Corporate Insolvency Resolution Process (CIRP) Under IBC, 2016

CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER  INSOLVENCY  & BANKRUPTCY CODE, 2016 (Amended up to 12th August, 2021)

Background of Corporate Insolvency Resolution  Process

Financial Sector Legislative Reforms Commission  (FSLRC)

• Content of Budget Speech (Budget 2010-2011) : Most of our legislations governing the financial sector are very old. Large number of amendments to these Acts made at different points of time has also increased ambiguity and complexity. The Government proposes to set up a Financial Sector Legislative Reforms Commission to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector.
• 25th March, 2011 (Constitution of FSLRC) – In line with the budget speech, on 25th March 2011 the GOI notified the constitution of FSLRC. Justice (Retd) Mr. B.N Shrikrishna was the chairman of the committee.
• 1st Meeting of FSLRC- FSLRC hold its first meeting on 5th April, 2011
• Submission of Report by FSLRC – On 25th March, 2013 the committee  submitted its report to the ministry of finance.  The report was containing the analysis of the current regulatory architecture and a draft Indian Financial Code to replace the bulk of the existing financial laws.

Bankruptcy Law Reforms Committee (BLRC)

• Constitution of BLRC in place of FSLRC : On 22nd Aug 2014, the MoF constituted a new committee called BLRC with this mandate to draft a new bankruptcy law, along the lines of the work done by FSLRC. BLRC was headed by T. K. Viswanathan.
• Submission of report by BLRC on 4th Nov, 2015– BLRC drafted a consolidated bankruptcy framework, for individuals & legal entities and on 4th November, 2015, submitted its report to the FM. The economic rationale and design features of a new legislative framework to resolve insolvency and bankruptcy was in  Volume -1 and the draft bill was in Volume-2.
• Presented in parliament on 21st December, 2015– Incorporating the public comments, a modified version of the draft bill was tabled in parliament in on 21st Dec, 2015. There after a JPC on IBC, 2015 was set up to analyze the draft bill in detail.
• JPC submitted its report on 28th April, 2016 – On 28th April, 2016 JPC submitted its report containing a new draft of the bill. Then it was passed by Lok Sabha (Lower House/ House of People) on 5th May, 2016 and Rajya Sabha (Upper House/ Council of States) on 12th May, 2016 and assented by president on 28th May, 2016.

Thus the Insolvency and Bankruptcy Code, 2016 came into existence.

• Exercising the power vested to GOI u/s 1(3) of IBC, the GOI made the CIRP part of the code applicable from 1st December, 2016.

CIRP FLOW CHART

BARE ACT PROVISIONS RELATIONG TO CIRP

Important Definitions

> Board: Section 3(1)–  Board means IBBI established u/s 188

> Corporate Person :  Section  3(7) –  Corporate person means COMPANY, LLP and any other person  incorporated with limited liability, excluding financial service provider.

> Corporate Debtor : Section 3(8)– CD means a corporate person who owes a debt to any person

> Creditor : Section 3(10) – 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

> Debt :  Section 3(11) –  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 :  Section 3(12) – 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.

PART –II OF IBC, 2016
INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS

CHAPTER : CHAPTER – I TO  CHAPTER – VII

SECTION : SECTION – 4 TO SECTION – 77A

CHAPTER –I : PRELIMINARY  [SEC- 4 & SEC – 5 ]

> SECTION – 4(1) : Application of Insolvency Resolution and Liquidation of Corporate Person

Provisions of this part (Part-II) shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees.

Notification No –S.O. 1205(E)  dated 24/03/2020, through this the minimum default amount has been increased to ONE CRORE.

Provided further that the Central Government may, by notification, specify such minimum amount of  default of higher value, which shall not be more than one crore rupees, for matters relating to the pre- packaged insolvency resolution process (PPIRP) of corporate debtors under Chapter III-A.

Notification No –S.O.  1543(E)  dated 09/04/2021, through this the maximum amount of default for the matters PPIRP is of Rs. 10.00 Lakh.

SECTION -5 DEFINITIONS

> Section 5(1) : ADJUDICATING AUTHORITY – Means NCLT for Insolvency Resolution and Liquidation of Corporate Person.

> Section 5(7) : 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(8) : FINANCIAL DEBT – Means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes–

(a)money borrowed against the payment of interest;

(b)any amount raised by acceptance under any acceptance credit facility or its dematerialised equivalent ;

(c)any amount raised pursuant to any note purchase facility or 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 which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed;

(e)receivables sold or discounted other than any receivables sold on non-recourse 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, –  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)

(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-clause (a) to (h) of this clause;

Section 5(11) : Initiation Date  – Means the date on which application  is filed  by FC/OC/CD with NCLT (AA)  for initiating CIRP/PPIRP.

Section 5(12) : Insolvency Commencement Date – Means the date of admission of an application for initiating CIRP by the AA u/s 7/9/10 as the case may be.

Section 5(13) :  Insolvency Resolution Process Costs –  Means –

Section 5(14): Insolvency Resolution Process Period– Means the period of 180 days from ICD.

Section 5(20) : 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(21) : Operational Debt  – Means a claim in respect of the provision of goods or services including employment or a debt payable to CG/SG/Local Authority;

Section 5(25) : 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 section 25(2)(h).

Section 5(26) : Resolution Plan – Means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern.

Section 5(27) : Resolution Professional – Means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional;

Section 5(28) : Voting Share – Means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor.

CHAPTER-II : CIRP – 6 to 32A)

Section -6 :  Persons who may initiate  CIRP

Section -7 : Initiation of CIRP by financial creditor

7(1) : Single/Jointly : A FC either by itself or jointly with other FC may file an application for initiating CIRP against a CD before the AA when a default has occurred.

In the case of CLASS OF CREDITORS as referred u/s 21(6A)(a) &(b) and in case of allotees of a real estate PROJECT, the application shall be filed jointly by not less than 100 of  such creditors in the same class/project or not less than 10% of the total number of such creditors in the same class/project, whichever is less.

NOTE : For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.

7(2) : Form & attachment with application : The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed {IBBI (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2016} .

7(3) : The FC shall, along with the application furnish  : –

7(4) : Ascertainment of Default : – The AA shall, within 14 days ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the FC u/s 7(3).

7(5): Where the AA is satisfied that –

7(6): Date of commencement of CIRP :

7(7) : Communication by AA about admission/rejection :

Section – 8 : Insolvency Resolution by OPERATIONAL CREDITOR

8(1) : Service of demand notice to CD

8(2) :  Option available to CD :  Within 10 days of receipt of notice, CD shall bring to the notice of OC :  –

Explanation. – For the purposes of this section, 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 : Application for initiation of CIRP by OC

9 (1) : Filing of Application for CIRP  :

9(2) : Application Form & Fee  :  The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed {IBBI (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS, 2016}.

9(3) : Attachment with application :

9(4) : Name of Resolution Professional :  OC in its application may  propose name of a  RP to act as IRP

9(5) : Admission/Rejection of Application :  The AA shall by order , within 14 DAYS of the receipt of the application  filed by OC :

9(6) : Date of Commencement of CIRP : Date of admission of the application

10A. Suspension of initiation of  CIRP

♦ Covid Effect – No Application for default committed after 25/03/2020 :  No application for initiation of CIRP  of CD  shall be filed for any default arising on or after 25th March, 2020 for a period of six months (i.e. Up to 24/09/2020).

♦ Notification No : SO.3265(E)  dated 24/09/2020 :   Effect of 10A extended for further period of three months i.e. till 25/12/2020

♦ Notification No : SO.38(E)  dated 22/12/2020 :  Again effect of 10A extended for further period of three months i.e. till 24/03/2021.

♦ Explanation : Provided that no application shall ever be filed for initiation of CIRP  of CD for the said default occurring during the said period (25/03/2020 to 24/03/2021).

Section -11 : Persons not entitled to make application for CIRP

The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:- Person ineligible to make application for CIRP

Explanation – I : For the purposes of this section, a CD  includes a corporate applicant in respect of such CD.

Explanation –II : For the purposes of this section, it is hereby clarified that nothing in this section shall prevent a CD referred to in clauses (a) to (d) from initiating CIRP against another CD.

Section -11A: Disposal of applications u/s 54C and u/s  7/9/10.

11A(1) :  In case PPIRP application is pending and during this a CIRP application is filed : In case an application filed u/s 54C (PPIRP)  is pending  then the AA shall pass an order to admit or reject the PPIRP application, BEFORE CONSIDERING any application filed u/s 7/9/10 during the pendency of such PPIRP application in respect of the same  CD.

11A(2) : CIRP application is pending and during this a PPIRP application is filed :   Where an application under section 54C (PPIRP)  is filed WITHIN 14 DAYS of filing of any application u/s 7/9/10, which is pending, in respect of the same CD, then, notwithstanding anything contained in sections 7, 9 and 10, the AA shall first dispose of the application u/s 54C (PPIRP).

11A(3) : CIRP application is pending and during this a PPIRP application is filed  : Where an application under section 54C (PPIRP)  is filed AFTER 14 DAYS of the filing of any application u/s7/9/10, in respect of the same CD, the AA shall first dispose of the application u/s 7/9/10 (CIRP) .

11A(4) :  The provisions of this section shall not apply where an application u/s 7/9/10 is filed and pending as on the date of the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2021.  This amendment was made applicable from 04-04-2021

Conceptual Note :

1. PPIRP application will have priority over CIRP application, if the PPIRP application is filed before the application of CIRP.

2. PPIRP application will have priority over CIRP application, even if it is filed  after the filing of CIRP application provided PPIRP application is filed within 14 days of filing of CIRP application.

Sec-12: Time-limit for completion of  insolvency resolution process

12(1) : 180 DAYS TIME LIMIT :  Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of 180 DYA  from the date of admission of the application to initiate such process.

12(2) : Application for extension on instruction of COC : The resolution professional shall file an application to the AA to extend the period of the CIRP beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the COC by a vote of  66% of the voting shares.

12(3) : Order for Extension by AA :  On receipt of an application for extension, if the AA is satisfied  then it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, BUT NOT EXCEEDING 90 DAYS.

Proviso-1 : Extension once in life :  Provided that any extension of the period of CIRP shall not be granted more than once.

Proviso-2 : Mandatory to complete CIRP within 330 Days :  Provided further that the CIRP shall mandatorily be completed within a period of 330 DAYS from  ICD  including extension and the time taken in legal proceedings in relation to such resolution process of the corporate debtor.

Proviso-3 : Relief for existing :  Provided also that where the insolvency resolution process of a CD is pending and has not been completed within the period referred to in the second proviso, such resolution process shall be completed within a period of ninety days from the date of commencement  (16/08/2019) of the Insolvency and Bankruptcy Code (Amendment) Act, 2019.

Sec- 12A : Withdrawal of application admitted u/s 7/9/10

Approval of 90% Voting Share :

The AA may allow the withdrawal of application admitted u/s 7/9/10, on an application made by the APPLICANT with the approval of 90% voting share of the COC, in such manner as may be specified.

Sect -13 : Declaration of moratorium and public announcement.

13 (1)  : The AA, after admission of the application u/s 7/9/10, shall, by an order :

13 (2) : Time line  for Public Announcement : The public announcement referred to in clause (b) of sub-section (1) shall be made immediately (within 3 days as per Regulation No…………) after the appointment of the interim resolution professional.

Section- 14 : Moratorium

14 (1) : Subject to provisions of sub-sections (2) and (3), on the  ICD , the AA shall by order declare moratorium for  : –

Expl : No suspension/termination of license, permit, registration, quota, concession, clearance  etc. if there is no default in payment of current dues arising for the use or continuation of the license etc.

14 (2) : Uninterrupted supply of essential goods/services – The supply of essential goods or services to the CD as may be specified (as per regulation………) shall not be terminated or suspended or interrupted during moratorium period.

14 (2A) : Uninterrupted supply of goods or services which are critical to protect and preserve the value of the CD and to manage it as a going concern. Provided CD has not defaulted in payment of dues arising from such supply during the moratorium period.

14 (3) : Non applicability of Moratorium –  The provisions of sub-section (1) shall not apply to —

(a) such transactions, agreements or other arrangement as may be notified by the CG ;

(b) a surety in a contract of guarantee to a corporate debtor.

14(4) : Tenure of Moratorium :  From the date of order of AA till the completion of the CIRP.

Provided that where at any time during the CIRP period, if the AA approves the resolution plan u/s 31(1) or passes an order for liquidation of CD u/s 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

Section-15 : Public announcement of  CIRP

13 (1 ) : Matter & Content of Public Announcement : The public announcement of the CIRP under the order referred to in section 13 shall contain the following information, namely : –

13 (2) : Manner of Public Announcement : The public announcement under this section shall be made in such manner as may be specified (Refer CIRP Regulation …..)

Sec -16 : Appointment and tenure of IRP

16(1) : Appointment of IRP : The AA SHALL appoint an IRP on the insolvency commencement date

16(2) : In case of application u/s Section-7/10 : In case of application u/s 7/9 the resolution professional, as proposed in the application SHALL  be appointed as the IRP,  if no disciplinary proceedings are pending against him.

16(3) : In case of application u/s 9 : 

16(4): Response to be given by IBBI –  IBBI shall with 10 days from receipt of reference from AA recommend  the name of IP to be appointed as IRP

16(5) : Tenure of IRP – The term of the interim resolution professional shall continue till the date of appointment of the resolution professional under section 22.

Section-17 : Management of affairs of CD by IRP

17(1) : From the date of appointment of the IRP :

17(2) : The IRP shall :-

Section-18 : Duties of IRP

The interim resolution professional shall perform the following duties, namely : –

Section-19 : Personnel to extend co-operation to IRP

19(1) : All need to co-operate with IRP – The personnel of the CD, its promoters or any other person associated with the management of the CD shall extend all assistance and cooperation to the IRP as may be required by him in managing the affairs of the  CD.

19(2) : Action on non co-operation : In case any person who is under legal obligation to assist or cooperate with the  IRP does not assist or cooperate, the IRP may make an application to the AA for necessary directions

19(3) : Order of AA for action on non co-operation – The AA, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution professional and to cooperate with him in collection of information and management of the corporate debtor.

Section-20 : Management of operations of  CD as going concern

20(1) : Protect & Preserve the Value of CD and manage it as Going Concern – The IRP shall make every endeavor to protect and preserve the value of the property of the  CD and manage the operations of the CD as a going concern.

20(2) : For the purposes of sub-section (1), the IRP shall have the authority-

a. Appoint personnel : to appoint accountants, legal or other professionals as may be necessary;

b. Enter/amend/modify existing contracts : to enter into contracts on behalf of the CD or to amend or modify the contracts or transactions which were entered into before the commencement of CIRP;

c. Raise interim finance : to raise interim finance provided that no security interest shall be created over any encumbered property of the CD without the prior consent of the creditors whose debt is secured over such encumbered property. Provided that no prior consent of the creditor shall be required where the value of such property is not less than the amount equivalent to twice the amount of the debt.

d. Issue instructions to personnel : to issue instructions to personnel of the CD as may be necessary for keeping the CD debtor as a going concern; and

e. Necessary action  to manage the CD as going concern : to take all such actions as are necessary to keep the corporate debtor as a going concern.

Section-21 : Committee of creditors

21(1) : Constitution of COC – After collation of all claims received and determination of the financial position of the CD, the IRP shall  constitute a committee of creditors.

21(2) : Participants of COC – The COC shall comprise all FINANCIAL CREDITORS of the CD.

First Proviso – A FC who is a related party of the CD, shall not have any right of representation, participation or voting in a meeting of the COC.

Second Proviso – First proviso will not be applicable in  a case where a FC (Bank/FI) regulated by a financial sector regulator is a related party of the CD solely on account of conversion or substitution of debt into equity/other instruments prior to the insolvency commencement date.

21(3) : Proportionate voting in case of consortium finance –  Subject to sub-sections (6) and (6A), in case of consortium or agreement, each such FC shall be the part of COC and their voting share shall be determined on the basis amount of debt.

21(4) : Where any person is a financial creditor as well as an operational creditor – Both part shall be treated separately

21(5) : Assignment of  debt by operational creditor : Assignee shall be treated as OC  to the extent of such assigned debt

21(6): Appointment of trustee/agent – Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or agent to act for all FC, each  FC may-

(a)authorize the trustee or agent to act on his behalf in the COC to the extent of his voting share;

(b)represent himself in the COC to the extent of his voting share;

(c)appoint an insolvency professional (other than the RP) at his own cost to represent himself in the  COC; or

(d)exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally

21 (6A) :  Where a financial debt

a)is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorized representative for all the FC, such trustee or agent shall act on behalf of such FC;

b)is owed to a class of creditors exceeding the specified number, other than the creditors covered under clause (a) or sub-section (6), the IRP shall make an application to the AA  proposing a name of IP to act as authorized representative, if appointed by the AA prior to the first meeting of the COC;

c)is represented by a guardian, executor or administrator, such person shall act as authorized representative on behalf of such financial creditors,

and such authorized representative under clause (a)/(b)/(c) shall attend the meetings of the COC, and vote on behalf of each FC to the extent of his voting share.

21(6B):  The Remuneration Payable to authorized representative-

(i)under clauses (a) & (c) of sub-section (6A), if any, shall be as per the terms of the financial debt ; and

(ii)under clause (b) of sub-section (6A) shall be as specified  and it shall form part of the insolvency resolution process costs.

21(7) : Determination of voting share in case of  participation of Trustee/Agent/Auth. Rep in COC– The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6)  & (6A).

21(8) : Generally accepted majority voting 51% for decision making – Save as otherwise provided in this Code, all decisions of the COC shall be taken by a vote of not less than 51% of voting share of the FC. Provided that where a CD does not have any FC, the  COC shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified.

21(9) : Right of COC for financial information – The COC shall have the right to ask RP for financial information of CD at any time during the CIRP.

21(10) :  RP is duty bound to provide all financial information of CD to COC :  The resolution professional shall make available any financial information so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition.

Section : 22- Appointment of resolution professional

22(1) :  First meeting of COC –  The 1st meeting of the COC shall be held within 7 days of the constitution of COC.

22(2) : Appointment of RP– The COC , may, in the first meeting, by a majority vote of not less than 66% of the voting share of the FC, either resolve to appoint the IRP as a RP or to replace the  IRP by another RP.

22(3) : Where the COC resolves under sub-section (2)-

 (a)to continue the IRP as RP, subject to his written consent, it shall communicate its decision to IRP, the CD & AA; or

(a)to replace the IRP, it shall file an application before the AA for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified form.

21(4) : Reference of IBBI in case IRP is replaced with another RP – The AA shall forward the name of the RP proposed under clause (b) of sub-section (3) to the IBBI for its confirmation and shall make such appointment after confirmation by the IBBI.

21(5) :  IRP shall continue to function in case of delay in response from IBBI-  Where the Board does not confirm the name of the proposed RP within 10 days of the receipt of the name of the proposed RP, the AA shall, by order, direct the IRP to continue to function as the RP until such time as the Board confirms the appointment of the proposed RP.

Section -23 : Resolution professional to conduct CIRP

23(1) : Conducting CIRP is whole & sole responsibility of RP – Subject to section 27, the RP shall conduct the entire CIRP and manage the operations of the CD during the CIRP period.

Provided that the RP shall continue to manage the operations of the CD after the expiry of the CIRP period, until an order approving the resolution plan u/s (31(1)  or appointing a liquidator u/s 34 is passed by the AA.

23(2) : Powers &  Duties  of IRP is  carrying on to RP as well – The RP shall exercise powers and perform duties as are vested or conferred on the IRP under this Chapter.

23(3): Duties of IRP to handover to RP- In case of any appointment of a RP u/s 22(4), the IRP shall provide all the information, documents and records pertaining to the CD in his possession and knowledge to the resolution professional.

Section-24 : Meeting of committee of creditors

24(1) : In person/electronic meeting of COC- The COC may meet in person or by other electronic means as may be specified.

24(2) : Responsibility of RP to conduct meetings of COC- All meetings of the COC shall be conducted by the RP

24(3) : Person to whom notice of meetings of COC will be given – The RP shall give notice of each meeting of the COC to-

24(4) : No voting right to directors/partners/OC- The directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of COC , but  they shall not have any right to vote in such meetings and their absence shall not invalidate proceedings of such meeting.

24(5) : Creditor may appoint IP for its representation in COC at its own cost – Subject to 21(6), 21(6A) & 21(6B),  any creditor who is a member of COC may, at its own cost,  appoint an IP other than the RP to represent such creditor in a meeting of COC.

24(6) : Voting Share-  Each creditor shall vote  as per voting share assigned to him based on their quantum of financial debt.

24(7) : RP shall determine the voting share- The resolution professional shall determine the voting share to be assigned to each creditor in the manner specified by the Board.

24(8) : Regulation by Rule – The meetings of the committee of creditors shall be conducted in such manner as may be specified.

Section-25 : Duties of resolution professional

25(1) : Protect & Preserve the value of asset of CD & its business operations- It shall be the duty of the RP to preserve and protect the assets of the CD, including the continued business operations of the CD.

25(2) : Power of RP to take action to Protect & Preserve the value of asset of CD & its business operations- For the purposes of sub-section (1), the RP shall undertake the following actions, namely

Section-25A: Rights and duties of authorized representative of  FC

25A(1):  Right of AR to vote as per prior voting instructions- The AR u/s 21(6)/(6A) or U/s 24(5) shall have the right to participate and vote in meetings of  COC on behalf of the FC he represents  as per prior voting instructions of such  FC.

25A(2) : Duty of AR to circulate the agenda & minutes of COC meeting among the creditors which he represents– It shall be the duty of the AR to circulate the agenda and minutes of the meeting of the COC to the financial creditor he represents.

25A(3): AR shall act always as per instruction or otherwise abstain from voting – The AR shall not act against the interest of the FC he represents and shall always act as per prior instructions.  Provided that if the AR represents several FCs, then he shall cast his vote in respect of each FC in accordance with instructions received from each FC, to the extent of his voting share. In case if any FC does not give prior instructions, the AR shall abstain from voting on behalf of such FC.

25A(3A) : AR shall vote on behalf of all if instructed with more than 50% majority-   Notwithstanding anything to the contrary contained in sub-section (3), the AR u/s 21(6A) shall cast his vote on behalf of all the FC he represents as per decision taken by a vote of more than 50% of the voting share of the FC he represents, who have cast their vote.

Provided that for a vote to be cast in respect of an application under section 12A, the AR shall cast his vote in accordance with the provisions of subsection (3)

25A(4) : AR shall file instructions with COC- The AR shall file with the COC any instructions received by way of physical or electronic means, from the FC he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the FC he represents is correctly recorded by the IRP  or RP, as the case may be.

Sec- 26 : Application for avoidance of transactions not to affect proceedings

The filing of an avoidance application u/s 25(2)(j) by the RP shall not affect the proceedings of the  CIRP

Section-27 : Replacement of RP by COC

At any time during the CIRP, if the  COC is of the opinion that a RP appointed u/s 22 27(1) : COC can change RP at any time during CIRP– is required to be replaced, it may replace him with another RP in the manner provided under this section.

27(2) :  Decision of COC to change RP needs to be supported by 66% majority vote- The  COC may, at a meeting, by a vote of 66% of voting shares, resolve to replace the RP appointed u/s 22 with another RP, subject to a written consent from the proposed RP in the specified form.

27(3) : Name of the proposed RP shall be forwarded to AA by COC – The COC shall forward the name of the insolvency professional proposed by them to the AA.

27(4) : AA will take reference of IBBI on the name of new RP- The AA shall forward the name of the proposed RP to the IBBI for its confirmation and a RP shall be appointed in the same manner as laid down in section 16.

27(5) : RP shall continue till the appointment of another RP- In case if any disciplinary proceedings are pending against the proposed RP under sub-section (3), the RP appointed u/s 22 shall continue till the appointment of another RP under this section.

Section-28 : Approval of COC for certain actions

28(1) : RP will have to take prior approval of COC- Notwithstanding anything contained in any other law for the time being in force, the RP, during the CIRP, shall not take any of the following actions without the prior approval of the  COC namely:

28(2) : RP shall call meeting of COC for taking prior approval- The RP shall convene a meeting of the COC and seek the vote of the creditors prior to taking any of the actions under sub-section (1).

28(3) : 66% majority is needed – For granting approval to RP for aforesaid actions , COC needs to approve by a vote of 66% of the voting shares.

28(4) : Action will be void- Any action as mentioned in sub-section (1), if taken by the RP  without approval of COC will be void.

28(5) : Disciplinary action against RP – The COC may report the actions of the RP under sub-section (4) to the IBBI for taking necessary actions against him under this code.

Section- 29 : Preparation of information memorandum

29(1) : Duty of RP to prepare IM- The RP shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan.

29(2) : Resolution Applicant may access to all relevant information subject to fulfilment of conditions- The  RP shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes-

Explanation – For the purposes of this section, “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.

Section- 29A :  Persons not eligible to be resolution applicant

A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person : –

a)is an undischarged insolvent;

b)is a willful defaulter in accordance with the guidelines of the RBI issued under the Banking Regulation Act, 1949.

c)at the time of submission of the resolution plan has an account, or an account of a company/LLP (CD)  under the management or control of such person or of whom such person is a promoter, classified as NPA and at least a period of one year has lapsed from the date of such classification till the date of commencement of the CIRP  of CD.

> 1st Proviso for protecting the eligibility if NPA is cleared :  Provided that the person shall be eligible to submit a resolution plan if such person clears the dues of NPA A/c  before submission of resolution plan.                            

> 2nd Proviso for protecting the eligibility of Banker/FI :  Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor solely on account of conversion or substitution   of debt into equity/other instruments prior to the insolvency commencement date.

> Explanation for protecting the eligibility of person who has acquired a NPA company through NCLT via CIRP process : For the purposes of this clause, where a resolution applicant has an account, or an account of a company/LLP (CD) under the management or control of such person or of whom such person is a promoter, classified as NPA and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the AA under this Code.

d) has been convicted for any offence punishable with imprisonment

  (i) for two years or more under any Act specified under the Twelfth Schedule; or

  (ii) for seven years or more under any law for the time being in force:

> Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment

> Provided further that this clause shall not apply in relation to a connected person namely referred to in clause(iii) of Expl-I (**)

e) is disqualified to act as a director under the Companies Act, 2013

> Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation-I(**

f) is prohibited by the SEBI from trading in securities or accessing the securities markets

g) has been a promoter or in the management/control of a CD in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and an order has been passed by AA in this regard,.

> Protection of eligibility  of person who has acquired the CD under resolution– Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the CD  by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme by  a court.

h) has executed a guarantee in favor of a creditor in respect of a CD against which an application for insolvency resolution made by such creditor has been admitted and such guarantee has been invoked by the creditor and remains unpaid in full or part

i)is  subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

j) has a connected person not eligible under clauses (a) to (i)

(**) Explanation-I :  For the purposes of this clause, the expression “connected person” means—

i.any person who is the promoter or in the management or control of the resolution applicant; or

ii.any person who shall be the promoter or in management or control of the business of the CD during the  implementation of the resolution plan; or

iii.the holding/subsidiary/associate company or related party of a person referred to in clauses (i) and (ii):

> Provided that nothing in clause (iii) of Explanation-I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the CD.

> Provided further that the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the CD and 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 or completion of such transactions as may be prescribed], prior to the insolvency commencement date.

Explanation-II : For the purposes of this section, “financial entity” shall mean  :

• Scheduled Bank
• Foreign central bank or a securities market regulator or other financial sector regulator,
• Any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor
• An asset reconstruction company register with the Reserve Bank of India
• Alternate Investment Fund registered with Securities and Exchange Board of India;
• Such categories of persons as may be notified by the Central Government.

Section-30 : Submission of resolution plan

30(1) : Submission of Resolution Plan with Affidavit- A resolution applicant may submit a resolution plan along with an affidavit stating his eligibility u/s 29A to the resolution professional prepared on the basis of the information memorandum.

30(2) : Duties of RP in connection with resolution plan– The  RP shall examine each resolution plan received by him to confirm that each resolution plan : –

a)provides for the payment of insolvency resolution process costs in a manner specified by IBBI in priority to other debts.

b)provides for the payment of debts of OC in such manner as  may be specified by the IBBI which shall not be less than-

i.the amount to be paid to such creditors in the event of a liquidation of the CD u/s 53; or

ii.the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,

whichever is higher,   And   provides for the payment of debts of dissenting FCs,

c)provides for the management of the affairs of the CD after approval of the resolution plan;

d)The implementation and supervision of the resolution plan;

e)does not contravene any of the provisions of the law for the time being in force

f)confirms to such other requirements as may be specified by the Board.

30(3): RP shall present to COC the resolution plan for approval – The RP shall present to the COC for its approval such resolution plans which meets the conditions specified in sub-section (2).

30(4) : Approval of resolution plan by COC with 66% majority vote- The COC may approve a resolution plan by a vote of not less than 66% of voting share of the FC.

1st Proviso : Provided that the COC  shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 , where the resolution applicant is ineligible u/s 29A , AND may require the RP to invite a fresh resolution plan where no other resolution plan is available with it

2nd Proviso : Provided further that where the resolution applicant referred to in the 1st Proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the COC  to grant maximum 30 days time to resolution applicant to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A

3rd Proviso : Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to section 12(3), and the CIRP shall be completed within the period specified in 12(3).

4th Proviso : Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.

30(5): Resolution applicant can attend the meeting of COC wherein his resolution plan has been tabled – The resolution applicant may attend the meeting of the COC in which the resolution plan of the applicant is considered.  Provided that the resolution applicant shall not have a right to vote at the meeting of the COC unless such resolution applicant is also a FC.

30(6) : Duty of RP to present the resolution plan approved by COC before the AA –The RP shall submit the resolution plan as approved by the COC to the AA.

Section-31 : Approval of resolution plan

31(1) : Approval of AA for COC approved resolution plan –  If the AA is satisfied that the resolution plan as approved by the COC u/s 30(4) meets the requirements as referred u/s 30(2) , it shall by order approve the resolution plan which shall be binding on the CD and  all.

Proviso  regarding provisioning for effective implementation of plan  :  AA shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation

31(2) : Rejection of COC approved plan by AA : Where the AA is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

31(3) : Effect of approval of plan by AA– After the order of approval under sub-section (1),

(a)the moratorium order passed by the AA u/s 14 shall cease to have effect; and

(b)the RP shall forward all records relating to the conduct of the CIRP and the resolution plan to the IBBI.

31(4) : Resolution applicant nee to obtain necessary approvals – After approval of resolution plan by AA, the resolution applicant shall obtain the necessary approval within 1 YEAR  from the date of approval of the resolution plan by the AA.

Proviso for protecting Competition Act, 2002– Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the COC.

Sec -32 : Appeal against the order of AA approving the resolution plan

Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down u/s 61(3)

Section-32A : Liability for prior offences, etc.

32A(1) : No liability for Pre-CIRP offences, if approved resolution plan resulting into change in control & management of CD-   Notwithstanding anything to the contrary contained in this Code or any other law, the liability of a CD for an offence committed prior to the commencement of the CIRP shall cease, and the CD shall not be prosecuted for such an offence from the date the resolution plan approved by the AA u/s  31, if the resolution plan results in the change in the management or control of the CD to a person who was not-

(a) a promoter or in the management or control of the CD or a related party of such a person; or

(a) a person with regard to whom the relevant investigating authority has reason to believe that he had abetted or conspired for the commission of the offence, and has submitted a report or a complaint to the relevant statutory authority or Court:

1st Proviso– Prosecution instituted during the CIRP against such CD, shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having fulfilled.

2nd Proviso : Every person who was a “designated partner”  as per LLP Act or an “officer who is in default”, as per Companies Act, or was in any manner “in-charge of, or responsible“ to the CD  or associated with the CD in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the CD.

32(3) : CD & all responsible person shall extend full assistance to investigating authority– Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the CD and any person, who may be required to provide assistance under such law as may be applicable to such CD or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the CIRP.

CHAPTER III : LIQUIDATION PROCESS   (Section- 33 to 54)

Section- 33 : Initiation of liquidation

33(1) : Circumstances of liquidation and order of liquidation by AA in case of CIRP – Where the Adjudicating Authority-

(a) before the expiry of  CIRP, does not receive a resolution plan u/s 30(6) ; or

(b) rejects the resolution plan u/s 31 for the non-compliance of the requirements specified therein,

it (AA) shall –

(i) pass an order requiring the CD to be liquidated;

(ii) issue a public announcement stating that the CD is in liquidation; and

(iii) require such order to be sent to the authority with which the CD debtor is registered i.e. ROC

33(2) : Decision of COC to liquidate the CD before exhausting the time period of CIRP –Where the RP, during the CIRP but before confirmation of resolution plan, intimates the AA, of the decision of COC with 66% majority vote,  to liquidate the CD, the AA shall pass a liquidation order.

33(3) : Order of liquidation due to violation of approved resolution plan –  If duly approved resolution plan is contravened by the CD, any person other than CD,  whose interests are prejudicially affected by such contravention, may make an application to AA for a liquidation order.

33(4) : Determination by AA for contravention of resolution plan –  On receipt of an application under sub-section (3), if the AA determines that the CD has contravened the provisions of the resolution plan, it shall pass a liquidation order.

33(5) : Effect of order of liquidation (Prohibition on institution of any suit or proceedings by/against the CD) –  Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the CD. Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the CD, with the prior approval of the Adjudicating Authority,

33(6) : Removal of prohibition on institution of suit against the CD– The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

33(7) : order of liquidation is deemed as order of discharge to personnel of CD – The order for liquidation shall be deemed to be a notice of discharge to the officers & employees of the CD, except when the business of the CD is continued during the liquidation process by the liquidator.

Section – 35 : Powers and duties of liquidator

35(1): Subject to the directions of the AA, the liquidator shall have the following powers and duties, namely:

a.to verify claims of all the creditors;

b.to take into his custody or control all the assets, property, effects and actionable claims of the  CD;

c.to evaluate the assets and property of the CD in the manner as may be specified by the IBBI and prepare a report;

d.to take such measures to protect and preserve the assets and properties of the CD as he considers necessary;

e.to carry on the business of the CD for its beneficial liquidation as he considers necessary;

f. to sell the any property and actionable claims of the CD by public auction or private contract.   Provided that the liquidator shall not sell any property of CD to any person who is not eligible to be a resolution applicant.

g. to draw, accept, make and endorse any negotiable instruments in the name and on behalf of the CD.

h.to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the CD, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself

a.to obtain any professional assistance from any person or appoint any professional, in discharge of his duties;

j.to invite and settle claims of creditors and claimants and distribute proceeds as per the provisions of this Code;

k.to institute or defend any suit, prosecution or other legal proceedings, civil/criminal, in the name of on behalf of the CD;

l.to investigate the financial affairs of the CD to determine undervalued or preferential transactions;

m.to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument as may be necessary for liquidation, distribution of assets and in discharge of his duties;

n.to apply to the AA for its necessary order/direction and to report the progress of the liquidation process; and

o.to perform such other functions as may be specified by the Board

35(2) :  Consultation with stakeholders- The liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds u/s 53.

Provided that any such consultation shall not be binding on the liquidator.

Provided further 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.

Section- 36 : Liquidation estate

36(1) : Formation of Liquidation Estate (L/E)- For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned in sub-section (3), which will be called the liquidation estate in relation to the CD.

36(2): Liquidator shall hold the L/E as a fiduciary- The liquidator shall hold the L/E as a fiduciary for the benefit of creditors.

36(3):  Assts comprising the L/E – Subject to sub-section (4), the L/E shall comprise all liquidation estate assets which shall include the following:

a.any assets over which the CD has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the CD or an information utility or records in the registry or any depository recording securities of the CD or by any other means as may be specified by the Board, including shares held in any subsidiary of the  CD ;

b.assets that may or may not be in possession of the CD including but not limited to encumbered assets;

c.tangible assets, whether movable or immovable;

d.intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the CD) and financial instruments, insurance policies, contractual rights;

e.assets subject to the determination of ownership by the court or authority ;

f.any assets or their value recovered through proceedings for avoidance of transactions in accordance with this Chapter;

g.any asset of the CD in respect of which a secured creditor has relinquished security interest;

h.any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and

i.all proceeds of liquidation as and when they are realized

36(4):  Items which shall not be the part of L/E – The following shall not be included in the  L/E assets and shall not be used for recovery in the liquidation:

a.assets owned by a third party which are in possession of the CD, including –

i. assets held in trust for any third party;

ii. bailment contracts;

iii. all sums due to any workman 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 CD as the case may be provided such assets are not held on account of avoidance transactions that may be avoided under this Chapter;

d.assets of any Indian or foreign subsidiary of the corporate debtor; or

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.

Section- 37 : Powers of liquidator to access information

37(1): Power of liquidator to access any information system – Notwithstanding anything contained in any other law for the time being in force, the liquidator shall have the power to access any information systems for the purpose of admission and proof of claims and identification of the liquidation estate assets relating to the CD from the following sources, namely:

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; and

g.any other source as may be specified by the Board

37(2) : Creditor may ask liquidator for any financial information of CD– The creditors may require the liquidator to provide them any financial information relating to the CD in such manner as may be specified.

37(3):  Liquidator is duty bound to supply the required financial information to concerned creditor – The liquidator shall provide information referred to in sub-section (2) to such creditors within 7 days or provide reasons for not providing such information.

Section – 38 : Consolidation of claims

38(1) : The liquidator shall collect claim of creditors within 30 days of DCL-  The liquidator shall receive or collect the claims of creditors within a period of 30 DAYS  from the date of commencement of liquidation (DCL).

38(2) :  Claim by Financial Creditor – A FC may submit a claim to the liquidator by providing a record of such claim with an information utility.

Provided that where the information relating to the claim is not recorded in the information utility, the FC may submit the claim in the same manner as provided for the submission of claims for the OC under sub-section (3).

38(3) : Claim by Operational Creditor- An OC may submit a claim to the liquidator 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.

38(4) : Hybrid Creditor (FC with OC) – A creditor who is partly a FC and partly an OC shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3). He She will have to submit two claims separate for FC and OC.

38(5)  : 14 DYAS time to creditor for withdrawal/correction of claim– A creditor may withdraw or vary his claim under this section within fourteen days of its submission.

Section- 39 : Verification of claims

39(1) : Time limit for verification of claim- The liquidator shall verify the claims submitted u/s 38 within such time as specified by the Board.

39(2) : Liquidator may ask the claimant for further additional documents– The liquidator may require any creditor or the CD  or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.

Section- 40 : Admission or rejection of claims

40(1) : Liquidator may admit/reject the claim- The liquidator may, after verification of claims u/s 39, either admit or reject the claim, in whole or in part, as the case may be.

Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection.

40(2) : Communication by liquidator regarding admission/rejection of claim–  The liquidator shall communicate his decision of admission or rejection of claims to the creditor and CD within 7 DYS  of such admission or rejection of claims.

Section- 41 : Determination of valuation of claims

41(1) : Determination of value of claim by liquidator- The liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board

Section- 42 : Appeal against the decision of liquidator

42(1) :  Within 14 DAYS, Creditor may file appeal to AA against the decision of liquidator- A creditor may appeal to the AA against the decision of the liquidator accepting/rejecting the claims within 14 DAYS of the receipt of such decision

Section- 43 : Preferential transactions and relevant time

43(1) : Application to AA for avoidance of Preferential Transaction – Where the RP/liquidator, is of the opinion that the CD  has at a relevant time given a preference in such transactions to any persons as referred to in sub-section (4), he shall apply to the AA for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.

43(2) : Definition of Preferential Transactions  – A CD shall be deemed to have given a preference, if–

a.there is a transfer of property or an interest thereof of the CD for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the CD ; and

b.the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53.

43(3) : Exception to Pref. Transaction–For the purposes of sub-section (2), a preference shall not include the following transfers–

a. transfer made in the ordinary course of the business or financial affairs of the CD or the transferee;

b.any transfer creating a security interest in property acquired by the CD to the extent that –

i.such security interest secures new value (new loan) 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 CD to acquire such property; and

ii.such transfer was registered with an information utility on or before 30 days after the CD receives possession of such property

Provided -Any transfer made as per Court’s Order shall not, preclude such transfer to be deemed as giving of preference by the CD.

New Value : New value means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the RP under this Code, including proceeds of such property, but does not include a financial debt or operational debt substituted for existing financial debt or operational debt.

43(4) : Relevant Time for preferential transaction– A preference shall be deemed to be given at a relevant time, if –

a.it is given to a related party (other than by reason only of being an employee), during the period of two years preceding the ICD; or

b.a preference is given to a person other than a related party during the period of one year preceding the  ICD.

Section- 44. : Orders in case of preferential transactions

44(1): Order of AA for avoidance of Pref.  Transaction- The AA, may, on an application made by the RP/liquidator u/s 43(1), by an order : –

a. require any property transferred in connection with the giving of the preference to be vested in the CD ;

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 (in whole or in part) of any security interest created by the CD;

d. require any person to pay such sums in respect of benefits received by him from the CD;

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 AA 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, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and

g. direct for providing the extent to which any person whose property is so vested in the CD , or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the CIRP for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference.

Proviso : Provided that an order under this section shall not –

a.affect any interest in property which was acquired from a person other than the CD or any interest derived from such interest and was acquired in good faith and for value;

a.require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the RP/liquidator.

Explanation-I:

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 CD, or who has received a benefit from the preference or such another person to whom the CD  gave the preference, –

I. had sufficient information of the initiation or commencement of insolvency resolution process of the CD ;

I. is a related party,

it shall be presumed that the interest was acquired, or the benefit was received otherwise than in good faith unless the contrary is shown.

Explanation-II

A person shall be deemed to have sufficient information or opportunity to avail such information if a public announcement regarding the CIRP has been made u/s13.

Section- 45 : Avoidance of undervalued transactions

45(1) : Application to AA for avoidance of Undervalued Transactions – If the RP/liquidator, on an examination of the transactions of the CD, determines that certain transactions were made during the relevant period u/s 46, which were undervalued, he shall make an application to the AA to declare such transactions as void and reverse the effect of such transaction in accordance with this Chapter.

45(2) : Definition of Undervalued Transaction – A transaction shall be considered undervalued where the CD  :-

a.makes a gift to a person; or

b.enters into a transaction with a person which involves the transfer of one or more assets by the CD for a consideration the value of which is significantly less than the value of the consideration provided by the  CD,

AND

such transaction has not taken place in the ordinary course of business of the CD.

Section- 46 : Relevant period for avoidable transactions

46(1) : Definition of relevant time for UvT –  In an application for avoiding a transaction at undervalue, the RP/liquidator, shall demonstrate that –

I. such transaction was made with any person within the period of one year preceding the ICD; or

II. such transaction was made with a related party within the period of two years preceding the ICD.

46(2) : Independent enquiry by AA : The AA may require an independent expert to assess evidence relating to the value of the transactions mentioned in this section.

Section-  47 :  Application by creditor in cases of undervalued transactions shall cause disciplinary action against RP/Liquidator

47(1): Application by Creditor/member/partner of CD to AA for undervalued transaction –  Where an undervalued transaction has taken place and the RP/liquidator has not reported it to the AA, a creditor/member/partner of a CD, may make an application to the AA to declare such transactions void and reverse their effect in accordance with this Chapter.

47(2): Examination of undervalued transaction by AA and passing of order by it – Where the AA, after examination of the application made under sub-section (1), is satisfied that –

a.undervalued transactions had occurred; and

b.RP/liquidator did not report such transaction to the AA

it shall pass an order-

a.restoring the position as it existed before such transactions and reversing the effects thereof in the manner as laid down in section 45 and section 48;

b.requiring the IBBI to initiate disciplinary proceedings against the RP/liquidator .

Section-48 : Order in cases of undervalued transactions

48 (1) :  Contents of Order of AA in case of undervalued transaction- The order of the AA u/s 45(1) may provide for the following: –

a. require any property transferred as part of the transaction, to be vested in CD;

b. release or discharge (in whole or in part) any security interest granted by the  CD;

c. require any person to pay such sums, in respect of benefits received by such person, to the liquidator or the resolution professional as the case may be, as the AA may direct; or

d. require the payment of such consideration for the transaction as may be determined by an independent expert

Section -49 : Transactions defrauding creditors’

49(1) : Order of AA on transactions of CD for defrauding its creditors- Where the CD has entered into an undervalued transaction as referred u/s 45(2)and the AA is satisfied that such transaction was deliberately entered into by such CD  : –

a. for keeping assets of the CD beyond the reach of any person who is entitled to make a claim against the CD; or

b. in order to adversely affect the interests of such a person in relation to the claim,

the AA shall make an order-

i. restoring the position as it existed before such transaction as if the transaction had not been entered into; and

ii. protecting the interests of persons who are victims of such transactions

Provided that an order under this section

a. shall not affect any interest in property which was acquired from a person other than the CD and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest,

and

b .shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction.

Section- 50 : Extortionate credit transactions

50 (1) : Application by RP/liquidator to AA for avoidance of transaction-  Where the  CD has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the ICD, the RP/liquidator may make an application for avoidance of such transaction to the AA if the terms of such transaction required exorbitant payments to be made by the CD .

50 (2) :  The Board may specify the circumstances in which a transactions which shall be covered under sub-section (1).

Explanation. – For the purpose of this section, it is clarified that any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction.

Section- 51 : Orders of AA in respect of extortionate credit transactions

Where the AA after examining the application made u/s 50(1) is satisfied that the terms of a credit transaction required exorbitant payments to be made by the CD, it shall, by an order : –

a. restore the position as it existed prior to such transaction

b. set aside the whole or part of 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 in favor of the RP/liquidator, as the case may be

Section – 52 :  Secured creditor in liquidation proceedings

52 (1) : Options to secured creditor in case of liquidation- 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. realize its security interest in the manner specified in this section

52 (2) : Duty of secured creditor to inform its decision on options : Where the secured creditor realizes security interest under clause (b) of subsection (1), he shall inform the liquidator and identify the asset to be realized.

52 (3) : Duty of liquidator to verify and allow realization if security interest by secured creditor- Before any security interest is realized by the secured creditor under this section, the liquidator shall verify such security interest and permit the secured creditor to realize 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

52 (4) : Sale proceeds must be adjusted against debt- A secured creditor may enforce, realize, settle, compromise or deal with the secured assets in accordance with such law as applicable to the security interest being realized and to the secured creditor and apply the proceeds to recover the debts due to it.

54 (5) : Secured credit may approach AA to facilitate the sale : If in the course of realizing a secured asset, any secured creditor faces resistance from the CD or any person connected therewith in taking possession of, selling or otherwise disposing off the security, the secured creditor may make an application to the AA to facilitate.

Case Law :

Section- 53 : Distribution of assets

53 (1) : Waterfall mechanism of distribution – Notwithstanding anything to the contrary contained in any law, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority  :-

53(2) : No validity of any contractual agreement which disrupt the distribution mechanism :–  Any contractual arrangements between parties with equal ranking, if disrupting the order of priority shall be disregarded by the liquidator.

53(3) : Fees of liquidator shall be deducted before distribution– The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients before distribution.

Explanation. – For the purpose of this section-

i. it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will  be paid in full/ 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

Section-54 :Dissolution of corporate debtor