Insolvency and Bankruptcy Code (IBC) seeks to provide resolution to a Corporate Person and also Individuals or partnership firms in case of default is made by such persons in making payment which is due and payable to another person. The code for the purpose of Corporate person operates with the object to initially try and revive the defaulting corporate person so that the resources employed by such person are not wasted. However, in case there is no feasible solution then the Liquidation is inevitable. The Code realises the importance of time as otherwise there is depletion in the value of the resources and therefore in order to retain and maximise the value, the Code provides for process to be completed within the stipulated time frame.
Operational Creditor(Claimant) means a person to whom debt is owed by a Corporate Debor(Defaulter) in respect of supply of goods or services or in respect of employment or dues owed to Government. Corporate Insolvency & Resolution Process (CIRP) can be initiated by Operational Creditor (as also by Financial Creditor and the Corporate Debtor himself) for any default in making the payment which is due and payable by Corporate Debtor. As from 24th March,2020, the amount of default must be minimum of Rs. one crore and also the default should not have occurred between 25th March,2020 and 24th March,2021.
1. If any default is made by a Corporate Debtor (CD) to a Operational Creditor (OC) with regards to outstanding claim which has become due and payable and is not paid, then the Operational Creditor may deliver a demand notice on the Corporate Debtor demanding for making the payment of the defaulted operational debt in Form no. 3 or 4 by hand or registered post, or speed post with acknowledgement due at the Registered office of the Company or by email to the Whole time director. A copy of the demand notice must also be filed with Information Utility (NeSL).
2. The Corporate Debtor must inform the Operational Creditor of any existence of dispute in respect of the amount or quality of goods or services or in respect of any warranty or guarantee in this respect. The dispute must be pre existing and bonafide (Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. vide Hon’ble Supreme Court in Civil Appeal No. 9405 of 2017). Any proceedings in suit or arbitration initiated and pending before the receipt of such notice shall be brought to the notice of the Operational Creditor. The Debtor may choose to make the payment and send the attested copy of the amount transferred or encashment of the cheque in the account of the Operational Creditor.
3. After expiry of 10 days of so delivery of demand notice and if no payment or notice of existing dispute is received then Operational Creditor can then choose to make an application u/s 9 of the IBC, 2016, before NCLT for initiating CIRP Process in Form 5 along with proof of claim and other documents. A copy of the Application must also be served to the Insolvency Board and at the registered Office of the Corporate Debtor by hand, registered post, speed post or email. The Operational Creditor may also choose to give a name of the Insolvency Resolution Professional it wishes to be appointed as Interim Insolvency Professional (IP) and if it so chooses then must obtain consent in writing in Form 2. The Application to be accompanied with a Fee of Rs. 2000/-
4. The application can be withdrawn on the request of the Applicant before admission by the NCLT under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Also withdrawal may be permitted by NCLT at a later stage under section 12A and under Regulation 30A of IBBI (Insolvency Resolution Process of Corporate Person) Regulation, 2016. However, the application for withdrawal may not be permitted once the Resolution plan is approved (Kundan Care Products Pvt. Ltd. Vs. Amit Gupta vide NCLAT Delhi Judgment dated 30.09.2020 in Company Appeal (AT) (Insolvency) No. 653/2020). but, the withdrawal may be permitted during the Liquidation process ( Navaneetha Krishnan v Central Bank of India, Coimbatore & Another vide NCLAT [Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018)
5. NCLT after going into details and verifying that the application is complete in all respects, the amount remains unpaid, the demand notice was served, there exists no dispute and that the person named as IP is eligible to be appointed, by order, admit the application for initiation of CIRP. The prescribed period for admission of application is within 14 days of the filing of the application but various courts including Hon’ble Supreme Court (Surendra Trading Company v. Juggilal Kamlapat Jute Mills Co. Ltd. & Ors) has held that this being procedural in nature, it is not mandatory and therefore admission of an Application may take a few months as well.
6. The Code prescribes that the Resolution Process must be completed within a maximum period of 330 days including one time extension of 90 days accorded by NCLT and 60 days for legal proceedings.
7.. NCLT upon admission of the Application (Insolvency Commencement Date or ICD) shall appoint Interim Resolution Professional (IRP) and also announce the moratorium and cause that IRP make a public announcement for initiation of CIRP and submission of claims of the creditors. IRP to provide 14 days from the date of his appointment for submission of claims with proof. However, the claims with proof may be submitted up-to 90 days of ICD under Sub Regulation 2 of Regulation 12 of IBBI (Insolvency Resolution Process of Corporate Person) Regulation, 2016.
8. Upon appointment of IRP, the management of the affairs of the Corporate Debtor shall lie with the IRP and the Board of Directors shall be suspended. IRP shall verify the claims of the creditors within 7 days of the last date of the receipt of claims and prepare the list of creditors, which shall be available for inspection and also displayed on the website of the Corporate Debtor and the Board.
9. Based on the claims received by the IRP, IRP shall constitute a Committee of Creditors (CoC) comprising Financial Creditors within 2 days of the verification of the claim and report the same to NCLT. Further, IRP will hold a meeting of CoC within 7 days of filing of the Report with NCLT.
10. In its first meeting, CoC to consider the appointment of Resolution Professional (RP) and IRP may or may not be appointed as RP but in case no RP is appointed within 10 days then IRP to continue until RP is appointed.
11. Now the management of the affairs of the Corporate Debtor shall lie with the RP. Hereafter, RP must prepare Information Memorandum in respect of the CD, call for expression of interest from prospective Resolution Applicant in accordance with the conditions approved by CoC and present the Resolution Plan to CoC for their consideration.
12. RP shall examine the Resolution Plan as to whether it meets the criteria in accordance with the EOI and also as laid under section 30 of the Code. RP shall submit the Resolution Plan to CoC for approval and CoC may approve a Resolution Plan with at least 66% of the voting share. As regards operational creditors, the Resolution Plan must provide for the payment to OC at least such amount that OC would have received in accordance with the waterfall mechanism laid down under section 53 of the code if the Company was to be liquidated.
13. Upon approval, the Resolution plan shall be submitted to NCLT which may accord approval upon being satisfied that all conditions u/s 30 of the code are complied with and also the Resolution Plan is capable of effective implementation.
14. The moratorium shall cease on the date of the approval of the Resolution Plan and the successful Resolution Applicant shall now obtain all the permissions that may be required within one year of the approval. Also vide Insolvency and Bankruptcy Code (Amendment Act) 2020, immunity is granted to the CD against prosecution or attachment of property of CD for any offence committed prior to commencement of Insolvency Process provided there is change in the management and control of the CD to a person who was not a promoter or in the management or in control of the CD or related party of such a person.
However, if no Resolution Plan is received or approved by CoC or is rejected by NCLT then NCLT shall order the Liquidation Process to be initiated.