Invitation of Public Comments on the draft Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors), Rules, 2019.

Government of India

Ministry of Corporate Affairs

File No. 30/21/2018- Insolvency Section

Dated: 8th May, 2019

Invitation of Public Comments on the draft Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors), Rules, 2019.

The Insolvency and Bankruptcy Code, 2016 (Code) envisages reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all stakeholders. In the two years since the enactment of the Code, the provisions relating to corporate insolvency resolution, including fast track resolution, corporate liquidation and voluntary liquidation of corporate debtors (CDs) have been operationalised.

Implementation of the individual insolvency and bankruptcy is intended in phased manner and accordingly at present the provisions of Part III of the Code for personal guarantors to CDs are proposed to be notified in the first phase.

3. Suggestions/comments are invited from stakeholders for the draft Rules annexed as Annexure ‘A’.Comments/suggestions along with brief justification may be sent by e-mail in the format prescribed below at comments rules @mca.gov.in till 31st May, 2019 :-

S. No. Name of

Stakeholder

Designation Organization Rule No. Suggestion

along with
justification

(Rakesh Tyagi)

Director

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the […][…], 2019

G.S.R. […].— In exercise of the powers conferred by sub-section (1) of section 239 and clauses (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb) and (zc) of sub-section (2) of section 239 read with clause (e) of section 2 and sub-section (2) and (3) of section 60 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby makes the following rules, namely-

1. Short title and commencement.

(1) These rules may be called the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Application.

These rules shall apply to matters relating to bankruptcy of personal guarantors to corporate debtors under chapter IV and chapter V of Part III of the Code.

3. Definitions. —

(1) In these rules, unless the context otherwise requires, –

(a) “Adjudicating Authority” means-

(i) for the purpose of section 60, the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); or

(ii) in cases other than (i), the Debt Recovery Tribunal constituted under sub-section (1A) of section 3 of the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993);

(b) “bankrupt” means a debtor under clause (a) of sub-section (3) of section 79;

(c) “Code” means the Insolvency and Bankruptcy Code, 2016 (31 of 2016);

(d) “debtor” means a personal guarantor to a corporate debtor, in respect of whom guarantee has been invoked by the creditor and remains

(e) unpaid in full or part;

(f) “electronic form” shall have the meaning assigned to it in clause (r) of section 2 of the Information Technology Act, 2000 (21 of 2000);

(g) “electronic means” means an authorized and secured computer programme which is capable of producing confirmation of sending communication to the participant entitled to receive such communication at the last electronic mail address provided by such participant and keeping record of such communication;

(h) “form” means a form appended to these rules;

(i) “schedule” means a schedule appended to these rules;

(j) “section” means a section of the Code;

(k) “serve” means sending any communication by any means, including registered post, speed post, courier or electronic form, which is capable of producing or generating an acknowledgement of receipt of such communication:

Provided that where a document cannot be served in any of the modes, it shall

be affixed at the outer door or some other conspicuous part of the house or building in which the addressee ordinarily resides or carries on business or personally works for gain.

(2) Unless context otherwise requires, words and expressions used and not defined in these rules, but defined under the Code, shall have the meaning assigned to them in the Code.

4. Relatives.

For the purposes of explanation (ii) of clause (b) of sub-section (2) of section 79, the manner of relationship shall mean the manner listed in clause (a) and (b) of explanation to sub-section (24A) of section 5.

5. Excluded assets.

(1) For the purpose of clause (c) of sub-section (14) of section 79, value of personal ornaments shall not exceed five lakh rupees.

(2) For the purpose of clause (e) of sub-section (14) of section 79, value of dwelling unit shall not exceed the threshold amount.

Explanation- The threshold amount shall be computed in accordance with the methodology provided in the Schedule.

(3) The Adjudicating Authority may, depending on the facts and the circumstances, exclude assets that have a value higher than the value allowed in sub-rule (1) or (2), as the case may be.

(4) In the event the value of the personal ornament or dwelling unit is higher than the threshold value referred to in clause (e) of sub-section (14) of section 79 is higher than the threshold values under sub-rule (1) or (2) —

(i) the debtor shall be entitled to an amount equivalent to the threshold value, in the event the personal ornament or dwelling unit is disposed of; or

(ii) the debtor may retain the personal ornament or dwelling unit on payment of the amount in excess of the threshold value, for the benefit of the creditors.

6. Application by debtor.

(1) A debtor shall apply for bankruptcy under section 122, in Form A, along with an application fee of five thousand rupees only.

(2) The debtor shall forthwith serve a copy of the application under sub-rule (1) to the last known address of the creditor(s) and the corporate debtor for whom the debtor is a personal guarantor.

7. Application by creditor.

(1) A creditor shall apply for bankruptcy of the debtor under section 123, in Form B, with an application fee of five thousand rupees only.

(2) The creditor shall forthwith serve a copy of the application under sub-rule (1) to the last known address of the creditor(s) and the corporate debtor for whom the debtor is a personal guarantor.

(3) In case of a joint application, the creditors may nominate one amongst themselves to act on behalf of all the creditors.

8. Public notice.

The Adjudicating Authority shall issue a public notice inviting claims from all creditors of the bankrupt, under clause (b) of sub-section (1) of section 130, in Form C.

9. Notice to creditors.

The Adjudicating Authority shall send a notice to the creditors as per clause (a) of sub-section (1) of section 130, in Form D.

10. Statement of financial position.

The statement of financial position shall be filed by the bankrupt under sub-section (2) of section 129, in Form E.

11. Claim with proof.

(1) A creditor shall submit a claim with proof to the bankruptcy trustee on or before the last date mentioned in the public notice, in Form F.

(2) Form F shall be submitted by the creditor through electronic means or by registered post or speed post or courier.

(3) A creditor who fails to submit claim with proof as per sub-rule (1) within the time stipulated in the public announcement, may submit such proof to the bankruptcy trustee till the date specified in the notice issued under sub-section (2) of section 176.

(4) The creditor shall bear the costs relating to the proof of claim.

12. Notice of dividend.

(1) The notice of dividend as per clause (a) of sub-section (1) of section 176 shall contain the following particulars –

(a) the date on which the dividend is proposed to be distributed;

(b) the list of creditors who shall be entitled to a dividend;

(c) the amount of dividend for each creditor under (b);

(d) request for any details required from the creditors for the distribution of dividend, and the last date for receipt of such information;

(e) the last date by which the creditors must establish their claim against the estate with the bankruptcy trustee; and

(f) a statement confirming that no further dividends shall be declared.

(2) The notice under clause (b) of sub-section (1) of section 176 shall provide the reasons for not declaring dividend.

(3) The notice of dividend under section 176(1) shall be sent thirty days prior to the date specified for the distribution of dividend.

13. Copy of application.

On the appointment of the bankruptcy trustee nominated by the Board under sub-section (5) of section 125 by the Adjudicating Authority, a copy of the application as filed, if not provided earlier, shall be provided to such bankruptcy trustee by the Adjudicating Authority within two days of the appointment.

14. Restriction on bankrupt.

The restriction on the bankrupt under clause (d) of sub-section (1) of section 141 shall be applicable for any financial or commercial transaction of one lakh rupees.

15. Filing of the application and documents.

(1) Till such time the rules of procedure for conduct of proceedings under the code are notified, the applications under rule 6 or 7 shall be filed before the National Company Law Tribunal in accordance with rules 20, 21, 22, 23, 24 and 26 of part III of the National Company Law Tribunal Rules, 2016 issued under section 469 of the Companies Act, 2013, and before the Debt Recovery Tribunal in accordance with rule 3 of Debt Recovery Tribunal (Rules), 1993 issued under section 36 of the Recovery of Debts and Bankruptcy Act, 1993 and regulation 3, 4, 5 and 11 of the Debt Recovery Tribunal Regulations, 2015 issued under section 22 of the Recovery of Debts and Bankruptcy Act, 1993, as applicable.

(2) The application, accompanying documents and reports in the bankruptcy process shall also be filed in electronic form, as and when such facility is made available and as may be prescribed by the Adjudicating Authority:

Provided that till the time such facility is made available, the applicant may submit the application, accompanying documents and reports in scanned, legible portable document format in a data storage device such as a compact disc or a USB flash drive acceptable to the Adjudicating Authority.

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