India’s banking industry is in the throes of a crisis. Bad debts are piling up at banks. Freeing up this money is crucial for the banking sector to go about its business. There were many laws dealing with insolvency for Companies as well as for individuals. But most of them were either dating from the British Raj or failing to recover loans. To set up a clear and unambiguous process to be followed by all the stakeholders in a time-bound manner, there was stout need of enforcement of Insolvency and Bankruptcy code to provide a commercial and satisfactory solution to all the recovery Issues. Hence, the Code was passed by parliament in May 2016 and became effective in December 2016.
As per Insolvency Bankruptcy Code, 2016, CIRP can be invoked by Financial Creditor, Operational Creditor and Corporate Debtor Itself. It can be initiated by Financial Creditor in case of default is committed by Corporate Debtor (COMPANY & LLPs) to pay whole or any part of Installment of an amount of debt or interest due, which must be at least INR 1 lakh. The Code Proposes two independent stages a) Insolvency resolution Process where Creditor can access whether the Company is facing financial failure or business failure and options for its rescue, b) if CIRP fails or Creditors are of the opinion that it is good to windup and distribute the assets among the stakeholders.
Section 7 of Insolvency and bankruptcy Code gives power to financial creditor to file an application against corporate debtor to initiate CIRP against Corporate Debtor. A financial creditor either by itself or jointly with other financial creditors may file an application for initiating CIRP in FORM 1. Following are the documents required to be attached with Form 1:
(a) record of the default maintained with the information utility or such other record or evidence of default as may be specified;
(b) the name of the resolution professional proposed to act as an interim resolution professional; and
(c) any other information as may be specified by the Board.
The application shall be accompanied with fees of INR 25000. The applicant shall dispatch forthwith, a copy of the application filed with the NCLT, by registered post or speed post to the registered office of the corporate debtor.
If NCLT is satisfied that:
it may, by order, admit such application.
If the aforesaid criteria are not fulfilled the NCLT may reject the application. Before rejecting the application NCLT give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice.
The corporate insolvency resolution process shall commence from the date of admission of such application. The NCLT shall communicate the aforesaid order to the financial creditor and the corporate debtor;
(Author is partner with Mamta Binani and Associates and can be reached at Contact No: 8420508582 and Email id: firstname.lastname@example.org)