Working under Insolvency and Bankruptcy Code, 2016

Author: Nikhil Sukhija

The Code is enacted to deal with insolvency and bankruptcy processes for different kinds of entities, including partnership firms and individuals. Once a default happens, minimum threshold for which is Rs.1,00,00,000/- (as per notification dated 24.03.2020) the insolvency resolution process may be started either by financial or operational creditor or the corporate debtor itself under the section 7, 9 and 10, respectively. An application must be submitted to the National Company Law Tribunal. The NCLT post-examination of the application either rejects or accepts the same. Once it is accepted, the CIRP is set into motion. The process has to be completed within 180 days extendable up to 330 days[1].  After the admission of an application for initiation of CIRP, public announcement is made, and subsequently a moratorium is declared. The NCLT appoints an Interim Resolution Professional (IRP) whose major roles includes:

(i)                 Taking over the management of debtor; and

(ii)               Forming a Committee of Creditors (CoC), that is comprised only of financial creditors;

The creditors of the corporate debtor have to then submit their claims to the IRP in the prescribed forms as per the notifications mentioned in the public announcement. The CoC, once formed, has to either confirm the Interim Resolution Professional (IRP) as the Resolution Professional (RP) or appoint a new RP. The RP then occupies a central role during the CIRP and gets in charge of ensuring that the process is carried out efficiently and diligently. The Resolution Professional makes a “Request for Proposal” with the motive of inviting resolution plans for the corporate debtor going through CIRP. The RP goes through the submitted resolution plans so received from various resolution applicants to assure that such plans conforms to the legal requirement under the Code. The RP then presents such resolution plans meeting the threshold requirement before CoC which, by a 66% vote, ultimately finalizes a resolution plan after duly assessing the feasibility of the same. A Resolution Plan which is approved by the CoC is then presented by the RP before the NCLT. The NCLT thereafter undertakes a limited judicial scrutiny, the scope of which has also been outlined in the Code, thereafter it either accepts or rejects the Resolution Plan. NCLT’s power is limited to satisfy that a resolution plan has been made in terms of the Code[2]. Going through the scheme, it is clear that while the Resolution Professional conducts the resolution process and acts as a facilitator in the process, the ultimate control for the purpose of assessing the viability of resolution plans and accepting the same vests with the CoC. The Code therefore has been primarily seen as a beneficial legislation focusing on the revival and catalyzing of capital infusion into the economy instead of plain vanilla recovery for stakeholders.

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[1] Ministry of Law and Justice, The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (05^th August 2019)

[2] Committee of Creditors Essar Steel India Ltd. v. Satish Kumar Gupta & Ors. 2019 (16) SCALE 319

Disclaimer: This article is meant to be informative and should not be treated as professional advice. For any legal or financial clarifications or suggestions, please contact the undersigned author , or you may reach out to us at protalkz03@gmail.com.

Nikhil Sukhija

Contact: 9555604055

Email: protalkz03@gmail.com