Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018 was introduced in Lok Sabha to to repeal and replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 

Notes on Clauses of Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018

Clause 1 of the Bill provides for the short title and commencement.

Clause 2 of the Bill seeks to amend clause (12) of section 3 of the Code which provides for the definition of default by substituting the word “repaid” with “paid” to have a wider and more relevant meaning.

Clause 3 of the Bill seeks to insert a new clause (5A) in section 5 of the Code to define “corporate guarantor” so as to mean a corporate person who is the surety in a contract of guarantee to a corporate debtor.

It further seeks to insert an Explanation in sub-clause (f) of clause (8) to the effect that any amount raised from an allottee under a real estate project shall be deemed to an amount having the commercial effect of a debt and to define the expression “allottee” and “real estate project”.

It also seeks to insert a proviso in clause (12) to clarify that where the interim resolution professional is not appointed in the order admitting application for initiation of insolvency resolution process, the insolvency commencement date shall be date on which the interim resolution professional is appointed.

It also seeks to substitute the word “repayment” with “payment” to have a wider and more relevant meaning.

It also seeks to insert new clause (24A) to define “related party” in relation to an individual as the same was not expressly defined in the Code.

Clause 4 of the Bill seeks to amend sub-section (1) of section 7 to enable the Central Government to notify any other person to file an application on behalf of financial creditor to initiate corporate insolvency resolution process.

Clause 5 of the Bill seeks to amend sub-section (2) of section 8 to include such disputes which are not pending in a suit or arbitration proceedings besides substituting the word “repayment” with “payment” to have a wider and more relevant meaning.

Clause 6 of the Bill seeks to amend sub-section (3) of section 9 of the Code to make optional the present mandatory condition of filing certificate from financial institutions maintaining accounts of operational creditor to prove non-payment of operational debt, besides providing other means of proving non-payment of operational debt and in sub-section (5)seeks to substitute the word “repayment” with “payment”.

Clause 7 of the Bill seeks to substitute sub-section (3) of section 10 of the Code to provide for the requirement of special resolution passed by the shareholders of the corporate debtor or resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, for initiation of corporate insolvency resolution process by corporate applicant; and further seeks to amend sub-section (4) to provide that the presence or absence of pending disciplinary proceedings against the proposed resolution professional shall be a ground for acceptance or rejection of application for corporate insolvency resolution process filed by the corporate applicant.

Clause 8 of the Bill seeks to amend sub-section (2) of section 12 of the Code to re-calibrate voting threshold from seventy-five per cent. to sixty-six per cent. for extension of corporate insolvency resolution process period by committee of creditors.

Clause 9 of the Bill seeks to insert a new section 12A to allow the withdrawal of applications admitted under section 7, 9 or 10 with the approval of ninety per cent. voting share of the committee of creditors in the manner as specified.

Clause 10 of the Bill seeks to substitute sub-section (3) of section 14 of the Code to provide that the moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor.

Clause 11 of the Bill seeks to amend section 15 of the Code to confer power upon the Board to specify the last date for submission of claims.

Clause 12 of the Bill seeks to amend sub section (5) of section 16 of the Code to allow interim resolution professional to continue till the appointment of the resolution professional.

Clause 13 of the Bill seeks to amend section 17 of the Code to provide that the interim resolution professional shall be responsible for complying with the statutory requirements under applicable laws while managing the affairs of the corporate debtor.

Clause 14 of the Bill seeks to amend section 18 of the Code to substitute the word “sub-section” with “section” to correct an error.

Clause 15 of the Bill seeks to amend section 21 of the Code to provide for a mechanism to allow participation of security holders, deposit holders and all other classes of financial creditors which exceed a certain number, in meetings of committee of creditors through an authorised representative and provides for remuneration payable to such authorised representative; and it further seeks to confer power upon the Board to specify the manner of voting and determining of voting share in respect of financial debts and to provide that all decisions of the committee of creditors, save as otherwise provided, shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors; it also provides that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted consisting of such persons and exercise such function in such manner as may be specified.

Clause 16 of the Bill seeks to amend section 22 of the Code to provide for reduced voting threshold of sixty-six per cent. in place of seventy-five per cent. for obtaining the approval of the committee of creditors for appointment of resolution professional; and further seeks to amend sub-section (3) so as to require a written consent from the interim resolution professional in specified form before his appointment.

Clause 17 of the Bill seeks to amend section 23 of the Code to provide that the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of corporate insolvency resolution process period until an order has been passed by the Adjudicating Authority under section 31.

Clause 18 of the Bill seeks to amend section 24 of the Code to provide for serving of notice of meeting by the resolution professional and voting share to authorised representative as provided in section 21.

Clause 19 of the Bill seeks to insert a new section 25A to provide for rights and duties of authorised representative of financial creditors.

Clause 20 of the Bill seeks to amend section 27 of the Code to substitute sub-section (2) for enabling the committee of creditors to replace the existing resolution professional with another resolution professional by a vote of sixty-six per cent. of voting share instead of seventy-five per cent., subject to a written consent from the latter.

Clause 21 of the Bill seeks to amend sub-section (3) of section 28 of the Code to reduce the threshold for voting from seventy-five per cent. to sixty-six per cent. for approval of committee of creditors in respect certain actions provided in sub-section (1) thereof.

Clause 22 of the Bill seeks to amend section 29A of the Code to provide a carve out for financial entities from being disqualified on account of non-performing asset, exemption for resolution applicant holding an non-performing asset account due to acquisition of a corporate debtor for a period of three years from the date of approval of the prior resolution plan by the Adjudicating Authority, restricting disqualification for conviction to offences as prescribed in Schedule and disqualification period of two years from date of the release from imprisonment, disqualifications under clauses (d) and (e) shall not be apply to related parties of the resolution applicant, to extend the non-performing asset classification by including any other applicable laws, a carve out for the persons who acquired a corporate debtor under the Code in which preferential, undervalued, fraudulent or extortionate credit transactions had taken place prior to such acquisition provided such person has not contributed to such transaction and a clarification that only guarantors where guarantee has been invoked by the creditor and remains unpaid in full or part by the guarantor are ineligible.

Clause 23 of the Bill seeks to amend section 30 of the Code to provide that a resolution applicant while submitting its resolution plan shall give an affidavit stating that it is eligible under section 29A. It further seeks to amend sub-section (2) to provide that the resolution plan shall not be in contravention of any law for the time being in force. The explanation is proposed to be inserted to provide that if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.

Clause 24 of the Bill seeks to amend section 31 of the Code to provide that the Adjudicating Authority shall, before passing an order for approval of resolution plan satisfy that the resolution plan has provisions for its effective implementation and that the resolution applicant shall obtain the necessary approvals required within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority or within such period as provided for in such law, whichever is later and where it contains a provisions for combination the approval of the Competition Commission of India shall be obtained prior to the approval of resolution plan by the committee of creditors.

Clause 25 of the Bill seeks to amend section 33 of the Code to provide a reduced threshold from seventy-five per cent. to sixty-six per cent. of voting share for obtaining the approval of the committee of creditors for making an application to the Adjudicating Authority to pass a liquidation order.

Clause 26 of the Bill seeks to amend section 34 of the Code so as to require a written consent of resolution professional in specified form for appointment as a liquidator.

Clause 27 of the Bill seeks to amend section 42 of the Code to provide clarity that appeal against the decision of accepting or rejecting of claims by liquidator may be filed before Adjudicating Authority.

Clause 28 of the Bill seeks to amend section 45 of the Code to omit certain words to bring clarity.

Clause 29 of the Bill seeks to amend section 60 of the Code to provide that an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtor whose corporate insolvency resolution process or liquidation proceeding is pending before a National Company Law Tribunal shall be filed before such National Company Law Tribunal. It further provides that an insolvency resolution process or liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with corporate insolvency resolution process or liquidation proceeding of such corporate debtor.

Clause 30 of the Bill seeks to amend section 69 of the Code to omit certain words to bring clarity.

Clause 31 of the Bill seeks to amend section 76 of the Code so as to substitute the word “repayment” with “payment” in order to have a clarity.

Clause 32 of the Bill seeks to amend section 196 of the Code so as to enable the Board to promote the development of and regulate the working and practices of certain professionals and also to levy fees for carrying out the purposes of the Code including the fee for registration and renewal of certain professionals.

Clause 33 of the Bill seeks to amend section 231 of the Code to insert the word “Board” so as to include the Board within the scope of bar of jurisdiction against certain actions.

Clause 34 of the Bill seeks to insert a new section 238A to provide that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority or the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

Clause 35 of the Bill seeks to amend section 239 of the Code so as to provide that the Central Government may make rules for matters relating to other proof confirming that there is no payment of an unpaid operational debt by the corporate or such other information under clause (e) of sub-section (3) of section 9.

Clause 36 of the Bill seeks to amend section 240 of the Code so as to provide that the Board may make regulations on certain matter provided therein.

Clause 37 of the Bill seeks to insert a new section 240A to provide that the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process of any micro, small and medium enterprises. It further confers power upon the Central Government to direct by notification in the public interest that any provisions of the Code shall not apply to micro, small and medium enterprises or apply to micro, small and medium enterprises with such modifications as may be specified in the notification.

Clause 38 of the Bill seeks to insert the Twelfth Schedule to the Code so as to provide a list of certain Acts for the purpose of clause (d) of section 29A,with power to notify other Act for the said purpose. It further requires that every notification issued under this Schedule shall be laid before each House of Parliament.

Clause 39 of the Bill seeks to amend section 434 of the Companies Act, 2013 (as substituted by the paragraph 34 of the Eleventh Schedule to the Code) to provide that any party or parties to any proceedings relating to the winding up of companies pending before the any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.

Clause 40 of the Bill seeks to repeal the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 and provides for savings of action under the said Ordinance.

MEMORANDUM REGARDING DELEGATED LEGISLATION

Clause 6 of the Bill seeks to amend section 9 of the Code which confers power upon the Central Government to prescribe the other proof of confirming that there is no payment of an unpaid operation debt by the corporate debtor or such other information under clause (e) of sub-section (1) of section 9.

Clause 9 of the Bill seeks to insert section 12A of the Code to confer power upon the Insolvency and Bankruptcy Board of India (the Board) to specify the manner of withdrawal of application.

Clause 11 of the Bill seeks to amend clause (c) of sub-section (1) of section 15 of the Code to confer power upon the Board to specify the last date for submission of claims.

Clause 15 of the Bill seeks to amend section 21 which confers power upon the Board to specify under clause (b) of sub-section (6A) the number of creditors for making a class of creditors; under clause (ii) of sub-section (6B) the remuneration payable to the authorised representative under clause (b) of sub-section (6A); and (C) under sub-section (7) the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A).

Clause 16 of the Bill seeks to amend section 22 which confers power upon the Board to specify the form for obtaining written consent from the interim resolution professional and proposed resolution professional respectively.

Clause 19 of the Bill seeks to insert section 25A of the Code which confers power upon the Board to specify the electronic means for participation and voting in meeting of committee of creditors by authorised representative on behalf of a financial creditor.

Clause 20 of the Bill seeks to substitute sub-section (2) of section 27 of the Code to confer power upon the Board to specify the form for obtaining written consent from the proposed resolution professional.

Clause 26 of the Bill seeks to amend section 34 of the Code to confer power upon the Board to specify the form for obtaining written consent from the resolution professional.

2. The matters in respect of which the rules or regulations may be made are matters of procedure and administrative detail and it is not practicable to provide for them in the Bill itself. The delegation of legislative power is, therefore, of a normal character.

Memorandum explaining the modifications contained in the Bill to replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018

The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2018, which seeks to repeal and replace the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (the Ordinance), proposes to make the following modifications apart from modifications of consequential and drafting nature in the provisions contained in the Ordinance, namely:—

(a) in clause 3 of the Bill, in section 5 of the Insolvency and Bankruptcy Code, 2016 (the Code), in clause (12), a proviso is inserted to the effect that where the interim resolution professional is not appointed in the order admitting application under sections 7,9 or 10, the insolvency commencement date shall be the date on which such interim resolution professional is appointed by the Adjudicating Authority;

(b) in clause 9 of the Bill, in section 12A of the Code, the words “in such manner as may be prescribed” has been substituted by “in such manner as may be specified” enabling the Board to frame regulations for specifying the manner of withdrawal of application admitted under sections 7, 9 or 10;

(c) in clause 15 of the Bill, in item (ii) of sub-section (6B) of section 21 of the Code, the words “which shall be jointly borne by the financial creditors” has been substituted by “shall form part of the insolvency resolution process costs” to simplify the process as there would be huge number of creditors belonging to a class of creditors and unburden the class of creditors from further paying for the cost of interim resolution professional appointed as their authorised representative;

(d) in clause 24 of the Bill, in sub-section (4) of section 31 of the Code, a new proviso is inserted “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 committee of creditors” so as to clarify that the approval for the combinations from Competition Commission of India has to be obtained prior to the approval of resolution plan by the Adjudicating Authority;

(e) in clause 35 of the Bill, relating to amendment of section 239, clause (fa) of sub-section (1) has been deleted;

(f) in clause 38 of the Bill, relating to the Twelfth Schedule to the Code, after paragraph (26), the words “Every notification issued under this section shall be laid, as soon as may be after it is issued, before each House of Parliament” has been inserted so as to require the Government to lay before Parliament every notification made under the said Schedule.

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