Brief overview of the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016

1. INSOLVENCY AND BANKRUPTCY CODE,
2016
DECODING CHAPTER II
CORPORATE INSOLVENCY
RESOLUTION PROCESS
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2. CORPORATE INSOLVENCY RESOLUTION PROCESS
(CIRP)
When can CIRP be initiated ?
On occurrence of default.
(“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 repaid by the
debtor or corporate debtor as the case maybe.)
Who can initiate CIRP ?
1. Financial Creditor
2. Operational Creditor
3. Corporate Applicant
Before which forum has CIRP to be
initiated ?
National Company Law Tribunal
(NCLT)
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3. Application can
be filed by
Financial
Creditor/s
Notice
NCLT within
14 days
INITIATION OF CIRP BY FINANCIAL CREDITOR
In prescribed form along with requisite
fees & name of the Insolvency
Resolution Professional (Interim RP)
Copy of application to be served upon
the Corporate Debtor stating the date of
hearing.
To ascertain existence of default and either
admit or reject the application in accordance
with IBC and principles of Natural Justice.
On admission CIRP commences.
On occurrence of Default of Financial Debt
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4. Demand
Notice
Non
payment of
undisputed
debt
Application
can be filed by
Operational
Creditor
Notice
NCLT
within 14
days
INITIATION OF CIRP BY OPERATIONAL CREDITOR
Mandatorily deliver notice with or without invoice demanding
payment within 10 days as per prescribed form
Corporate Debtor to notify
(a) Existence of a dispute* Or
(b) payment of the operational debt
In prescribed form along with requisite fees & name of the
Insolvency Resolution Professional (Interim RP)may be
proposed.
Copy of application to be served upon the Corporate Debtor
stating the date of hearing.
To ascertain existence of default and either admit or reject the
application in accordance with IBC and principles of Natural Justice.
On admission CIRP commences
On occurrence of Default of Operational Debt
*Dispute :The scope of dispute has by judgements been expanded to include any bonafide dispute and is not merely
restricted to the pendency of a suit or arbitration proceeding filed before the receipt of a demand notice) FZB & ASSOCIATES

5. INITIATION OF CIRP BY CORPORATE
APPLICANT
On occurrence of
default by Corporate
Debtor
Corporate Applicant
files Application
according to prescribed
form along with requisite
fees & name of the
Interim RP and books of
accounts.
NCLT within 14 days
shall admit or reject
the application.
CIRP commences
from date of
admission of the
application
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6. CORPORATE INSOLVENCY RESOLUTION PROCESS
Financial
Creditor
Operational
Creditor
Corporate
Applicant
STEP 1 Default Default Default
STEP 2 - Demand
Notice
-
STEP 3 Application Application Application
STEP 4 Suggestion of
IRP* name
necessary
Suggestion of
IRP name
optional
Suggestion of
IRP name
necessary
Further application process is identical
* IRP – Interim Resolution Professional
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7. If Application
is admitted by
the NCLT:
1. CIRP commences
2. CIRP has to be
completed within 180
days.
3. This period can be
extended for a further
period of 90 days.
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8. COMMENCEMENT OF
CORPORATE
INSOLVENCY
RESOLUTION PROCESS
Declaration of
moratorium
Appointment of
Interim RP
Public
announcement of
initiation of CIRP
and for submission
of claims.
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9. DECLARATION OF MORATORIUM
Once a CIRP commences, the NCLT shall declare a
Moratorium, prohibiting :
Institution or continuation of proceedings and suits before
the Court, Tribunal, Arbitrator other authorities.
Transfer , encumbrance or disposal of any of its assets.
Debt enforcement actions including under SARFAESI.
 Recovery of any property by an owner or lessor occupied by
the Corporate debtor.
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10. CIRP commences
from date of admission
and Moratorium is
declared.
Appointment of
Interim Resolution
Professional
Within 3 days of his
appointment Interim
RP* shall make public
announcement inviting
claims
These claims must be
submitted within14
days from the
appointment of
Interim RP.
Within 7 days from
last claim Interim RP
to verify all claims
Within 30 days from
his appointment,
Interim RP* to
constitute committee of
creditors.
Within 7 days of its
constitution, the
committee to hold 1st
meeting.
Committee in the 1st
meeting to appoint
Resolution
Professional .
Preparation of
Information
Memorandum for
Resolution Plan.
Submission of
Resolution Plan to
Resolution
Professional by
Resolution Applicant.
Committee of creditors
may approve the
Resolution Plan with
no less than 75% voting
share
Filing of approved
resolution plan to
NCLT
CORPORATE INSOLVENCY RESOLUTION PROCESS
NOTE : *Interim RP stands for Interim Resolution Professional FZB & ASSOCIATES

11. Resolution Plan
before NCLT
NCLT if satisfied with
the RP*it shall
APPROVE it.
The same RP shall be
binding on ALL under its
purview.
( Corporate debtor, employees,
members, stakeholders etc.)
Moratorium ceases to
have an effect.
All records relating to conduct
of the CIRP and RP must be
submitted to the Board to be
recorded in their database.
NCLT if NOT
satisfied with the RP it
shall REJECT it.
*RP in this slide stands for Resolution Plan FZB & ASSOCIATES

12. Interim RP/RP
APPOINTMENT:
• NCLT must appoint an interim resolution professional
within 14 days from date of commencement of insolvency.
• In case of Financial Creditor the proposed RP must be
appointed as the IRP if no disciplinary proceedings are
pending against him.
• In case of an Operational Creditor, if no proposal for IRP :
NCLT shall make a reference to the Board for the
recommendation of an Insolvency Professional and he
may be appointed as IRP, if no disciplinary proceedings
are pending.
• Board shall within 10 days of receiving reference from
NCLT, recommend name of an insolvency professional.
• Term of IRP shall not exceed thirty days from his
appointment.
MANAGEMENT OF THE AFFAIRS OF CORPORATE
DEBTOR :
• Management of all affairs of the corporate shall
vest in the IRP.
• Powers of directors or partners stand suspended
and are replaced by IRP.
• All employees to report to the IRP.
• Financial institutions to act on instructions of
IRP in relation to accounts maintained by them.
• IRP to act and execute all documents on behalf
of the company.
• IRP has authority to access financial
information, books of accounts, records, etc .
DUTIES:
Collection of information relating to assets,
finances, to determine financial position.
• Receive and collate all claims submitted by
the creditors.
• Constitute a Committee of Creditors
• Monitor and manage all operations until
appointment of RP.
• Take control and custody of assets.
• Perform all duties specified by the Board.
CO-OPERATION BY CORPORATE DEBTOR:
• All personnel associated with the Corporate
debtor must extend assistance.
• Incase of non cooperation with the IRP by any
personnel associated with the debtor, the IRP
must submit application to the NCLT.
• NCLT on receiving such application must follow
the prescribed Rules of IBC, 2016.
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13. RESOLUTION PROFESSIONAL
The resolution professional to act as the chairperson
of the meeting of the Committee of Creditors and
conduct the meeting as per the prescribed rules.
Resolution Professional to determine the voting share
to be assigned to each creditor in the manner specified
by the Board.
(Voting share means the share of voting rights of a
single financial creditor in the committee which is
based on the proportion of financial debt owed to
creditor in relation to financials debt owed by corporate
debtor. )
The Resolution Professional shall make any
information requested by Committee of Creditors
available within 7 days.
Resolution Professional shall prepare Information
Memorandum in accordance with prescribed form for
formulating a Resolution Plan
Resolution Professional must examine the Resolution
Plans received by him from the Resolution Applicant
and confirm that the same is in accordance with the
Insolvency and Bankruptcy Code, 2016.
COMMITTEE OF CREDITORS
Generally the Committee of Creditors is formed only
by financial creditors however in the event the
Corporate Debtor has no financial debt a committee
comprising of Operational Creditors shall be formed.
Directors, and partners and one representative of
operational creditors may attend these meetings but
shall not hold any right to vote in the meetings.
All decisions taken by the Committee of Creditor
must be not less than 75% of voter share.
At any time during the CIRP the Committee of
Creditors may by a vote of 75% replace the
Resolution Professional.
The Committee of Creditors may approve the
Resolution Plan presented by the Resolution
Professional by a vote of no less than 75% of voting
share.
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14. CASE LAW IN ADHERENCE TO PRINCIPLES
OF NATURAL JUSTICE & CIRP
1. Sree Metaliks Limited and Ors. vs. Union of India and Ors (decided on
07.04.2017)
The Calcutta High Court held that the NCLT and the NCLAT are bound to follow the principles
of natural justice while disposing of proceedings before them.
NCLT and the NCLAT may pass an ex-parte ad interim order against a respondent recording the
reasons for grant of such an order and why it has chosen not to adhere to the principles of natural
justice at that stage. It must, thereafter proceed to afford the party respondent an opportunity of
hearing before confirming such ex-parte ad interim order.
2. Innoventive Industries Ltd. vs. ICICI Bank and Ors. (decided on
15.05.2017)
The NCLAT has also held that it will be imperative for the ”Adjudicating Authority" to adopt a
cautious approach in admitting Insolvency Application by ensuring adherence to the principle of
natural justice.
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15. WHEN THE FINANCIAL CREDITOR IS A MEMBER OF JLF OR A
CONSORTIUM AND DOES NOT TAKE PERMISSION OF OTHER
MEMBERS AS REQUIRED UNDER THE JLF AGREEMENTS.
Innoventive Industries Ltd. vs. ICICI Bank and Ors. (decided on 15.05.2017)
 The NCLAT held that if the “Adjudicating Authority” is satisfied on all counts as
required under the Code, it is not required to look into any other factor, including the
question whether permission or consent has been obtained from one or other authority,
including the JLF.
 Therefore, the contention of the Petitioner that the Respondent has not obtained
permission or consent of JLF to the present proceeding which would adversely affect the
loan of other members cannot be accepted and requires to be rejected.
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16. INTERPRETATION OF THE WORD “DISPUTE” &
“EXISTENCE OF DISPUTE” MENTIONED IN I&BC, 2016
The NCLAT while interpreting the term "dispute" referred to in I&B Code, 2016 has held:
That the Adjudicating Authority while dealing with Section 8(2) "existence of a
dispute", Section 9(5) does not confer any discretion on Adjudicating authority to verify
adequacy of the dispute.
It prohibits the Adjudicating Authority from proceeding further if there is a genuine
dispute raised not limited to a dispute raised in a pending suit or arbitration proceedings.
A mere dispute giving a color of genuine dispute or illusory, raised for the first time while
replying to the notice under Section 8 cannot be a tool to reject an application under
Section 9 if the Operational Creditor otherwise satisfies the Adjudicating Authority that
there is a debt and there is a default on the part of the corporate debtor.
The onus to prove that there is no default or debt or that there is a dispute pending
consideration before a Court of law or Adjudicating Authority shift from creditor to debtor
and Operational Creditor to Corporate Debtor.
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17. Kirusa Software Private Ltd. vs. Mobilox Innovations Private Ltd. (decided by NCLAT on
24.05.2017)
MCL Global Steel Pvt. Ltd. and Ors. vs. Essar Projects India Ltd. and Ors. (31.05.2017 -
NCLAT) : R.K.S
Advisors vs. Reliance Defence and Engineering Ltd. (02.06.2017 - NCLT - Ahmedabad)
Capital Partners vs. Reliance Defence and Engineering Ltd. (02.06.2017 - NCLT - Ahmedabad)
 The NCLAT further held that the dispute as defined in Section 5 (6) cannot be
limited to a pending proceedings or arbitration proceedings, the word 'includes'
ought to be read as "means and includes" including the proceedings initiated or
pending before consumer court, tribunal, labor court or mediation, conciliation etc.
 If any action is taken by corporate debtor under any act or law including while
replying to a notice under section 80 of CPC, 1908 or to a notice issued under
Section 433 of the Companies Act or Section 59 of the Sales and Goods Act or
regarding quality of goods or services provided by 'operational creditor' will come
within the ambit of dispute, raised and pending within the meaning of Section 5(6)
read with of Section 8(2) of I & B Code, 2016
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18. Disclaimer: The contents of this presentation is for informational purposes only and for the
reader’s personal non-commercial use. The views expressed do not constitute legal advice. The
contents are intended, but not guaranteed, to be correct, complete, or up to date. FZB & Associates
disclaims all liability to any person for any loss or damage caused by errors or omissions, whether
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Advocates and Solicitors
402-B Savla Chambers
40, Cawasji Patel Street,
Fort, Mumbai 400 001,
India
Telephone : 022 22816315/ 22826316
ferzana.behramkamdin@fzbassociates.com
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