Who can initiate CIRP?
-financial creditor
-operational creditor (in the instant scenario)
-corporate debtor itself
Steps involved in CIRP
Step 1: Notice
The Operational Creditor is required to deliver Demand notice (in Form 3) (or) copy of invoice attached with a notice (in Form 4) to the corporate debtor.[1]
Step 2: Reply by Corporate Debtor
The Corporate Debtor is required to reply with
- Existence of dispute (or)
- Payment details (electronic transfer record or cheque encashing record)
Limitation Period: To be replied within 10 days from date of receipt of demand notice
Step 3: Apply for initiating CIRP
The Operational Creditor is required to file before Adjudicating Authority for initiating CIRP (in Form 5) under S. 9 of IBC, 2016. Copy of the filed application is to be posted to the corporate debtor.[2]
Limitation Period: In case of non-receipt of payment or no reply within 10 days from receipt of notice by the corporate debtor, the operational creditor may file for initiation of CIRP.
Step 4: Admission/Rejection of Application by the Adjudicating Authority
The adjudicating authority may accept the application if complete (or) reject the application if incomplete.[3]
Limitation Period: The Adjudicating Authority shall communicate this decision within 14 days of receipt of application by the operational creditor.[4]
Provision to remove defects: The Operational Creditor is given 7 days from the date of notice to amend the application to make it complete before it is rejected.[5]
Step 5: Commencement of CIPR
The CIRP shall commence from date of admission of application by Adjudicating Authority.[6]
Limitation: CIRP is required to be completed within 180 days from date of admission of application. Resolution Professional may file for extension for such completion by a resolution passed by 75% of voting shares of committee of creditors.
Cap on CIRP time limit – 330 days
The procedure involved in the Corporate Insolvency Resolution Procedure (CIRP) should be completed within 180 days or within the extended period of 90 days and mandatorily be completed within 330 days including any extension and the time taken in legal proceedings. The resolution procedure should be completed within 330 days, failing which the Adjudicating Authority will initiate liquidation procedure under Chapter III of the Code.[7]
Extension beyond 330 days under Section 12 (as amended by way of Insolvency and Bankruptcy Code (Amendment) Act, 2019)
- In Ritu Rastogi RP of Benlon India Ltd. Vs. Riyal Packers,[8] NCLAT held that this is a fit case for exercising the jurisdiction by this Appellate Tribunal being an exceptional case to depart from the general rule of 330 days being outer limit prescribed under the law for completion of the CIRP inclusive of period of judicial intervention. We are also of the considered opinion that failure to exercise discretion in a matter of this nature would have serious implications imperilling the legitimate interests of all stakeholders and inevitable conclusion would be to push the Corporate Debtor into liquidation which has to be avoided at all costs.
- The Hon’ble NCLAT in Ravi Sankar Deverakonda Vs. Committee of Creditors of Meenakshi Energy Limited,[9] held that the exercise of power by the Adjudicating Authority to extend the time period under section 12(3) of the Code in negation of statutory provision of the Code may be desirable in an exceptional/extraordinary Circumstances of a given case by exercising sound Judicial discretion with a view to find a suitable Resolution Plan to prevent an aberration of justice.
Step 6: Declaration of Moratorium by Adjudicating Authority
The Adjudicating Authority will declare by an order that the corporate debtor will not be allowed to institute or continue suits, transfer or alienate assets, enforce security interest, etc.[10]
Limitation: The Moratorium is applicable till approval of resolution plan or passing of liquidation order.
Step 7: Appointment of Interim Resolution Professional
The Adjudicating Authority will appoint Interim Resolution Professional as proposed by the Operational Creditor if no disciplinary proceeding is pending against him.[11] In case no Interim Resolution Professional is proposed by the Operational Creditor, reference is made to the Board for recommendation of Interim Resolution Professional.[12]
Limitation: The Interim Resolution Professional shall be appointed within 14 days from the commencement of CIRP.[13] The
Term of Interim Resolution Professional: Cannot exceed 30 days from his date of appointment.[14]
Step 8: Management of Affair by Interim Resolution Professional
The Interim Resolution Professional will be responsible to manage affairs of company. He will collect all relevant information of the corporate debtor’s business operations, financial status and other matters. He will also take control and custody of assets.
Step 9: Constitution of Committee of Creditors
The Interim Resolution Professional will constitute the Committee of Creditors after collation of all claims.[15] The committee of creditors shall comprise all financial creditors of the corporate debtor.[16]
Limitation: The interim resolution professional shall file a report certifying constitution of the committee to the Adjudicating Authority within 2 days of the verification of claims received.
Step 10: Appointment of Resolution Professional
First Meeting of Committee of Creditors: The first meeting of the Committee of Creditors will be held within 7 days of its constitution.[17] In this meeting, the Committee of Creditors are made to vote to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.
Continue with the IRP as the RP: In such a scenario, decision is sent to the interim resolution professional, the corporate debtor and the Adjudicating Authority.
Replace IRP with another RP: COC has to file an application before the Adjudicating Authority for the appointment of the proposed RP. On receipt of application, reference is made to the Board. Where the Board does not confirm the RP within 10 days, the IRP shall assume charge as RP until such date till appointment is so confirmed by Board.
Step 11: Meeting of Committee of Creditors
The RP will facilitate conduct of the meetings either electronically or in person. Notice is also sent to the operational creditor about each meeting.[18] Absence of Partner or representative of Operational Creditor does not invalidate such meeting. Operational Creditors do not have the right to vote in such meeting.
Step 12: Appointment of Insolvency Professional
Any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent himself in a meeting of the committee of creditors and the fees payable to such insolvency professional representing any individual creditor will be borne by the creditor.[19]
Step 13: Replacement of RP
In case the COC at any point during the CIRP is of the opinion that the RP needs to be changed, it can be done by taking a vote of 75% of voting shares.[20]
Step 14: Preparation of Information Memorandum
The RP will prepare and submit an information memorandum which will contain all requisite details of the company as required. The RP will also be required to furnish any other information which any resolution applicant may seek.
Limitation: The Resolution Professional shall submit the information memorandum in electronic form to each member of the committee within two weeks of his appointment, but not later than fifty-fourth day from the insolvency commencement date, whichever is earlier.
Step 15: Submission of Resolution Plan:
A resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of the information memorandum.[21]
Step 16: Scrutiny of Resolution Plan by RP:
The resolution professional will examine each resolution plan received by him to confirm that each resolution plan provides for the payment of insolvency resolution process costs, provides for the repayment of the debts of operational creditors, provides for the management of the affairs of the Corporate debtor after approval of the resolution plan, the implementation and supervision of the resolution plan, does not contravene any of the provisions of the law for the time being in force and conforms to such other requirements as may be specified by the Board
Step 17: Presentation of Resolution Plan
The resolution professional will present to the committee of creditors for its approval resolution plans which confirm to the conditions.[22] The committee of creditors may approve a resolution plan by a vote of not less 75% voting share of the financial creditors.[23] The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.[24]
Step 18: Approval of Resolution Plan:
If the Adjudicating Authority is satisfied that resolution plan is in conformity to the requirements, the same can be approved by an Order which is binding on all parties involved.[25] If it is not in conformity with the requirements, it can be rejected as well.[26]
Limitation: The Adjudicating Authority is to pass an Order within a period of 30 days failing which reasons for the delay so caused is recorded.
Step 19: Appeal against the Order
The Order approving the resolution plan may be challenged before the Company Law Appellate Tribunal.
Step 20: Initiation of Liquidation
If the resolution plan is not made within the prescribed time or the resolution plan is rejected the Adjudicating Authority may pass an Order for liquidation. Such Order is intimated to the authority with which the corporate debtor is registered and a Public Announcement is made that the company is under liquidation. The same is also followed in case the RP intimates the decision of COC to liquidate or if the corporate debtor contravenes provisions of resolution plan.
Step 21: Appointment of Liquidator
The Resolution Professional acts as the Liquidator unless he is replaced by the Adjudicating Authority.
Step 22: Liquidation Estate
The liquidator shall make a list of Assets of the corporate debtor and shall access all information for the said purpose.
Step 23: Consolidation of Claims
The liquidator shall receive or collect the claims of creditors.[27]
Limitation: The claims are required to be collected within a period of 30 days from the date of the commencement of the liquidation process.
Step 24: Verification of Claims
The liquidator is required to verify the claims made by the creditors.[28]
Limitation: The verification shall be done within such time as may be specified by the Board.
Step 25: Admission/Rejection of Claims
The liquidated will after due verification admit or reject the claim either in part or in full.
Limitation: The liquidator shall communicate his decision of admission or rejection of claims to the creditor and corporate debtor within 7 days of such admission or rejection of claims.[29]
Step 26: Appeal by Creditor against rejection of claims
A creditor may appeal to the Adjudicating Authority against the decision of the liquidator rejecting the claims.
Limitation: Appeals shall be made within 14 days of the receipt of such decision.[30]
Step 27: Distribution of Assets
The proceeds from the sale of the liquidation assets shall be distributed in the order of priority under S. 53 of IBC, 2016. [31]
Limitation: The liquidator distributes the proceeds from realization within 90 days from the receipt of the amount.
Step 28: Dissolution of Corporate Debtor
When all assets of the corporate debtor have been liquidated, the liquidator will make an application to the Adjudicating Authority for the dissolution of the corporate debtor. The corporate debtor shall be dissolved from the date of Order.[32]
Limitation: A copy of Order is to be forwarded to the authority with which the corporate debtor is registered in 7 days.
[1] The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [Amended upto 19.03.2019], Section 5 read with Section 8(1) of IBC, 2016
[2] The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [Amended upto 19.03.2019], Section 6.
[3] IBC, 2016, S. 9(5).
[4] Id.
[5] Id.
[6] IBC, 2016, S. 9(6).
[7] Insolvency and Bankruptcy Code (Amendment) Act, 2019, Section 12
[8] Rastogi RP of Benlon India Ltd. Vs. Riyal Packers, [2020] ibclaw.in 175 NCLAT.
[9] Mr. Ravi Sankar Deverakonda Vs. Committee of Creditors of Meenakshi Energy Limited, (2021) ibclaw.in 155 NCLAT.
[10] IBC, 2016, S. 14.
[11] IBC, 2016, S. 16(3)(b).
[12] IBC, 2016, S. 16(3)(a).
[13] IBC, 2016, S. 16(1).
[14] IBC, 2016, S. 16(5).
[15] IBC, 2016, S. 21(1).
[16] IBC, 2016, S. 21(2).
[17] IBC, 2016, S. 22(1).
[18] IBC, 2016, S. 24.
[19] IBC, 2016, S. 24(5).
[20] IBC, 2016, S. 27.
[21] IBC, 2016, S. 30(1).
[22] IBC, 2016, S. 30(3).
[23] IBC, 2016, S. 30(4).
[24] IBC, 2016, S. 30(6).
[25] IBC, 2016, S. 31(1).
[26] IBC, 2016, S. 31(2).
[27] IBC, 2016, S. 38(1).
[28] IBC, 2016, S. 39(1).
[29] IBC, 2016, S. 40(2).
[30] IBC, 2016, S. 42.
[31] IBC, 2016, S. 53.
[32] IBC, 2016, S. 54(1).
Author Bio
Sir, One of our supplier has taken advance payment for supplying goods, and he is not supplying goods neither returning amount. Will this rule apply in such case?