession of the corporate debtor including but not limited
to encumbered assets
d) tangible assets, whether movable or immovable
e) intangible assets including but not limited to intellectual property, securities and financial
instruments, insurance policies, contractual rights
f) assets subject to the determination of ownership by the court or authority
g) assets or their value recovered through proceedings for avoidance of transactions in accordance
with this Chapter
h) those assets of the corporate debtor in respect of which a secured creditor has relinquished
security interest
i) any other property belonging to or vested in the corporate debtor at the insolvency
commencement date; and
j) all proceeds of liquidation as and when they are realised.
The section further provides for a list of assets which should NOT be included in the Liquidation
estate. THis list includes –
a. assets owned by a third party which are in possession of the corporate debtor, including–
i. assets held in trust for any third party

ii. bailment contracts
iii. all sums due to any workmen or employee from the provident fund, the pension fund
and the gratuity fund
iv. other contractual arrangements which do not stipulate transfer of title but only use of
the assets; and
v. such other assets as may be notified by the Central Government in consultation with
any financial sector regulator;
b. assets in security collateral held by financial services providers and are subject to netting
and set-off in multi-lateral trading or clearing transactions
c. personal assets of any shareholder or partner of a corporate debtor
d. assets of any Indian or foreign subsidiary of the corporate debtor
e. any other assets as may be specified by the Board. including assets which could be
subject to set-off on account of mutual dealings between the corporate debtor and any
creditor.
POWERS OF LIQUIDATOR TO ACCESS INFORMATION
Section 37 provides for a special power of the liquidator that entitles them to access all the
information of the corporate debtor for the purpose of easier verification of claims and identification
of their assets and liabilities. The liquidator can seek information from one of the following sources–
a) an information utility
b) credit information systems regulated under any law for the time being in force
c) any agency of the Central, State or Local Government including any registration
authorities;
d) information systems for financial and non-financial liabilities regulated under any law
for the time being in force
e) information systems for securities and assets posted as security interest regulated under
any law for the time being in force
f) any database maintained by the Board
g) any other source as may be specified by the Board.

It is further provided that the creditors of a corporate debtor may seek certain financial information
from the liquidator, which, he is duty bound to divulge within a period of 7 days.
CONSOLIDATION OF CLAIMS
Section 38 of the code provides for the different factors that need to be kept in mind while
consolidating the claims of the different creditors.
Time Limit for collection of claims?
Within a period of 30 days from the date of the commencement of the liquidation process.
Submission of claim by financial creditor ?
By providing a record of such claim with an information utility. However, where the information
relating to the claim is not recorded in the information utility, the claim maybe submitted along
with supporting documents required to prove the claim.
Submission of claim by operational creditor
In such form and in such manner and along with such supporting documents required to prove the
claim as may be specified by the Board.
Withdrawal or variation of claims
Within 14 days of its submission.
Verification of Claims
Section 39 provides that-
i. The liquidator shall verify the claims submitted

ii. within such time as specified by the Board.
iii. The liquidator may require any creditor or the corporate debtor or any other person
iv. to produce any other document or evidence
v. which he thinks necessary for the purpose of verifying the whole or any part of the claim.
Admission or Rejection of Claims
After proper verification of claims, the liquidator may accept or reject them in accordance with
Section 40. However, if the liquidator rejects a claim, they shall record in writing the reasons for
such rejection. The liquidator shall communicate his decision of admission or rejection of claims to
the creditor and corporate debtor within 7 days of such admission or rejection of claims. [Section
40(2)]
Determination of Valuation of Claims
Section 41 provides that the liquidator shall determine the value of claims admitted under section
40 in such manner as may be specified by the Insolvency and Bankruptcy Board of India.
APPEAL AGAINST THE DECISION OF LIQUIDATOR
Section 41 lays down the following rules for preferring an appeal against the decision made under
section 40 -

APPEAL AGAINST THE DECISION OF LIQUIDATOR
According to section 42, a credit or may appeal to the Adjudicating Authority against the decision
of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision.
The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 amended section 42 to provide
clarity that a creditor may appeal to the Adjudicating Authority against the decision of the liquidator
in both the scenarios i.e, acceptance or rejection of claims.

The IB Code, 2016 recognises the possibility that corporate bodies might enter into transactions
which may not be genuine and are entered solely with the intention of defrauding or otherwise
cheating upon the innocent creditors. In order to ensure that all such transactions are avoided and
their effects nullified, the Code had made provisions to deal with these transactions.
Some of these transactions, as provided for in the Code are -
PREFERENTIAL TRANSACTIONS
Section 43 deals with preferential transactions. This section has been inserted in the Code to ensure
that related parties do not use any insider information of the corporate debtor to make unlawful
gains for themselves. The effect of the section is that it invalidates all such preferential transactions
which are entered into by the Corporate Debtor within the Relevant time.
What is a Preferential Transaction?
a) Transfer of properties or any interest thereof given during the relevant time to a person for
the benefit of a creditor, surety or guarantor on account of antecedent debt or other liabilities
b) Such Transfer having the effect of putting such creditor, surety or guarantor in a better
position than the position which they would have been in had the transfer not been made.
However, the following transactions have been kept outside the scope of Section 43 –

a) transfer made in the ordinary course of the business or financial affairs of the corporate
debtor or the transferee;
b) any transfer creating a security interest in property acquired by the corporate debtor to the
extent that –
i. such security interest secures value and was given at the time of or after the
signing of a security agreement that contains a description of such property as
security interest, and was used by corporate debtor to acquire such property;
and
ii. such transfer was registered with an information utility on or before 30 days
after the corporate debtor received possession of such property.
However, the fact that a transfer is made in pursuance of the order of a court does not preclude
such transfer to be deemed as giving of preference by the corporate debtor.
What is the Relevant Time?
For a related party (other than by reason only of being an employee) – 2 years preceding the
insolvency commencement date.
For a person other than a related party – 1 year preceding the insolvency commencement date.
Section 43 provides that where the liquidator or the resolution professional is of the opinion that
the corporate debtor had, at a relevant time, entered into a preferential transactions they shall apply
to the NCLT for avoidance of such transactions or any other action under section 44.
Orders in Case of Preferential Transactions
Section 44 lays down the types of orders that the NCLT can pass in an application made under
section 43 –
a) require any property transferred in connection with the giving of the preference to be vested
in the corporate debtor;

b) require any property to be so vested if it represents the application either of the proceeds of
sale of property so transferred or of money so transferred;
c) release or discharge of any security interest created by the corporate debtor;
d) require any person to pay such sums in respect of benefits received by him from the corporate
debtor, as the NCLT may direct;
e) direct any guarantor, whose financial debts or operational debts owed to any person were
released or discharged (in whole or in part) by the giving of the preference, to be under such
new or revived financial debts or operational debts to that person as the Adjudicating Authority
deems appropriate;
f) direct for providing security or charge on any property for the discharge of any financial debt
or operational debt under the order;
g) direct for providing the extent to which any person whose property is so vested in the
corporate debtor, or on whom financial debts or operational debts a reimposed by the order,
are to be proved in the liquidation or the corporate insolvency resolution process for financial
debts or operational debts which arose from, or were released or discharged wholly or in part
by the giving of the preference:
Transactions in good faith and for value- An order by the Adjudicating Authority under section 44
shall not-
• affect any interest in property which was acquired from a person other than the corporate debtor
or any interest derived from such interest and was acquired in good faith and for value;
• require a person, who received a benefit from the preferential transaction in good faith and for
value to pay a sum to the liquidator or the resolution professional.
Presumption under the Section
This section provides that if it is proved that the person receiving benefits from the corporate debtor
did so after getting sufficient information about the commencement of the CIRP or that such person
is a related party of the corporate debtor, it shall be presumed that the transaction entered into
with them during the relevant period is a preferential transaction. For the purpose of this section, it
is clarified that where a person, who has acquired an interest in property from another person other

than the corporate debtor, or who has received a benefit from the preference or such another person
to whom the corporate debtor gave the preference, -
• had sufficient information of the initiation or commencement of insolvency resolution process of
• is a related party, it shall be presumed that the interest was acquired, or the benefit was received
other
wise than in good faith unless the contrary is shown. [Explanation I to section 44]
Effect of public announcement

A person shall be deemed to have sufficient information or opportunity to avail such information if
a public announcement regarding the corporate insolvency resolution process has been made under
section 13. [Explanation II to section 44].
UNDERVALUED TRANSACTIONS
Section 45 deals with Undervalued Transactions. As per this section, the following transaction, if
entered into during the relevant period, are covered within the ambit of undervalued transactions –
a) a gift to a person;
b) a transaction with a person which involves the transfer of one or more assets by the corporate
debtor for a consideration the value of which is significantly less than the value of the
consideration provided by the corporate debtor, given that the transaction had not been
entered into in the ordinary course of business.
Section 46 prescribes that the Relevant Period for the avoidance of an undervalued transaction,
which is the same as the period provided for preferential transactions. Sub-section (2) of section
46 empowers the Adjudicating Authority to require an independent expert to assess evidence relating
to the value of the transactions mentioned in section 46.

Application by Creditor in Cases of Undervalued Transactions
Section 47 provides for an application to the Adjudicating Authority by creditors, shareholders or
partners of the corporate debtor to set aside a transaction at under value where the liquidator or
resolution professional has not reported such transaction to the adjudicating authority
Application by creditor, member or a partner of a corporate debtor

According to section 47 (1), where an under valued transaction has taken place and the liquidator
or the resolution professional as the case may be, has not reported it to the Adjudicating Authority,
a creditor, member or a partner of a corporate debtor, as the case may be, may make an application
to the Adjudicating Authority to declare such transactions void and reverse their effect in accordance
with this Chapter.
The NCLT has been given the powers to get disciplinary actions initiated against a resolution
professional or a liquidator if it is satisfied that an undervalued transaction had been entered into
by the corporate debtor and the resolution professional/ liquidator had failed to report the same.
Order in Cases of Undervalued Transactions

As per Section 48, the NCLT can pass the following orders to avaoid undervalued transactions –
a) require any property transferred as part of the transaction, to be vested in the corporate
debtor;
b) release or discharge any security interest granted by the corporate debtor;
c) require any person to pay certain sums, in respect of benefits received by such person, to the
liquidator or the resolution professional;
d) require the payment of such consideration for the transaction as may be determined.
TRANSACTIONS DEFRAUDING CREDITORS
Section 49 of the Code deals with transactions defrausing creditos. As per the Code, transactions
entered into with the intention of prejudicing the interests of a person who has made or may make
a claim against the corporate debtor are covered under this section.

The section provides that-
a) if the NCLT is satisfied
b) that the alleged transaction was deliberately entered into
c) by the corporate debtor
d) for keeping assets of the corporate debtor beyond the reach
e) of any person who is entitled to make a claim against the corporate debtor, or
f) in order to adversely affect
g) the interests of such a person in relation to the claim,
it may pass an order
a) restoring the position

b) as it existed before such transaction
c) as if the transaction had not been entered into; and
d) protecting the interests of persons who are victims of such transactions.
It is, however, provided that any order made under this section shall have no effect on any interest
in property acquired in good faith and for value.
EXTORTIONATE CREDIT TRANSACTIONS
The Code does not define an extortionate credit transaction and has rather left it upon the Board
to specify the transactions to be covered under the ambit of Extortionate Credit Transactions.
However, Section 50 provides that where the corporate debtor has been a party to an extortionate
credit during the period within 2 years preceding the insolvency commencement date, the liquidator
or the resolution professional may make an application for avoidance of such transaction to the
NCLT.
Orders in Respect of Extortionate Credit Transactions

NCLT is entitled, under Section 51¸ to pass the following orders in respect of Extortionate Credit
Transaction –

a) restore the position as it existed prior to such transaction;
b) set aside the debt created on account of the extortionate credit transaction
c) modify the terms of the transaction;
d) require any person who is, or was, a party to the transaction to repay any amount received
by such person; or
e) require any security interest that was created as part of the extortionate credit transaction
to be relinquished.
POSITION OF SECURED CREDITORS

Section 52 provides for options exercisable by a secured creditor. In a liquidation proceeding, the
secured creditor may realise its security interest out side the liquidation proceedings or choose to
relinquish its security interest and participate in the distribution of assets or he may release the
security interest. If a secured creditor decides to realise its security, the amount of insolvency
resolution process costs payable by the secured creditor shall be deducted from the realised proceeds.
If there is a surplus realised from the enforcement of a security interest, the secured creditor has
to account for the same to the liquidator. Similarly, if the proceeds of the realisation of the secured
assets are not sufficient to pay the debts owed to the secured creditor, he may claim under section
53 for such unpaid amount.
What are the options available for a secured creditor?

As per Section 52(1) of the Code, a secured creditor in the liquidation proceedings may
a) relinquish its security interest to the liquidation estate and receive proceeds from the sale of
assets by the liquidator in the manner specified in section 53; or
b) realise its security interest in the manner specified in this section.
Liquidator to be informed
Where the secured creditor realises security interest under clause (b) of sub-section(1), he shall
inform the liquidator of such security interest and identify the asset subject to such security interest
to be realised.
Verification by liquidator
Sub-section (3) lays down that before any security interest is realised by the secured creditor under
this section, the liquidator shall verify such security interest and permit the secured creditor to
realise only such security interest, the existence of which may be proved either –
(a) by the records of such security interest maintained by an information utility; or
(b) by such other means as may be specified by the Board.
Realisation of secured asset

Section 52(5) provides that if in the course of realising a secured asset, any secured creditor faces
resistance from the corporate debtor or any person connected there within taking possession of,

selling or otherwise disposing of the security, the secured creditor may make an application to the
Adjudicating Authority to facilitate the secured creditor to realise such security interest in accordance
with law for the time being in force.
The Adjudicating Authority, on the receipt of an application from a secured credit or under sub-
section (5) may pass such order as may be necessary to permit a secured creditor to realise security
interest in accordance with law for the time being in force. [Section 52(6)]
Deduction of insolvency resolution process costs

Sub-section (8) lays down that the amount of insolvency resolution process costs, due from secured
creditors who realise their security interests in the manner provided in section 52, shall be deducted
from the proceeds of any realisation by such secured creditors, and they shall transfer such amounts
to the liquidator to be included in the liquidation estate.
Unpaid debts of secured creditor

Where the proceeds of the realisation of the secured assets are not adequate to repay debts owed
to the secured creditor, the unpaid debts of such secured creditor shall be paid by the liquidator in
the manner specified in clause (e) of subsection (1) of section 53. [Section 52(9)
DISTRIBUTION OF ASSETS
Section 53 deals with distribution of assets in liquidation. The section provides that the amount
realized from the assets of the corporate debtor shall be distributed in the following order-
1. the insolvency resolution process costs and the liquidation costs in full;
2. the following debts shall rank equally between and among the following –
i. workmen’s dues for the period of 24 months preceding the liquidation commencement
date; and
ii. debts owed to a secured creditor in the event such secured creditor has relinquished
security
3. wages and any unpaid dues owed to employees other than workmen for the period of twelve
months preceding the liquidation commencement date;
4. financial debts owed to unsecured creditors;

5. the following dues shall rank equally between and among the following: -
i. any amount due to the Central Government and the State Government in respect of
the whole or any part of the period of two years preceding the liquidation
commencement date;
ii. debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest;
6. any remaining debts and dues;
7. preference shareholders, and
8. equity shareholders or partners.
It is to be noted that no contract entered between any parties in order to disrupt the abovementioned
order shall have any effect while distributing the amount realized out of liquidation.
Contractual arrangements between recipients with equal ranking

Sub-section (2) lays down that any contractual arrangements between recipients under sub-section
(1) with equal ranking, if disrupting the order of priority under that subsection shall be disregarded
by the liquidator.
Deduction of fees payable to liquidator

Sub-section (3) makes provision for deduction of fees payable to liquidator. It provides that the fees
payable to the liquidator shall be deducted proportionately from the proceeds payable to each class
of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed
after such deduction.
The Explanation appended to section 53 clarifies that for the purpose of this section-
(i) at each stage of the distribution of proceeds in respect of a class of recipients that rank equally,
each of the debts will either be paid in full, or will be paid in equal proportion within the same class
of recipients, if the proceeds are insufficient to meet the debts in full; and
(ii) the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of
the Companies Act, 2013.

DISSOLUTION OF CORPORATE DEBTOR
Section 54 provides that after the affairs of the corporate debtor have been wound up and its assets
are completely liquidated, the liquidator shall make an application to the adjudicating authority for
the dissolution of the corporate debtor. The NCLT shall accordingly pass an order of dissolution of
the company. the order shall mention the date on which the company is to be dissolved. A copy of
the order has to be sent to the Registering Authority of the Corporate Debtor within 7 Days of the
said order.
As per Regulation 45(3) of the Insolvency and Bankruptcy Board of India (Liquidation Process)
Regulations, 2016, the liquidator shall submit an application along with the final report prior to
dissolution and the compliance certificate in Form H to the Adjudicating Authority for –
 closure of the liquidation process of the corporate debtor where the corporate debtor is
sold as a going concern; or
 for the dissolution of the corporate debtor, in cases not covered above.

Major Case Laws
1. In the matter of ‘Vedikat Nut Crafts Pvt. Ltd.’, after perusing records, the Adjudicating Authority
could not see any reason for not inviting resolution plan despite the fact that even a period of
one month as balance period of 180 days was still available. NCLT observed that there was no
reason for the Committee of Creditors to jump to the conclusion of seeking liquidation of the
company without seeking extension of time of 90 days, without inviting expression of interest by
the prospective resolution plan applicant as it falls foul of legal provisions and fair play. It presents
a tell tale story of the irregularity committed by the Committee of Creditors. To say the least
such a decision is arbitrary and should not be sustained.
2. In the matter of Small Industries Development Bank of India v. Tirupati Jute Industries Limited
[CP (IB) 508/KB/18 and connected matters], the Adjudicating Authority noted that the
resolution plan, which has been submitted for its approval, was subject to extinguishment of all
claims (except criminal proceedings) against the Corporate Debtor, exemption of all taxes/dues
by the Government/ local authorities, and closure of all proceedings pending against the Corporate
Debtor relating to such dues. The Adjudicating Authority rejected the plan and ordered for
liquidation. It observed that such a plan should not have been approved by the CoC, as it was
not consistent with the provisions of section 30(2)(e) of the Code. It also observed that the
Resolution Professional did not give correct advice when he submitted the plan for approval of
CoC and therefore, it would not be proper to appoint him as the Liquidator.
3. In the case of ‘S. Muthuraju Vs. Commissioner of Police and Another’, a group / mob of unknown
persons hurled threats with weapons and did not allow the liquidator to enter the premise of the
corporate debtor (CD) and carry out his functions. The Hon’ble NCLT directed the Superintendent
of Police to give adequate police protection to the liquidator to enable him to perform his duties.
4. Can CoC challenge the appointment of liquidator after the liquidation order is passed by the
Adjudicating Authority?
In the case of ‘Punjab National Bank Vs. Mr. Kiran Shah, Liquidator of ORG Informatics Ltd.’,
NCLAT held that after the liquidation order, the CoC has no role to play and that they are simply
claimants, whose matters are to be determined by the liquidator and hence cannot move an
application for his removal.

5. The matter of replacing the Resolution Professional (RP) was considered by the National Company
Law Appellate Tribunal (NCLAT) in the matter of ‘Devendra Padamchand Jain v. State Bank of
India’. This case dealt with an appeal by the then RP of VNR Infrastructures, against the order
of the National Company Law Tribunal (NCLT), Hyderabad bench, removing him and appointing
another liquidator. The NCLAT held that apart from the committee of creditors, the NCLT is also
empowered to remove the RP, but it should be for the reasons and in the manner provided under
the relevant section. In this case, RP had failed to properly examine the resolution plan and had
not stated that the plan he submitted met all the requirements of section 30(2) of the Code.
The NCLAT held that the NCLT has jurisdiction to remove the RP if it is not satisfied with its
functioning, which amounts to non-compliance with section 30(2) of the Code.
6. Are the dues in respect to Provident Fund/Pension Fund/Gratuity Fund part of the liquidation
estate?
In the case of ‘Precision Fasteners Ltd. vs. Employees Provident Fund Organisation’, the liquidators
ought a declaration regarding attachment of movable and immovable properties of the CD (under
liquidation) under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 as null and
void to enable him to dispose of these properties along side other assets of the CD. The AAnoted
that in terms of the Code, the dues in respect to Provident Fund/Pension Fund/Gratuity Fund
are not part of the liquidation estate. The AAvacated the attachment with a direction to the
liquidate or to sell the assets and pay off the provident fund dues in priority to all claims payable
by the CD in liquidation.
7. Whether a liquidator can decide a claim of an appellant where a resolution plan is not approved
and order of liquidation is passed?
In the case of ‘Prasad Gempex v. Star Agro Marine Exports Pvt. Ltd. & Ors.’, it was held that “
…..In case the resolution plan is not approved and the order of liquidation is passed, in such case,
it will be open to the appellant to file claim before the liquidator in accordance with the provisions
as referred to above and the liquidator will decide the claim under section 40 of the Code.”

CH 25- VOLUNTARY LIQUIDATION
Section 59 in Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016 provides for the
initiation of voluntary liquidation proceedings by a corporate debtor which has not defaulted on any
debt due to any person.
The Insolvency and Bankruptcy Board of India has made the Insolvency and Bankruptcy Board of
India (Voluntary Liquidation Process) Regulations, 2017 to regulate the voluntary liquidation of
corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016.
Procedural requirements- Sub-section (2) of section 59 provides that the voluntary liquidation of a
corporate person under sub-section (1) shall meet such conditions and procedural requirements as
may be specified by the Insolvency and Bankruptcy Board of India
Who may initiate voluntary liquidation proceedings? As per Section 59(1)

of the Code, a corporate person who intends to liquidate itself voluntarily
and has not committed any default may initiate voluntary liquidation
proceedings under the provisions of Chapter V of Part II of the Code
CONDITIONS FOR VOLUNTARY LIQUIDATION
Subsection (3) of section 59 lays down that without prejudice to sub-section (2), voluntary
liquidation proceedings of a corporate person registered as a company shall meet the following
conditions:
a) a declaration from majority of the directors of the company verified by an affidavit stating
that –

i. they have made a full inquiry into the affairs of the company and they have formed
an opinion that either the company has no debt or that it will be able to pay its
debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
ii. the company is not being liquidated to defraud any person;
b) the declaration under sub-clause (a) shall be accompanied with the following documents:
i. audited financial statements and record of business operations of the company for the
previous two years or for the period since its incorporation, whichever is later;
ii. a report of the valuation of the assets of the company, if any prepared by a registered
valuer;
c) within four weeks of a declaration under sub-clause (a), there shall be –

i. a special resolution of the members of the company in a general meeting requiring the
company to be liquidated voluntarily and appointing an insolvency professional to act
as the liquidator; or
ii. a resolution of the members of the company in a general meeting requiring the
company to be liquidated voluntarily as a result of expiry of the period of its duration,
if any, fixed by its articles or on the occurrence of any event in respect of which the
articles provide that the company shall be dissolved, as the case may be and appointing
an insolvency professional to act as the liquidator.
The proviso appended to sub-section (3) of section 59 lays down that if the company owes any
debt to any person, creditors representing two thirds in value of the debt of the company shall
approve the resolution passed under sub-clause (c) within seven days of such resolution.
Though the procedure to be followed for voluntary liquidation proceedings under Chapter III is largely
similar to the procedure to be followed for insolvent liquidation under Chapter III of the Code yet
there are marked differences:
1. To initiate voluntary liquidation proceedings, where the corporate debtor is a company, the directors
have to provide a declaration of solvency and a declaration that the company is not being liquidated
to defraud any person.

2. The declarations have to be accompanied by (a) the audited financial statements of the company
and (b) a record of its business operations for the previous two years or the periods inceits
incorporation, whichever is later.
3. Further, a report of the valuation of the assets of the company prepared by a registered valuer
has to be provided
4. A resolution in favour of the voluntary winding up of the company and appointment of an
insolvency professional as the liquidator has to be passed within four weeks of the declaration under
clause (a) of sub-section (3) of section 59.
5. Where the company owes any debt to any person, creditors representing two-thirds in value of
the debt of the company shall approve the resolution passed under sub-clause (c) within seven days
of such resolution
Following points are important to be noted –

a) Requirement of notification
Sub-section (4) lays down that the company shall notify the Registrar of Companies and
the Board about the resolution under sub-section (3) to liquidate the company within seven
days of such resolution or the subsequent approval by the creditors, as the case may be.
b) Date of Commencement of voluntary liquidation proceedings
According to sub-section (5), subject to approval of the creditors under sub-section (3), the
voluntary liquidation proceedings in respect of a company shall be deemed to have commenced
from the date of passing of the resolution under sub-clause (c) of sub-section (3).
c) Provisions to apply
As per sub-section (7) of section 59, where the affairs of the corporate person have been
completely wound up, and its assets completely liquidated, the liquidator shall make an
application to the Adjudicating Authority for the dissolution of such corporate person.
d) Application to Adjudicating Authority
The Adjudicating Authority shall on an application filed by the liquidator under sub-section
(7), pass an order that the corporate debtor shall be dissolved from the date of that order
and the corporate debtor shall be dissolved accordingly
e) Copy of Order
A copy of an order under sub-section (8) shall within fourteen days from the date of such
order, be forwarded to the authority with which the corporate person is registered.

BROAD STEPS INVOLVED IN THE VOLUNTARY LIQUIDATION
1. Submission of declaration(s) to ROC, stating that the company will be able to pay its dues
and is not being liquidated to defraud any person;
2. Passing of special resolution for approving the proposal of voluntary liquidation and
appointment of liquidator, within four weeks of the aforesaid declaration(s). If a corporate
person owes debts, approval of two-third majority creditors would also be required;
3. Public announcement inviting claims of all stakeholders, within five days of such Approval, in
newspaper as well as on website of the corporate person;
4. Intimation to the ROC and the Board about the Approval, within seven days of such Approval;
5. Preparation of preliminary report about the capital structure, estimates of assets and liabilities,
proposed plan of action etc., and submission of the same to a corporate person within forty-
five days of such Approval;
6. Verification of claims, within thirty days form the last date for receipt of claims and
preparation of list of stakeholders, within forty-five days from the last date for receipt of
claims;
7. Opening of a bank account in the name of the corporate person followed by the words ‘in
voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate
person;
8. Sale of assets, recovery of monies due to corporate person, realization of uncalled capital or
unpaid capital contribution;
9. Distribution of the proceeds from realization within six months from the receipt of the amount
to the stakeholders;
10. Submission of final report by the liquidator to the corporate person, ROC and the Board and
application to the National Company Law Tribunal (NCLT) for the dissolution;
11. Submission of NCLT order regarding the dissolution, to the concerned ROC within fourteen
days of the receipt of order.

INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (VOLUNTARY LIQUIDATION PROCESS
REGULATIONS, 2017
These Regulations came into force on 1st April, 2017. These Regulations apply to the voluntary
liquidation of corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code,
2016. Some of the salient provisions are discussed below:
Eligibility for appointment as liquidator

 An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner
or director of the insolvency professional entity of which he is a partner or director is independent
of the corporate person.
 An insolvency professional shall not be eligible to be appointed as a liquidator if he, or the
insolvency professional entity of which he is a partner or director is under a restraint order of
the Board.
 A liquidator shall disclose the existence of any pecuniary or personal relationship with the
concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the
Board and the Registrar.
 An insolvency professional shall not continue as a liquidator if the insolvency professional entity
of which he is a director or partner, or any other partner or director of such insolvency professional
entity represents any other stakeholder in the same liquidation
A person shall be considered independent of the corporate person, if he-

(a) is eligible to be appointed as an independent director on the board of the corporate
person under section149 of the Companies Act, 2013 where the corporate person is a
company;
(b) is not a related party of the corporate person; or
(c) has not been an employee or proprietor or a partner-
(i) of a firm of auditors or secretarial auditors or cost auditors of the corporate person; or
(ii) of a legal or a consulting firm, that has or had any transaction with the corporate
person contributing ten per cent or more of the gross turnover of such firm, at any time in
the last three years

REPORTING
(1) The liquidator shall prepare and submit-
(a) Preliminary Report;
(b) Annual Status Report;
(c) Minutes of consultations with stakeholders; and
(d) Final Report in the manner specified under these Regulations.
(2) Subject to other provisions of these Regulations, the liquidator shall make the reports and
minutes referred to sub-regulation (1) available to a stakeholder in either electronic or physical form,
on receipt of-
(a) an application in writing;
(b) cost of making such reports available to it; and
(c) an undertaking from the stakeholder that it shall maintain confidentiality of such reports
and shall not use these to cause an undue gain or undue loss to itself or any other person
CLAIMS
Proof of Claim
As per Regulation 15 of The Insolvency and Bankruptcy Board of India (Voluntary Liquidation
Process) Regulations, 2017, a person, who claims to be a stakeholder, shall prove his claim for debt
or dues to him, including interest, if any, as on the liquidation commencement date.
Substantiation of Claims
Process) Regulations, 2017, the liquidator may call for such other evidence or clarification as he
deems fit from a claimant for substantiating the whole or part of its claim.
Determination of Amount of Claim

Process) Regulations, 2017, where the amount claimed by a claimant is not precise due to any
contingency or any other reason, the liquidator shall make the best estimate of the amount of the

claim, based on consultation with the claimant and the corporate person and the information available
with him.
Verification of Claims
Process) Regulations, 2017
(1) The liquidator shall verify the claims submitted within thirty days from the last date for receipt
of claims and may either admit or reject the claim, in whole or in part, as the case may be, as per
section 40 of the Code.
(2) A creditor may appeal to the Adjudicating Authority against the decision of the liquidator as
per section 42 of the Code.
Manner of Sale
As per Regulation 31 of The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process)
Regulations, 2017, the liquidator may value and sell the assets of the corporate person in the manner
and mode approved by the corporate person in compliance with provisions, if any, in the applicable
statute.
Explanation: “assets” include an asset, all assets, a set of assets or parcel of assets, as the case
may be, in relation to sale of assets.
PROCEEDS OF LIQUIDATION AND DISTRIBUTION OF PROCEEDS
All Money to be Paid in to Bank Account Regulation 34 of The Insolvency and Bankruptcy Board of
India (Voluntary Liquidation Process) Regulations, 2017 prescribes the following:
(1) The liquidator shall open a bank account in the name of the corporate person followed by the
words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate
person.
(2) The liquidator shall pay to the credit of the bank account opened under subregulation(1) all
moneys, including cheques and demand drafts received by him as the liquidator of the corporate
person, and the realizations of each day shall be deposited into the bank account without any
deduction not later than the next working day.

(3) The money in the credit of the bank account shall not be used except in accordance with
section 53(1).
(4) All payments out of the account by the liquidator above five thousand rupees shall be made by
cheques drawn or online banking transactions against the bank account.
PROCEEDS OF LIQUIDATION AND DISTRIBUTION OF PROCEEDS DISTRIBUTION
1. The liquidator shall distribute the proceeds from realization within six months from the receipt
of the amount to the stakeholders.
2. The liquidation costs shall be deducted before such distribution is made
3. The liquidator may, with the approval of the corporate person, distribute amongst the
stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature
or other special circumstances.
COMPLETION OF LIQUIDATION
i. The liquidator shall endeavor to complete the liquidation process of the corporate person within
twelve months from the liquidation commencement date.
ii. The liquidator shall present an Annual Status Report(s)indicating progress in liquidation,
including-
a. settlement of list of stakeholders,
b. details of any assets that remains to be sold and realized
c. distribution made to the stakeholders, and
d. distribution of unsold assets made to the stakeholders;
e. developments in any material litigation, by or against the corporate person
iii. The Annual Status Report shall enclose the audited accounts of the liquidation showing the
receipts and payments pertaining to liquidation since the liquidation commencement date.
iv. In the event of the liquidation process continuing for more than twelve months, the liquidator
shall hold a meeting of the contributories of the corporate person within fifteen days from
the end of the twelve months from the liquidation commencement date, and at the end every
succeeding twelve months till dissolution of the corporate person.

PRESERVATION OF RECORDS
The liquidator shall preserve a physical or an electronic copy of the reports, registers and books of
account referred to in Regulations 8 and 10 for at least eight years after the dissolution of the
corporate person, either with himself or with an information utility
FLOWCHART - VOLUNTARY LIQUIDATION PROCESS

MAJOR CASE LAWS
1. Liquidation of NIPPEI TOYOMA INDIA PRIVATE LIMITED
Facts –
The Company was incorporated under the provisions of Companies Act, 1956 on 27.04.2007. It was
engaged in the business of providing engineering services and trading of automotive components for
automotive industries. The Company did not have any operations as not carrying on any business
activities. Considering the cost and time involved in ensuring compliances regarding the Company, the
members of the Company in their Extra Ordinary General Meeting resolved to voluntary liquidate the
Company.

A copy of the final report of the Liquidator was annexed to the dissolution petition, stating how the
liquidation process had been conducted, that all the assets of the Company had been discharged to
the satisfaction of the creditors and that no litigation was pending against the company. The said
Final Report of the Liquidator was submitted with the Registrar of Companies. The Liquidator had
filed this petition before the Tribunal seeking order of dissolution of the Company.
NCLT noted that it appeared that the affairs of the company had been completely wound-up, and its
assets completely liquidated. NCLT in view of the above facts and circumstances and Final Report of
the Liquidator directed that the Company shall be dissolved from the date of its order. The Petitioner
was further directed to serve a copy of the order upon the Registrar of Companies, with which the
Company was registered, within fourteen days of receipt of the order.

CH 26 – WINDING UP BY THE TRIBUNAL
Winding up is a means by which the dissolution of a company is brought about. The main purpose
of winding up of a company is to realize the assets and pay the company’s debts expeditiously and
fairly in accordance with the law. If any surplus is left, it is distributed among the members in
accordance with their rights.
It may be noted that on winding up, the company does not cease to exist as such, except when it
is dissolved. Even after the commencement of winding-up, the property and assets of the company
belong to the company until the dissolution takes place. On dissolution, the company ceases to exist
as a separate entity and becomes incapable of keeping property, suing or being sued. Thus, in between
the winding up and dissolution, the legal status of the company continues and it can be sued in the
court of law. The entire procedure for bringing about a lawful end to the life of a company is divided
into two stages i.e., ‘winding up’ and ‘dissolution’. Winding up is the first stage in the process
whereby assets are realised, liabilities are paid off and the surplus, if any, distributed among its
members. Dissolution is the final stage whereby the existence of the company is withdrawn by the
law. dissolution brings about an end to the legal entity of the company.
The terms “Winding up” and “dissolution” are sometimes erroneously used to mean the same
thing. But, the legal implications of these two terms are quite different and there are fundamental
differences between them as regards the legal procedure involved.
IMPORTANT CHANGES BROUGHT ABOUT BY THE INSOLVENCY AND BANKRUPTCY CODE, 2016
The insolvency and Bankruptcy Code, 2016 (‘Code’) was passed with the objective of consolidating
and amending the laws relating to reorganisation and insolvency resolution in a time bound manner
for maximization of value of assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders including alteration in the order of priority
of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and
for other matters connected. The Insolvency and Bankruptcy Code, 2016 has made significant
amendments to provisions relating to winding up in the Companies Act, 2013. The important ones
are discussed below:

“Winding up” – The expression “winding up” was not defined in the Companies Act, 2013 or in the
erstwhile Companies Act of 1956. The eleventh Schedule has added sub-section (94a) to section 2
of the Companies Act, 1956. The definition of “winding up” reads as follows:
Voluntary winding up – Provisions relating to voluntary winding up in the Companies Act, 2013 i.e.,
sections 304 to 323 have been omitted by the insolvency and Bankruptcy Code, 2016. Voluntary
liquidation is now dealt with under section 59 of the insolvency and Bankruptcy Code, 2016 read
with IiBBIi (Voluntary liquidation Process) regulations, 2017.
Inability to pay debts – The Insolvency and Bankruptcy Code, 2016 has substituted section 271 of
the Companies Act, 2013
The Ministry of Corporate Affairs has notified section 255 of the Insolvency and Bankruptcy Code, 2016.
Section 255 of the Insolvency and Bankruptcy Code, 2016 amends the Companies Act, 2013, in
accordance with the eleventh Schedule of the Insolvency and Bankruptcy Code, 2016. The Central
Government had appointed 15th November, 2016 as the date on which the provisions of section 255 of
the Insolvency and Bankruptcy Code, 2016 shall come into force
“Winding up” means winding up under the Companies Act, 2013 or liquidation under the
insolvency and Bankruptcy Code, 2016, as applicable” [Section 2(94a)]
CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP BY TRIBUNAL
Section 271 of the Companies Act provides that a company may, on a petition under section 272,
be wound up by the Tribunal, –
A) if the company has, by special resolution, resolved that the company be wound up by the
Tribunal;
B) if the company has acted against the interests of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order, decency or morality;
C) if on an application made by the Registrar or any other person authorised by the Central
Government by notification under this Act, the Tribunal is of the opinion that the affairs of

the company have been conducted in a fraudulent manner or the company was formed for
fraudulent and unlawful purpose or the persons concerned in the formation or management
of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith
and that it is proper that the company be wound up;
D) if the company has made a default in filing with the Registrar its financial statements or
annual returns for immediately preceding five consecutive financial years; or
E) if the Tribunal is of the opinion that it is just and equitable that the company should be
wound up.
The following two grounds have been deleted from section 271:
(a) if the company is unable to pay its debts;
(d) if the tribunal has ordered the winding up of the company under Chapter XIIX.
Thus, if a company is unable to pay its debts, creditors cannot file petition in tribunal in for winding
up of the Company. However, the Companies Act, 2013 shall continue to govern winding up of
companies on various other grounds excluding inability to pay debts.
WINDING UP BY TRIBUNAL UNDER THE COMPANIES ACT, 2013
The Companies Act, 2013 continues to govern winding up of companies on various other grounds
excluding inability to pay debts. Sections 270 to 288, Sections 290 to 303, Section 324 and Sections
326 to 365 of Chapter XX of the Companies Act, 2013 contain the provisions relating to winding
up of a company.
WHO MAY FILE PETITION FOR WINDING UP
Section 272 lays down that a petition to the Tribunal for the winding up of a company shall be
presented by –
a) the company;
b) any contributory or contributories;
c) all or any of the persons specified in clauses (a) and (b) ;
d) the Registrar;

e) any person authorised by the Central Government in that behalf; or
f) in a case falling under clause (b) of section 271, by the Central Government or a State
Government.
POWERS OF TRIBUNAL
According to section 273(1), the Tribunal may, on receipt of a petition for winding up under section
272 pass any of the following orders, namely: –
a) dismiss it, with or without costs;
b) make any interim order as it thinks fit
c) appoint a provisional liquidator of the company till the making of a winding up order;
d) make an order for the winding up of the company with or without costs; or
e) any other order as it thinks fit:
Provided that an order under this sub-section shall be made within ninety days from the date of
presentation of the petition.
Provided further that before appointing a provisional liquidator under clause (c), the tribunal shall
give notice to the company and afford a reasonable opportunity to it to make its representations, if
any, unless for special reasons to be recorded in writing, the Tribunal thinks fit to dispense with
such notice:
Provided also that the tribunal shall not refuse to make a winding up order on the ground only that
the assets of the company have been mortgaged for an amount equal to or in excess of those assets,
or that the company has no assets.
Where a petition is presented on the ground that it is just and equitable that the company should
be wound up, the tribunal may refuse to make an order of winding up, if it is of the opinion that
some other remedy is available to the petitioners and that they are Acting unreasonably in seeking
to have the company wound up instead of pursuing the other remedy. [Section 273(2)]
FILING STATEMENT OF AFFAIRS OF THE COMPANY
Section 274 lays down that in case, where the Tribunal is satisfied that on a petition that the
winding up of the company is to be made out, it may by an order direct the company to file its

objections along with a statement of its affairs within thirty days of the order which can be allowed
a further period of thirty days in a situation of contingency or special circumstances.
Further, the director or the officer of the company who is in default will be punishable with
imprisonment for a term which may extend to six months or with fine which shall not be less than
twenty-five thousand rupees but which may extend to five lakh rupees, or with both. The complaint
may be filed in this behalf before the Special Court by Registrar, provisional liquidator, Company
liquidator or any person authorised by the tribunal.
In case, where the Company fails to file the statement of affairs, the tribunal shall forfeit the
right of the company to oppose the petition and right of such directors and officers of the
company as found responsible for such noncompliance.
COMPANY LIQUIDATORS AND THEIR APPOINTMENTS
For the purposes of winding up of a company by the tribunal, the tribunal at the time of the passing
of the order of winding up, shall appoint an Official Liquidator or a liquidator from the panel
maintained under sub-section (1) as the Company liquidator. [Section 275(1)]
The provisional liquidator or the Company liquidator, as the case may, shall be appointed by the
tribunal from amongst the insolvency professionals registered under the insolvency and Bankruptcy
Code, 2016.] [Section 275(2)]
Where a provisional liquidator is appointed by the tribunal, the tribunal may limit and restrict his
powers by the order appointing him or it or by a subsequent order, but otherwise he shall have the
same powers as a liquidator. [Section 275(3)]
The terms and conditions of appointment of a provisional liquidator or Company liquidator and the
fee payable to him or it shall be specified by the Tribunal on the basis of task required to be
performed, experience, qualification of such liquidator and size of the company. [Section 275(5)]
On appointment as provisional liquidator or Company liquidator, as the case may be, such liquidator
shall file a declaration within seven days from the date of appointment in the prescribed form
disclosing conflict of interest or lack of independence in respect of his appointment, if any, with

the tribunal and such obligation shall continue throughout the term of his appointment. [Section
275(6)]
While passing a winding up order, the tribunal may appoint a provisional liquidator, if any,
appointed under clause (c) of sub-section (1) of section 273, as the Company liquidator for the
conduct of the proceedings for the winding up of the company. [Section 275(7)]
“Company Liquidator”, means a person appointed by the tribunal as the Company liquidator in
accordance with the provisions of section 275 for the winding up of a company under this Act.
[Section 2(23)].
REMOVAL AND REPLACEMENT OF LIQUIDATOR
Section 276 lays down that in case where the reasonable cause being shown and for reasons to be
recorded in writing, the tribunal may remove the provisional liquidator or the Company Liquidator, on
any of the following grounds:
a) misconduct;
b) fraud or misfeasance;
c) professional incompetence or failure to exercise due care and diligence in performance of the
powers and functions
d) inability to act as provisional liquidator or as the case may be, Company Liquidator
e) conflict of interest or lack of independence during the term of his appointment that would
justify removal.
However, in the event of death, resignation or removal of the liquidator the Tribunal may transfer
the work assigned to him or it to another Company Liquidator for reasons to be recorded in writing.
INTIMATION FOR WINDING UP
According to Section 277, upon the order for appointment of provisional liquidator or for the winding
up of a company, the tribunal shall within a period not exceeding seven days from the date of

passing of the order give intimation of the appointment to the Company liquidator or provisional
liquidator and the registrar.
The registrar on receipt of the copy of order of appointment of provisional liquidator or winding up
order shall make an endorsement to that effect in his records relating to the company and notify
in the Official Gazette that such an order has been made and in the case of a listed company, the
registrar shall intimate about such appointment or order, to the stock exchange or exchanges where
the securities of the company are listed.
Such winding up order shall be deemed to be a notice of discharge to the officers, employees and
workmen of the company, except when the business of the company is continued. Within three
weeks from the date of passing of winding up order, the Company liquidator shall make an application
to the tribunal for constitution of a winding up committee to assist and monitor the progress of
liquidation proceedings by the Company liquidator in carrying out the function as provided in sub-
section (5) and such winding up committee shall comprise of the following persons, namely:—
 Official Liquidator attached to the Tribunal;
 nominee of secured creditors; and
 a professional nominated by the tribunal. The Company liquidator shall be the convener of
the meetings of the winding up committee which shall assist and monitor the liquidation
proceedings in following areas of liquidation functions, namely:—

The Company liquidator shall place before the tribunal a report along with minutes of the meetings
of the committee on monthly basis duly signed by the members present in the meeting for
consideration till the final report for dissolution of the company is submitted before the Tribunal.
He shall also prepare the draft final report for consideration and approval of the winding up
committee. The final report, so approved by the winding up committee, shall be submitted by the
Company liquidator before the tribunal for passing of a dissolution order in respect of the company.
STAY OF SUITS ON WINDING UP ORDER
When a winding up order has been passed or a provisional liquidator has been appointed, no suit or
other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall
be proceeded with, by or against the company, except with the leave of the tribunal and subject to
such terms as the tribunal may impose: Provided that any application to the tribunal seeking leave
under this section shall be disposed of by the tribunal within sixty days. [Section 279(1)] Nothing
in sub-section (1) shall apply to any proceeding pending in appeal before the Supreme Court or a
High Court. [Section 279(2)]
EFFECT OF WINDING UP ORDER
The order for the winding up of a company shall operate in favour of all the creditors and all
contributories of the company as if it had been made out on the joint petition of creditors and
contributories. [Section 278]
SUBMISSION OF REPORT BY COMPANY LIQUIDATOR
According to section 281(1), where the Tribunal has made a winding up order or appointed a Company
Liquidator, such liquidator shall, within sixty days from the order, submit to the Tribunal, a report
containing the following particulars, namely:
a) the nature and details of the assets of the company including their location and value, stating
separately the cash balance in hand and in the bank, if any, and the negotiable securities, if
any, held by the company

b) amount of capital issued, subscribed and paid-up;
c) the existing and contingent liabilities of the company including names, addresses and
occupations of its creditors, stating separately the amount of secured and unsecured debts,
d) the debts due to the company and the names, addresses and occupations of the persons from
whom they are due and the amount likely to be realised on account thereof;
e) guarantees, if any, extended by the company;
f) list of contributories and dues, if any, payable by them and details of any unpaid call
g) details of trademarks and intellectual properties, if any, owned by the company;
h) details of subsisting contracts, joint ventures and collaborations, if any
i) details of holding and subsidiary companies, if any;
j) details of legal cases filed by or against the company; and
k) any other information which the Tribunal may direct or the Company Liquidator may consider
necessary to include.
The Company liquidator shall include in his report the manner in which the company was promoted
or formed and whether in his opinion any fraud has been committed by any person in its promotion
or formation or by any officer of the company in relation to the company since the formation thereof
and any other matters which, in his opinion, it is desirable to bring to the notice of the tribunal.
[Section 281(2)]
The Company liquidator shall also make a report on the viability of the business of the company or
the steps which, in his opinion, are necessary for maximising the value of the assets of the company.
[Section 281(3)]
DIRECTIONS OF TRIBUNAL ON REPORT OF COMPANY LIQUIDATOR
The Tribunal shall, on consideration of the report of the Company Liquidator, fix a time limit within
which the entire proceedings shall be completed and the company be dissolved: Provided that the
tribunal may, if it is of the opinion, at any stage of the proceedings, or on examination of the reports
submitted to it by the Company liquidator and after hearing the Company liquidator, creditors or
contributories or any other interested person, that it will not be advantageous or economical to
continue the proceedings, revise the time limit within which the entire proceedings shall be completed
and the company be dissolved. [Section 282(1)].

The tribunal may, on examination of the reports submitted to it by the Company liquidator and after
hearing the Company liquidator, creditors or contributories or any other interested person, order sale
of the company as a going concern or its assets or part thereof: Provided that the Tribunal may,
where it considers fit, appoint a sale committee comprising such creditors, promoters and officers of
the company as the Tribunal may decide to assist the Company Liquidator in sale under this sub-
section. [Section 282(2)]
Where a report is received from the Company liquidator or the Central Government or any person
that a fraud has been committed in respect of the company, the tribunal shall, without prejudice to
the process of winding up, order for investigation under section 210, and on consideration of the
report of such investigation it may pass order and give directions under sections 339 to 342 or direct
the Company Liquidator to file a criminal complaint against persons who were involved in the
commission of fraud. [Section 282(3)]
The tribunal may order for taking such steps and measures, as may be necessary, to protect, preserve
or enhance the value of the assets of the company. [Section 282(4)] The Tribunal may pass such
other order or give such other directions as it considers fit. [Section 282(5)]
Custody of company’s properties Upon the winding up order made by the tribunal the Company
liquidator or the provisional liquidator take into his or its custody or control all the property, effects
and Actionable claims to which the company is or appears to be entitled to and take such steps
and measures, as may be necessary, to protect and preserve the properties of the company which
shall be deemed to be in the custody of the tribunal from the date of the order for the winding
up of the company. [Section 283]
ADVISORY COMMITTEE
The Tribunal may, while passing an order of winding up of a company, direct that there shall be, an
advisory committee to advise the Company Liquidator and to report to the Tribunal on such matters
as the Tribunal may direct. [Section 287(1)]

The advisory committee appointed by the Tribunal shall consist of not more than twelve members,
being creditors and contributories of the company or such other persons in such proportion as the
Tribunal may, keeping in view the circumstances of the company under liquidation, direct. [Section
287(2)]
The Company Liquidator shall convene a meeting of creditors and contributories, as ascertained from
the books and documents, of the company within thirty days from the date of order of winding up
for enabling the Tribunal to determine the persons who may be members of the advisory committee.
The meeting of advisory committee shall be chaired by the Company Liquidator. [Section 287(6)]
POWERS AND DUTIES OF COMPANY LIQUIDATOR
Section 290 of the Companies Act, 2013 lays down that subject to directions by the tribunal, if any,
in this regard, the Company liquidator, in a winding up of a company by the tribunal, shall have the
power –
(a) to carry on the business of the company so far as may be necessary for the beneficial
winding up of the company; Custody of company’s properties Upon the winding up order
made by the tribunal the Company liquidator or the provisional liquidator take into his or
its custody or control all the property, effects and Actionable claims to which the company
is or appears to be entitled to and take such steps and measures, as may be necessary,
to protect and preserve the properties of the company which shall be deemed to be in
the custody of the tribunal from the date of the order for the winding up of the company.
[Section 283]
(b) to do all Acts and to execute, in the name and on behalf of the company, all deeds,
receipts and other documents, and for that purpose, to use, when necessary, the
company’s seal;
(c) to sell the immovable and movable property and Actionable claims of the company by
public auction or private contrAct, with power to transfer such property to any person or
body corporate, or to sell the same in parcels;
(d)to sell the whole of the undertaking of the company as a going concern;

(e) to raise any money required on the security of the assets of the company;
(f) to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in
the name and on behalf of the company;
(g)to invite and settle claim of creditors, employees or any other claimant and distribute
sale proceeds in accordance with priorities established under this Act;
(h) to inspect the records and returns of the company on the files of the Registrar or any
other authority;
(i) to prove rank and claim in the insolvency of any contributory for any balance against his
estate, and to receive dividends in the insolvency, in respect of that balance, as a separate
debt due from the insolvent, and rateably with the other separate creditors;
(j) to draw, accept, make and endorse any negotiable instruments including cheque, bill of
exchange, hundi or promissory note in the name and on behalf of the company, with the
same effect with respect to the liability of the company as if such instruments had been
drawn, accepted, made or endorsed by or on behalf of the company in the course of its
business;
(k) to take out, in his official name, letters of administration to any deceased contributory,
and to do in his official name any other Act necessary for obtaining payment of any
money due from a contributory or his estate which cannot be conveniently done in the
name of the company, and in all such cases, the money due shall, for the purpose of
enabling the Company liquidator to take out the letters of administration or recover the
money, be deemed to be due to the Company liquidator himself;
(l) to obtain any professional assistance from any person or appoint any professional, in
discharge of his duties, obligations and responsibilities and for protection of the assets
of the company, appoint an agent to do any business which the Company liquidator is
unable to do himself;
(m) to take all such Actions, steps, or to sign, execute and verify any paper, deed, document,
application, petition, affidavit, bond or instrument as may be necessary, –
(i) for winding up of the company;
(ii) for distribution of assets;
(iii) in discharge of his duties and obligations and functions as Company
liquidator. and

(n) to apply to the tribunal for such orders or directions as may be necessary for the
winding up of the company.
Professional Assistance to Company Liquidator

The Company liquidator may, with the sanction of the tribunal, appoint one or more chartered
accountants or company secretaries or cost accountants or legal practitioners or such other
professionals on such terms and conditions, as may be necessary, to assist him in the performance
of his duties and functions under this Act. [Section 291(1)]
Any person appointed under this section shall disclose forthwith to the tribunal in the prescribed
form any conflict of interest or lack of independence in respect of his appointment. [Section 291(2)]
EXERCISE AND CONTROL OF COMPANY LIQUIDATOR’S POWER
Sub-section (1) of section 292 lays down that subject to the provisions of this Act, the Company
liquidator shall, in the administration of the assets of the company and the distribution thereof
among its creditors, have regard to any directions which may be given by the resolution of the
creditors or contributories at any general meeting or by the advisory committee. Any directions given
by the creditors or contributories at any general meeting shall, in case of conflict, be deemed to
override any directions given by the advisory committee. [Section 292(2)].
The Company liquidator

(a) may summon meetings of the creditors or contributories, whenever he thinks fit, for
the purpose of ascertaining their wishes; and
(b) shall summon such meetings at such times, as the creditors or contributories, as the
case may be, may, by resolution, direct, or whenever requested in writing to do so by not
less than one-tenth in value of the creditors or contributories, as the case may be.
[Section 292(3)]
Any person aggrieved by any Act or decision of the Company liquidator may apply to the tribunal,
and the Tribunal may confirm, reverse or modify the Act or decision complained of and make such
further order as it thinks just and proper in the circumstances. [Section 292(4)]

BOOKS TO BE KEPT BY COMPANY LIQUIDATOR
The Company Liquidator shall keep proper books in such manner, as may be prescribed, in which he
shall cause entries or minutes to be made of proceedings at meetings and of such other matters as
may be prescribed. [Section 293(1)]
Any creditor or contributory may, subject to the control of the tribunal, inspect any such books,
personally or through his agent [Section 293(2)]
AUDIT OF COMPANY LIQUIDATOR’S ACCOUNTS
The Company Liquidator shall, at such times as may be prescribed but not less than twice in each
year during his tenure of office, present to the Tribunal an account of the receipts and payments as
such liquidator in the prescribed form in duplicate, which shall be verified by a declaration in such
form and manner as may be prescribed. [Section 294(2).
The Tribunal shall cause the accounts to be audited in such manner as it thinks fit, and for the
purpose of the audit, the Company liquidator shall furnish to the tribunal with such vouchers and
information as the tribunal may require, and the tribunal may, at any time, require the production
of, and inspect, any books of account kept by the Company liquidator. [Section 294(3)].
When the accounts of the company have been audited, one copy thereof shall be filed by the
Company Liquidator with the tribunal, and the other copy shall be delivered to the registrar which
shall be open to inspection by any creditor, contributory or person interested. [Section 294(4)]
Where an account referred to in sub-section (4) relates to a Government company, the Company
liquidator shall forward a copy thereof –
(a) to the Central Government, if that Government is a member of the Government company; or
(b) to any State Government, if that Government is a member of the Government company; or
(c) to the Central Government and any State Government, if both the Governments are members
of the Government company. [Section 294(5)]

The Company liquidator shall cause the accounts when audited, or a summary thereof, to be printed,
and shall send a printed copy of the accounts or summary thereof by post to every creditor and
every contributory:
PAYMENT OF DEBTS BY CONTRIBUTORY AND EXTENT OF SET-OFF
The Tribunal may, at any time after passing of a winding up order, pass an order requiring any
contributory for the time being on the list of contributories to pay, in the manner directed by the
order, any money due to the company, from him or from the estate of the person whom he represents,
exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act.
[Section 295(1)]
The Tribunal, in making an order, under sub-section (1), may, –

(a) in the case of an unlimited company, allow to the contributory, by way of setoff,
any money due to him or to the estate which he represents, from the company,
on any independent dealing or contrAct with the company, but not any money due
to him as a member of the company in respect of any dividend or profit; and
(b) in the case of a limited company, allow to any director or manager whose liability
is unlimited, or to his estate, such set-off. [Section 295(2)]
In the case of any company, whether limited or unlimited, when all the creditors have been paid in
full, any money due on any account whatever to a contributory from the company may be allowed
to him by way of setoff against any subsequent call. [Section 295(3)]
POWER TO SUMMON PERSONS SUSPECTED OF HAVING PROPERTY OF COMPANY
The Tribunal may, at any time after the appointment of a provisional liquidator or the passing of a
winding up order, summon before it any officer of the company or person known or suspected to
have in his possession any property or books or papers, of the company, or known or suspected to
be indebted to the company, or any person whom the tribunal thinks to be capable of giving

information concerning the promotion, formation, trade, dealings, property, books or papers, or affairs
of the company. [Section 299(1)]
The Tribunal may examine any officer or person so summoned on oath concerning the matters
aforesaid, either by word of mouth or on written interrogatories or on affidavit and may, in the first
case, reduce his answers to writing and require him to sign them. [Section 299(2)].
The Tribunal may require any officer or person so summoned to produce any books and papers relating
to the company in his custody or power, but, where he claims any lien on books or papers produced
by him, the production shall be without prejudice to such lien, and the tribunal shall have power to
determine all questions relating to that lien. [Section 299(3)].
EXAMINATION OF PROMOTERS, DIRECTORS, ETC.
Upon the report of the Company stating that in his opinion a fraud has been committed by any
person in the promotion, formation, business or conduct of affairs of the company since its formation,
the Tribunal may, after considering the report, direct that such person or officer shall attend before
the Tribunal on a day appointed by it for that purpose, and be examined as to the promotion or
formation or the conduct of the business of the company or as to his conduct and dealings as an
officer thereof. [Section 300]
A person ordered to be examined under this section –

(a) shall, before his examination, be (b) may at his own cost employ chartered
furnished at his own cost with a copy of the accountant or company secretaries or cost
report of the Company liquidator; and accountant or legal prActitioners entitled to
appear before the tribunal under section 432,
who shall be at liberty to put to him such
questions as the tribunal may consider just
for the purpose of enabling him to explain or
qualify any answers given by him. [Section
300(4)]

ARREST OF PERSON TRYING TO LEAVE INDIA OR ABSCOND
The Tribunal, if satisfied that a contributory or a person having property, accounts or papers of the
company in his possession is about to leave India or otherwise to abscond, or is about to remove or
conceal any of his property, for the purpose of evading payment of calls or of avoiding examination
respecting the affairs of the company, the Tribunal may cause the contributory to be detained until
such time as the Tribunal may order; and his books and papers and movable property to be seized
and safely kept until such time as the Tribunal may think fit. [Section 301]
DISSOLUTION OF COMPANY BY TRIBUNAL
When the affairs of a company have been completely wound up, the Company Liquidator shall make
an application to the Tribunal for dissolution of such company. [Section 302(1)]
The Tribunal shall on an application filed by the Company Liquidator under sub-section (1) or when
the Tribunal is of the opinion that it is just and reasonable in the circumstances of the case that
an order for the dissolution of the company should be made, make an order that the company be
dissolved from the date of the order, and the company shall be dissolved accordingly. [Section
302(2)]
A copy of the order shall, within thirty days from the date thereof, be forwarded by the Company
Liquidator to the Registrar who shall record in the register relating to the company a minute of the
dissolution of the company. [Section 302(3)]
If the Company Liquidator makes a default in forwarding a copy of the order within the period
specified in subsection (3), the Company Liquidator shall be punishable with fine which may extend
to five thousand rupees for every day during which the default continues. [Section 302(4)].
FRAUDULENT PREFERENCE
Section 328 of the Companies Act, 2013 deals with fraudulent preference. Sub-section (1) of section
328 provides that where a company has given preference to a person who is one of the creditors of

the company or a surety or guarantor for any of the debts or other liabilities of the company, and
the company does anything or suffers anything done which has the effect of putting that person
into a position which, in the event of the company going into liquidation, will be better than the
position he would have been in if that thing had not been done prior to six months of making
winding up application, the Tribunal, if satisfied that, such transaction is a fraudulent preference
may order as it may think fit for restoring the position to what it would have been if the company
had not given that preference.
According to sub-section (2), if the Tribunal is satisfied that there is a preference transfer of
property, movable or immovable, or any delivery of goods, payment, execution made, taken or done
by or against a company within six months before making winding up application, the Tribunal may
order as it may think fit and may declare such transAction invalid and restore the position.

COMPANIES (WINDING-UP) RULES, 2020
Ministry of Corporate Affairs notified Companies (Winding-Up) Rules, 2020 through Notification No.
G.S.R 46(E) on 24th January, 2020. These rules apply to winding-up under the Companies Act
2013. These rules came into force from 1st April, 2020.
The Rules are applicable to companies going into winding-up for the circumstances mentioned under
section 271 as well as summary procedure for liquidation under section 361 of the Companies Act,
2013. The summary procedure entails appointment of an official liquidator by the Central Government,
followed by the official liquidator immediately thereafter taking into his custody all the assets,
effects and actionable claims to which the company is or appears to be entitled, who will then
submit a report to the Central Government within 30 days of his appointment. The Rules have been
divided into 6 parts comprising of 191 rules and 95 forms.
‘Winding-up Rules’ among other things provide for summary procedure for winding-up of companies
having specified thresholds. The winding-up of companies falling within the specified thresholds will
henceforth require the approval of the Central Government instead of the National Company Law
Tribunal (NCLT).
SUMMARY PROCEDURE FOR LIQUIDATION

These rules allow following classes of companies to close their business by making a winding-up
application to Central Government without going to NCLT.
Companies accepting deposit and having total outstanding deposits Upto ₹25 Lacs*
Companies having total outstanding loan including secured loan Upto ₹50 Lacs*
Companies having total turnover Upto ₹50 Rs.25 Lacs*
Companies having total outstanding loan including secured loan Upto Rs.50 Lacs*
Companies having total turnover Upto Rs.50 Crores*
Companies with paid-up capital Upto ₹1 Rs.1 Crore*
*based on latest audited balance sheet
Other procedural aspects are as under:

A. The Rules lay down the process for meeting of creditors and contributories of the company,
and specify the scenarios in which creditors can vote.
B. The Rules make it necessary for all the money lying in the bank account of Company
Liquidator which is not immediately required for the purposes of winding up, to be invested
in government securities or in interest bearing deposits in any scheduled bank.
C. The Rules lay down the procedure for maintenance of registers and books of accounts by the
Company Liquidator.
D. The Rules also outline the procedure for creditors to prove their debts and claims against the
company and if the proof of such debt gets rejected by the Company Liquidator, there is also
a provision and process for creditor to make an appeal to Tribunal.

MAJOR CASE LAWS
1. Indiabulls Housing Finance Ltd. v. Shree Ram Urban Infrastructure Ltd

1. That if a Corporate insolvency resolution has started or on failure, if liquidation proceeding has been
initiated against the Corporate debtor, the question of entertaining another application under Section
7 or Section 9 against the same very Corporate debtor does not arise.
2. That once second stage i.e. liquidation (winding-up) proceedings has already been initiated, the
question of reverting back to the first stage of Corporate Insolvency Resolution Process or preparation
of Resolution Plan does not arise.
2. Amar Remedies Ltd.
An application before NCLT, Mumbai Bench under section 110 of the Insolvency and Bankruptcy Code,
2016 suppressing the material facts that liquidation order had been passed in a winding-up petition
against the corporate debtor.
The NCLAT Mumbai Bench observed that “...the corporate applicant suppressed this material fAct,
knowing it to be material, and filed the petition under section 10 and in contravention of Rule 10 of
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The alleged Act of
the corporate applicant is punishable under the Insolvency and Bankruptcy Code 2016.

CH 27 – PRE – PACKAGED INSOLVENCY RESOLUTION
PROCESS
A pre-pack is a restructuring plan which is agreed to by the debtor and its creditors prior to the
insolvency filing, and then sanctioned by the court on an expedited basis. Therefore, a pre packaged
insolvency resolution process entails a process whereby a resolution plan is agreed to by the debtor
and creditors and the insolvency resolution process sis then initiated to get a formal approval from
NCLT. Since the CIRP in India is time consuming and entails high cost, pre packaged insolvency
resolution process provides stakeholders with a cheaper and faster way of insolvency resolution.
Section 54A to 54P of the Insolvency and Bankruptcy Code, 2016 read with the Insolvency and
Bankruptcy Board of India (Pre-packaged Insolvency Resolution Process) Regulations,2021 lays down
the provisions of a pre-packaged insolvency resolution process with respect to its initiation, manner
of carrying out the process, appointment of resolution professional, termination etc.
ELIGIBILITY OF CORPORATE DEBTOR TO UNDERGO PRE PACKAGED INSOLVENCY RESOLUTION

PROCESS
Section 54A of the IBC provides that the following criteria must be fulfilled by a corporate debtor
before initiating the pre packaged insolvency resolution process –
1. An application for initiating pre-packaged insolvency resolution process may be made in respect
of only those corporate debtors that are classified as micro, small or medium enterprise under
subsection (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006
2. The corporate debtor in respect of whom the application has been made must –
a. not have undergone pre-packaged insolvency resolution process or completed corporate
insolvency resolution process, during the period of three years preceding the initiation date;
b. not be undergoing a corporate insolvency resolution process;
c. not have an order requiring it to be liquidated is passed under against it;
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d. be eligible to submit a resolution plan under section 29A;
e. have its financial creditors, not being its related parties, propose the name of the
insolvency professional to be appointed as resolution professional for conducting the pre-
packaged insolvency resolution process of the corporate debtor;
f. have its financial creditors, not being its related parties, representing not less than sixty-
six per cent in value of the financial debt due to such creditors, approved such proposal;
g. have the majority of its directors or partners make a declaration stating, inter alia -
i. that the corporate debtor shall file an application for initiating pre-packaged
insolvency resolution process within a definite time period not exceeding ninety
days;
ii. that the pre-packaged insolvency resolution process is not being initiated to defraud
any person;
iii. the name of the insolvency professional proposed and approved to be appointed as
resolution professional);
h. have its members pass a special resolution, approving the filing of an application for
initiating prepackaged insolvency resolution process;
i. have obtained an approval from its financial creditors, not being its related parties,
representing not less than sixty-six per cent in value of the financial debt due to such
creditors, for the filing of an application for initiating pre-packaged insolvency resolution
process;
Please note that the corporate debtor is required to provide he following documents to its creditors
before obtaining their approval for filing of the application –
a. declaration by the directors,
b. special resolution passed by the members,
c. base resolution plan conforming with the requirements prescribed under law.
DUTIES OF RESOLUTION PROFESSIONAL BEFORE INITIATION OF PRE-PACKAGED INSOLVENCY

RESOLUTION PROCESS (SECTION 54B)
The resolution professional appointed for any pre packaged insolvency resolution process must fulfill
the following duties –

a. prepare a report confirming whether the corporate debtor meets the requirements of section
54A, and the base resolution plan conforms to the requirements referred to Code;
b. file such reports and other documents, with IBBI.
Please note that the fees payable to the insolvency professional in relation to the duties performed
shall form part of the pre-packaged insolvency resolution process costs, if the application for initiation
of pre-packaged insolvency resolution process is admitted.
APPLICATION TO INITIATE PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS (SECTION 54C)
The corporate applicant shall, along with the application, furnish the following documents –
a. the declaration, special resolution or resolution, as the case may be, and the approval of
financial creditors for initiating pre-packaged insolvency resolution process;
b. the name and written consent, of the insolvency professional proposed to be appointed as
resolution professional, and his report;
c. a declaration regarding the existence of any transactions of the corporate debtor that may
be within the scope of provisions in respect of avoidance of transactions under Chapter III or
fraudulent or wrongful trading under Chapter VI;
d. information relating to books of account of the corporate debtor and such other documents
relating to such period as may be specified.
ADMISSION OR REJECTION OF THE APPLICATION
Once the application is submitted, NCLR has to, within 14 days, either accept the application or
reject it.
However, if the application is incomplete, NCLT will have to give an opportunity to the applicant to
complete the application within a period of 7 days.

TIME LIMIT FOR COMPLETION OF PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS
(SECTION 54D)
The pre-packaged insolvency resolution process shall be completed within a period of one hundred
and twenty days from the pre-packaged insolvency commencement date.
However, the resolution professional shall submit the resolution plan, as approved by the committee
of creditors to NCLT within a period of ninety days from the pre-packaged insolvency commencement
date.
If no resolution plan is approved by the committee of creditors within the time period, the resolution
professional shall, on the day after the expiry of such time period, file an application with NCLT for
termination of the pre-packaged insolvency resolution process.
DECLARATION OF MORATORIUM AND PUBLIC ANNOUNCEMENT DURING PRE-PACKAGED

INSOLVENCY RESOLUTION PROCESS (SECTION 54E)
On the pre-packaged insolvency commencement date, i.e., the day on which application for
commencement of pre packaged insolvency resolution process is accepted by NCLT, NCLT shall –
a. declare a moratorium
b. appoint a resolution professional as named in the application, if no disciplinary proceeding is
pending against him; or based on the recommendation made by IBBI if any disciplinary
proceeding is pending against the insolvency professional named in the application.
c. cause a public announcement of the initiation of the pre-packaged insolvency resolution
process to be made by the resolution professional.
DUTIES AND POWERS OF RESOLUTION PROFESSIONAL DURING PRE-PACKAGED INSOLVENCY

RESOLUTION PROCESS (SECTION 54F)
Duties of Resolution Professional

a. confirm the list of claims submitted by the corporate debtor;
b. inform creditors regarding their claims as confirmed;
c. maintain an updated list of claims;
d. monitor management of the affairs of the corporate debtor;
e. inform the committee of creditors in the event of breach of any of the obligations of the
Board of Directors or partners of the corporate debtor;
f. constitute the committee of creditors and convene and attend all its meetings;
g. prepare the information memorandum on the basis of the preliminary information
memorandum and any other relevant information;
h. file applications for avoidance of transactions or fraudulent or wrongful trading under Chapter
VI, if any; and
i. such other duties as may be specified.
Powers of Resolution Professional
a. access all books of accounts, records and information available with the corporate debtor;
b. access the electronic records of the corporate debtor from an information utility having
financial information of the corporate debtor;
c. access the books of accounts, records and other relevant documents of the corporate debtor
available with government authorities, statutory auditors, accountants and such other persons
as may be specified;
d. attend meetings of members, Board of Directors and committee of directors, or partners of
e. appoint accountants, legal or other professionals in such manner as may be specified;
f. collect all information relating to the assets, finances and operations of the corporate debtor
for determining the financial position of the corporate debtor and the existence of any
transactions that may be within the scope of provisions relating to avoidance of transactions
under Chapter III or fraudulent or wrongful trading under Chapter VI, including information
relating to:
i. business operations for the previous two years from the date of pre-packaged insolvency
commencement date;

ii. financial and operational payments for the previous two years from the date of pre-
packaged insolvency commencement date;
iii. list of assets and liabilities as on the initiation date.
The personnel of the corporate debtor, its promoters and any other person associated with the
management of the corporate debtor shall extend all assistance and cooperation to the resolution
professional as may be required by him to perform his duties and exercise his powers.
Where the corporate debtor fails to file an application or the application for initiation of the process
is rejected, the fees of the resolution professional shall be borne by the resolution professional.
LIST OF CLAIMS AND PRELIMINARY INFORMATION MEMORANDUM (SECTION 54G)
The Corporate Debtor is required to submit with the resolution professional the following within a
period of 2 days of the insolvency commencement date –
1. a list of claims, along with details of the respective creditors, their security interests and
guarantees, if any; and
2. a preliminary information memorandum containing information relevant for formulating a
resolution plan
In the event any person sustains any loss or damage as a consequence of the omission of any
material information or inclusion of any misleading information in the list of claims or the preliminary
information memorandum submitted by the corporate debtor, then such persons are liable to receive
compensation from the person who –
1. is the promoter or director or partner of the corporate debtor, at the time of submission of
the list of claims or the preliminary information memorandum by the corporate debtor; or
2. has authorised the submission of the list of claims or the preliminary information
memorandum by the corporate debtor.

Please note that the person so aggrieved shall be entitled to move a court having jurisdiction for
seeking compensation for such loss or damage.
MANAGEMENT OF AFFAIRS OF CORPORATE DEBTOR (SECTION 54H)
This aspect is a little different in pre packaged insolvency resolution process when compared to CIRP.
During the pre-packaged insolvency resolution process period, the management of the affairs of the
corporate debtor shall continue to vest in the Board of Directors or the partners of the corporate
debtor. The Board of Directors or the partners of the corporate debtor, are required to make every
eneavour to protect and preserve the value of the property of the corporate debtor, and manage its
operations as a going concern. In order to do so, the promoters, members, peronnel and partners of
the corporate debtor, are required to discharge all their contractual or statutory rights and obligations
in relation to the corporate debtor.
However, if the committee of creditors, at any time during the pre-packaged insolvency resolution
process period, by a vote of not less than sixty-six per cent of the voting shares, resolves to vest
the management of the corporate debtor with the resolution professional, the resolution professional
will be required to make an application for this purpose to the NCLT.
NCLT may consider the following factors while passing an order on the above application –
1. That the affairs of the corporate debtor have been conducted in a fraudulent manner; or
2. That there has been gross mismanagement of the affairs of the corporate debtor.
COMMITTEE OF CREDITORS
The resolution professional is required to constitute a committee of creditors, based on the list of
claims confirmed. However, please note that the composition of the committee of creditors can be
altered on the basis of the updated list of claims, but any such alteration will not affect the validity
of any past decision of the committee of creditors.

The first meeting of the committee of creditors is to be held within seven days of the constitution
of the committee of creditors.
CONSIDERATION AND APPROVAL OF RESOLUTION PLAN
Within two days of the prepackaged insolvency commencement date, the corporate debtor is required
to submit the base resolution plan to the resolution professional. The resolution professional is then
required to present it to the committee of creditors.
Once the committee of creditors discusses the plan, they may provide the corporate debtor an
opportunity to revise the base resolution plan prior to them approving it or inviting prospective
resolution plans. Please note that the corporate debtor may submit the base resolution plan either
individually or jointly with any other person.
The committee of creditors may approve the base resolution plan submitted by the corporate debtor
or request the resolution professional shall invite prospective resolution applicants to submit a
resolution plan or plans, to compete with the base resolution plan. If the committee of creditors
chooses to invite prospective resolution plans, the resolution professional lay down criteria to be
fulfilled by such resolution plans and provide the prospective resolution applicants with the basis for
evaluation of resolution plans and other relevant information.
Once the resolution professional receives the prospective resolution plans, it shall forward all those
resolution plans which are feasible and viable, fulfill the requirements laid down by the resolution
professional and those under the Code to the Committee of Creditors. The committee of creditors
are then required to select the best plan amongst the prospective resolution plans by passing a
resolution with 66% votes.
The best plan chosen out of the prospective resolution plans is then compared with the base
resolution plan, and whichever plan is better amongst the two is approved by the committee of
creditors. Such resolution plan is then submitted with the NCLT for its approval.

Once the NCLT received the resolution plan so approved by the CoC, the NCLT is required to pass
an order either accepting or rejecting the resolution plan, within 30 days of the receipt of the
resolution plan. If NCLT rejects the resolution plan approved by the CoC, NCLT shall pass an order–
1. rejecting such resolution plan;
2. terminating the pre-packaged insolvency resolution process and passing a liquidation order in
respect of the corporate debtor;
3. declaring that the pre-packaged insolvency resolution process costs, if any, shall be included
as part of the liquidation costs for the purposes of liquidation of the corporate debtor.
In the event the committee is not able to approve any resolution plan for submission with NCLT, or
if the committee passes a resolution for termination of the pre packaged insolvency resolution process,
the resolution professional shall file an application with the NCLT for termination of the pre packaged
insolvency resolution process. In such a case, the pre packaged insolvency resolution process cost is
borne by the corporate debtor.
INITIATION OF CIRP
Where the committee of creditors file a resolution with 66% votes to initiate CIRP by terminating
the pre packaged insolvency resolution process, the resolution professional will be required to file an
application to this effect with the NCLT. NCLT is required to pass an order, within 30 days,
initiating CIRP and terminating the pre packaged insolvency resolution process. Such an order is
considered to be an order admitting application for initiation of CIRP and shall have the same effect.


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Corporate Restructuring,

Ch. No. Chapter Page Nos.

14 Insolvency 14.1 – 14.37

15 Petition for CIRP 15.1 – 15.14

16 Role, Functions and Duties of IP / IRP / 16.1 – 16.24

17 Resolution Strategies 17.1 – 17.10

18 Committee of Creditors 18.1 – 18.11

19 Preparation and Approval of Resolution 19.1 – 19.16

20 Individual Insolvency 20.1 – 20.12

21 Fresh Start Process 21.1 – 21.12

22 Securitisation and Debt Recovery 22.1 – 22.69

23 Cross Border Insolvency 23.1 – 23.34

24 Liquidation on Failure of CIRP 24.1 – 24.25

25 Voluntary Liquidation 25.1 – 25.13

26 Winding Up on the order of NCLT 26.1 – 26.22

27 Pre Packaged Insolvency Resolution 27.1 – 27.10

WHAT IS INSOLVENCY? HOW IS IT DIFFERENT FROM BANKRUPTCY

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.1

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.2

INSOLVENCY FRAMEWORK IN UK, USA AND INDIA

United Kingdom – Historical Development

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.3

Features of the Act of 1986

The Act of 1986 consolidated the following –

1. Company Voluntary Arrangements’ (CVAs)- It provides away where a company in financial

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.4

United States of America – Historical Development

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.5

1. Chapter 7 titled “Liquidation” - In Chapter 7 Bankruptcy, a court-appointed trustee or

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.6

HISTORICAL DEVELOPMENTS OF INSOLVENCY LAWS IN INDIA

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.7

Committee Year Recommendation

Narsimha Committee I 1991 Enactment of the Recovery of Debts Due to

Bankruptcy Law Reform 2014 Reviewed the existing bankruptcy and

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.9

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.10

Key Objectives of the Insolvency and Bankruptcy Code, 2016

Salient features of the Code are –

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.11

ORGANISATION OF THE CODE

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.12

APPLICABILITY OF THE CODE

 Any company incorporated under the Companies Act, 2013;

WHAT SETS THE CODE APART?

1. Who may initiate the resolution process -

a. The Financial Creditors

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.13

2. Threshold to initiate Insolvency resolution process-

For Corporate Debtors (Including LLPs) – Minimum Default of Rs. 1,00,00,000/-

3. Processes envisaged in the Code for the resolution of insolvency –

4. Time Limit for completion of the resolution process –

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.14

1. fees of insolvency professional and costs related to the resolution process,

DIFFERENT FUNCTIONARIES UNDER THE CODE

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.15

The Insolvency and Bankruptcy Board of India (IBBI)

CS Vaibhav Chitlangia (7820905414)| YES ACADEMY for CS 14.16

Powers and Functions of the Board –

Following are some of the functions of the IBBI -